Loads of Charts

I am posting several more charts today than normal. Hopefully they are helpful in focusing on what to look for in the coming days and weeks from a technical perspective.

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Above is the S&P 500 ETF, SPY. From a historical perspective this 2 legged advance (a leg being defined as complete when the market fails to make a new high within a calendar month) is one of the largest % gains ever and is mature from a time standpoint as well. So on that basis, expect this market to be topping soon. The bigger question is whether this will be a major high, or just an intermediate top which gives way to new market highs. From looking at charts of stocks commodities and interest rates, I would think that if this is not a major high, then the next leg up will be a major inflationary move. Because of that I will be tracking gold, grain, energy, and inverse bond (long interest rate) ETFs as any pullback develops, because that would be they way to play the next move. From a historical perspective expect any coming correction to be 10-15% and possibly sharp (possible bottom in late January or early Feb). Hopefully the size and speed of the decline will give good info on whether it is a major top or just an intermediate top.

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This chart is a daily chart of SPY. The market has been consistently cycling around options expiration ever since the March bottom. Pullbacks have been frequent in the 2 weeks following OpEx. This past Friday was expiration Friday, so that puts us in the window for a pullback. However, there are generally positive currents in this time frame seasonally, so I'm not sure what to expect on that basis.

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This chart is the XLP consumer staple ETF. This is a nice example on a weekly time frame of a bearish engulfing pattern with range (high to low) expansion. Price is under resistance, and the MACD is close to making a bearish cross. This ETF has been so steady that if this is topping, I would think that it implies significant market weakness ahead, but that is somewhat speculative.

On a daily time frame XLP is showing a great example of what I would like to see on SPY to confirm a downside break. Notice the bollinger bands were narrow the last couple weeks and then price made a close below the lower bollinger bands as they expanded. That was followed by a second close below the bands. This type of bollinger band configuration is typical of a volatility breakout and will often lead to sharp moves down.

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This chart is the Retail Holders ETF, RTH. Again this is a nice example of a bearish engulfing candlestick with range expansion on a weekly time frame. The MACD is also very close to crossing down. So the XLP and RTH ETF's are suggesting downside ahead, so that may be a clue to what the broad market will do.

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This chart is the Dow ETF, DIA. Last week the weekly RSI became overbought for the first time since late in the last bull market. The MACD is very stretched/overbought and could cross down in a week or two. However, there is no divergence which tends to be the most reliable topping signal. This week formed a bearish engulfing pattern which is a top reversal pattern, however the range was small and so does not look too imposing. So the two most likely things here are a major top now or a pullback for a few weeks followed by another move to new highs that forms a bearish divergence on the MACD and a major top then.

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This is a daily chart of the Nasdaq 100 ETF, QQQQ. Technically it looks divergent and maybe topping on that basis. However, it also is forming a classic ascending triangle which statistically is more likely to break to the upside. However, I would certainly wait for an upside break if considering a bullish trade on this. The pink dashed line on the chart would be like a failed pattern point of recognition. If price falls below there, then expect a significant decline back toward or below the Nov lows. So this looks bullish, but is not confirmed yet.

As a brief aside the dollar index made a doji on Friday and may be due for a pullback. I will go into more detail on this in next post. It really does look like a new uptrend even on the weekly chart of the Dollar Index, so I can't really suggest selling if you are in a dollar bull fund, but expect at least a brief consolidation for a week or two.