SPX and NYA Updates

Yesterday, SPX dropped down to test the black trendline that I highlighted on Wednesday:

It also tested the larger black channel:

Finally, NYA has rallied to its next upside target -- which also happens to be the final resistance zone:

In conclusion, no real change from last update, because all we've seen since is additional confirmation of what I wrote then:  The black trendlines on both SPX charts are the first thing to watch for any signs of possible weakness.  Trade safe.

SPX Update: No Country for Bears

A week ago, I noted that 

On the one hand, bears didn't damage the uptrend even a little, so from a technical standpoint, bulls still have the ball.  On the other hand, the potential impulse down does give bears the best shot they've had all month.  And again, north of 5969 invalidates any hope of that last decline being an impulse. 

But as has been its way for the past few weeks, the market wasn't interested in entertaining even the slightest bearish notions.  Probably the first key line (from a near-term perspective) to watch now is the solid black line.

In conclusion, this is the type of market where -- if you're a bear -- you just keep watching the trendlines (black on both charts) and waiting for the next "best shot."  Trade safe.

SPX Update: The Zombie Canary

Here's a chart that made the rounds this weekend that I found interesting.  For decades, corporate profits made up about 6% of GDP. That was the norm -- a stable share of the economic pie.

Then something broke.

Briefly in the mid aughts, and then again near the launch of the first QE programs, corporate profits surged to 10–12% of GDP and stayed there. That’s not a blip. That’s a sea change.

But here’s the catch: profits don’t rise in a vacuum. If corporations are getting more, someone else is getting less -- usually labor, small business, or the public sector.

So what looks like success is really imbalance. 

Cheap debt, globalization, tax loopholes, financialization -- they’ve all propped up margins. But this isn’t just about business thriving. It’s about extraction replacing productivity.

If 6% was the long-term mean, and we’re now at 12%, then either we’ve built a new normal on systemic distortion… or we’re headed for a brutal mean reversion.

What this chart really shows isn’t health. It’s dependency. We've built an entire asset ecosystem, a political cycle, and a fiscal regime on the back of profit levels that may not be sustainable. And if indeed they’re not -- if they even begin to revert -- the ripple effects could be massive.

This kind of chart strongly implies that the system is unbalanced. And that stocks are priced for perfection based on a profit regime that may not hold.

In short, this isn’t a chart of prosperity. It’s a canary in the coal mine. And it’s been dead for years -- but we’ve hooked it up to an air compressor and have convinced ourselves it’s whistling Dixie.

Worth keeping in the back of one's mind as another suggestion that even though bears have taken a lot of beatings in these intervening years of imbalance... things won't stay that way forever.

Market-wise, we're still basically in the same place we were on Friday:

Not much else to add to the past couple updates.  Trade safe.

SPX Update: If I'm Being Redundant, Please Allow Me to Repeat Myself

Since last update, SPX has traded in a tight range, making today's update largely into a "no change" update.  Since I hate repeating myself repeating myself, I'm just going to quote last update directly, to save people from needing to reopen it:

Last update contained a lot of warnings for bulls, then concluded with:

The first warning for bulls would be sustained trade south of the black channel (noted on Wednesday as the first downside target).  If that channel holds, then no harm, no foul.

As those of you who own theodolites have no doubt already realized, SPX then bounced right at the black channel:

So technically the uptrend is still intact and doing just fine -- for now.  That said, the decline looks enough like an impulse that it's worth being very cautious here if you're a bull.  The chart below shows what might happen if this is a bear move within a larger bull wave.  If this is the start of a larger bear wave, then "look out below" -- so things could get much worse than this.  And we're not far from the invalidation level (5969) for bearish things, so...

Then there was this chart, which has been updated with the new price action, though it's almost impossible to tell:

And it concluded with:

In conclusion, on the one hand, bears didn't damage the uptrend even a little, so from a technical standpoint, bulls still have the ball.  On the other hand, the potential impulse down does give bears the best shot they've had all month.  And again, north of 5969 invalidates any hope of that last decline being an impulse.  Trade safe.

SPX Update: Not Clean, but Not Nothing, Either

Last update contained a lot of warnings for bulls, then concluded with:

The first warning for bulls would be sustained trade south of the black channel (noted on Wednesday as the first downside target).  If that channel holds, then no harm, no foul.

As those of you who own theodolites have no doubt already realized, SPX then bounced right at the black channel:

 

So technically the uptrend is still intact and doing just fine -- for now.  That said, the decline looks enough like an impulse that it's worth being very cautious here if you're a bull.  The chart below shows what might happen if this is a bear move within a larger bull wave.  If this is the start of a larger bear wave, then "look out below" -- so things could get much worse than this.  And we're not far from the invalidation level (5969) for bearish things, so...

In conclusion, on the one hand, bears didn't damage the uptrend even a little, so from a technical standpoint, bulls still have the ball.  On the other hand, the potential impulse down does give bears the best shot they've had all month.  And again, north of 5969 invalidates any hope of that last decline being an impulse.  Trade safe.

SPX, COMPQ: Manage Accordingly

The entire function of Wednesday's update was to deliver a series of warnings to bulls, noting:

1. COMPQ had done enough for a complete rally

2. The rally could die at current levels, given the proximity to the all-time-high, and 

3. that if SPX whipsawed its last breakout, it could suggest "a strong move in the opposite direction."

Last update was a case of "something bothering me" in the charts, but we didn't have any clear impulsive declines to call out, so I couldn't point to any form of proof for readers... but the instinct was strong enough that it led to an update that was basically nothing but warnings, even down to the final conclusion.  

Sometimes that's the best I can do: Convey my intuition -- though intuitions are often, by nature, a little vague.  Hopefully, given that it was paired with "watch these specific signals" warnings (COMPQ, SPX), it was helpful.

With COMPQ, I've been warning for a week that it had stalled at blue and hence might retest black from above -- so, while not "proof" of a pending reversal, this was nonetheless specific in detail.

SPX provided the cleanest signal, and its whipsaw of the red breakout was the main actionable tell:

I also dug a decade-old chart out of mothballs, because it's interesting here:

In conclusion, it's worth mentioning that if the bull count is active, this decline could either fit as a fourth or a second wave (at higher degree).  But in this market, given the massive downside potential, bulls might now want to await clear signs of a bottom (impulsive rallies, etc.) before getting too aggressive.  Because:

Even if this is "just" a second wave -- a second wave could retest the crash low.

A fourth wave wouldn't travel that low, but still has hundreds of points (in SPX) of leeway.

In other words, even the bull counts could be pretty horrifying to attempt to ride out.
And, of course, the bear count breaks the crash low.

So, we're not "writing off the bulls" here -- this could well be a correction to an ongoing rally. 
But we also know the downside risk, which is massive -- so we should manage accordingly.

The first warning for bulls would be sustained trade south of the black channel (noted on Wednesday as the first downside target).  If that channel holds, then no harm, no foul.

Trade safe.

SPX and COMPQ: No Guarantees in Life or Markets

Let's simplify things in this update.  While many markets LOOK like they could stand another wave up, the simple observation is:  We are retesting a major resistance zone (the all-time high).  

And, again, keeping things as simple as possible:  Anytime you have a major retest like this, there is a chance the market won't break through.

So, what I'm saying is:  Looks can sometimes be deceiving -- especially in financial markets -- so this would not be a good place for bulls to get complacent.

A chart worth paying attention to is COMPQ, because it has done the bare minimum needed to complete its pattern.  Now again, it would LOOK a little better with another wave up.  But let's not put all our eggs in that basket, lest it get tossed off a roof by a late-lingering Easter Bunny who suddenly realizes that bunnies don't LAY eggs and the entire holiday tradition makes no sense.

Next is SPX -- which is considering whipsawing its last breakout.  Recall that whipsaws (were that to occur) can lead to strong moves in the opposite direction.

So that's it for today... mainly I just wanted everyone to remember that there are no guarantees in the market and retests of all-time highs sometimes fail -- so we should all stay on our toes here.  Trade safe.