Previous post Next post

Short Term Market Signals

 

SPX Trendline Battle, Relative Strength in RUT

We reviewed the daily charts after yesterday’s close and noticed that the Russell 2000 Index, the NYA and transportation stocks all exhibited relative strength (the same holds actually for the DJIA), particularly vs. the FANG/NDX group. This is happening just as the SPX is battling with an extremely important trendline. As we pointed out before, relative strength in the RUT in particular served as a short term reversal signal ever since the sell-off started in February. The question is if this signal will continue to work. Here is an updated chart:

SPX Daily, RUT Daily and SPX-RUT Ratio, Dec 2016 - Mar 2018

SPX Daily, RUT Daily and SPX-RUT Ratio, Dec 2016 - Mar 2018

The SPX, the RUT and the RUT-SPX ratio. - Click to enlarge

Relative strength in the Russell persists, and it has acted quite firm over the past several days in the face of growing weakness in the big cap tech sector. On previous occasions this has indicated an imminent short term upside reversal. At the same time, the SPX is sitting on the decisive trendline recently discussed by Dimitri Speck in connection with “crash analogs”. Interestingly, the Modified Ned Davis Method flipped to a 50% net short position on the Russell last Friday – will it be whipsawed again?

Market Psychology Revisited

We also want to briefly show another short term signal, in this case a well-known sentiment/positioning measure, namely the equity put-call ratio. Below is a weekly chart (candlesticks) of the CBOE equity p/c ratio. This is quite interesting to us, as it confirms something we pointed out in yesterday’s “GBEB Death Watch” article: the recent sell-off has so far utterly failed to generate any fear.

CBOE Options Equity Put/Call Ratio, Apr 2013 - Mar 2018

CBOE Options Equity Put/Call Ratio, Apr 2013 - Mar 2018

CBOE equity put-call ratio, weekly candles: “no worries mates!” – the peaks reached in the two selling squalls since early February came in at essentially meaningless levels. - Click to enlarge

Even the tiny dips of 2017 generated more fear or invited more intense downside speculation.

 

It appears traders are well-trained by now: there is nothing to fear, all downturns represent dip buying opportunities. As long as the trendline shown in the SPX chart above holds, they may well be right of course – and yet, this nonchalant response to one of the biggest selling waves of recent years is definitely out of character. And once again, we are mildly surprised how little attention such factoids seem to be getting these days.

Instead, a quite common refrain is this: “the economy is strong, therefore the stock market is safe”. Naturally, valuations do not rate a mention in these analyses, and admittedly valuations have not mattered for quite some time. Perhaps the little tidbits no-one seems to be looking at anymore will though.

Full story here
Pater Tenebrarum
Pater Tenebrarum is an independent analyst and economist/social theorist. He has been involved with financial markets in various capacities for 39 years and currently writes economic and market analyses for independent research organizations and a European hedge fund consultancy as well as being the main author of the acting-man blog.
Previous post See more for Debt and the Fallacies of Paper Money Next post
Tags: ,

Permanent link to this article: https://snbchf.com/2018/04/tenebrarum-market-signals/

Leave a Reply

Your email address will not be published.

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>

This site uses Akismet to reduce spam. Learn how your comment data is processed.