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Stock Markets Overview: The Bears are Coming

Interesting how the SP 500 closed at 1999.99 on Friday this week, which was our forecast back on Feb 21st Weekend report, in fact odd that this is what we wrote two weeks ago:

Interestingly, if the Bulls can keep it going a bit longer we have 1999 and 9990 for SP 500 and NYSE targets respectively. Funny how all those 9’s are showing up.

So on the close we saw 1999.99 on the SP 500 two weeks after our comment, and the NYSE closed at 9968, but was just over 9990 near the end of the day.

This weekend we help ferret out if this is a new Bull Market or just a Bear Rally. So before we tell you the most likely answer, lets examine several charts now 3 weeks into this rally that should help you see the next likely move.35 srp sp500 new

35 srp sp50035 srp nysebullish%index spy34 nymot

The above charts basically show you a likely interim top in the indices after a massive 189 point SP 500 rally from the 1810 lows.  Helping us to determine this includes the NYMOT (NYSE Mclellan Oscillator) chart above.  The highest readings in years, so that matches with our 9990 high target we saw Friday.

The Bullish Percent Index chart for the SPY ETF (SP 500) is also at high extremes not seen since November 2015 after the torrid October rally off the bottoms.

The SP 500 chart shows a  clear 3 wave corrective rally as does the NYSE chart.  By Friday, everyone on CNBC is bullish, including Dennis Gartman who is usually wrong at the major pivots.  The percentage of Investment Advisors Bullish has climbed from only 24% two weeks ago to 36% and the percentage of Bears has dropped from extreme levels 3 weeks ago to 36%, matching the Bulls.

Other topping indicators include the VIX (Volatility) levels which crashed from 30 at the 1810 lows to sub 16 this week, below the 200 day moving average line.

35 vix

Below we show you three charts with more evidence of a major top.  The % of NYSE stocks above their 50 day Moving Average has soared from only 10% in January to 81% on Friday, March 4th!!

The second chart shows the NASDAQ Mclellan Oscillator at major extremes, higher than Nov 2015! Finally the  3rd chart shows the Equity Put to Call ratio crashing from .86 at the January lows to .63 on March 4th!35 nya 50435 namo

NASDAQ Bullish % Indicator rallies back to 200 day Moving Average

35 nas bull %

35 put to call

Anyone want to go long the market after all of the above evidence? Good luck. this is what a Wave 2 does… sucks everyone back in, and the slaps them on the head another time.  Maybe this time though it will be different, but we doubt it. The question is really did the market BOTTOM at 1810, the 31% fib of the 2011 lows to 2015 highs?  Did Jamie Dimon of JP Morgan mark the bottom on February 11th as we pointed out a few weeks ago?  Did the Bear market end on February 11th after a 6 year bull cycle and only a 7 month correction?  Doesn’t seem likely, but the market will tell us soon.

So is it a Bull or a Bear in terms of longer term thinking?  Well, so far this is a classic Bear market rally.. what we termed a “Wave 2” two weekends ago.  This works off the super bearish sentiment, and by the end of the ABC up pattern everyone is bullish again and all of the worlds problems have been solved.  We could inch up to 2019, even 2050 and it would still fall within Bear rally levels as well.  With that said, we believe there is still risk to the downside to new lows ahead and that we are not out of the woods.  The initial spot we would expect to see tested on a pullback is the 1932-1937 area on the SP 500.  In our opinion, that will be a key support area to maintain an uptrend or potential further uptrend.   There are simply too many ephemeral interim topping indicators for  us to be super bullish near term from current levels, the risks of a reversal are very high.

What we do find interesting is the “reflation trade” taking hold, and frankly going a bit bananas this past week.  By that we mean Energy , Commodity, Coal, Precious Metals type trades going through the roof in the last 5-8 trading days.  Names like Seadrill, Chesapeake Energy, Whiting Petroleum, Freeport McMoran, Sanchez Energy, BHP Billiton, US Steel, Barrick Gold and you get the idea.  The SP 500 vs. Oil correlation also is continuing as well.

Stuff in the ground is hot, and why not? The commodity cycle has been in a massive downward spiral for several years and at some point it has to bottom and that is when you see these 50, 80, 100% moves off the bottoms.  Spectacular moves really, so fast they can be hard to catch and difficult to chase. Check out your typical sector psychology cycle below, looks about right for Commodities…

35 commodity cycle of despair

The SP 500 has Energy and other Materials sectors within its 500 count of companies, so obviously a lift up in those sectors is going to support the Index in terms of forecasting and charting it out.  The recent rally in Oil from $26 to  $36 per Barrel has lent a huge lift, part of the reflation trade off the capitulation lows.  Check out the SP 500 vs Oil chart, something we first posted two weeks ago. It continues to track oil… the linchpin?

As we have been saying… “Oil up, Market up…” They have NOT de-coupled… so if you can predict Oil for now, you can predict the market right?35 oil sp500

A few weekends ago we pondered what could cause the stock market to rally to all time highs again? The answer was Oil rallying into the 50’s (Long ways to go yet) and or the Fed inducing QE4 of some type.  Unless one or both of those takes place, the rally should be running out of steam near term if it didnt already peak out on Friday this week. Clearly the Energy and Commodity stocks were priced several weeks ago for bankruptcy, so the percentile gains in those sectors since has been  dramatic on the upside for those who were bold.

Gold Stocks Topping? (For now)

Along the way, Gold and Gold stocks have soared as money has been pouring into Gold the commodity at the fastest pace since early 2009.  However, along the way SRP members have managed to profit from the pullbacks in GDX ETF using DUST.  3x leveraged to downside moves in the GDX ETF  (Gold Stocks).  Many have profited from the NUGT 3x Bull ETF on Gold stocks, but our thoughts coming into this past week were the GDX would maybe have one more push higher into the March 5th window and then peak out and correct hard.  We saw evidence of that on Friday as the GDX got just past our 20.50 target, then reversed and rolled over hard.  DUST ETF went from 3.22 to 3.90, 20% intra-day move off the lows

The Gold Miners bullish percent index is at 72%, the highest  reading since 2013. Everyone is long.

This was our GDX ETF Chart from last weekends report, and it played out with a spike high Friday per our Green arrow on the 2/26/16 chart below (8 days ago).  We pulled back hard in the afternoon, and the Mars-Scorpio transit we pointed out last weekend also is ending today… we may see more pullback in this crowded trade near term.

227 srp gdx

Bottom Line

After a torrid 3 week rally of an ABC nature, the markets have more than worked off the overly bearish readings we pointed out back in February near the lows.  The market should have a pullback to 1930’s on the SP 500 at a minimum to work off the current extremes.  Oil has carried the markets higher and pushed the commodity stocks up 80-100% in many cases, but they are a bit extended.  The volatility indexes have crashed and investors are once again complacent.

Could the market continue higher from 1999?  That was our “Perfect top” prediction a few weeks ago, and we got to 2009 intra-day before closing at 1999.  There is a gap near 2040-2050 and a Fibonacci convergence near 2050 on the SP 500, maybe it can squeeze a bit higher… but right now the buyers are all in and the sellers or shorts have tossed in the towel.  Where will the fuel come from for further rally near term?

Bull or Bear?  Still a Bear cycle with a nice 3 week rally, and the 1932 area will  be KEY support for Bulls, if that is broken the top of the rally is likely confirmed.  We remain open minded that the Bear could have ended on February 11th 2016, but at this time its far from confirmed…

Caution near term is warranted.  Make sure you have a Tactical strategy because Capital preservation is always #1.


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