Thursday, December 8, 2016

As of Thursday, December 8, 2016 at the close of trading EquitySurge™ has continued a strong sell signal for USA equities.

The stock market went up again today, with new all-time-highs for every major index. The market is in a euphoric state and generating a blow-off top. We know this because liquidity is warning us that something is wrong.

It’s always nice to see a strong rally higher in stocks, however this rally is becoming unhinged and the danger of staying long is rising.

How high could the S&P500 Index go before this move terminates? Here is a daily chart of the SPX (S&P500 Index) showing the Fibonacci retracements from the Summer high to the low on November 4th. The 161.8% retracement resides at 2261. The next retracement beyond that is the 261.8% retracement all the way up at 2371. The RSI has already become overbought, and while prices can certainly keep going higher in this condition, the 161.8% retracement at 2261 is a very likely target for this blow-off move.

spx-screenshot-12082016

 

The S&P500 Index may reach the 2261 level target and then consolidate there for some time, but in all likelihood, especially with what liquidity is telling us about this rally, risks will rise substantially beyond 2261.

With the warning from liquidity in mind, taking profits on longs from here to 2261 is a very prudent step, and the definition of buying low and selling high.

If you would like to review the EquitySurge™ trading signals generated so far in 2016 please see the Trading Signal Performance Chart page.

11 thoughts on “Thursday, December 8, 2016

  1. not bad but don’t put too much faith in fibonacci. the range in S&P is anywhere from 90 to 125 points / month lately. we had a low @ 2180 in december. The high could be printed @ 2 300. Timing this with DOW 20K also makes a lot of sense now.

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    1. Good points. DOW 20,000 is only about 1.5% away at this point, and I’m sure there will be all kinds of fanfare there. It will also represent a major topping area along with 2260-2300 on S&P500 Index, especially if liquidity keeps warning, which so far it certainly is doing. Thanks for commenting.

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      1. good deal. I agree with you. Also I’m timing this reversal now with AAPL gap fill @ 117, which would confirm major daily H&S pattern. Going for 115 Jan17 puts here, once confirmed. )))

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  2. Hey, btw, appreciate your liquidity status updates a lot. Would be nice if you can point out the basics without details how you measure liquidity. Is it via ETF fund flows ? I track ETF fund flows on weekly basis. Thank you!

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    1. We track liquidity in the stock market by looking at the bond market and specifically high yield. When investors are willing to buy high yield that portends money flowing into the stock market, and conversely when investors are bailing from high yield it means that soon money flow into stocks will slow and then reverse.

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  3. Earlier this year high yield was strongly predicting that stocks would go up significantly, which is what we are seeing them do now. It’s kind of like a huge catch-up rally in stocks all happening after the election. But high yield is now warning about being long stocks, so unless this changes, which is unlikely, it’s time to take profits in stocks and either go to cash or as an alternative, TLT.

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    1. I hear you for sure. Some good observations. Also QQQ weekly is a rising wedge and it’s cap in a current leg up is 123-124 it won’t push beyond wedge boundaries. 2017 is year 7 in a 10 year cycle and it’s the weakest of the decennial cycle. I don’t have this table with me now, but pretty much 17 projected to be sideways then down by the past stats.

      But we won’t crack all support straight out the gate Q1, my take is that we tank into late Jan 2017 and then reverse for another leg up – companies such as Apple probably set to report record earnings – and therefore momentum will still push stocks higher. My timing is that we start a 20-25% correction May-June 2017. Until then another leg higher and then range compression for a few months. All 20-25% corrections historically have range compression in the 2-3 months ahead of the sell off.

      2017 would be a rough year to trade but if you are running prepared surely you can do great. ))) Personally I’ll be stacking put options on SPY/QQQ/IWM after April 15th.

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  4. Also here’s the deal. Here’s SPY monthly chart I posted on StockTwits. SPY Chart

    It’s a regression channel since 1995 and I work out a PT for the high in the current bull run, 230 will be the top in SPY for a while, and initial target on downside is SPY 210, since SPY left an open gap on the current run-up. ))) Hope this helps.

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