DP Weekly Wrap: Two Indications of a Short-Term Top

The market (represented by SPY) has nearly reached the top of a rising wedge formation, and the VIX has reached the top Bollinger Band on our reverse scale display. There is no guarantee, but there is a pretty good chance that a short-term top is very near. There is also the technical expectation that price will eventually break down from the rising wedge, but not necessarily on the next pullback.

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DP Weekly Wrap: Gap Cleared. What’s Next?

Last week I was concerned that the VIX had topped but had failed reach the top band on the chart -- a similar configuration occurred in January before the crash. This week the VIX moved close to the top of the channel, so I think we can consider that the 'gap' problem has cleared. (To clarify, I use an inverted scale for the VIX to make interpretation more intuitive, and my references are to that display.) The market is near all-time highs again, as it continues to walk up a parabolic arc.

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DP Weekly Wrap: A Gap I Don’t Like

Last week we were looking at a possible bearish island reversal on one hand, and nascent parabolic advance on the other. This week's decline filled the island gap, making the island proposition moot. The decline also reached down to touch the parabolic arc, but so far that 'support' has held. Of more immediate interest is the gap between the most recent VIX top and the top Bollinger Band. More on that to follow.

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DP Weekly/Monthly Wrap: Is Another Parabolic Advance Beginning?

This week, as the market once again broke out of the cyclical bull market rising trend channel, it occurred to me that perhaps another parabolic advance was getting under way. On Wednesday I was a guest of Erin and Tom on MarketWatchers LIVE, and I gave a more detailed account of how my thinking developed on this matter. We don't have to search the data too deeply to give an example of what I mean -- the last parabolic began in late-2017 and ended early this year. Conveniently, we can compare the current upward curve with the last one, and we can see that the new curve is not very steep yet, but, as I said, the real action may be just beginning. More on this to follow.

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DP Weekly Wrap: SPY New All-Time Highs; Crude New BUY Signal; Has Gold Bottomed?

On Friday SPY made new, all-time intraday and closing highs, exceeding the records set on Tuesday. The daily PMO has been very flat and holding at around +1 since the end of July. This summarizes the steady price rise during that period and does not present a problem. There is, however, a problem on the OBV panel in the form of a negative divergence. It is not a giant issue, but we will consider it later in this article.

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DP Weekly Wrap: 2018-08-17

On an options expiration week we normally expect low volatility, and that is what we got this week. Despite somewhat dramatic, but opposite, moves on Wednesday and Thursday, the SPY trading range for the week was a little over two percent, and the difference between the weekly closing high and low was a little over one percent. The moral is that options expiration week usually denies all options players, whether they are looking for a big move up or a big move down. It just runs out the clock.

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DP Weekly Wrap: Skinny Breakout Fails

Last week I said I expected to see new, all-time highs for SPY, and on Monday that expectation was fulfilled in a marginal way. While I didn't say I expected that the market would close higher this week, it was implied, but the market's low volume and lack of follow through on Tuesday, Wednesday, and Thursday made Friday's pullback not unexpected. It was assumed that Turkey's currency crisis pulled the plug, but the technicals were looking for it as well.

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DP Weekly Wrap: Apple Hits $1 Trillion

On Thursday, when Apple's (AAPL) market cap went over the $1 trillion mark, Dennis Gartman (The Gartman Letter) said something to the effect that this is the kind of thing we see at market tops, not in the middle of a long advance. I felt the same way. I don't know if he does fist bumps, but I gave him an imaginary one anyway. As we can see on the chart, AAPL has had some spectacular parabolic advances, but they were followed by some horrendous declines. Sure, AAPL is a great company, but I see no reason why history won't repeat itself. Parabolic excesses need to be corrected.

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Fundamentals: Market Still Extremely Overvalued

What's a technical guy doing talking about fundamentals? Well, I believe that charts of fundamental data are as useful as price charts in helping us visualize fundamental context and trends. In the case of earnings, the following chart shows us where the S&P 500 would have to be in order to have an overvalued P/E of 20 (red line); fairly valued P/E of 15 (blue line), or an undervalued P/E of 10 (green line). I have added three hash marks on the right side of the chart to show where the range will be at the end of this fiscal year based upon earnings estimates for 2018 Q4. For over 90 years of market history price has usually stayed below the top of the value range (red line); however, since about 1998 it is more common for price to exceed normal overvalue levels. Some call this the "new normal," but
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DP Weekly Wrap: 2018-07-27

Last week I thought we had a good setup for a short-term market top and correction, but news of possible progress toward a resolution of trade issues with the EU spurred the market (SPY) higher to challenge all-time highs. Funny thing, though, there was no follow through on Thursday, and the market dropped on Friday after positive news of +4.1% GDP growth. Not to mention FANG darling Facebook crashing around -20% after earnings announcement Thursday, and Twitter losing -20% on Friday. What is going on?

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DP Weekly Wrap: Dull Options Expiration Week; Next Week May Be More Exciting

I normally expect options expiration week to be dull, and with this week's range of less than one percent, I was not disappointed. I was also looking for a short-term pullback, but that did not materialize (probably because of options expiration); however, our array of indicators say that a pullback is still a strong possibility for next week.

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DP Weekly Wrap: Bonds Long-Term BUY Signal

On Friday the Long-Term Trend Model (LTTM) for long bonds (TLT) generated a long-term BUY signal. How that happens is that the 50EMA crosses up through the 200EMA, an event more commonly known as the "Golden Cross," because big money is sure to follow (just kidding). When we say long-term, we mean months to years, but in the broader picture TLT appears to be moving sideways -- the LTTM SELL signal we just closed only lasted about five months, and with interest rates on the rise, the upside for bonds would seem to be limited. Remember, the new BUY signal does not call for immediate buying. It is an information flag, and it implies that there should be a positive environment for bonds for at least several months.

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DP Weekly Wrap: Monthly Charts Finalized

Monthly charts were finalized on Friday, so we can get an up-to-date assessment of the very long-term. On the SPY monthly chart below, note that the cyclical bull market up trend has taken price on a very wide departure from the secular bull market rising trend line. The monthly PMO topped earlier this year, creating a negative divergence against price, and this could be a precursor to more of a correction than we have already experienced. While a further correction is not inevitable, it could be accomplished by price simply moving sideways until it gets back to the secular trend line, as it did in 2015 (the continuation pattern). A more aggressive outcome would be for price to move down to the the secular trend line. This would require a decline of about 25% from the January high, and that would be a cyclical bear market. Certainly, other outcomes are
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DP Weekly Wrap: Market Trying to Correct; Gold LT SELL Signal

The market has been turned back from the horizontal resistance drawn across the March top, but it has managed to stay above the support drawn across the May tops. However, there is still the mechanism of the bearish rising wedge pattern, which is reinforced by an OBV negative divergence, and the PMO SELL signal. This setup is not immutable, but, as it stands right now, the evidence is saying to look for more downside. Let's see how that might get.

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DP Weekly Wrap: Market Still Strong

The bearish rising wedge formation we had been watching resolved upward last week, though not by a decisive margin. This week price reached, then retreated from horizontal resistance, forming a top which created a new rising wedge formation. In spite of the modest pullback early Friday, price was virtually unchanged by the close. Again, let me remind you that the very high SPX volume on Friday was associated with options expiration occurring near the end of the quarter. If there is any message there, it is buried under that avalanche.

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DP Weekly Wrap: Market Approaching Overhead Resistance

Rising wedge formations normally resolve downward, but sometimes they don't. While I was expecting the normal bearish resolution of the current rising wedge, the market wasn't having it, and it pressed higher for a breakout on Wednesday. There has been no follow through yet, but price has managed to hold above the top of the wedge. There are significant lines of resistance just ahead, and OBV is not confirming the new price highs.

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DP Weekly Wrap: A Pullback Is Still Likely

Last week I wrote: ". . . the market seems to be set up for a pullback or correction.  . . .  Recent declines have been very short-lived, so I can't make a case for anything too serious." What we got on the first trading day of this week was a sharp -1.5% intraday pullback, and that was it. We had been watching a flag formation (the ghost of which I left on the chart), but Tuesday's decline and subsequent advance created a higher low in the advance from the May low. The result is a bearish rising wedge, which is now a dominant formation on the chart, and the likely resolution of the pattern is down.

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DP Weekly Wrap: From Flag to Churn

Last week I thought we had a good outlook based upon a bullish flag formation, but this week the market just added more sideways movement. We could still make a case for a flag being in place, but a good flag should slant down off the flagpole as a sign that some compression is building that could launch the next leg up. This sideways churning dampens my enthusiasm. Volume continues to be light compared to the 250EMA of volume, and the daily PMO has topped. My outlook is more cautious.

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DP Weekly Wrap: Bullish Flag Forming

Back in the day, options expiration days were characterized by high volatility and exceptionally high volume; however, in recent years the market stays relatively calm, and the high volume only appears at the end of each quarter. These expectations were not disappointed in today's trading. In fact, the entire week was calm, as price worked sideways into a flag formation. Volume for the last two weeks has been somewhat thin, which implies that market participants are not fully committed to the rally. Nevertheless, from the April low a rising trend has been established (a bottom above a bottom, and a top above a top), and the picture remains positive.

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