Monday, July 23, 2012

Monday Market Conditions 7/23/12 $SPX $SPY $VIX $VXX

Today we gapped down hard after finding out that Spain is in trouble, and Greece may exit the euro.  Oh wait, we already knew that?  Perhaps that's the reason for recovering nearly half of today's losses.

Bulls appear to remain in control, buying just about every dip.  But keep in mind the bearish divergences in OBV, ATR, and the stochastics.  The three latest peaks in prices have come as the on balance volume decreases, meaning less money driving the prices up.  The stochastics make lower highs, indicating less upward momentum up each time.  And the average true range is declining, which tends to mean less enthusiasm in the overall move.  All three point to this bull run losing steam.

The volatility index spiked as many were probably caught off guard when they woke up this morning.  However, any fear quickly wore off as the VIX closed halfway into the gap.

The McClellan oscillator registered its first significantly red reading since the beginning of June.  I'm going to start showing this as an area chart to help tell the story from now on.  Also added the 20-day moving average as a bit of a mean-reversion analysis.  We'll see if it sticks.

-Tech rebounded back into the falling wedge after being beaten up, thanks in large part to GOOG's strong earnings.
-Financials took a nose dive last week.
-Energy stocks continue to get bought up by the risk-averse and yield-seekers.  These tend to be strongest at market tops.
-No bottom in sight for Materials.  Going to keep pointing to this chart for anyone that doesn't believe worldwide growth is slowing.

Added this new chart this week.
-Small cap stocks underperforming the broader market confirms that many investors are seeking safety.
-Utilities, like energy, point to risk-off trades.  This sector tends to get stronger as we enter a bear market.
-Industrials also point to slowing growth, another sign of the end of the expansion cycle.
-Transportation names are seeing a sharp decline the past few weeks.  Considering the fact that this index tends to be forward looking, this could be a bad sign.


  1. Great analysis. I agree all looking pretty bearish right now. Bernanke may through a spanner in the works with QE3, but we'll see.

    1. Thanks. I don't think the probability of QE3 right now is very likely. What about you?