Diary of a Financier

Technically speaking, today was a mess

In Capital Markets on Thu 7 Nov 2013 at 20:07

When the stock market’s down around 1.5% and the MSM fails to attribute the cause, you know the market’s a bit of a hot mess.

Great news out of Europe this morning, when the ECB decided to ease its main policy rate from 50 to 25bps (the refinance rate) and extend its bank liquidity program through 2015 (the fixed rate full allotment facility).  Then, advanced 2013q3 US GDP handily beat expectations.  We also had the much-anticipated Twitter ($TWTR) IPO launch successfully, closing its first trading day almost +73%.

Nevertheless, technicals prevailed today, with a classic, 15-minute fulcrum top breaking down early this morning in $SPY, burdened by the weight of bear divergences all over the board.  SPY’s crucial support is at $174 (-53bps from today’s close & -2% from the high), else we start liquidating:

SPY 15min

SPY 15min

SPY’s daily chart shows that classic throwover top I expected, as the priceaction sent a headfake upon breaking-out above its dual long term and short term rising wedges.

The troubling development in SPY comes from its weekly chart, SPY daily/weekly/monthlywherein significant, LT 2x bear divergence in MFI is choking off this cyclical bull rally.  Indicators unanimously show multiple ST bear divergences too–all requiring close observation henceforth. 

The monthly fractal is of little value here, other than the observation that MFI is so preciously close to confirming a bull reversal out of a 16-year bear divergence.

That all sounds pretty frightening, but SPY’s fate has yet to be written.  As already mentioned, $174 support is the magic number.  In addition,  you can notice the considerable momentum manifest by SPY’s daily and weekly MACDs.  I don’t think you’ve seen the last of this bull market, since that momentum has further to run (toward Euphoria) before quitting.

The Russell 3000 ETF ($IWV) gives me another reason to be positive.  IWV daily/weeklyUnlike the ST rising wedge in the SPY daily fractal, IWV displays a nice bull channel.  Granted IWV has a big gap down to trendline support >$101, with 1st support at its 50DMA ($102.5), but this is not a topping pattern yet.  Plus, IWV has not ignited the throwover top of its LT rising wedge–like SPY has of its own.

~~~~

We took it on the chin today, but that’s the game (and we still have a nice lead qtd).  Our allocation remains heavy-handed on the risk, 69/28/3 vs 60/40 benchmark(stocks/bonds/cash); beta at 0.92 vs 0.76 benchmark; sigma 1.09 vs 0.49 benchmark.

We’ve got a plan to start peeling-off some of our SMid Cap US exposure in both singlenames and ETFs.  In that effort, we’ll return back down to benchmark-weight, but some of that powder will be reallocated to US Large Caps, some to International singlenames. As you can infer from the above, we expect an opportunity before YE to sell into strength, hence the #Bullish tag on this post.

–Romeo

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  1. […] been a while since I last checked-in on broad market technicals, so I thought I’d record some thoughts on a couple of […]

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