Fukushima Daisies. Market Update July 27, Seattle Technical Advisors

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1 SeattleTA provides investment managers with technical analysis of the equity, fixed-income, The evidence is all around us that the bull has gone to the slaughterhouse. Like daisies discovered in Fukushima, the signs won t reach out and grab us by the neck. But if one simply focuses for a moment on a single clue the message can be very powerful. The bull is pushing up daisies. commodity, and currency markets. Fukushima Daisies Seattle Technical Advisors The leading authority in Lindsay Market Analysis Market Update July 27, 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 New 52wk Lows have soared to their third highest level in over a year - a level which has often marked lows in equities (top). Cumulative Advance/Decline line has been falling since its high in April. This is the sort of negative divergence seen at most (but not all) bull market tops (bottom). VIX started the week with a new low for 2015 below its lower Bollinger Band (which often marks tops in equities). It then gained 1.79 to close at It needs to close over the 50-dma at to signal regime change (bull to bear). The VIX has a seasonal tendency to rally from July to October. McClellan Oscillator has nearly dropped to negative 150 (-133) which is where its lower Bollinger Band currently resides. Reaching either metric has often proven to be a successful buy signal. Put/Call Ratio (equity only) is high enough to look for a low in equities now. SeattleTechnicalAdvisors.com Page 1

3 Fukushima Daisies July 27, 2015 Sentiment AAII Sentiment Survey: Optimism rose to a four-week high in the latest AAII Sentiment Survey. Pessimism also rose, as neutral sentiment fell to a five-week low. Bullish sentiment rose 1.7 percentage points to 32.5%. This is the first time optimism has been above 30% on consecutive weeks since April 30, Neutral sentiment fell by 4.1 percentage points to 41.9%. Bearish sentiment rebounded by 2.4 percentage points to 25.6%. The historical average is 30.0%. NAAIM Exposure Index, a weekly survey of active investment managers overall equity exposure, rose marginally from to last week. SeattleTechnicalAdvisors.com Page 2

4 Lindsay Back-to-Back Declines Two concepts which Lindsay never identified as such but his work shows that he used them; Backto-back and overlapping declines both start at different highs and end at different lows. The difference is that back-to-back declines are consecutive declines separated by an upward reaction while overlapping declines run concurrently with one another, acting as alternate path counts. The bear market of (top) can be described as containing back-to-back declines. The Basic Decline from point L of the Long Cycle in January 2000 counts 433 days to the low in March After a two month rally a second Basic Decline begins in May and counts 429 days to a Preliminary Low in July, Lindsay wrote that Terminal Declines always unfold in this manner however the table (bottom) reveals that (with the exception of the Multiple Cycles ending in 1962 and 1970) back-to-back declines always occur in basic cycles which terminate at the low of both a Terminal and Multiple Cycle low. This historical tendency adds to the evidence pointing to this being a very long bear market. SeattleTechnicalAdvisors.com Page 3

5 Hybrid Lindsay Originally published in the July 6 Market Update Hybrid Low July Middle Sections The high of a flattened top on 2/1/07 counts 1,551 days to the high of the Basic Cycle on 5/2/11. 1,551 days later is 7/31/15. The high of a flattened top on 12/29/99 counts 2,843 days to the high of the Multiple Cycle on 10/11/07. 2,843 days later is 7/24/15. Intervals The breakdown from a flattened top on 3/6/14 counts 74 days to the high of the bull market on 5/19/ days later is Friday, 7/31/15. A Mirror Image count of 69 days extends from the low on 3/11/15 to the high of 5/19/15 to a possible low on 7/27/15. A 222-day interval counts 223 days from the 12/16/14 low to Monday, 7/27/14. SeattleTechnicalAdvisors.com Page 4

6 US Equities Bear Market Equities were down last week after the previous week s option expiration; SPX %, Dow -2.86%, NASDAQ -2.33%, and RUT -3.24%. SPX closed at 2,080 and on support from the May and June lows. Equities moved into a confirmed buy-mode (buy the dips) prior to last week s sell-off making me think there may be some unfinished business near last week s highs. 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 is rolling over and the weekly and monthly are declining; very 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, A low near then matches the seasonal, cyclical, and Hybrid Lindsay forecasts. SeattleTechnicalAdvisors.com Page 5

7 Europe Bear Market EuroStoxx 50 lost 1.99% last week to close at 3,599 after it was turned back from the May highs. The index remains above its 89- dma as well as the upper trendline of the trend channel. Equities normally (but not always) require a negative divergence in the Coppock before printing a tradable high. So far there has been no lower high in the daily curve. If equities can hold a breakout above 3,675 it will open the door for a move to the April high at 3,763 but a strong Euro this summer should put pressure on European equities. Cycles point to a short-term low near August 7 but the larger weekly cycle indicates that equities are in a decline until the end of August. Coppock Curves: Daily is rising but is very overbought. The weekly is trying to turn up. The monthly is rising but is not going to be able to confirm any new high in the index. Seasonality: August is weak all month. SeattleTechnicalAdvisors.com Page 6

8 Japan Bull Market Correction NKX225 lost 0.52% last week (after the previous week s 4.40% gain) to close at 20,544. On the weekly chart (top), neither MACD nor the Coppock Curve is confirming the new high in equities; bearish. The 2015 breakout from the pennant formation targets a minimum move to +24,000 but that may have to wait for a summer rally in the Yen (bottom) to have finished. Cycles A high is expected near July 28 which looks important as it matches the expected cycle high in DXY (low in JY). A weekly cycle low is due during the first week of September. Coppock Curves: Daily is rising but the weekly is declining. The monthly is rising but failed to confirm the June high; bearish. Seasonality: Early August follows through on late July weakness but spends most of the month advancing. SeattleTechnicalAdvisors.com Page 7

9 Emerging Markets MSCI Emerging Markets (EEM) suffered its worst week since Dec. with a loss of 4.39% to close at BWI turned up on Friday in confirmation of the decline. EEM is back below the symmetrical triangle triggering its forecast for a minimum decline to As that violates all Fib retracements, the door is open for a return to the 2008 low near Short-term, look for first support at the July 8 low near but the price forecasting model calls for a decline to Cycles forecast a decline to near Aug. 5. Coppock Curves: Daily is rising but the weekly, and monthly are both declining; bearish. Shanghai Composite (SSEC) gained 2.87% to close at 4,071 above the 38.2% retracement of the June decline. BWI confirms the rally but I expect a test of the July low. A rally all the way to the 200-dma at the 61.8% retracement of the June decline (4,500) is very possible and would not threaten the bull market correction. Coppock Curves: Daily is rising but the weekly is falling. The monthly is rising but overbought; bearish. SeattleTechnicalAdvisors.com Page 8

10 US Treasuries, TNX TNX lost 3.32% last week to close at BWI confirms the decline below the 30-dma and 14-day RSI remains below its own 20- dma; bearish. Longer term, TNX is still above its 200-dma and a bullish head-and-shoulders (top) pattern measures a minimum rally to But if TNX remains in the 2015 trend channel, it will reach its target no sooner than October (which coincides with the crossing of trendlines in the lower chart). Cycles forecast an important high low in the final week of July although a bounce early this week is expected. A six-month cycle forecasts a high in Sept/Oct. Coppock Curves: The daily is struggling for direction and the weekly is rolling over. The monthly is rising from an oversold level; shortterm bearish, long term bullish rates. Seasonality: 10yr bond prices are bullish May- February. SeattleTechnicalAdvisors.com Page 9

11 US Dollar Bull Market DXY fell 0.66% to close at on the June trendline. BWI is not confirming the breakout from the cup-and-handle formation indicating the rally is long in the tooth and that the July 24 cycle date regardless of whether DXY reaches its price target may be the more important of the two. A cup-and-handle pattern measures a minimum rally to 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. A soaring U.S. currency triggered debt defaults in Latin America in the 1980s. A decade later, the dollar s appreciation forced Asian countries to drop their peg to the greenback, and threw the region into a crisis. Cycles point to a high near July 24 but the next low is expected as soon as August 4. A 40wk cycle low is due in 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 10

12 Euro Bear Market Euro found support at the May low and rose 1.22% last week to close at still within the previous week s engulfing bearish candlestick on the weekly chart and below the 34-dma at There has been no confirmation from BWI for the bounce and 3- day RSI remains below 80; bearish. Monday s low (the May low at 1.08) is the 61.8% retracement of the March rally. A break of that level would have very bearish ramifications. 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 turned up but the weekly is rolling over. The monthly is still in decline but deeply oversold. Seasonality: Early August is very bearish but is followed by a rally later in the month. SeattleTechnicalAdvisors.com Page 11

13 Japanese Yen Bear Market JY rose 0.28% last week to close at BWI confirms the decline back below the 30- dma. JY remains below its 30-dma keeping the outlook bearish. BWI does not confirm the small rally. JY is expected to get a big bear market rally during the expected summer swoon in the Dollar. An 8-yr cycle low is due in An upward reaction should play out this summer followed by a decline to a new and final low next spring. Long-term, expect a minimum decline for the Yen to 66.00; the next important low is not due until springtime Coppock Curves; Daily and weekly are in decline. The monthly is falling but setting up a positive divergence as it refuses to confirm the new low. Seasonality: August is very bullish. SeattleTechnicalAdvisors.com Page 12

14 Commodities Bear Market S&P GS Commodity index has been in decline since the May highs. It lost 2.59% last week to close at Given the breach of the 76.4% retracement of the 2009 bull market, SPGSCI seems likely to return to the 2009 low near If is breached, the price forecasting model generates a price target of Inflation Expectations (5y forwards/ bottom) have broken their 2015 uptrend. Falling inflation expectations are bearish for both commodities and equities. SeattleTechnicalAdvisors.com Page 13

15 Crude Oil Bear Market Crude lost $2.75/bbl. last week to close at $48.14 its lowest level since April. BWI is falling which indicates the decline is long-in-the-tooth. Last week s break of the 61.8% retracement of the March rally opens the door for a complete return to the March low at however; the daily Coppock is low enough to expect a shortterm low in crude now and has even turned up. I have been expecting higher highs this summer once the Dollar rally is finished. This summer/fall should see crude rally to at least $67/bbl. (the minimum expected 38.2% retracement of the 2014 decline). Cycles: A 40-day cycle was due on July 24. The next high is due July 30 Aug 4. Coppock Curves: Daily is rising but the weekly and monthly are both declining; bearish. Seasonality: August is normally bullish. SeattleTechnicalAdvisors.com Page 14

16 Gold Bear Market Gold lost $46.20/oz. last week to close at $1, fulfilling the symmetrical triangle target long before I expected it would; confirmed sell-mode (sell the rips). A second, later triangle forecasts a decline to 1,000. One would expect the decline to have finished with last week s expected high in the Dollar. The Coppock is low enough to expect a bottom and MACD is oversold as well. Seasonally gold makes an important low in June/July. I would wait for resistance at 1,138 to be exceeded before getting too excited about a long position. The gold ETF, GLD, printed an engulfing bullish candlestick on Friday. A 4yr cycle low is not due until the first half of 2016 keeping the long-term outlook bearish. Cycles point to a rally for all of August with the first leg of the rally to end near Aug 7. Coppock Curves: Daily, weekly, and monthly are all falling; bearish. Seasonality: August is very bullish. SeattleTechnicalAdvisors.com Page 15