NFTRH had become bullish out of Armageddon '08 with our friends in the major media set to the 'all bear all the time' channel and our friends in Washington looking for all the world like the Keystone Cops. The bullish stance encountered technical trouble right about this time last year, before regenerating in March.From NFTRH15 dated January 10, 2009:
Meat & Potatoes
This week I would like to get right down to meat and potatoes, brass tacks, the nitty gritty or whatever else you want to call it. Our sketch of near term probabilities in many markets is being tested and it is time to be on alert as opposed to writing articles. Many of us have deployed capital in accordance with our views – both short and long term – of markets and I for one do not plan on giving back the majority of gains made from the October ’08 bottom.
I mentioned previously that things are making sense and technicals are working well since the panic phase of Armageddon ’08 subsided. But this works both ways. It is still a bear market remember. While the story remains intact, as most major US and global markets remain either solidly or tentatively at or above their SMA 50’s, I would like to remind you of the NDX parameter mentioned in NFTRH14: “risk will be defined as increasing upon a break and close back below the SMA 50.”
The Dow has been among the weaker looking markets with a close below both the EMA 20 and SMA 50. Risk is increasing. Unfortunately, nothing conclusive has taken place and I would lean toward the constructive NDX-Dow ratio as being a bullish indicator. NDX being one of the indices that is in relatively good shape at this writing. At this point the nominal Dow is making a hint toward weakness, but it is simply that, a hint.
Even so, a modest progression of higher highs and higher lows remains intact. Both the SPX and NDX look marginally better. Marginally.
[DOW chart omitted]
Next up are the Trannies. There is no indication of anything beyond a normal correction of the fledgling uptrend. Tranny has a clear trend line off of the October bottom and this should be watched. We do not want another test of 3200 area support if we can help it.
[Transports chart omitted]
The index grapples with the SMA 50 / EMA 20 confluence of support that many markets are currently dealing with. There is no sign by panel indicators that this is anything but a routine correction.
A mitigating factor to any bullish stance in the markets is the complacency indicated by the VIX, which is attempting to break upward from a falling wedge and the status of the EMA 20 on the Put/Call ratio which is bearish. These indicators must be watched closely going forward.
[Put/call ratio chart omitted]
A vital signpost on the way to a would-be rally of significance is the Silver-Gold Ratio (SGR). The theory being that when silver is rising vs. gold, sentiment is calming down and the penchant for risk taking is increasing. SGR has done nothing other than to maintain its bottoming stance. In fact, to a bottom feeder like the letter writer, this chart is a buy. Also of note, I do not like the looks of the nominal chart of gold while that of silver still looks constructive. The SGR indicator, if it remains intact, argues that the broad market is simply correcting. It is another illustration of why our bear market rally sketch must remain in place until it is definitively invalidated.
Once again, we present the unwelcome guest to the party. Dear old Uncle Buck shows up and threatens to spoil the fun. But here again, our sketch is not invalidated. Recall that the USD did not quite pop up to the ultimate high of ’84-85’ or the SMA 50 that has seemed likely to be a magnet on the first correction UP just as it was on the first correction DOWN in September.
The risk however is that the MACD and now TRIX triggers are indicating something more substantial. Note however that these indicators, on a weekly chart, remain triggered down (MACD) and on the verge of triggering down from severely over bought (TRIX). In short, the USD remains on a tenuous recovery from the severe post-panic dumpage that occurred in December. The dollar can move higher with a close above the now declining (bearish) SMA 50 being a potential warning signal to our current market stance.
In fact, a slight bullish divergence for the stock market and would-be reflation rally is that the USD has failed to do so as of yet.
[USD chart omitted]
In short, ‘risk is increasing’ to the current market stance but there is as yet no conclusive evidence that it has failed or will fail. With portfolio gains since the October hysterics, some breathing room can be afforded. There is not much room left, but the parameters above will help in defining a point at which to rise and walk away from the table.
