Our forecast for this week was for weakness Monday with accumulation starting for a short term move, by Wednesday morning I had said in the A.M. Update, "It's today or nothing" and yesterday the SPX made the largest 1-day gain in seven weeks. However the forecast for this week called for the dominant theme to be "DOWN", even as yesterday in the EOD post we had called for weakness today starting in the a.m. as 3C signals pick up the next day where they left off.
Today's losses were the stiffest in 8 weeks, volatility is clearly increasing which is something we see at transition areas between the 4 stages of a stock's cycle. We expected to be hitting stage 4 and I believe we are in stage 4 (DELINE).
I showed you in AAPL today the increasing ATR in a flat range in AAPL Follow Up / Position Management, but the same increasing ATR is seen in numerous places as the VIX had the 4th biggest 1-day gain of the year to 16. The Dow Industrials have seen 4 consecutive days of triple digit moves...
The ATR which had been creeping at an embarrassingly low range with +0.10% moves being celebrated by retail as the market gained ground (clearly an unhealthy trend) is now increasing substantially. Check the trends and change in character for yourself. The DJIA...
Word is that Treasuries and gold saw safe haven flows today and while that may be the case, this is not anything we haven't predicted in advance, in gold's case, GLD up +.29% today, I believe this is the base we have seen hints of in both GLD and GDX over the last week.
I don't think gold is there quite yet, but I think it and GDX (gold miners) will be soon as we have expected for months now on a pullback.
As for Treasuries today, especially the long end, everything that has happened is right in line with the 3C charts, of course their forward looking accumulation and distribution is based on something the market knows so I wouldn't say they didn't see safe haven flows, I'd just say, this market is set up and controlled a lot further in advance than CNBC would have you believe as they need you to tune in every day to understand why the market did what it did, that can't be taught in 30 second sound bites. Remember what CNBC does, sell advertisements.
As for REAL Ugliness, take a look at the S&P sectors which I showed on a longer term basis last night...
Today 9 of 9 were down, but looking at the longer term trend in these sectors ...
On a 1 day basis 9 of 9 are red, on a 5 day basis, 9 of 9 are red, on a 10-day basis, 9 of 9 are red and on a 21 day basis, 8 of 9 are red. This should tell you a lot about what's really going on in the market as the averages have barely moved compared to breadth, but just like any leading indicator, the market will move and in this case it is shaping up to be catastrophic which is what I've expected for years in calling this moment, "One of the greatest opportunities anyone alive has ever seen in the market " so long as you figure out the new dynamics first and aren't afraid to blaze a trail rather than follow the comfort of the herd.
Similarly, of the 238 Morningstar Industry and sub-industry groups I track, 223 of 238 were red today, on a 5-day basis, 232 of 238 are red, on a 10-day basis 218 of 238 are red and on a 21-day basis, 204 of 238 are red.
Suddenly it's not so hard to believe that nearly 50% of the NASDAQ Composite's stocks are in a bear market and 40+% of the Russell 2000's are in a bear market.
Speaking of...The Russell 2000 is now down -4.4% on the year and -9% since the July highs. The SPX, Dow 20 transports and NDX all broke their 50-day moving average today and all averages have now lost all of last week's knee-jerk F_O_M_C gains, another consistent concept proving itself.
I was a bit surprised breadth didn't look worse today, that's not to say it didn't look bad. Two of the worst were the "Percentage of All NYSE Stocks Trading ABOVE Their 40-Day Moving Average" and the "Percentage of All NYSE Stocks Trading ABOVE Their 200-Day Moving Average"...
"Percentage of All NYSE Stocks Trading ABOVE Their 200-Day Moving Average". One of the easier ways I use to tech trend classification without going in to complete Dow theory was to use the 200-day as a primary trend, the 50 day as an Intermediate trend and the 22 day as a sub-intermediate trend, they are actually very close to down theory. According to this little annotated Dow Theory, the NYSE has more than half of its stocks in a primary downtrend also commonly called a bear market.
The Advance/Decline Lines were pretty bad as well, the NASDAQ Composite the Worst...
Most other breadth indicators had minimal moves today which was surprising.
As you saw in the late day Market Updates, it looks like the market is putting together a small corrective bounce, maybe to retrace part of today's decline, maybe more, maybe op-ex related, but any price strength at this point, in my view, should be for cleaning up long positions and getting your shorts in order. Even in a full-fledged bear market, we see about as many up days as down, the down days are just bigger.
Finally, the Dominant Price Volume Relationship tonight was Close Down/Volume Up, 19 Dow stocks, 79 of the NDX-100, 1125 of the R2K and 248 of the SPX. This relationship is typically associated with a 1-day oversold condition and the market "usually" closes green the next day, based on late day signals in 3C and leading indicators, I'd say it's definitely possible, however we are closer and closer every day to the fear factor when all funds try to fit out the same small door all at once like AAPL 2012 resulting in a 45% loss in 8 months. Keep that in mind moving forward....
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