Diary of a Financier

SPX intraday update: Revival of 2007 analogue

In Capital Markets on Mon 29 Jul 2013 at 13:32

I’ve distanced myself from the 2007 analogue because there’s been very little to report. The day the recent stock market pullback bottomed, June 24, the analogue predicted bullishness, but I labeled it “unreliable,” due to a decoupling among the daily indicators. Nevertheless, I was able to put the comparison on the backburner at that time, because pure technicals, macro, and fundamental appraisals were together significant enough to bolster the bull case without the analogue’s aid. SPX is +7.25% to new highs since then, so I wanted to check back in on the technicals and analogue. Intraday, $SPY trades -0.43% @ $168.38.

Equities have been receding since Tuesday of last week, predicated by bear divergence in the 30-minute chart, as displayed below, wherein an interesting setup has now materialized. An island top has matured into a Head & Shoulders with neckline >$167.7. That engulfs a shorter term inverted H&S, which is bouncing off right shoulder support ($168) with the aid of 2x bull divergence in all indicators:

SPY 15-min

SPY 15-min

The 15-minute fractal has its stochastic starting a reversal from oversold territory, so SPY will immediately rally up to $169.1, at which ST neckline the reaction will dictate the longer term direction. The intraday vote (in aggregate) is skewed in favor of bearishness, since longer term patterns trump shorter in ambiguous arguments. This is a bull market, so I wince when I say that.

Zooming out to the daily timeframe, I notice the early stages of 1x bear divergence developing—something I’ll keep my eye on. If $168 neckline support holds, as it has so far, I look ahead to long term trendline resistance >$172, which is part of the primary, rising wedge pattern that governs this market:

SPY daily

SPY daily

A rising wedge is normally a bearish construction, but 2007 shows the same pattern was ultimately thwarted when a spike in buyers powered a breakout above overhead resistance. In 2007, volume was thin in advance of that breakout; today, MFI exhibits the same dearth amidst this SPY melt-up to its trendline. Thus, the daily charts are recoupling. Both show consistent overbought conditions, but the stochastics lack the tight-fitting self-similarity I normally like to see in my comparisons:

SPY 2007 analogue (daily)

SPY 2007 analogue (daily)

The 2007 analogue remains strong, particularly across the weekly and monthly fractals, with tight fitting pricetrends, MFIs, MACDs, and even weekly & monthly stochastics:

SPY 2007 analogue (weekly)

SPY 2007 analogue (weekly)

Here’s where this rambling entry actually comes together… I’ve voiced concerns about NYSE margin debt over the past couple months. Despite falling from April’s alltime highs, margin credit outstanding is still stubbornly high–even in real terms–and net margin balances (debits) are still at extreme levels. SPY daily- volumeThe May/June selloff ended with a mini capitulation. After that spike of sellers’ volume, the 7% rally since June’s bottom has been on very low volume. That dynamic should help prolong the rally as lagging buyers will have to relever margin accounts to catch-up.

Dips should be bought here, as long as SPY’s $168 support holds. Were that to break, the daily chart could start forming a multi-month H&S top with a second brush of a $158 neckline before a rally up to right shoulder resistance. The 2007 analogue simply suggests otherwise, with the next stop up at trendline resistance >$172.

–Romeo

*This entry got caught in queue 7/29, as I had no cell signal when I tried publishing.

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  1. Updates…

  2. […] NYSE margin debt & balances (June 2013) | Doug Short (dshort.com) Gross nominal margin debt receded again, now -2% below April’s alltime high (down from $384B to $376.6B), as did real debt, which peaked above 2000′s high but shy of 2007′s record. Net margin balances (-$168B debit) still far exceeded 2007/11 pre-correction lows but have started normalizing, having missed the Tech Bubble’s record low. [Again, low summer trading volume & lagging $SPY MFI since June's bottom should enable continued upside. Previously] […]

  3. […] The 2007 analogue remains in-tact and bullish for the intermediate term; SPX’s lagging MFI could provide the […]

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