Bad Breadth. Market Update August 17, Seattle Technical Advisors

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1 SeattleTA provides investment managers with This week is options expiration week and mid-august is often better for equities than earlier or later in the month. Stock Traders Almanac reports that for the past 33 years since Triple Witching began in 1982 the Monday of August expiration week has been consistently positive however expiration day and the week as a whole are not so bullish. The tendency for equity markets to reverse direction after option expiration matches our Lindsay forecast for a high early this week. technical analysis of the equity, fixed-income, commodity, and currency markets. Bad Breadth Seattle Technical Advisors The leading authority in Lindsay Market Analysis Market Update August 17, 2015 Ed Carlson, CMT ed@seattletechnicaladvisors.com Seattle Technical Advisors website, PO Box 2415, North Bend, WA 98045, is published as an informational service for subscribers, and it includes opinions as to buying, selling, and holding various securities. However, the publishers of Seattle Technical Advisors are not investment advisers and do not provide investment advice or recommendations directed to any particular subscriber or in view of the particular circumstances of any particular person. ANY REDISTRIBUTION of Seattle Technical Advisors Market Update without the written consent of the publishers of Seattle Technical Advisors is PROHIBITED. Legitimate news media may quote representative passages, in context and with full attribution, for the purpose of reporting on our opinions. Copying and/or electronic transmission of the Seattle Technical Advisors website or content is a violation of international copyright law. Information provided by Seattle Technical Advisors is expressed in good faith but is not guaranteed..

2 Internal Indicators VIX gave up 0.56 last week to close at below the 50-dma.The VIX has a seasonal tendency to rally from July to October. A symmetrical triangle measures a minimum rally to (top). VXV/VIX Ratio has room to move higher before the next high in equities will be expected. Breadth Thrusts were triggered in two of my three models last week on Aug 10. Equities have not exceeded that day s high yet but I m comfortable that will happen this week. McClellan Oscillator remains above zero; bullish. Bad Breadth New 52wk Highs are showing the same kind of negative divergence as at previous highs in equities (bottom). Cumulative Advance/Decline line continues to make new lows warning of an end to the bull market. % NYSE Stocks > 20-dma has been declining since November. SeattleTechnicalAdvisors.com Page 1

3 Bad Breadth August 17, 2015 Sentiment AAII Sentiment Survey Bullish sentiment jumped 6.1% percentage points to 30.5%. The rise is not large enough to prevent optimism from being below its historical average of 39.0% for a 23rd consecutive week, the longest such streak since a 29-week stretch in Neutral sentiment fell 10.6 percentage points to 33.4%. This is the lowest neutral sentiment has been since April 2, 2015 (32.6%). Even with the large drop, neutral sentiment is above its historical average of 31.0% for a 32nd consecutive week. This ties the record for the longest streak of consecutive weeks with an above-average reading, which was set between January and August of last year. Bearish sentiment rebounded by 4.5 percentage points to 36.1%. The rise keeps pessimism above its historical average of 30.0% for a third consecutive week. NAAIM Exposure Index, a weekly survey of active investment managers overall equity exposure, fell from to last week. Conclusion: Sentiment seems too low to mark an important high but with the unusually large % of neutral investors, sentiment could swing sharply and quickly. SeattleTechnicalAdvisors.com Page 2

4 Hybrid Lindsay Hybrid High August Middle Sections The low on 11/26/07 counts 1,408 days to the low of the Basic Cycle on 10/4/11. 1,408 days later is 8/12/15. Point E of a descending Middle Section on 9/26/02 counts 2,353 days to the low of the Multiple Cycle on 3/6/09. 2,352 days later is Friday, 8/14/15. Cycles A 6mo cycle high is due this week. Intervals 222-day intervals converge on August 17, 18. This fact, combined with 107-day interval ( days) points to a high in the period August makes me think that the high may come a few days later than the Middle Section forecasts but still within the expected margin of error. Look for the next tradable high late in the week of August 10 or early in the week of August 17. Hybrid Lindsay Hybrid High August 24 A big cycle like a 6mo cycle could easily be a week late but where would that leave the Hybrid forecast? Middle Sections A case can be made for a forecast pointing to a high on Aug 24 but that case requires a bit of artistic license in identifying both Middle Sections (basic and multiple cycle). Intervals 222-day: The next likely origin for this interval is 1/16/15. Aug 24 is just 220 days later and a bit short. It would seem to delay the high by at least one day (Aug 25?) but be within the margin of error of the Middle Section forecast. 107-day interval ( days) points to a high in the period August Conclusion: Mon-Wed of this week (August 17-19) remains the forecast with the highest level of confidence for a top but if it fails, the next most likely time for a high is the period immediately surrounding Aug 24. SeattleTechnicalAdvisors.com Page 3

5 US Equities Bear Market Equities made marginal gains last week; SPX +0.67%, Dow +0.60%, NASDAQ +0.09%, and RUT +0.48%. SPX ended the week back above its 150- dma but 14-day RSI is below its own 20-dma and 3- day RSI has not been above 80 since July 20; bearish. BWI turned down in non-confirmation of the late week rally. SPX has formed a triangle. Watch for a breakout above 2,099 or a break down below 2,085 (SPX printed an engulfing bullish candlestick on Friday). More interesting, a bullish wedge can be seen in the Dow (bottom). If triggered (a close over 17,493) it forecasts a return to the top of the wedge at 18,120. This would seem to add weight to the later Lindsay forecast for a high near Aug 24 as a rally back to the top of the wedge by Wednesday this week seems unlikely. A break of 2,040 will open the door for a fall to support at 1,977-2,014. The price forecasting model generates a target of 2,010. Coppock Curves: Daily has turned up but the weekly and monthly are still declining; bearish. Seasonality: Early August follows through on late July weakness but spends most of the month advancing. Bradley Model shows a turn near Sept 23, SeattleTechnicalAdvisors.com Page 4

6 Europe Bear Market EuroStoxx 50 dropped 3.98% to close at 3,495 and printed an engulfing bearish candlestick on the weekly chart. BWI confirms the decline. However, Friday s close makes the Aug decline equal to the July decline - a natural stopping point. With cycles and seasonality indicating August will be weak all month, perhaps this level is only a temporary resting spot until US equities reach their Hybrid forecast high. A closing break of 3,492 will open the door for a decline to 3,427. If the Dollar is to reach a higher high, a decline in the Euro will open a path for European equities to climb to higher highs later this year. Cycles indicates that equities are in a decline until the end of August. Coppock Curves: Daily is declining but the weekly is turning up from oversold. The monthly is rising but failed to confirm this year s new high. Seasonality: August is weak all month. SeattleTechnicalAdvisors.com Page 5

7 Emerging Markets MSCI Emerging Markets (EEM) lost 2.12% to close at breaking the July lows. The Coppock and MACD are low enough to expect a bottom in EEM and it has dropped to a level below its 200-dma that has marked past bottoms. EEM should get some relief from the temporary correction in the Dollar. After the correction is finished, however, EEM will feel pressure. The price forecasting model calls for a decline to but a symmetrical triangle forecasts a minimum decline to Cycles point to a low last week followed by a rally into mid-september. Coppock Curves: Daily has turned up. The weekly and monthly are declining but the weekly is oversold warning of a tradable rally. Emerging Markets Bonds (EMB) a have triggered a bearish head-and-shoulders pattern that measures a minimum decline to Shanghai Composite (SSEC) rose 5.90% to close at 3,965. BWI confirms the rally. Look for a minimum advance to the 55-dma at 4,218 but expect something closer to 4,291 prior to the downtrend reasserting itself. Coppock Curves: Daily is rising but the weekly is falling. The monthly is overbought and starting to rollover; bearish. SeattleTechnicalAdvisors.com Page 6

8 US Treasuries, TNX TNX started the week in a free fall but found support at the top of the 2014 declining trend channel and ended the week with a gain of 0.96% to close at There has been no confirmation from BWI (bandwidth indicator) for the rally and TNX remains below its 30-dma; bearish. In addition to the bullish head-and-shoulders pattern which measures a minimum rally to 27.50, a bullish wedge has appeared. The wedge if triggered by a close over forecasts a return to its origin, Cycles: The summer decline in yields is likely a counter-trend move however short-term cycles call for a high today. Coppock Curves: Daily is turning up but the weekly is falling. The monthly is rising from an oversold level. Seasonality: 10yr bond prices are bullish May-February. SeattleTechnicalAdvisors.com Page 7

9 US Dollar Bull Market DXY lost 1.11% last week to close at below the 34-dma and printed an engulfing bearish candlestick on the weekly chart; confirmed sell-mode (sell the rips). The correction from the March high is playing out longer and in a more complex manner than originally anticipated but a new high is expected eventually given the lack of divergence seen at the wave 3 high in March. A symmetrical triangle on the monthly chart measures a minimum move to which is the 61.8% retracement of the 2002 bear market is also a 127.2% retracement of the Apr/May decline. Cycles point to a low later in September (after a high this Wednesday) followed by a rally into a final high next March. DXY is expected to then begin a bear market which will last until September Coppock Curves: Daily has rolled over but the weekly and monthly are both rising. Seasonality: The first half of August is very bullish but is followed by a pullback later in the month. SeattleTechnicalAdvisors.com Page 8

10 Euro Bear Market Euro broke out through the 144-dma last week to post a gain of 1.35% and closed at after printing an engulfing bullish candlestick. The Confirmation Model is in a confirmed buy-mode (buy the dips). As the Euro is almost 60% of the Dollar index we can use the Dollar cycles to help time the Euro. Longer term, the 61.8% retracement of the 2000 bull market has been breached opening up the possibility for a return to the 2000 low near The break of the descending triangle in Dec forecasts an eventual minimum decline to Coppock Curves: Daily is rising but the weekly has turned down. The monthly is deeply oversold and starting to turn up. Seasonality: Early August is very bearish but is followed by a rally later in the month. SeattleTechnicalAdvisors.com Page 9

11 Crude Oil Bear Market Crude fell for the fifth sixth seventh week in a row for a loss of $1.37 and closed at $42.50 (!) below the March closing low but not that month s intra-day low. Positive divergences in the Coppock and RSI indicators warn of a pending (if temporary) bottom. Crude should be rallying while the Dollar (top) completes its 4 th wave correction. Once DXY begins its final wave up, crude will be under pressure again. Cycles point to the possibility of a low this week. Coppock Curves: Daily, weekly, and monthly are all declining; bearish. The monthly is oversold which indicates an important low is coming. Seasonality: August is normally bullish. Rig Count: Baker Hughes reported oil rigs rose 2 last week to its highest since April This is the 6th rise in the last 7 weeks and is bearish for oil. SeattleTechnicalAdvisors.com Page 10

12 Gold Bear Market Gold broke out of the pennant formation on the daily chart and gained $18.80/oz. last week to close at $1, Gold printed an engulfing bullish candlestick on the weekly chart; confirmed buy-mode (buy the dips). The breakout above 1,100 is bullish but the real test will be a breakout above 1,140. For now, the Coppock is rising and has a ways to go before we can expect a top in gold. Don t forget that gold moves inversely to the Dollar and we still expect one more rally to a new high by DXY. A triangle (top) forecasts a decline in gold to $1,000. A 4yr cycle low is not due until the first half of 2016 keeping the long-term outlook bearish. Cycles point to an important low during July and a rally for all of August. No important low has been identified until the first week of October. Coppock Curves: Daily is rising but the weekly and the monthly are falling; still bearish. Seasonality: August is very bullish. Miners: After precisely matching the declining triangle forecast for a decline to 105 (bottom), the Gold Bugs index, HUI, rallied last week but was turned back from the 34-dma. HUI is in a confirmed buy-mode (buy the dips). SeattleTechnicalAdvisors.com Page 11