by Mahesh Kalbhor | Aug 5, 2024 | Weekly Update
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Hello, fellow market enthusiasts! Today, let’s delve into the recent turmoil in the $SPX and uncover the factors driving this bearish trend.
**A Manipulative Rally and Its Aftermath**
The pattern of lower highs and lower lows on the $SPX chart continues to signal a bearish environment. Recently, we witnessed a very manipulative month-end rally, likely using the FOMC meeting as a smokescreen, which propelled $SPX over 100 points higher in a blink. This sudden surge seemed aimed at ensuring month-end performance fees. However, once that period concluded, reality set in, and $SPX plummeted 300 points in just over 24 hours of trading.
**Breaking Support Levels**
This latest plunge has broken support at 5400, a level that had held intraday declines multiple times in the last week and a half. Moreover, the gap down to 5370 has now been filled. A close below 5370 will add another bearish element to the $SPX chart, with the next support level potentially as low as 5200, mirroring the late May lows.
**Key Indicators Align with Bearish Sentiment**
Several key indicators are aligning with this bearish sentiment:
– **Equity-only put-call ratios** remain on sell signals. These ratios maintained their upward (bearish) trend even during the recent $SPX rally. They will stay bearish until they reverse course and begin trending downward.
– **Breadth** has shown strength, indicating small caps are outperforming big caps. However, if breadth turns negative again on Monday, breadth oscillators will confirm sell signals.
– **Implied volatility** is signaling a bearish state for the stock market, despite some mixed signals.
**Volatility Spikes and Sell Signals**
On July 31st, a “spike peak” buy signal was triggered when $VIX closed exactly 3.00 points lower than its previous peak of July 25th. However, this signal was invalidated as $VIX surged through the old peak, now trading at a near-panic level of 28. A trend of $VIX sell signal was also triggered on July 31st, when the 20-day Moving Average of $VIX crossed above the 200-day MA. Since $VIX was already above that MA, it signaled a sell. This sell signal will remain in effect until $VIX closes below its 20-day Moving Average for two consecutive days.
**From Bullish to Bearish: A Rapid Transformation**
The market has transformed from a bullish juggernaut in mid-July to a state of disarray within a few weeks. We are observing more sell signals and will act upon them as they are confirmed.
Stay informed and vigilant in these turbulent times. The market is always evolving, and understanding these shifts can make all the difference in our investment strategies.
Until next time, stay savvy!
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**Categories: Market Analysis, Stock Market Insights, Technical Analysis**
**Tags: $SPX, Market Trends, Technical Indicators, Volatility, Bearish Market**
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Feel free to share your thoughts and experiences in the comments below! How are you navigating these market shifts?
by Mahesh Kalbhor | Jul 13, 2024 | Weekly Update
Hello, market enthusiasts!
The market is on fire, with the pace of trading accelerating to new heights. The excitement that has propelled the S&P 500 ($SPX) is now spilling over into small-cap stocks like those in the Russell 2000 Index ($RUT; IWM). This surge in small caps has expanded market breadth, turning a previous negative divergence into a positive one. Cumulative Volume Breadth (CVB) has been hitting new all-time highs alongside $SPX almost every day in July, signaling that this is no longer just a NVIDIA (NVDA)-driven market.
Put-Call Ratios: A Closer Look
Equity-only put-call ratios are hitting new relative lows, levels we haven’t seen since the last bull market ended in late 2021. As shown in Figure 2, during periods like July 2023 or March 2024, these ratios can stay low while the stock market continues its upward trajectory. It’s important to note that while these low levels indicate an overbought condition, they are not a sell signal. A true sell signal will emerge when these ratios begin to rise sharply from their lows.
Improved Market Breadth
The inclusion of small caps has significantly improved market breadth. Both breadth oscillators are currently on buy signals and have finally moved into overbought territory, confirming the strength of the market’s rally.
Volatility and VIX
The $VIX continues to trade at very low levels, supporting the ongoing rise in stock prices. The trend of the $VIX buy signal, generated back in March (highlighted in Figure 4), remains in place. However, caution is warranted if $VIX rises above its 200-day Moving Average, which is currently at 14.40 and starting to decline again.
Our Strategic Stance
We continue to maintain our “core” bullish position, complemented by several other long positions based on buy signals from various indicators. We are also rolling calls up to higher strikes when they get deeply in-the-money, optimizing our returns amidst the ongoing market strength.
Stay tuned for more updates and insights as we navigate these exciting market conditions. Keep riding the wave with us, and happy trading!
by Mahesh Kalbhor | Jul 2, 2024 | Weekly Update
## Why I Sold My Tactical Long Trading Positions and Raised Cash to 30%
Last Friday, I made a significant move by selling all my tactical long trading positions and raising my cash level to over 30%. Additionally, I plan to hedge the remaining strategic long positions by selling covered calls. Here’s why I’m taking these steps:
### Seasonality
July is typically the last strong month for the stock market before the summer and autumn correction period sets in. This seasonal pattern has been consistent, and I’m cautious about the upcoming correction phase.
### Earnings Season
With the earnings season kicking off, there’s heightened anticipation as guidance has been raised across the board. While expectations are high, there’s also a risk of disappointment if results don’t meet these lofty projections. Moreover, even positive earnings reports might not translate into favorable price actions if the good news is already priced in.
### The Bond Market
The bond market has been reacting sharply since the Biden TV election campaign mishap last week. We’ve witnessed a significant bear steepening, breaking the upward trend of the TLT ETF. Treasuries are now pricing in the potential of a Trump 2.0 scenario.
Long-term US government bond prices have plummeted since the presidential debate, with the 10-year Treasury yield rising from 4.29% on Thursday to nearly 4.50%, the highest level since May 31. This increase comes despite favorable economic indicators, such as the lowest year-over-year print for the personal consumption expenditures deflator since March 2021 and another sub-50.0 report for the M-PMI on Monday.
Economic expectations for the long term are shifting, although the Federal Reserve’s interest rate policy outlook has remained relatively stable. The 10-year TIPS yield has increased by around 14 basis points to 2.15% since Thursday.
### Bottom Line
If Trump wins, the market anticipates a combination of stronger economic growth, higher inflation, and increased Treasury supply. This outlook is particularly bearish for hypergrowth stocks. Given these factors, I believe it’s prudent to lock in profits and observe how the US navigates the presidential battle between the old white men.
In the comments, I’ve included a chart of the Nasdaq 100. Late in 2023, I projected an index level around 20500 for the Nasdaq 100 as my target for 2024. Last Friday, the Nasdaq 100 briefly crossed 20000 before reversing, which might indicate a top. Alternatively, we could see another upward move in July before the anticipated correction. However, several negative divergences under the surface are too complex to detail in a short blog post.
by Mahesh Kalbhor | Apr 21, 2024 | Weekly Update
🚨 **Market Alert: Navigating the Shifting Tides of the S&P 500** 🚨
📉 The S&P 500 has long been a beacon of resilience, steadfastly holding the 5050 support line. For weeks, this seemed a reliable floor, guiding us through uncertain times. Yet, recent developments have sent ripples through the financial landscape as the 5050 threshold was not just approached but decisively breached.
This shift isn’t just numerical; it’s symbolic. The breach has transformed the 5050 mark from a support to a formidable resistance, highlighting further resistance levels at 5150 and the zenith at 5260. Amid this, a silver lining emerges just above 4900, with major support waiting at 4800 – a historical pivot point that merits our attention.
But the narrative deepens beyond price levels. The equity-only put-call ratios, a harbinger of market sentiment, have risen, echoing the sell-offs and solidifying bearish sentiments.
📊 Moreover, market breadth tells a tale of decline, with daily advancements dwarfed by retreats. This isn’t merely statistical; it’s a signal, reminding us that an oversold market isn’t an automatic buy signal. It’s a nuanced landscape, where brief rallies may not suffice to herald a bullish reversal.
🔮 $VIX is presenting us with some very interesting data for the first time in a while. Not only that, but there is some conflict between the major $VIX signals. A “spike peak” buy signal would occur when $VIX closes at least 3.00 points its highest price reached during this most recent spike. So, that’s the good news.
The bad news is that a trend of $VIX sell signal has occurred. That took place at the close of trading on April 17th, when the 20-day Moving Average of $VIX crossed above the 200-day Moving Average (and $VIX was above the 200- day MA, too). It is shown in the circle in Figure 4. These are often intermediate-term signals.
🐻 In response, our stance has evolved. No longer are we anchored in bullish optimism. Instead, we’ve pivoted towards a measured bearish posture, anchored by a bear spread that responds to the $SPX’s recent closure below the 5050 line.
As we navigate these turbulent waters, our guiding principle is agility. We stand ready to adapt, responding to the market’s signals with precision and prudence.
To my fellow investors: Let’s embrace this period not with fear, but with the resolve to seek opportunities within the challenges. The path ahead may be fraught, but it is rich with potential for those prepared to navigate its contours.
Stay informed, stay agile.
#Finance #Investing #SPX #MarketAnalysis #Volatility #Adaptability
by Mahesh Kalbhor | Apr 14, 2024 | Weekly Update
This past week, the stock market has seen increased selling activity, highlighted by a significant downturn on the day the Consumer Price Index (CPI) report was released. Contrary to expectations, the CPI showed a minimal increase of 0.1%. However, the subtle uptick has had profound implications, suggesting that the anticipation of rate cuts may be premature or overly optimistic. This revelation triggered immediate selling, resulting in the S&P 500 Index ($SPX) retracing back to its previous trading range between 5050 and 5180, which historically acts as a support zone.
Resistance looms at the 5260 mark, hovering near the all-time highs established a few weeks ago. At present, the market is experiencing a mild pullback, which could potentially serve as a healthy correction, provided the $SPX can muster a rally to breach new all-time highs. Nevertheless, a drop below the 5050 mark spells trouble, activating a technical sell-off due to the breach of a significant support level.
In terms of market sentiment, equity-only put-call ratios have shifted. After flirting with sell signals for several weeks, we’ve observed a notable uptick, signaling confirmed sell indicators. These will likely persist until a downward trend emerges, signaling a reversal in sentiment.
Market breadth, another crucial indicator, has been lackluster. Despite intermittent days of positive market breadth, sell signals were activated on April 2nd following a wave of selling, and these signals have remained active. Market breadth is known for its potential rapid shifts, yet, for the time being, the sell signals persist.
The Volatility Index ($VIX) has also seen a gradual increase as the market has wobbled in recent weeks. However, it has yet to trigger any sell signals or enter a “spiking” phase, nor has it indicated a “trend of $VIX” sell signal, suggesting a wait-and-see approach for now.
Given the $SPX’s resilience in staying above the pivotal 5050 support level, we maintain our core bullish stance, albeit cautiously, with out-of-the-money calls. We’ll continue to navigate the market, responding to confirmed signals as they arise.
In summary, while the market has encountered a slight retreat, fueled by rate cut speculations and technical indicators, the overall bullish sentiment holds, tempered by caution and a keen eye on emerging trends.
