With payrolls today, followed by the Colombus Day holiday on Monday, basically just about anything can happen. Yesterday probably saw some position squaring going into this, I still favour the upside after this weeks price action, though I do have some concerns particularly with regard to Breadth which I covered in yesterday's post (which can be seen by clicking here). I would not be surprised however if there was some sort of test of the lower side of the recent rising channel of the past couple of weeks, particularly on a poor payroll number. (Hmmmmmm, perhaps a bit too much fence sitting)
Further to yesterday's posting regarding Breadth, I am posting a chart below showing a strong similarity between the way price action is unfolding now and how price action occurred in March/April this year. As the chart shows, both periods produced upward sloping rising channels, following a prior very strong rally. In addition in both cases Momentum started diverging, and as I mentioned yesterday, breadth, as measured by the '% of SP500 stocks above their 50 day moving average', was at levels suggesting a possible top soon. I always like to point out that a re-occurrence of a price behaviour (particularly one event), does in no way mean a repeat is on the cards, however it is something I feel needs watching. - A scenario I am considering is that the current QE fever, which is propping up stocks and continues to weaken the USD, plus hopes about the upcoming election, could be the spur that keeps the bull running for a few weeks longer. I know that is highly speculative, but certainly possible, after that then a possible top may start to form, or we could just drift off from here on a break of the lower channel. - Lots of options really, I guess best get payrolls over and done first.
One further point, as I mentioned above, my bias is long right now, personally I am not actually long trading wise. My bias is long because current analysis on what has actually happened, suggests the upside is favoured at present, I am not actually long because I harbor too many doubts right now. If I decide to take a long position, it will probably only be short-term with a tight stop trailed higher. One of my anxieties, in addition to the above, and certain other issues raised in the past couple of weeks, is the inverse Head + Shoulders pattern, I am not a big fan of H+S patterns generally, particularly as continuation patterns, I find them somewhat unreliable as trading signals, however that does not mean they should be ignored. On the other hand I am a big fan of H+S failures, they tend to be far more reliable as indicators, though obviously a failure is not currently a feature of this market at present.
Finally, something for the weekend. This week some unbelievable cycling skills from a young Scot Danny MacAskill , this is a video well worth watching, the backing track is pretty good too, enjoy:
Some nice cycling skills, but still probably easier than calling US equities over the past 6 months.
I do not pretend to be an expert of any sort when it comes to stock market 'Breadth' indicators, however some of the other Blogs I read occasionally cover this sort of stuff in detail, and recently they have been making some interesting points. One of the better blogs, Trader's Narrative, posted a good article yesterday highlighting that one significant breadth indicator, the percentage of stocks in the S+P 500 index trading above their own 50 day moving averages, has reached the highest level since Apr 2010. The article can be seen on this link. - The article does makes an interesting point; that the level at over 90% is typically associated with market tops, however it does stress that there are exceptions to this rule, and when this occurs the market will often power higher. An exception occurred in April 2009, I have tried to highlight the periods when this breadth indicator flashed up this signal on the chart below (Timings of this signal will not be precise, but approximate only). It may be that this is one of those exceptions, I have tried to show on this same chart how the price action in recent months is not dissimilar to the price action in March - April 2009. This may favour this being one of those exceptions, either way I guess a big move may be coming in the next month or two.
Another excellent Blog that I follow is 'The Trend' blog, he also discusses Breadth in the sense that 92 of the Nasdaq 100 stocks are in an uptrend in his own particular system, typically in the wake of this sort of reading the Nasdaq move sideways to downwards over the next 5/6 weeks. The article can be seen on yesterday's posting by clicking here.
Is Apple forming a '3 Peaks and and a Domed House' formation ?
I am wondering whether Apple Inc is in the process of forming a rare '3 Peaks and a Domed House' formation. For more information on this pattern click here. The chart below shows Apple Inc over the past four years on a weekly Log-scale chart, with labeling and the idealised 3 Peaks formation shown below. If this does actually follow through it could mean a very sharp correction lies ahead at some point for Apple. On the assumption that this pattern is valid, then a crucial issue will be are we at label point 23? or is this high still to come, and if it is it could still have some way to go higher. Apple of course matters, it is close to 20% of the Nasdaq, and is one of the 'Poster Boys' of the equity markets.
As an example of what happens when the '3 peaks and a Domed House' formation does work out I have added a completed pattern which occurred on the Weekly Bank Index over the period 1992 - 2009 on the chart below.
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