MrJohnRoss' Account Talk

[MrJohnRoss]

Monthly chart of the S&P 500:




Every once in a while it's a good idea to step back and look at the big picture. It's been a pretty good month so far, with the S&P up 6.08% so far this month. I'm still concerned about the rounded top formation. A couple of other things concern me when looking at this chart:
1) Since 1998, whenever the monthly RSI got into overbought territory, it resolved itself by heading down into oversold territory. This takes a year or two to resolve itself, but it's the nature of the beast. Looks like the RSI started declining out of overbought territory in early 2015, so we're about a year into that time frame.
2) The 12 month moving average - when it rolls over after a long climb like it did in late 2000, and early 2008, it spelled trouble for the market for many months. The 12 MMA peaked last July, and is just beginning what appears to be a rollover process.
3) The MACD has produced a long term sell crossover signal in March of last year. Those crossover signals appear to be pretty accurate forecasts of arriving bear markets. Also note that the MACD reached a historic high in late 2014 before rolling over in 2015, which may mean that the market might need to fall even further than the last two times.

Of course, there's always the question... "could it be different this time?"

Sure, there is always that possibility, but I'd have to say that the odds are stacked pretty high against you.

 

[daze823]

Thank you for posting this, I think the long term look provides great insight. Sometimes I get lost in the day to day ups and downs, and its always good to remember there is a big picture and the daily ups and downs are a small part of our overall retirement investments.

 

[MrJohnRoss]

Chart of WTIC:




With the dollar strengthening the last four days, commodities are taking it on the chin. GLD, SLV, USO, etc are all feeling the pressure of the dollar's strength. Since Mr. Market has been riding the coattails of oil higher, it makes sense to see how WTIC is doing.

The chart above clearly shows that the rebound in the price of oil has stalled right at the 62% Fib line, as it just could not bust through the $42 a barrel area after four days of trying. Finally today, it tucked it's tail between it's legs, and is heading south. A lot of how the market behaves in the next few trading days will depend on oil, which will depend on the strength of the USD.

The VIX and PMO systems generated sell signals today, while the PPO system remains on a weakening buy signal. Overall, we are at (+1-1-1) = -1, which is a mild sell signal.

 

[MrJohnRoss]

Updated chart of the S&P 500:




A mild pullback today, but a couple of items to notice here...
1) This is the first time since the Feb bottom that prices fell outside the rising parallel price channel (dashed lines).
2) Prices stalled right at the resistance line connecting the Nov/Dec tops.
3) RSI, PPO, Stoch all look to be heading lower, as well as the Williams %R (not shown).
4) If this is an intermediate top, a 50% Fib retracement would take the S&P down to the 1930ish area, about a 6% drop from the recent high. The lower BB and 50 DMA might also be a target, currently around 1942.

If this drop continues next week, my March 3 forecast will be pretty darn close to nailing it... only off by 2 trading days, and 0.4%.

"The similarities to the October 2015 rally are uncanny, IMHO. That Oct rally started Sept 30, and lasted until Nov 3, just over one month (25 trading days), for a 12% gain. The current rally started Feb 12, so if this rally lasts as long as the last one, it would top out on or about Mar 18. A similar 12% gain would put our top around 2048, just above our resistance zone. We shall see."

 

[MrJohnRoss]

Updated chart of the High Yield Corp Bond Fund (HYG):




The run-up on HYG was absurd, IMHO. Way too far and too fast. It was a precursor to seeing stocks have a nice run, but it sure looks like HYG has flamed out. Here's a few things I notice on the chart:

1) Prices ran up to the 200 DMA, but couldn't hold above it for very long, and have since fallen below it.
2) RSI got into overbought territory, and has since started a cool down process.
3) Stoch has dropped off a cliff, indicating upward momentum is going cold.
4) PPO had a sell signal crossover on Friday, after being in overbought territory.

This is just another indicator that says "risk appetite" is waning. When HYG is doing well, stocks usually also do well. I'm expecting stocks to follow HYG down in the near future.

Let's see how oil, the dollar, and Yellen affect the market over the next few days. All three of my timing systems have moved to sell signals (-1-1-1) = -3, a strong sell. Be careful if you are long.

 

[MrJohnRoss]

Updated chart of TRAN:




Today's action was a farce, IMHO. The central bank will try to jawbone and prop up the markets, especially during this election season, even though the economic outlook continues to look bleak. Tran bounced off the lower channel, but it didn't change the technical picture much. It keeps it in play for a little bit longer, but I'm leaning towards more downside action yet to come. Also notice the anemic volume across the board on this up day. Tran is on the cusp of a bearish PPO crossover. 200 DMA may act as support... for now. Prices could go sideways for a while. We would need to see much stronger price gains for me to think that the bull market has come back to life.

 

[MrJohnRoss]

Chart of the NYSE Composite (NYA):




NYA includes all the stocks on the NY Stock Exchange, so it's a bellweather index. How's it doing? Doesn't look too good to me.

After hitting an all time high last May at 11,254, it's been sagging down ever since. It's caved in several times, and tried to crawl back up to the downtrending resistance line (dashed blue line). Looks like it recently cleared that resistance line this month. Whee!

...But wait... Isn't that PPO awfully high? Sure seems like it needs to come out of nosebleed territory and correct itself. The PPO gave a sell signal on Tuesday, but it's still trying to crawl a little higher. I think some bug spray will get it back down (get the can of "reality" and spray a little bit on it). NYA is still down -9% from it's all time high.

Call me stubborn, but I'm just not convinced this market is going to go much higher. We either trend sideways, or we get a healthy pullback, IMHO. My three timing systems are at (-1,-1,+1) = -1, a mild sell signal.

 

[MrJohnRoss]

Where Oh Where Has the Rally Gone?


..."A good bellwether of this decline in heavy industry profits is the giant-machine giant Caterpillar. While Cat stock has soared 30% from its earlier lows this year, its sales have been declining for 39 months, the longest decline in its history, and in February it experienced its largest monthly decline in five years -- a 21% crash, which followed a 15% plunge in January. It's sales have been falling precipitously in every market, including the US. At this rate, if sales decline any more, Caterpillar stock could outperform Apple. While that sounds like it doesn't make sense, it is the way the Caterpillar has been crawling.

How do you explain the huge rise in Cat's stock value with such long term and worsening profitability? Simple. Just look at this company press release: "Caterpillar Announces $1.5 Billion Accelerated Stock Repurchase"

"Repurchasing an additional $1.5 billion of Caterpillar stock in the third quarter of 2015 will bring our total 2015 stock repurchases to approximately $2 billion. In addition to the stock repurchase, our Board of Directors recently raised the quarterly dividend by 10 percent, further demonstrating our commitment to stockholders."


Caterpillar stock is only popular because it guarantees good capital returns with its dividends and by feeding on itself with stock buybacks. Instead of investing in its future, Cat is cannibalizing itself to its investors...."

 

[MrJohnRoss]

Chart of US Oil Fund (USO):




The market has been riding the coattails of the rise in the price of oil. Sure looks to me that the rebound in oil is drying up. After making an intermediate term high of 16.20 on Oct 9, it fell all the way to 7.67 on Feb 12. That's when the rebound began both in oil, and in the stock market.

USO has been in a long term downtrend for quite some time. The 50 DMA has been below the 200 DMA since last Sept. It's been a rollercoaster ride, mostly down, ever since. It was due a bounce, as the RSI and PPO had gotten extremely oversold. Now that USO has come up for a gulp of air, it looks to be headed back down under, possibly taking stocks with it. Here's what I'm seeing:

1) Notice that we had a PPO crossover sell signal on Monday.
2) Stoch is falling off a cliff.
3) We reached the 38% Fib retracement level, and price began immediately falling.

USO reached it's intermediate term high of 10.80 on March 18, almost two weeks ago. It's dropped over 10% since then, and yet the market has continued higher. Do you think stocks have "decoupled" from the price of oil? I seriously doubt it, and think stocks will have some catching up to do... to the downside.

Also keep in mind that oil is falling even though the US Dollar has been dropping like a rock lately, which normally boosts commodity prices. That means if the dollar stabilizes, or even strengthens, oil will drop even more than when the USD is falling.

My best guesstimate is that the run-up in USO has exhausted itself, and a new down wave is in process. This will not sit well with the stock market, which will soon follow suit. I'm surprised it hasn't already, although there are cracks appearing in the armor. My three timing systems are all straddling the fence, very close to their crossover lines. Currently they are at (+1+1-1) = +1, a mild buy signal.

 

[MrJohnRoss]

Decided to go 100% S Fund today...

April Fools!

Chart of the S&P:




The 1st and 2nd day of the month are the best performing days for the S&P, so we got that today. On the downside, here's what I see:

1) RSI is over 70, which is overbought.
2) PPO is looking like it's about to roll over to the downside. It won't take much.
3) The last two weeks advance has come on anemic volume, not a good sign.
4) 50 DMA is still below the 200 DMA, which is a negative.
5) S&P is at 2072, which means we're now about to enter a very strong resistance area between 2076 and 2116.

Looks like my call for a top on March 18 was premature, eh? Despite all the negative signs, despite oil and the dollar falling, the market continues to advance. How much longer will it last?

 

[Cactus]

You got me, MJR!!! :embarrest:

It's amazing what goes through your mind between reading lines 1 & 2. I read line 1 and thought: How could you? This goes against everything you've been posting recently. If you were going to jump in why didn't you do so in March and save an April IFT? Oh, line 2, April Fools.

Congratulations, you're one of only two people to get me this year. The 1st one told me that Microsoft was going to be releasing Internet Explorer on Linux. That seamed plausible coming on the heals of the real announcement that Microsoft will be developing a version of their MS SQL database to run on Linux servers.

 

[MrJohnRoss]

You got me, MJR!!! :embarrest:

It's amazing what goes through your mind between reading lines 1 & 2. I read line 1 and thought: How could you? This goes against everything you've been posting recently. If you were going to jump in why didn't you do so in March and save an April IFT? Oh, line 2, April Fools.

Congratulations, you're one of only two people to get me this year. The 1st one told me that Microsoft was going to be releasing Internet Explorer on Linux. That seamed plausible coming on the heals of the real announcement that Microsoft will be developing a version of their MS SQL database to run on Linux servers.

Heh heh heh. Glad I got ya Cactus.

 

[MrJohnRoss]

Updated chart of TRAN:




Compare this chart to the one I posted on 3/29, and I think you'll see that things have gotten progressively worse for TRAN, which is usually the market leader. Prices have fallen completely outside the parallel uptrend lines, and we're in the process of heading lower. PPO had a bearish crossover, and Stoch is falling fast. The biggest warning that prices had come too far was seeing the RSI go well over 70, which is usually a sure sign that a pullback is coming soon. Sure enough, we're in that process now.

Current timing system reads (+1-1-1) = -1, a mild sell signal. The +1 is sitting right on the fence, so it won't take much to move it to a -1.

 

[MrJohnRoss]

Swing trade: Bought RUSS this morning at 21.53:




Good luck!

 

[MrJohnRoss]

Chart of the S&P:




S&P is following TRAN in much the same manner - falling outside it's uptrending channel, and losing momentum on the Stoch and PPO. RSI hit 70 recently, and it popped the balloon. PPO also had a negative crossover. All three of my systems are at sell signals (-1-1-1) = -3 a strong sell.

Futures look positive tonight, so we might get an up day tomorrow, but I think the time is ripe for a down wave. Futures look bad for Euro stocks and the DAX, so we may see some spillover.

Looks like oil is spiking higher tonight after reports of higher draws than were expected from storage in Cushing. Figures. It will likely mean a down day tomorrow for RUSS, which is highly sensitive to the price of oil (RUSS goes up when oil goes down). I think it's just a bump in the road to lower overall oil prices in the intermediate term. We shall see.

 

[MrJohnRoss]

TRAN continues to deteriorate, down 10 of the last 12 trading days. Not even the rebound in oil could lift it today, which is pretty bad. Is it due for a bounce, or is it an omen for the Dow and S&P?

 

[Khotso]

TRAN continues to deteriorate, down 10 of the last 12 trading days. Not even the rebound in oil could lift it today, which is pretty bad. Is it due for a bounce, or is it an omen for the Dow and S&P?


View attachment 37862

Good question, huh? It actually appears to be playing out very much like the two month decline that began last November. If so, look out below!

 

[sniper]

This market's been fun lately. Bring on the volatility!

 

[MrJohnRoss]

Chart of AGG (F Fund):




The F Fund's done pretty well this year, with a YTD return of 3.63%. Whooping up on the C, S & I funds, that's for sure. Bond yields have gone down pretty drastically since mid March.

Looking at the chart, perhaps AGG is getting a bit too hot, as the RSI is now over 75. Wouldn't be surprised to see a cool down in the next few days, just to unwind the overbought condition. The same thing happened back in Feb, when the RSI got too high, AGG went sideways for a few weeks. Of course, if the market continues to fall, money may flow into bonds more heavily, which will cause yields to fall further, which will push AGG higher. That remains to be seen, but it's certainly a good possibility, as stocks look to be on shaky ground right now.

 

[MrJohnRoss]

Time to step back and look at the big picture. Here's the NYSE Composite going back about 18 years on a monthly basis. I showed a similar chart a few weeks ago for the S&P, but NYA is a broader index, with about 1900 stocks, so it's not distorted towards only big cap companies:




NYA looks even worse than the S&P 500, which is not surprising. The rounded top is more pronounced. The fall from an overbought RSI is very similar, as is the MACD bearish crossover. It also looks like prices haven't closed above the 12 month moving average since last July. We're also down over 10% from the high back in May of last year.

Looking at a monthly chart like this is a good way to filter out all the day to day noise and figure out what the market is trying to tell you. To me, it's saying that things are NOT going too well, even though we had a nice run-up last month. Bear market rallies have a tendency to be pretty strong, but I still want to remain cautious of what I think is yet to come. It may not happen tomorrow, or this week, or even this month. But it sure looks to me like this roll over is just getting warmed up, and we've got a lot more downside left to go.