I'm going to start making it a thing to get a writeup going every Sunday night so you guys have something to look at going into Mondays. Firstly, we just wrapped up a second trial go for our weekly podcast and all things are starting to look rather nice over there. More to come later on that as well as the official chatroom for /r/stockmarket to soon be rolling out. These additions to the community are put together by volunteers and will be available free of charge for the betterment of the community. So I hope you guys really enjoy what we have in store for you.
Now... on with the market. To recap our call of the reversal on the SPX from a few weeks ago here is the comparison chart to what we predicted versus what's going on now. This is what a classic bear market starts out with...every time: a faux-rally. This faux rally is a product of bargain shoppers picking up discounted stocks for this earnings season and after a clear low 1800's bounce for the SPX, you can expect people to find that a decent dip to buy on.
But BEWARE. This is almost certainly not going to sustain and these are the reasons I believe this is such. First and foremost there is a hard technical resistance line easily seen on this chart. We didn't trade up past the 2100's last year when fundamentals were better (china was better, bond yields were higher, oil was higher) so what on earth makes you think things will magically turn bullish now with things worse if they weren't that way then? The S&P has issued credit downgrades to so many E&P companies it's almost scary how hard that sector can come crashing down in light of what could come of the entire market. Also we have another Fed meeting coming up in March which in light of what's going on I can only assume Wall Street will start to remove risk from the table before hand.
With all that said, the SPX will almost certainly trade up longer until some major catalyst arrives. This 2020 range we are eyeballing and possibly even overshoot to 2040 if nothing changes on the fundamental front. This is how I know. The VIX. Here's what the VIX looked like in August-September of 2000, the last true non-crash bear market we had. VIX then. Notice the gentle trade up as the market starts to trade down. This is what you have as people see a top in the S&P500, they start placing bets that things will crash down. However what you see right now in the VIX is that it's still trending down like this which actually means that people are taking bearish bets off the table for the time being. So until those bets reappear in the options the market is susceptible to "path of least resistance" trading, which as always, settles right back on the technicals. 2020 SPX as we've been saying for weeks. And on a technical basis it is still a support-leading trade which means that it's still a "buy the bounces off the support line" trade. Until that support line is broken the SPX will drift up. Although the "drift" will sort of be a combination of green day red day as it moves up. So I'm still buying the dips as I have been since 1800 and I will continue to do so until this trend is over.
Another thing to note is the recent action in the bond markets. Lets use the 20-year treasury bond for instance, and let's take a look at the TLT(http://ift.tt/1oRTqfZ). Normally in a panic selling environment you will start to see money move over into bonds, however there is a comfortable high we've settled at all across the board. This coincides with the oil bottom at 26.20 on the last contract, as well as the SPX bounce off 1800. If the TLT for instance trades back up to 131.5 and hovers there right at the time the SPX crosses 2000 and hovers there. Get ready for the crash. This could be as soon as 1-2 months from now, or as late as August (when historically things just get really nasty).
And last but not least, oil. The similar OVX pattern there is in the VIX, people are taking bearish bets off the table. It's almost acknowledgement of the trading community that the bottom is in fact in and shorting from here is just too high risk. It doesn't necessarily mean a rally is at hand, but it does mean that shorting from here might not get the power it used to. And as I did say weeks ago I was avoiding oil because it was in this consolidating "no man's land." However we recently just broke out of the condensing period to the upside, so there is a strong possibility that oil will trade up every day the SPX does, and then turn around and crash along with it as if the two were holding hands. I'm a little long biased on the short term just because of the OVX so I might consider a few long plays for the remainder of the SPX drift, but all the while knowing that the fundamentals are still really bad and until someone in OPEC physically mutters the words "cutting production," any hopes of an oil rally are off the table.
Hope you guys enjoyed, and I look forward to hearing your comments below. And as always, happy trading!
Submitted February 29, 2016 at 12:41AM by gabriel87120 http://ift.tt/1oRTqg1
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