Saturday, December 19, 2015

Dec 19 - Market is screwed

I think the market is most likely fucked.  It will probably arrive at one of these bounces that suddenly give out to the air below.  I hope we get a bounce to short into because it will be a big move.

Unless the bulls stage a monster move in Dec/ Jan to all time highs, I think it is possible we have seen a major top and I will be flipping my bias short for pending market weakness.  There is a lot of stuff that is problematic including the performance of high yield bonds, high historic price to earnings ratios, etc. but the two things that stick out the most to me are the increasing volatility and the negative divergence in small caps.

I hopefully can get to volatility later this weekend but for now I will focus on the small caps and all world indexes.

1998-2001, in orange there is negative divergence before the double top in SPY and the market quickly entered a downward trend

2005-2007, in orange there is negative divergence btw small caps and SPY and again the market quickly entered a downward trend
 2013-2016, once again there is negative divergence btw small caps and SPY.  We had a false signal in fall of last year and it was quickly erased by SPY marching to new highs which recovered the previous damage in a wicked V-shaped bottom.  We aren't seeing that now.  The market is struggling and the most optimistic analog is what happened in 2011 where we consolidated right under highs then blasted off.  Given that volatility has been low for years to see it finally ramp up like this is not a positive.  It will take a huge move to undo the technical damage.

Negative divergence in the all-world index which looks eerily similar to the previous H+S top.

$SPX is beginning to trigger various sell signals on the monthly such as CCI, stochs, RSI, MACD.  Once the CCI/ stochs cross into >20 territory it will confirm a long term downward trend.  Still possibility for a recovery but it needs to happen soon.

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