I just managed to catch Avengers Endgame earlier this week, before it gets taken off box office. Yes, I managed to avoid all the spoilers and it was an amazing 3 hour that didn’t feel like the time had passed. In Endgame, there were turning points where critical changes could have been made, and most were made, to rehash the outcome. Given the same opportunity, would we use the insights to do something today that changes the outcome of tomorrow, at least for ourselves? Perhaps after reading this blog post, you could share with me your thoughts, your questions, and this post with other like minded friends so that we can have a wider perspective for discussion…
First up, the ever important Monthly chart of the S&P500, a pertinent point for discussion.
See the chart below. There are very obvious takeaways which have been previously highlighted, and here is a recap and the current update:
1. The S&P500 has been on a protracted uptrend;
2. In the last retracement (2015-2016), a range of volatility was established. Since then, the S&P500 moved up 50%, and the recent retracement in 2018 established a new range of volatility that is at least double (see the grey box);
3. Similar to 2015-2016, the monthly MACD has crossed down. Every time this happens in history, there is a major consolidation or a retracement/correction;
4. There is a perceived -10% for the current S&P500 level to the support line. And -17% to the bottom of the established range, marked out by the last low.
5. In April, a higher high was recorded, which was bullish. However, May surprised many (but not me, and if you followed my blog, it should not have surprised you too). Check out the monthly candlestick for May.
It completes a Double Top by a Bearish Engulfing candlestick pattern. Combined, these two overlapping bodes ominously for the markets in general.
Read more in detail about the Double Top Pattern here on Investopedia.
Taken together, the technical picture painted is not one that many would like to admit. But clear and present it is, unlike that of 2018 when there was not so clear and so early warning. So, the S&P500 technical picture is one of a lurking bear, all ready to launch an attack on the unassuming and the bewildered.
On the fundamental level, we have a trade war build up that is progressing. Within weeks, the China rhetoric was ramped up, an encounter with the EU was followed my a Mexican swipe. What more and how much more do we need? The flip side came just as this post is written, with China issuing a White Paper on US and the ongoing trade war status. Additional reference articles are here in Bloomberg, South China Morning Post, and The Straits Times. Note the tone and the stance, including the blame game. These are rhetorics which are a progression of a build up. Clearly, there will be no near term resolution, and these rhetorics just add time (and volatility) to the prospects of a resolution, or even an agreement to disagree.
The picture is simple and almost complete, but I’d like to look at something in various aspects and any multi-parametric model should be robust from many angles of perturbation. These are other related monthly chart indications that would corroborate the imminent bearishness.
Below is the monthly chart for the broad market, a Geometric measure, referred to at the Value Line. From here, one can observe that the 2015/2016 low had broken the 55EMA, bounced off the uptrend line support and recovered subsequently. Similarly for the MACD at that time. In 2018, the year end surprise triggered enough technical damage to raise some red flag, such as a MACD bearish divergence and a confirmation of the uptrend line support.
May 2019, a similar scenario is presenting itself, with the Value Line decisively slicing through the 55EMA, indicating a -10% downside buffer for any possible consideration to recover. Breaking this support, would not be far from breaking a TDST support, which would change the monthly chart to a bearish TD bias. By then, the MACD. Should present a cross over into the bearish territory. Noting that the Monthly TD Buy Setup (bearish movement for completion to reversal) just started with the May candle, and is already halfway down to the TD Support, it is highly likely to break down below the support.
Gold, is another indicator that things just might be going awry… it has been consolidating since its fall from the 2011 peak, to a low in 2015, forming a triangle. Noted that there is a Cup & Handle within the triangle, about to break out after completing the handle in a couple of months time. The MACD does look slightly weak but nonetheless bullish cross up and crossover. There is talk and thought that the high USD now is suppressing the commodities like Gold, and it may take the FOMC action to start this rally proper in the near future.
Crude Oil, WTI, on the other hand, appears to have failed the second break attempt on the 55EMA, with a strong bearish marubozu. This together with a weakening MACD indicates a slight support at 52,else a stronger support at 45. Second bite at the cherry anyone??? Noted the large triangle formation, and a subsequent breakout would be seeing prices of 100-110 within two years (after pausing again at 80).
TLT, The Treasury Bond ETF tells a corroborated story, with a recovery after bouncing off the channel support, and the MACD crossing up, it is starting to be bullish to reach the channel resistance about 155. This pattern is similar to that of 2014. Rushing TLT is usually bearish for the equities market, albeit this relationship was disconnected in 2018.
Mentioned in recent posts, the USDJPY and USDCHF pairs are also good indicators of safe haven migrations, especially when compared with the USD index. So far, the USDJPY had broken below the 55EMA and is falling out of the range with a MACD cross down in the making.
The USDCHF appears to be lagging in this trend although May ended with a bearish candle
Overall, the picture formed by the monthly charts suggest June to be DOWN, and perhaps following a more protracted downside later. This would probably be clearer post G20 meetings at the end of June. Meanwhile, just as Thanos snapped his fingers, the market is tethering one thing ice and could drop at the snap of the finger…
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