SeattleTA provides investment managers with technical analysis of the equity, fixed-income, commodity, and currency markets. Last week the NASDAQ printed a new record high and SPX isn t far behind. The Dow, however, needs more than a marginal gain to exceed its May 19 record high. New highs by SPX and NASDAQ two months after the Dow makes its final bull market high is exactly what played out in the year 2000. Like Yogi Berra once said, It s Déjà vu all over again. Déjà vu all over again Seattle Technical Advisors The leading authority in Lindsay Market Analysis Market Update July 20, 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..
Internal Indicators VIX suffered its biggest decline since Oct., down 4.88 to close at 11.95. The VIX has a seasonal tendency to rally from July to October. VIX has fallen below its lower Bollinger Band (50, 1). This has often proven to be a good level at which to sell equities. VXV/VIX ratio (top) has exceeded its upper Bollinger Band; bearish. New Highs on Friday totaled 78 versus 200 New Lows. That s not right (bottom). McClellan Oscillator touched its upper Bollinger Band twice last week. Tops in equities are often found at this level. In addition, the oscillator never made it past +150 which, according to the McClellans, would signal escape velocity (similar to a breadth thrust). SeattleTechnicalAdvisors.com Page 1
Déjà vu all over again July 20, 2015 Sentiment AAII Sentiment Survey: Bullish sentiment rose above 30% for just the second time since April in the latest AAII Sentiment Survey. The rebound occurred as bearish sentiment fell for a second consecutive week. Neutral sentiment, meanwhile, tied a 27-year record for the most consecutive weeks of staying at or above 40% Bullish sentiment rose 2.9 percentage points to 30.8%. The rebound puts optimism up into the lower level of its typical range. Neutral sentiment rose 3.0 percentage points to 45.9%. Bearish sentiment fell by 5.9 percentage points to 23.2%. NAAIM Exposure Index, a weekly survey of active investment managers overall equity exposure, fell from 54.99 to 52.24 last week. SeattleTechnicalAdvisors.com Page 2
Hybrid Lindsay Originally published in the 7.13.15 Market Update High July 13-21 The Hybrid forecast warns that the rally which began on Thursday is to be short-lived. Middle Sections Counting from the high of a flattened top on 12/26/07 to the low of the Basic Cycle on 10/4/11 is 1,378 days. 1,378 days later is 7/13/15. Counting from a high of a flattened top on 10/21/02 to the low of the Multiple Cycle on 3/6/09 is 2,328 days. 2,328 days later is 7/21/15. Intervals A cycle of 57 days extends between the highs of March 23, May 19, and 7/15/15. A 222-day interval counted from the high on 12/5/14 forecasts a turn near 7/15/15. A 107-day interval (102-112) counts 111 days from the low on 3/26/15 to a high on 7/15/15. A micro-cycle is due 7/15/15. It was expected to be a low but, based on the Middle Section forecast above, it has to be assumed that it will invert to a high. Hybrid Lindsay Follow-up The Dow s higher high (intra-day) on Wednesday followed by a lower close than Tuesday made it look as if the model had made a perfect call for a top but it wasn t to be. As mentioned previously, equities often turn after option expiration (last Friday) and that may be what we re looking at now. But last Thursday s high still fits all the models listed to the left and Monday wouldn t be out of the margin of error. Continue to look for a tradable high in the immediate future. Remember, the Lindsay methods apply only to the Dow Industrials index. SPX and NASDAQ may go on to make higher highs (similar to the year 2,000) but it should be a short-lived victory. The NASDAQ did make a new high last week. SeattleTechnicalAdvisors.com Page 3
Hybrid Lindsay Originally published in the July 6 Market Update Hybrid Low July 24-31 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 5/19/15. 73 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
Cycles July Bears/August Bulls A six-month cycle points to a low during the final week of the month as does a separate 21- week cycle. The Hybrid Lindsay model identifies the period of July 24-31 as the low with July 27 as the single-date forecast. The bulls should get some relief in August as seasonality warns the bears to spend the month in hibernation. The next 6mo cycle high is not due until the final week of the month but this 26wk cycle has sometimes compressed to just 24 weeks in the past. A 24wk cycle would be a good match for the Hybrid Lindsay forecast for a top August 12-14. SeattleTechnicalAdvisors.com Page 5
US Equities Bear Market Equities were up last week; SPX +2.41%, Dow +1.84%, NASDAQ +4.25%, and RUT +1.20% (printing an engulfing bearish candlestick on Friday). SPX closed at 2,126 near the June high on Friday and BWI confirms the rally. Bears have to be ready to accept a rally to the May high at 2,131 but option expiration (OPEX) was last Friday. Equities tend to change direction once this passes. NASDAQ made a new high last week and SPX is close. The Dow (the subject of our Lindsay analysis) has 226 points of headroom before it will touch its old high. New highs in SPX and NASDAQ two months after the final high in the Dow is what happened at the bull market top in the year 2,000. A break of 2,046 will open the door for a fall to support at 1,977-2,014. A head-and-shoulders pattern measures a minimum decline to 2,020. The price forecasting model generates a target of 2,010. Coppock Curves: Daily is rising but the weekly and monthly are declining; bearish. Seasonality: July starts with a big rally but ends the month lower than where it began. Bradley Model shows a turn near Sept 23, 2015. A low near then matches the seasonal, cyclical, and Hybrid Lindsay forecasts. SeattleTechnicalAdvisors.com Page 6
Europe Bear Market EuroStoxx 50 gained 3.87% last week to close at 3,672 at the May highs. BWI confirms the rally. 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 (bottom/upper). Volatility (top/lower) has dropped low enough to have us looking for a low in equities and the daily Coppock is high enough to expect a top. Cycles pointed to a high last Thursday and the index did pull back on Friday. The larger weekly cycle indicates that equities are in a decline until the end of August. Coppock Curves: Daily is rising but the weekly is falling. The monthly is rising but is not going to be able to confirm any new high in the index. Seasonality: July starts with a big rally but ends the month lower than where it began. SeattleTechnicalAdvisors.com Page 7
Japan Bull Market Correction NKX225 gained 4.40% last week to close at 20,651 on the 76.4% retracement of the June decline. BWI (bandwidth indicator) does not confirm the rally. The daily Coppock did not confirm the new high in June and it s not confirming last week s high. On the weekly chart (bottom), 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. Cycles A high is expected July 23-28 which looks important as it matches the expected cycle high in DXY (low in JY). Coppock Curves: Daily turned up last week but the weekly is declining. The monthly is rising but failed to confirm the June high; bearish. Seasonality: NKX declines through all of July. SeattleTechnicalAdvisors.com Page 8
Emerging Markets MSCI Emerging Markets (EEM) rose 0.83% last week to close at 38.76 and back into the symmetrical triangle on the weekly chart placing its signal into doubt (the triangle measures a minimum decline to 24.00). Despite the very respectable rally from the July low, 3-day RSI remains below 80 (bearish). The price forecasting model calls for a decline to 30.50. Cycles point to a high late last week or early this week followed by a decline to near Aug. 5. Coppock Curves: Daily has turned up but the weekly, and monthly are both declining; bearish. Shanghai Composite (SSEC) gained 2.05% to close at 3,957 just below the 38.2% retracement of the June decline. BWI has dropped into its buy mode and awaits a turn back up to trigger a buysignal but 3-day RSI has not been able to push above 80 (bearish). A rally all the way to the 200-dma at the 61.8% retracement of the June decline (4,493) is very possible and would not threaten the bear market but first resistance is at 4,100. Coppock Curves: Daily is rising but the weekly is falling. The monthly is rising but overbought; bearish. SeattleTechnicalAdvisors.com Page 9
US Treasuries, TNX TNX lost 2.81% last week to close at 23.49 back below its 30-dma and the Apr. trendline. 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 pattern measures a minimum rally to 27.50. 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 in the final week of July. A six-month cycle forecasts a high in Sept/Oct. Coppock Curves: The daily is in decline but the weekly is rising. The monthly is rising from an oversold level; bullish rates. Seasonality: 10yr bond prices are bullish in July. Yield Curve (30s-5s) hit a new high again last week after breaking its downtrend in April. The bull market highs in equities in 2000 and 2007 were both associated with widening spreads. SeattleTechnicalAdvisors.com Page 10
US Dollar Bull Market DXY had its best week since May rising 1.89% to close at 97.99 above the June 1 high and printed an engulfing bullish candlestick on the weekly chart. Despite the breakout, BWI is not confirming the rally which indicates 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 has been triggered and measures a minimum rally to 101.00. A symmetrical triangle on the monthly chart measures a minimum move to 102.00 which is the 61.8% retracement of the 2002 bear market. 102.00 is also a 127.2% retracement of the Apr/May decline. Cycles The previous Friday s cycle low was successful in starting a rally last week. It is followed by a high near July 24. A 40wk cycle low is due in September. Coppock Curves: Daily, weekly, and monthly are all rising but the monthly is very overbought. Seasonality: July is bearish. SeattleTechnicalAdvisors.com Page 11
Euro Bear Market Euro lost 2.52% last week to close at 1.0857 (near the late May low and on the 61.8% retracement of the Mar. rally) and printed an engulfing bearish candlestick on the weekly chart. However, BWI has turned down in nonconfirmation of the decline. Next support the Mar. trendline at 1.0822 - isn t far away. A break down from there will open the door for a return to the March low at 1.0472. Once the final high in DXY is seen the Euro could have a very nice rally ahead if it is able to return to the top of the 2008 trend channel currently near 1.33. 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 0.85. The break of the descending triangle in Dec forecasts an eventual minimum decline to 0.87. Coppock Curves: Daily is falling and the weekly is rolling over. The monthly is still in decline but deeply oversold. Seasonality: July is bullish. SeattleTechnicalAdvisors.com Page 12
Japanese Yen Bear Market JY broke the June trendline and lost 1.02% last week to close at 80.62. BWI confirms the decline back below the 30- dma. 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 2015. 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 2016. Coppock Curves; Daily has rolled over and the weekly is in decline. The monthly is falling but setting up a positive divergence as it refuses to confirm the new low. Seasonality: July starts quiet but ends the month with a big decline. SeattleTechnicalAdvisors.com Page 13
Crude Oil Bear Market Crude lost $1.85/bbl. last week to close at $50.89 its lowest level since April; confirmed sell-mode. However, 3-day RSI is holding above 20 and BWI is falling which indicates the decline is long-in-thetooth. Given the inverse relationship with the Dollar and cycles calling for a DXY top on Friday, a falling BWI in crude makes sense. Despite Friday s new low, a positive divergence in 14-day RSI can be seen; bullish. On Friday, crude s intra-day low tested the 61.8% retracement of the March rally at 49.50 a likely level for a low. The Coppock is low enough to look for a low in crude now. Expect higher highs this summer once the Dollar rally is finished. This summer should see crude rally to at least $67/bbl. (the minimum expected 38.2% retracement of the 2014 decline). Cycles: A 40-day cycle is due on July 24. Coppock Curves: Daily, weekly and monthly are declining. The daily and monthly are very oversold but the weekly is just now turning down from being overbought. This could make for a difficult (even if profitable) ride for the bulls this summer/fall. Seasonality: July is normally bullish. SeattleTechnicalAdvisors.com Page 14
Gold Bear Market Gold lost $25.90/oz. last week to close at $1,131.80 and breaching the 1,140-1,150 support zone; confirmed sell-mode (sell the rips). One would expect the decline to finish near this Friday s expected high in the Dollar but the break of support looks bad for bulls. However, there are some signs of light. The Coppock is not confirming the new low. The gold ETF, GLD, saw a volume surge on Friday which often occurs near a change in trend (bottom). Seasonally gold makes an important low in June/July. The price forecasting model shows Friday s close as one possible bottom. A break of that level on a closing basis implies a decline to 1,105. A symmetrical triangle measures a minimum move ultimately to $1,080. A 4yr cycle low is not due until the first half of 2016 keeping the long-term outlook bearish. Cycles point to a low now followed by a rally for all of August. Expect the first leg of the rally to end near Aug 7. Coppock Curves: Daily is falling and the weekly is turning down. The monthly has turned down but is too far above the Feb 14 low to confirm any low in the immediate future. Seasonality: July begins with a rally but ends the month where it began. SeattleTechnicalAdvisors.com Page 15