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15 Oct 20, 77 tweets, 24 min read
If something cannot go on forever, it will stop.

$ES_F is now back below that lonely red candle. 3420 is a bcktest of the 'breakout'
$NDX down 4 days in a row. Last 5 yrs, n=14. $NDX closed lower 5 days later 64% of the time and only half the cases closed higher within those next 5 days. Weak
indexindicators.com/backtest/nasda… Image
$NDX down 5 days in a row. Last 5 yrs, n=8 (small sample). $NDX closed lower 5 days later 63% of the time and had a lower close within those next 5 days in all but one instance (88%).

Scroll up - today not a big surprise Image
$SPX low of the day 3420 (backtest of the ‘breakout’)
Update (scroll up): $ES_F hit 3420 no less than 5 times in the last 3 days and finally broke to 3400 channel bottom. Any sustained weakness below there nulls the ‘breakout’. Key time Image
$SPX - persistent weak closes setting up a bounce: all higher w/in next 5 days and 94% higher on Day 5
Image
$ES_F 3400 channel bottom was the low (scroll up). Now +2% at 3460 channel top. Any higher goes to 3500, otherwise channel bound Image
So far this week, $SPY up $4.5 overnight, down $5.9 during cash hrs
Channel top Friday (scroll up) and now channel bottom again $spx Image
Today is Day 5. $NDX down 1.6% from this post
$ES_F went boing on channel bottom (scroll up). It’s in a falling pattern until >3420 and top rail. Downside S at 3330 and 3300. Back in Sept hot mess is not a great place to be Image
-1730 tick at the open as everyone tries to squeeze out through one door
Just reached 3301. Key time. Much lower and it’s off to Sept lows at ~3200
$SPX - October on track to close down 3%. Looking at you, November-December
Likewise: ATH followed by a -5% DD has led to a minimum drawup (monthly close) of 3.3% in the next 3 months. Add that to the -3% this month. $spx
$SPX up 5 months in a row and then down 2 months in a row. Good luck ImageImageImageImage
$SPY at 334 in pre-market, which would throw it back inside the former channel. Last Wednesday’s gap fill is 338 and WR1 is 339, along with the top of the channel (which is probably busted). And, there’s an inverted pattern that also targets 340-ish, w/ neckline at 333 Image
Filled the gap at HOD and turned around at top of the channel. Channel rules until we gap out of it $spy Image
$SPY - Right now, would gap up $6 out of the top of the channel
$SPY has gapped up $17.8 this week. That’s 80% of the week’s 7% gain
Persistent buying tends to keep going
$SPX on track to gain 7% this week. Aside from election week 2008, that has lead to more gains ImageImageImage
(Scroll up)
Today, $SPY gapped up overnight 4% and then sold off nearly 3% on the highrst volume in 7 months. Other than that, not much going on
A higher close sometime in the next week $spx
Consensus values $SPX today at 21.8x and sees 8% upside in the next yr
To put that $165 in FY21 EPS in perspective, FY19 EPS was $163 yet $SPX now trading ~20% higher than in Oct 2018. Hence, PE expansion from ~18x to ~22x
Overall
A. Tailwinds
1. Trend - ATHs
2. Breadth - $NYSI +400
3. Seasonality - strongest 3 months
B. Headwinds
1. Sentiment - uniformly bullish
2. Valuation - 22x FY21
3. Volatility - still >20, where 'things happen’
C. Unclear
1. Macro: 1H21 downside risk; 2H21 likely expansion
Macro: fund mgrs super optimistic on the economy. Well founded in 2003 and 2013-14; bad timing in 2002. In 2010, $SPX entered a 9-mo sideways range. This part of the equation is unclear but unfortunately the most important Image
You can get a base hit here but this is no fat pitch
To put the consensus view that $SPX will gain 8% in the next yr into perspective, the avg annual gain over the past 40 yrs is 10%. So, they are just playing the mean. The problem is the std dev is 16%, so it would be ‘normal’ for $SPX to lose 6% or gain 26% in any yr
$SPY Monday’s gap filled at 358 (i.e., at Friday’s close). That only leaves 6 more open gaps since the start of November
$SPX open gaps circled. Today also closed under WPP and the Sept 2 high w/o ever exceeding the Pfizer tippy top. WS1 (green line) at 3515 Image
Not all gaps get filled but an unbroken string of open ones *tend* to get at least partially back filled. Ebb and flow.
$SPY - two things to watch on the 60' chart for market direction. In uptrends, 1. momentum (top panel) often overbought and 2. the 5-d (green line; arrows) rises; the reverse true in downtrends.

If this is still an uptrend, it’s now time to regain the 5-d and get overbought Image
(Cont) The weekly pivot (WPP) is a third tell (horizontal grey lines). It’s good support in uptrends and if broken is usually quickly regained; the reverse is true in downtrends (arrows). Currently under.

If this is still an uptrend, time to regain WPP Image
JPM expects a 25% gain in $SPX in the next year. 4500 target
$SPY hit a slanty line and why it’s not a reliable tell
Image
$SPY - never regained 5-d, which has rolled over, or the WPP, and momentum died at neutral. Scroll up for charts.
Good summary of headwinds and tailwinds into YE
$SPX up 10% this month. Here are the others since 1980.
1. Marked tops in 1980, 1990 and 2000 and 10 months of nothing in 1992 (arrows)
2. The others were bullish but - notably - they came after sizeable falls, like this past April (green lines). Not really the case here Image
$SPX closed above its monthly Bollinger (middle panel) and those bands are not narrow (lower panel; solid vertical lines). Often followed by a down month or gains given back (red arrows). An uninterupted run higher, esp in last 20 yrs, has been rare (green arrows) ImageImageImage
If past is prologue, R/R next 12-mo is highly skewed positive but a gap up-and-go (like today) has always been backfilled in the past $spx
$SPX daily staying mostly ‘overbought’ is a defining characteristic of an uptrend (top panel). Consecutive closes under the 13-e (green line) will be a heads up.

SPX, COMPQ, NDX, RUT, DJIA, RUA, WLSH, NYSE all at ATHs Image
Overall
A. Tailwinds
1. Trend - ATHs
2. Breadth - $NYSI +900
3. Seasonality - strongest month

B. Headwinds
1. Sentiment - bullish extreme
2. Valuation - 22x FY21
3. Volatility - pos correlation to equities

C. Unclear
1. Macro: 1H21 downside risk; 2H21 likely expansion
Slanty line do or die time $SPY
Image
@michaelsantoli perfectly sums up the current market. A lot could right in the next few months, and that outcome would surprise the fewest. Sometimes that works. More often, it doesn’t. This is why you get paid the big bucks Image
@michaelsantoli $NDX up 8 days in a row; only 4 other times in the past 5 years (very small sample). $SPX closed higher each time 5, 10 and 20 days later Image
@michaelsantoli $SPX now 16.8% above its 200-d (lower panel). All instances since 1960 shown below. Common after bear market lows (green circles: 1970,74, 80, 82, 2009). Sooner or later, any future gains (and often more) have always been given back 1/2 ImageImageImage
@michaelsantoli (cont) There are no charts from the 1960s because it never happened 2/2 ImageImageImage
Both August 1987 and November 1980 are in the mix. So not just something that happens at bottoms
For completeness, here’s the last 6 yrs. Sometimes $SPX weakens before it tops (2015) but in recent years, tops have come at times of extreme strength Image
$SPX down 2 in a row. Hasn’t been down 3 since Oct. In the past year, down 3 has continued lower (boxes). Momentum (top panel) also on the dividing line Image
After an ATH and then 4 down days, all instances except 1 gained sometime over the next month by a medain of 2.5%, more than enough for a new ATH. But along the way, all instances except 2 dipped lower than today’s close by a median of 1.5%
ATHs today: $SPX $DJIA $NYSE $RUA $WLSH $RUT $COMPQ $NDX $IEV $VEU $EEM

That’s about as close to a clean sweep as you can get
Slanty line update $spy
Image
DeMark says $spy to 390 in next two weeks and then ‘down significantly’ in 1H21 marketwatch.com/story/stock-ma…
This week, for example, $SPY gained +1.7% overnight and lost 0.5% during market hours Image
Strategists expect $spx to gain 9% to 4030 in 2021. No one expects a decline. A month ago, their target was 3900. That’s how this works (scroll up) Image
Always applies to annual forecasts
$SPX closed this week right where it closed the week of Nov 30. Last 4 wks have alternated up, down, up, down.
Most interesting thing I saw yesterday (lower panel). Quite happy to sell the overnight gap up open $spx Image
$SPX up 14% the past 2 months. Only 7 other occurrences in 40 years. 6 of prior 7 went much higher in months ahead because all happened at major lows (like March of this year); 1987 started after SPX dead flat for 9 months (box).

So, current instance nothing like the others Image
The set up coming into the last two months of the year (1/2)
Cont. (2/2)
$SPY to $390 in the next 3 hrs not looking so good
2020 ends with $SPX $DJIA $WLSH $NYSE $RUA and $NDX at ATH. Outside US, $EEM $IEV and $VEU at ATH yesterday.

Happy New Year everyone. Onward to 2021

$SPX closed above its monthly Bollinger for a 2nd month in a row (middle panel). Ahead was a lot of chop (eg 1989) or gains given back if higher (eg 2011). The one time it just ran higher (1995) came after a flat boring year when those bands had become super narrow (lower panel) ImageImage
Aug 1987 and Dec 2019 also in the mix to keep it exciting
Today’s gap up ICYMI $spx
Reminder that the stock market doesn’t care whether the government is split or unified. There’s no consistent pattern therefore no cause and effect
$SPY - Slanty line update. It’s +$10 since it first hit it. Follow the micro thread here: Image
$SPX $RUA and others at ATH with 10 separate -1000 ticks in the last 90 minutes must be n=1
New ATHs today for $NYSE $RUA $WLSH $DJIA $RUT $IEV $VEU (but not $SPX)
$SPX up 47% in the past 10 months. Only in the 1930s did it gallup higher (LHS, green lines). All other instances followed by a ‘breather’ (RHS, close up of last 40 yrs).

But, in all instances, fair to say this isn’t how bull markets end; momentum wanes before reversing ImageImage

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More from @ukarlewitz

Urban Carmel Profile picture
12 Aug 20
This valuation chart from Bloomberg is making the rounds, showing that world equities are overvalued because they exceed world GDP, like 2007, 2017 and the start of this year Image
Here’s a slightly longer term perspective, back to 1980, which shows that it was also overvalued (by slightly more) in 1999 Image
More than half of world equity market cap is just the US, so it’s a good barometer for the world. Here’s an even longer time series, back to 1950 from Doug Short Image
Read 10 tweets
Urban Carmel Profile picture
28 May 20
Sentiment round-up
Bearish (-1): AAII, fund flows, BAML FMS
Bullish (+1): II, Panic/Euphoria, DSI, 10-day CPCE, one-month CPCE, NAAIM
Neutral (-1): Fear & Greed, Consensus

1 more measure moved up into the bull camp this week
10-day equity-only put/call now at 0.53. Since 2004, a >5% drawdown was ahead, or if ran higher, all gains given back. It could take weeks to unfold Image
Read 33 tweets
Urban Carmel Profile picture
27 May 20
My stream went from breadth is terrible to breath is beautiful in the span of a week.

The low was 45 days ago and the Wilshire 5k is up 35% so a 50-d moving average will show a lot of stocks are above it. That’s how math works
Careful with ‘strong breadth’.

Similar breath (~90% above 50-d) preceded two long sideways periods in 2004-05.

85% of was above its 50-d at the Oct 2007 top. That’s objectively strong breadth Image
(Cont). Likewise, strong breadth preceded three different harsh corrections in the past 10 years Image
Read 16 tweets
Urban Carmel Profile picture
7 May 20
Two weeks later and ‘retail’ sentiment is still weak (-29%). Same conclusion $spx
4 week retail sentiment (AAII) now lowest since March 2009. Meaningful in a bull market, not in a bear market Image
Sentiment round-up
Bearish: AAII, Consensus, fund flows, Fear & Greed
Bullish: II, Panic/Euphoria, one-month CPCE
Neutral: NAAIM, DSI, 10-day CPCE
Read 8 tweets
Urban Carmel Profile picture
24 Apr 20
Plunge and bounce. All the market is doing now is debating whether we’ll be on the red line or the green line next year
Everyone has an opinion on red vs green. Objectively, there is no way to have any degree of certainty given the large number of unknowns Image
Insiders have likewise acknowledged this Image
Read 48 tweets
Urban Carmel Profile picture
17 Mar 20
Breadth has been so bad that Summation (momentum) will drop -1000 tomorrow, just the 6th time in 20 years. Marked the low in 2019 and 2009, the initial low in 2002 and the start of July 2008 rally. It also meant nothing during the Oct 2008 panic Image
Summation keeps falling until turns positive; in other words, aside from Oct 2008, this is about the time when a series of accumulation days (>3:1) start. Last time was positive was Feb 20 ($SPX peaked Feb 19)
Two more Summation -1000 occurrences in 1998 and 1999. All except the last one (Dec 2018) gave way to a lower low in in the following weeks. Momentum takes time to work off
Read 10 tweets

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