Early last year, I went to the companies whose 401k’s I manage and I told the participants that the Stock Market charts looked eerily similar to the way they did back in late 2000 (I even used the Neon-Green Boxes to illustrate what I thought would play out). I was not expecting the collapse to occur as quickly as it did, but I figured that the lows of 2002 could be revisited.
Now the chart looks a lot like it did in the 2002-2003 bottoming process (Dark Green Boxes). The markets could be replaying the Bear Market bounce of late 2001 (Purple Box), but I don’t think that is what is occurring. Mostly I mention this, because the 800 level (Black Line) is such significant support. Granted, Team Obama could use a break of 800 as a method for causing enough panic to get another “Stimulus” Bill passed, so nothing will surprise me.
Let’s see how this plays out. I am very interested in buying this latest correction – as I was very interested in selling the early 2008 rally.
The S&P 500 looks like it is going to bottom like it did in 2002-2003. I have compressed the current market chart to compare the timeframes of the bottoming processes.
The 2002-2003 Bottom had three distinct dives down. The current potential bottom has had 2 dives down and looks to be setting up for number 3.
Digging a little deeper, the market broke support (Blue Line and Black Arrow) and then sold off hard for another 8 weeks. That set up the final low, which was bought on very large volume
For a clue that a bottom of consequence was in place, the Bullish Percent Indicator put in higher bottoms as price bottomed (Purple Line).
Today’s market looks very similar, with support being breached today. You can see how the Bullish Percent also cracked today (Black Arrow) – fewer stocks are working and more are pulling the markets lower. 8 weeks from now puts you in early September – the worst month of the year.
How far can the markets fall?
A buddy of mine told me the other day that he expected the markets to revisit the 600’s. I told him that I did not think that would occur with all of the money being printed. We’ll see who’s right.
I emailed the following on 6/18 –
“The 2nd Quarter ends in a few weeks, and if you remember the ramp they did in the last 4 minutes of May, then you know that the big boys will try and defend their gains into month-end and possibly the July 4th weekend.
I am going to watch the Bullish Percent very closely to see if this rally narrows - with fewer and fewer companies carrying the markets higher, or if money rotates and new leadership shows up (Biotech?).
The NYSE has gone basically nowhere for 7 weeks. Something will have to give soon.”
I posted this on 6/23
“Lots of areas and stocks have already broken down. So you are starting to see the Bullish Percent Indicator fall, as fewer stocks remain in uptrends. That weakening of the internals of the market is what leads to corrections – or worse.
I still think that this retest is the final retest of the Bear Market lows and the next leg up will be driven by Commodities and anti-Dollar trades. I expect to be able to buy and hold for an extended period on any weakness this Summer and Fall. If things change, I will let you know.”
So what I was looking for was a retest of the early-June highs on deteriorating Market Internals and then for the markets to roll over.
The New York Stock Exchange ($NYA)
In the middle of June, NYA broke below its 20-day (Green Line and Green Arrow) for the first time since early March. On the back of the Quarter-end price manipulation, NYA wedged back up into the 20-day (Black Arrow). It then failed over the first few days of July and now the 20-day is crossing below the 50-day (Blue Arrow).
NYA can rally at any time, but the complexion of the market has changed – rallies are now failing into declining moving averages and price is now putting in low highs and lower lows. None of this is good for you if you own stocks. The May/June trading range is now looking like a top.
I would expect the pullback to carry into the 5,000 – 5,200 range and will be looking to buy reversals up out of that price range if they materialize. 4,200 can still be retested.
Retail broke support today. Again, May and June now look like a top.
Energy has completely broken down and I have been stopped out of it. It was a classic wedge into resistance in the last few days of June and then price just collapsed. This goes for XLE, OIH and XOP.
The Bullish Percent for Energy is now at 17 (Green Arrow)! Look at HES if you want to see a really ugly chart. XOM and CVX look ugly too.
Basic Materials (IYM) broke support today. Look at how the boys ramped IYM into the end of June. What a scam. IYM is now down about 10% in 3 days.
I actually saw Chris Cox (former SEC Chairman) on Friday. He lives in my neighborhood. I had to hold my tongue… My friend asked me why I don’t like the guy and if I could illustrate my frustration with the regulators it would be this chart of IYM. There is simply no enforcement of the rules and that has led to massive fraud and corruption – which has cost Taxpayers several Trillion Dollars. Cox could have prosecuted literally hundreds of these scumbags and he chose not to. That makes him a less than honorable individual in my book. If he takes a job at a Wall Street firm that he was supposed to regulate and didn't, that will make him infinifely more contemptable in my eyes.
Freeport McMoran (FCX) was the leader for commodity stocks and I have told you on several occasions that when it goes, the group may soon follow. FCX is now in a classic topping pattern and has the potential to fail and fall hard from here. Let’s see if the sellers show up.
Many other parts of the Materials and Commodities groups are failing or in serious trouble. Remember, these areas have been the leaders. That is not a good sign, as money is not rotating to other groups! Look at the charts of RTP, BHP, CLF, CNX and MEE for some other trainwrecks.
Look at how Agriculture (DBA) was just trashed today! Notice the ramp into the last day of May…
The NASDAQ 100 (NDX) has been another leader. Today it broke the 50-day (Black Line) for the first time since mid-March. The Bullish Percent for NDX is now at its lowest level since early-April. Normally the Bullish Percent will hang around and then plunge over the last few weeks of any correction, as the leaders play catch up to the downside with the rest of the Markets. I will be watching this closely.
The bottom line is this – I expected the bottoming of the Bear Market to be a process that would be a series of rallies and retest. I have been reluctant to buy much, because history has told me that there is high probability for a scary retest of the March 2009/December 2008 lows. I expect that selloff to be aggressively bought by the Big Boys, with Team Obama printing money until there is no more Green Ink…
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