Not looking good for the bulls

Last week while the market was trading on Greece news, something was happening to the internals of the market.  A very important indicator turned bearish on this market.  What indicator is that? The McClellan Summation index(NYSI).  The McClellan summation index is sum of the McClellan Oscillator, which is based on the daily advancers and decliners in the market.  The Summation index gives a long-term direction of the market.  The key level for the summation index is 0.  John Murphy in his book The Complete Guide to Market Breadth Indicators qoutes John McClellan as saying "that when the McClellan Summation Index drops below the zero line, it is a precursor to a bear market"(p.81).  Last week the McSummation index dropped to -41. 

Above is a chart showing the times NYSI when it crosses below the zero line.  When NYSI does drop below the zero line the market went lower, in 2007 it marked the top.  When NYSI stays below the zero line and trends lower, the market follows as we see in 2008, after dropping below zero the NYSI hit -1600.  NYSI is has just breached the zero line and could come back above, but the trend has been down. 

One way to look at where NYSI will continue to head, is to look at what makes up NYSI.  The key component is the NYMO oscillator which is made up of advancers and decliners.  Looking at the NYAD and how it is trending gives you a good indicator of where NYSI will go.  NYAD is in a clear downtrend, this is confirmed first with the moving average crosses, but more importantly that the 8 day ema has capped any advances. As long as NYAD trends lower so should NYSI.

History is not looking good for the bulls, first we had the 6 weeks down and saw what that can do, now NYSI has crossed below zero.  It may be time to jump off the bull train for a little while.  For more information on NYSI click here it will take you to stockcharts.com page about NYSI.

SPX End of the Day Review

Friday SPX continued its uptrend and it appeared as if it would test the February highs, but the resistance level at 1332, provided to much selling pressure.  This level represents the highs from the beginning of March, which SPX was unable to break above, after the February highs.   On the chart the current resistance level is at 1332.31, SPX closed at 1332.41. While this is broken, some more follow through will be needed to confirm it.

SPX remains in a strong uptrend with key support below it, momentum may be fading as the bulls have almost retraced 100% of the decline in just over 12 days. For the bulls, short-term resistance  is at the 1332-1333 level and the longer term support is 1344 February highs.  For the bears at this point a short-term key reversal and support level is the 1319 level, with a longer-term key support level at 1303.

But the current trend may be fading.  SPX created a shooting star candlestick pattern this represents a day where buyers were into control but eventually sellers came in and closed lower then the highs creating a long tail. This sometimes represents a topping signal, but a down candle the next day is needed to confirm it.

Although if we look at the hourly chart, we can see a Hammer Candle forming, where the sellers had control of the market but the buyers eventually came in moving the market higher, creating a long tail and the bottom. On the hourly chart SPX bounced right off 21 EMA and the 1330 support level.

The candle sticks have created mixed signals to trade from.

 The uptrend has remained in tact the last few dips and have been support for this market. 

Breadth has been strong this entire rally, but a pause could be warranted as NYAD has touched the top of its Bollinger Band. Typically this means the market may move down at least to the 8 day ema.

One thing to look at is the comparison of NYAD in December of last year to this current move. It looks very similar.  NYAD was declining then bounced very strong, and fast.  This was the start of the rally that lasted till February.

 

The PikerIndicator has not flashed any new signal but is nearing an our bought signal/cautious long.  But this has not happened yet. Since the 3.24 "Buy" signal, SPX has gained 1.75%, since the "Oversold" condition, the market has rallied, 6.5%. 

End of the Day Review

SPX gapped up this morning above resistance at 1319.46 and remained above that level, creating a new support level.  The market remains in its uptrend and breaking above resistance levels that were established in February.  SPX has now retraced more then 78% of its decline from the February to March decline and is nearing the the February highs. 

Right now SPX resistance is at 1332.31, this was resistance before the market declined in early March.  The high today was near this level. 

The market remains in an uptrend with strong breadth, NYAD has made new highs and continued in its uptrend.  Although it may be nearing a short-term correction, to at least the 8 day EMA, as NYAD has reached the top of its Bollinger Band. 

Market Breadth Semi Bearish

NYAD measures the breadth of the market, since July of 2010 it has been trending up.  But  the latest market breadth has caused NYAD to turn lower and the breadth of the market to be bearish.

Price action tends to follow NYAD's moving averages, using them as support and resistance. Before the decline started in February NYAD the dips went as far as 19 day ema.  But over the last few weeks NYAD has broken below these moving averages, even dipping below the 39ema.

The 8 and 19 have crossed which is semi bearish, the last cross was in May of 2010 and December of 2010.  Notice the price action of NYAD in May of 2010 to this most recent price action.  It to dipped below the 39ema and bounced back a little, it looks similar to the current price action.

Right now, NYAD has some bearish price action signals.  For first, the trend is now down and the shorter term moving averages are turning down.  The longer-term 39 is not turning down yet.  Second there is a cross of the 8 and 19 ema, which is bearish. Lastly, the moving averages are capping the advances, with the 8 day ema, capping Friday's advance.

But breadth is not 100% bearish, there should be a cross of the 19 and the 39 ema before this can happen.  Right now it is possible for the moving averages to turn up.  This occurred in December of 2010, there was a short bearish move but breadth then turned bullish. 

The bears want to see NYAD move like May 2010 to feel comfortable that the this isn't just a correction. The bulls will need to see a cross up of the 8 and 19 ema.

Below is a chart of the 2007 top, you can see the importantance of the 19 and 39 ema cross down. A cross of this during this market decline has some legs to it.

SPX Daily Chart

Yesterday we have another down day making a new low.  Our post on Tuesday night mentioned this:

Out of the last 18 times this event has occurred, 17 out of the 18 a new low was put in the next day.

And the market did put in a new low at 1299 and change. But the bulls were able to bounce off the long-term trend line and the psychological level of 1300. 

The bears succeded in doing strong techincal damage to the bulls yesterday. The 20 ema was broken and was defended very well acting as strong resistance.  The bears also broke the intermediate trendline, knocking off two of the recent up trends. 

The market this mornings appears to be ready to gap down lower and potenitally test the longer-term trendline, seen as the gray line. 

Click here for the Live Stock Charts Verison

If this trendline breaks the next true support is 1280-1284 and the 50 day ema. 

Here is a chart of NYAD, which shows bearish breadth in the market.  NYAD broke below its 8 day ema, which is a bearish sign but still has not hit its 19ema, which could act as a support for the market.  Notice how far the moving averages are apart, if the market continues to fall, it would been a steep drop to get to the 39 ema or the bottom of the BB which has signaled the end of market declines or a short-term bounce.

Full Week Market Recap

Last week the market will filled with irrational exuberance as DOW 12,000 snow shovels were passed around and S&P 1300 thongs were hand out.  Till Friday came, and the morning started great a break of 1300 on the S&P, the Bulls thought were were going to the moon.  Then as quickly as it began the bears kicked the bulls right in the old rocky mountain oysters. Or should I say Egypt kicked the bulls right in the nuts. 

The level this site kept reference to watch for was 1303, SPX got as high as 1302.67 before it reversed.  This saved anyone from jumping in simple because of a break of 1300.  The bears were able to get the market down below its range of 1280 and below the 20 ema.  The bears did to some damage technical providing now some overhead resistance for the bulls to overcome.  But the bulls were able to maintain the support of the  first break out in early January.  The next key level to watch is 1274-1271 the low last low in the market.  The market is very close to this level so be careful. 

This drop was not unexpected, the Piker Indicator, has been giving a sell signal for a while now and noting the key resistance level was 1303.  To top that there was extreme divergence with our breadth indicator.

Breadth was very bearish on Friday, but all the selling did not produce a 90/10 day.  Where 90% of the volume is to one side. If the selling is 90% the next day is typically an up day.

One red flag this week, along with our indicator sell signal was NYAD touching the top of its range.
NYAD dropped hard on Friday, 3 times its normal range, it dropped below its first level of support at the 8 day ema to sitting slightly above its 19 day ema, this is the next area of support.  A small move down  by the market could put NYAD right at the 19 ema.  If it breaks that, the 39 ema is far below and that would be a big move on the down for the markets.

The VIX also broke out big time on Friday, the chart looks like it took a vigra on Friday and went to Flash Dancers. What the VIX did do was break out of its down trend for the past couple of months.  The VIX is clearly bullish right now, which is bearish for the market.  The thing to watch is do we see something like last April-May, or something like the last break out in late December. 

So what does last week price action mean, well first off, it was one day, so you can't say the market has turned bearish in one day.  But there are things you can take away, there is now overhead resistance at 1302.67-1278.40, support remains below 1274. Breadth has begun to look bearish and the VIX is bullish.  One scenario is that the market sells off to around 1261-1258 or the long-term up trendline. Or that was the market crash of 2011 and it ripps to new highs.  But right now the market is in now mans land, let the market give you an edge before you market your next move.

Advance-Decline Line at Upper Range

Internals for 1/19

NYAD- negative breadth and a close below the 8 day ema.  The 8 day was a rallying point for this entire rally, the break below it is bearish and the next stop would be the 19ema, and would mean a move to around the high 1260's.  NYAD will be key to watch going forward, if the moving averages start to turn we could be in for a strong move down, if not it could be another correction like we saw in November. 

NYMO- The bearish divergence proved correct and NYMO dropped below the zero line a bearish sign for the market.

Overall internals weakened yesterday and was the first sign of bearish price action.  The negative price action was slightly worse the the previous moves down which was "dip" opportunities. 

Who's holding this bag

Another new high for the market but who is pushing this market up.  It has been said the "retail" investor is left holding the bag of any bull market, and right now the big guys might be asking "Paper or Plastic".  Yesterday as the market broke to another new high, none of the strong internal indicators budged.  Not to much yesterdays volume was horrible. 

NYAD was actually down:

NYMO was down as, crossed zero and the divergence got stronger:

So who is buying this the big guy or the little guy?

Divergence all around

NYMO which is a measure of the market internals, is flashing more signs of weakness and a bearish divergence with the current SPX price action:  Had this been strong, then NYMO should have moved with it.  It has barely got above 20, which is weak but also odd. 

NYAD is another way to measure the breadth of the market.  Prior to this recently rally, NYAD would lead price and make new highs before price or with it.  Now we are seeing the opposite, with price leading breadth.

Indicators are also showing some divergence, look at the MACD on SPX, this really should be moving higher with the market, yet it isn't.  This is a text book example of "bearish divergence" using the MACD.

So what does this all mean, well it means that this most recently rally has be viewed with some skepticism and worry that breadth is not behind it. Does this mean that breadth can come in any time yes, but it also means if some selling starts there won't be the bid underneath the market to hold it up.

Exterme!

Here are a few internals that are showing exterme lows.

NYTV:NYUPV RATIO: Today was a .04

NYMO- Dropped below -100

NYAD- Dropped below its 39 EMA and its lower BB. Notice the last this occured.  Take note though it has never happened this fast.

NYAD

Same old story so far with NYAD, it makes another new high. It is still hard to get bearish on this market when this keeps advancing.  If you look at the last "dips" in the market, they occured when NYAD dropped below its moving averages. 

Just a look at the market

Yesterday the market looked like it was going to begin it's Stage Two retrobooster burn to space after weaker then expected home sales came out(which I guess was good news) and Greece would be saved as a thank you for creating Diners in the United States.  But then Whammy, the Tres Auctions were horrible, and Greece was told go screw and the market sold off at resistance levels. But the bulls didn't loose any ground.

SPX still has its uptrend intact, but the evidence is starting to mount up that maybe SPX is nearing its stalling speed. Stoch is overbought and MACD may be rolling over. If you look at SPX on a candle stick chart, yesterday's candle was a shooting star which can be seen as bearish.

NYAD once again remains above its three significant moving averages.  Until there is bearish pressure to bring down NYAD the market still should advance or chop. Notice the past three rallies have ended when NYAD moved below its 8 day EMA. It sits on this line starting today, a down day would move it below the 8 day EMA.   

One shinning star for the bears is that NYMO has dipped below zero which is a technical sell signal. 

Are the bears wishing on an inverted shooting star

Yesterday SPX was rejected at the upper level of a resistance zone.  Yesterday's inverted shooting star candle shows that the bull had control through out the day but before the close the bears increased the selling pressure and moved the market down.

Right now that is the only thing bearish about this market.  Internals still are climbing.  NYAD made another new high and the NYMO divergence was broken yesterday.

But one cavet to the bulls argument is NYMO is not in overbought territory and well as SPX Stoch.  Watch for a pull back to 1100 for the next move in the market.

NYAD makes a new high

NYAD has begun to lead price action.  Yesterday it made a new high, so while there is is some bearish divergence in the market (see post below) the internals support further upside. In fact if the pervious pattern plays out the market could be in for another 3 months of upward movements.  Notice how each time NYAD dipped below it's 39ema and back up it has advanced for about four months.  Another strong up day could destory the divergences we are seeing and help move the market up.

Who dat charts

SPX:SPX Hourly: Oversold on this time frame but still in a strong downtrendNYAD- still looks bearish, the 8 ema now looks like it will cross the 39.  NYAD was still red on Friday and did not reverse with the market. 

NYSI- Broke its prior support at this level, may trend down more.  NYSI is getting closer to zero which would be very bearish for market.  Notice how accurate the BB% moving average cross indication has been.  The green line shows the last signal it gave which was prior to this drop.

Charts

NYAD below key moving averages]

SPX: Comments on chart

NYAD

UPDATE:  NYAD does not get above its 39 EMA

NYAD is showing some signs of weakness.  It has now dipped blow it's 39 EMA.  The 8 and 19 were key support levels for NYAD and the market but have failed to hold during this drop.  The 39 has also failed to hold and the 8 and 39 have EMA's have crossed.  With today up, NYAD might test the 39 EMA again but if the bulls cannot move NYAD past its moving averages more downside may be in store

NYAD

 Here is a chart of the 2007 NYAD line, notice anything similar?  One thing to watch going foward is will the 8 or 19 EMA hold as resistance.  If they do this would be bearish for the market.  During the rally from March these moving averages were broken easily. 

If the market continues to weaken NYAD will show it.  NYAD showed that the rally had strength behind it, but now it is showing that there is selling behind it.

NYAD and the market

Here is a chart of NYAD, this is the advance/decline line.  The NYAD has been in a  strong uptrend since March, giving validation to the rally. Not that the market didn't need more validation it was getting enough from anyone who can ramble on about a "recovery". 

Today the NYAD was supported by the 8 day EMA this has been a key support moving average since the rally began.  NYAD has been consolidating in this area for the last couple of days.  The bulls will need another up day for this support to hold or the next support is the 19 EMA.  Notice how the distance between the 8, 19 and 39 EMAs. Past declines during this rally have started with the EMAs being wide apart. 

NYAD needs to keep advancing to maintain NYSI movement above 1000 and more importantly 0.  Here is a continuation of a NYSI chart I posted early.  Notice the pattern in this chart?

If NYSI drops because of a NYAD drop, the market could see a move back down to the 1100 level or lower.  But the bulls have been able to defend any charge by the bears.  The bears need for NYAD to break past its 8 day EMA and to break at least one key support level, which currently is the 1130 level. 

The trend is still up and if the market is going to turn or correct, NYAD will drop further.