Martin Pring s. Weekly InfoMovie Report. December 27, Happy New Year to Our Wonderful Subcriber Family! May 2013 be Prosperous and Productive!

Transcription

1 Martin Pring s Weekly InfoMovie Report December 27, 2012 Issue 1028 Happy New Year to Our Wonderful Subcriber Family! May 2013 be Prosperous and Productive! The Pring Family ~ 2012 Weekly InfoMovie Report 1

2 Failed to move above the line. Exhaustion bar US Equity Market - Last time, I pointed out that the S&P was struggling to remain above this important up trendline; but that I thought that it probably would, due to improving breadth and a breakout in a key confidence ratio. Also, our consumer staple model had returned to a positive mode, where it still is. However, it is fairly evident the S&P has failed in its attempt to move through the trendline and that is not a good sign. One saving grace is that Thursday s action was that of an exhaustion day where the open and close were well above the intraday lows. This type of pattern typically has an effect for 5-10 sessions and since we are now in the bullish end of the month as well as end of the year seasonal, it could be enough to trigger a near-term rally. The problem 2 Weekly InfoMovie Report

3 Turning? is that the market is very sensitive to fiscal cliff developments and the gamut of potential combinations of solutions or not, some of which could render a normally positive exhaustion day redundant. The world has been out-performing the US markets recently, but even the MSCI World Stock ETF is starting to look vulnerable. See how reversals from an overbought level in this diffusion indicator monitoring international market ETF s have been followed by declines of some kind? Well, the indicator has started to reverse again. Not enough to confirm a reversal, but certainly enough to put us on our guard. Clearly, the challenge lies at this resistance line, which is going to be difficult to better, given the overbought diffusion index. I ll become seriously concerned if it breaks this dashed red line and its 200-day MA at around $46 since that would confirm that a challenge of the green line had been postponed again. Weekly InfoMovie Report 3

4 Subdued but reversing to the downside. My US diffusion indicator that measures a basket of Dow stocks above their 50-day MA is starting to reverse to the downside. As you can see from these arrows, such signals are normally reliable. However, you may be thinking that the reversal would come from just a bit above equilibrium and that s not so bad. However, these red dashed arrows show that such a low level reversal can be followed by some of the nastiest declines. 4 Weekly InfoMovie Report

5 Failed breakout? Last time we saw that the A/D Line had reached a new high and experienced a breakout above this green trendline. Unfortunately, the breakout did not hold. That for the Upside/Downside line is also struggling. Weekly InfoMovie Report 5

6 Failed breakout? Overbought and bearish This ratio between the HYG high yield and TLT government bonds also broke to the upside last week indicating confidence was improving. Now we see that the ratio has pulled back to the extended line with the danger of moving below it again. Note also that the KST for the ratio in the bottom panel is also bearish and not in the least bit oversold. Clearly, a finely balanced situation. 6 Weekly InfoMovie Report

7 Breakdown Bearish and not oversold. This chart features the inversely plotted VIX in the middle panel. It s been plotted inversely in order to move in the same direction as the S&P Composite. Note how the VIX has violated this up trendline and its KST has gone bearish. We have already seen the S&P violate its up trendline as confirmation. This break in the VIX indicates a trend of growing volatility has just begun and that s normally associated with declining prices. Here are previous examples of VIX trendline violations and none of them paint a pretty picture. Weekly InfoMovie Report 7

8 About to go bearish Arguably of greater significance is this weekly chart, which shows that the intermediate KST for the VIX has gone bearish; a negative sign say these arrows. That should mean that the long-term KST, which is delicately balanced right now, may soon join it. Especially as this key trendline on the VIX itself has been violated. 8 Weekly InfoMovie Report

9 Breakout favors oil. So does momentum Finally, to add insult to injury, the ratio of the oil price to the SPY has broken to the upside against a backdrop of two bullish momentum series. This tells us nothing about the absolute price trend of either entity, but we can say that during the course of most the last two bear markets, a rising ratio was negative for stocks. In conclusion, an S&P trendline violation and weak VIX activity suggest the technical picture is slipping in a southerly direction. The big question is whether Thursday s exhaustion day and positive seasonals will be enough to right the ship. Weekly InfoMovie Report 9

10 Important breakdown Selling climax Credit Markets - Last time I pointed out the fact that the Barclays 20-year trust, the TLT, had violated this up trendline and that lower prices are likely. Now I think we are seeing a small selling climax, which if correct, will mean some ranging action or a rally back to the line. These arrows show previous climaxes where the volume oscillator in the bottom panel rises to an overbought level and price, in the center panel falls to an oversold condition. In each case, a rally followed. Now look at the current situation; a similar setup. Just as a reminder that there are always exceptions to every rule, this set of orange arrows shows a selling climax that failed to trigger a rally. Notwithstanding this exception, I think the odds favor bonds moving sideways or higher in the period ahead. 10 Weekly InfoMovie Report

11 S H S? Bearish but delicately balanced. Flat and therefore finely balanced. Still bullish Currencies - For some weeks I have been bearish on the Dollar Index, thinking that this neckline of a potential head and shoulders top would be penetrated. Now I am not so sure. For example, despite the recent decline, the long-term KST remains bullish, the short-term series is bearish, but very delicately balanced and the intermediate one has gone quite flat. Weekly InfoMovie Report 11

12 H S S? Reversing That brings us to the very short-term and here we can see that the stochastic is marginally bullish. However, in order to turn bullish I need to see this line at 80.5 penetrated on the upside because then I think all the momentum series will have turned positive. 12 Weekly InfoMovie Report

13 Line is around $175. S H S? Selling climax Precious Metals - I am still looking at this potential head and shoulders consolidation pattern with a breakout above $175 for the Gold Trust ETF, the GLD. The first step in its completion would be a break above this line at $167. There is a good possibility of this happening because the two indicators in the lower panels measure volume and price again. Here we see some selling climaxes like we did with the bonds, some rallies, and a similar setup today. Once again, a slight exception where prices moved sideways not up. Obviously, the next few sessions will be critical to see if gold can rally. I think it will, but let s see what the market says. Weekly InfoMovie Report 13

14 Declining Commodities - We have been looking at this potential base for the DJP for some time and last week I drew your attention to the downside possibilities with a violation of this red trendline. The price is really hanging on by the skin of its teeth. Both momentum series are declining, which is bearish, but not aggressively so. Now this line, which has fallen to $42, is a key one since an upward break would tip the balance to the bullish side. 14 Weekly InfoMovie Report

15 Marginal breakout Both bullish The stock market is casting a bullish vote since the ratio between the Goldman Sachs Natural Resource and the Consumer Staples ETF s has violated this important down trendline. A broader inflation/deflation measure in green has not yet confirmed, but two positive KSTs and the fact that the CRB Composite is above its bear trendline argue that it will soon do so. Weekly InfoMovie Report 15

16 In Summary: 1. Equities are on the verge of a breakdown, but positive seasonals and Thursday s exhaustion day may yet save them. 2. The dollar Index has reached a critical technical juncture point. 3. Commodity markets continue to trade at a make-or-break juncture. 16 Weekly InfoMovie Report