Weekend Charts: Autopilot, NorthmanTrader
Te the previous Weekend Charts segment wij mused whether Janet Yellen would let markets fly again. Ter 2018 US markets have bot woefully lagging Japan, Germany and most of Europe after all. And Janet Yellen did not disappoint. By week’s end EVERYTHING wasgoed flying: Stocks, bonds, metals, oil, you name it. If it had a ticker it moved.
The macro background:
Economic gegevens has bot lagging severely (think Trio negative retail sales reports te a row) and earnings estimates have bot coming down hard. According to FactSet 83 out of 99 companies te the $SPX (^GSPC) have now issued negative earnings guidance for Q1. One of the main culprits: The strength of the US dollar largely driven by active QE programs of the ECB and BOJ. Currency wars at their best.
So wij learned something fresh this week: The FOMC felt it necessary to waterput a zekering to the dollar’s ascent. And they did it primarily by taken down their forward rate forecast and the dollar reacted promptly (UUP):
International markets had bot flying for weeks on end with active QE programs te place:
Germany’s DAX (^GDAXI):
The Nikkei (^N225):
Note all thesis charts have something te common: Unidirectional ascent without breathing, without correction, significantly inflating asset prices via P/E expansion creating chart patterns vastly disconnected from basic moving averages and priced to perfection. The DAX, for example is now up Ten weeks ter a row. QE is working spil it is thrashing the Euro and European yields to record lows, supported by central banks cutting rates and the ECB buying bonds. Te brief: Metselspecie is coerced into stocks.
What’s the conclusion for US stock investors and traders?
Firstly wij have to recognize that the Fed remains the primary price discovery mechanism for US markets. This is simply an observable fact when viewing the SPY chart te setting of either FOMC meetings, press conferences, or key press mutterings.
Be it te anticipation or te reaction, key bottoms have occurred ter conjunction with a Fed finding fresh ways to stay dovish and effortless. From Bullard’s QE4 comment at the October bottom, to Janet Yellen’s “patient” to now the Fed reducing their rate forecasts for 2018 and beyond the FOMC remains the key pivot point for major rallies.
Ter the process they have created a market that has bot on autopilot for years. A geschreven look at Two timeframes with key moving averages makes this ideally clear:
The SPX (^GSPC) on a monthly voet: The 8MA and 5EMA remain the single key pivot points for this market. The monthly low this past week: The monthly 8MA spil so many times before with an ascending trend line that makes the 2175 area a potential target:
On a quarterly fundament the picture is exactly the same. With monotone precision the autopilot executes te steadily style along key moving averages:
Spil with European markets and Japan all downside risk seems to have bot permanently liquidated.
Te fact one could go spil far to say that all news, currency moves, earnings, etc are just theater to divert traders from the structural program that seems to be ter a repeat pattern.
Spil traders wij’ve bot able to take advantage of some of thesis structural patterns and spil long spil they work why shouldn’t wij?
Related movie: Quick gdax.com walk through
The latest pattern shows up to be a structural replay of 2014: Strong rally te February with a peak te early March, followed by a petite pullback into the middle of March, before a strong bounce into March OPEX for a lower high. Well, that’s exactly what markets did here:
Now structural patterns don’t imply a day by day repeat, but a normal direction. Spil ter 2014 wij had early January weakness te 2018 spil well. So what does the pattern imply going forward?
Some weakness next week after last week’s OPEX and then a powerful rally to fresh highs into month end and early April, followed by a acute pullback before bouncing higher again. See 2014:
The weekly chart on the SPX certainly supports higher prices here spil well spil the upper trend line tends to be the next logical target of this seemingly unalterable channel:
Add to the fact that puny caps and the Nasdaq have cracked out to fresh highs the upside seems well supported.
The worst investors seem to have to potentially contend with ter 2018 is a stir into the weekly 50MA or, imagine the terror, the weekly 100MA. Both show up to be solid long entry opportunities should they be te the offing.
And this is indeed the only conclusion one can come to te a market that is on autopilot. The roll side remains an argument based on truth.
A glimmer of such honesty wasgoed found on CNBC on Friday with former Dallas Federal Reserve Voorzitter Richard Fisher who had this to say:
“Are wij pasivo te my private opinion to a significant equity market correction? I do believe wij are, and the reason for that is people have gotten lazy. They’ve depended totally on the Fed,”..”Yes, wij have … conditioned the markets.”
And there he has ideally summarized what the charts above outline: Markets on autopilot ter the belief that central banks will always voorstelling up at the right moving media to lift equities back on autopilot toward fresh highs and so far so good.
Yet every autopilot program eventually comes to an end spil the plane vereiste land. Passengers of this stratospheric flight may want to check whether there’s actually a pilot on houtvezelplaat that can land this flight securely.
Fresh highs or not there are indeed some storms clouds on the horizon:
Friday’s OPEX shoved the VIX (^VIX) overtly into gap pack territory:
Spil strong spil the buying has bot this week, stocks above their 200MA proceed to negatively diverge from high to high:
And while negative divergences have not mattered te a long time, history suggests that, when they do, things can get painful quick, see the Wilshire 5000 (^W5000):
Another risk coeficiente: The very spread international markets outlined earlier. Ten weeks up is quiebro a feat. Germany is up 23% year to date. It’s only mid March. QE or not, this may not be a sustainable tempo.
For now, however, the flight seems safe. Next week is a pilot convention after all. Public Fed speakers next week include: Mester, Fisher, Bullard, Williams, Evans, Lockhart, and to close the week: Yellen herself speaking ter San Francisco. But don’t be astonished if something cracks along the way.
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