Huge Head & Shoulder Top on the Euro?

7:50pm CST

Sure looks like it to me. A break below 126.72 would project down to 117 or so.

Gold Relative to the S&P 500

7:40pm CST

There are a few points worth making here. First of all gold relative to the S&P 500 is working on being down for the 8th month in a row. Anytime an index reaches what is called 8-10 record sessions it is time to begin watching for a reversal. Gold is extremely oversold and it is quite obvious from looking at this chart that investors are selling gold to chase the market. There is good support around .78 and .58. Keep in mind that .76 is the 62% retracement of the entire bull market from .18 in 2000 to the peak of 1.70 in 2011.

I’m not arguing to go out and buy gold here. The chart is still quite bearish and after such a big breakdown like we saw in April it will take some time to repair the technical damage. However, it is clear that the trade of selling gold to buy the S&P 500 is getting awfully long in the tooth here. Also worth noting that sentiment for precious metals is the worst I have seen in over a decade. Expecting some kind of bounce in the ratio here in the not too distant future.

Today May Have Been the Top

7:30pm CST

If today wasn’t an intermediate term top for the market we are getting very close. As I mentioned recently I see the S&P 500 pulling back to 1576-1600 on the next retracement. Since markets tend to do what confuses the most amount of participants I would have to guess that a retracement that goes beyond 1576 would really do the trick. Everyone is watching 1576 since that was the breakout above the prior peak. However, there is a big congestion zone down near 1540 that could ultimately prove to be the target for this retracement. The chart below shows support at 1600 and 1540 but 1576 is also key for the reason just mentioned.

Keep an eye on 1640. I see that as key support near term. That was the top of the prior uptrending channel that the market just broke out of. Should it break below that on a closing basis the intermediate top is likely in.

Tonight I also want to point out the latest readings of the put/call ratios. Note that the 10 day moving average of the CBOE and Equity (not the smart money) put/call ratios are at levels that have previously marked tops in the market. Also worth noting is the recent action in the OEX (smart money) put/call ratio. After being wrong for the better part of two years the OEX put/call ratio has finally come down. This tells me that the smart money still believes that there is more upside for this bull market once the correction I’m expecting concludes.

Sentiment via Investors Intelligence based on bears below 20 and consistent bull/bear readings above 2.50 are levels that have typically marked intermediate term peaks.

Also worth noting is that the S&P 500 ITVM indicator via http://www.decisionpoint.com reached the most overbought level for the period that this chart exists. While this kind of a breadth thrust is bullish in the bigger picture it also leaves the market vulnerable to a correction. The only reading that was close to this level was back in April of 2010 just before the “flash crash” and the correction over the summer.

Junk Bonds appear to have peaked ahead of the market. The JNK is a good barometer of determining periods of risk on or risk off. Note that it did NOT correct when the market corrected back in April.

The coming days should prove quite interesting…..

 

Yahoo to Pay $1.1 Billion for Tumblr

11:45am CST

This reminds me of when Yahoo bought Broadcast.com from Mark Cuban in April 1999 which occurred just less than a year before the .com bubble peak in March of 2000.

http://www.marketwatch.com/story/yahoos-tumblr-deal-gets-mixed-reactions-2013-05-20?siteid=yhoof2

Very Interesting Observations on Gold

10:05am CST

Ran across these over the weekend. Thus far the decline in gold since the October 2012 peak looks very similar to the decline in gold back in 1976. Note that 1976 was a major low before gold had a huge run into January 1980. We will see if the analogy holds up. Covered 1/2 of my hedges this morning.

https://twitter.com/mjb4632/status/334762266580897793/photo/1

Will be interesting to see if gold can put in a double bottom here around $1322. If not the next downside targets are ~$1285-$1300. Silver broke its double bottom at $22.00 overnight but does have good support down to $19.50 or so.

Here is another piece suggesting that this may just be another mid-cycle correction similar to what was seen in the 1930′s and 1970′s.

http://thedailygold.com/dow-vs-gold-in-3-gold-bull-markets/

Starting to Feel Like 1999-2000

2:10pm CST

At this point I would say that the market is more frothy than it was when it peaked back in 2007. As I see stocks like TSLA, SCTY, DDD, NBG, YRCW, etc. make these huge gains in a very short period of time I have to say I haven’t seen anything like this since 1999-2000.

Throw the fundamentals out the window and follow the charts. That is what the market is rewarding.

Expecting 1576-1600 on Next S&P 500 Retracement

2:30pm CST

Hard to know where this stops but my best guess at the moment is 1680. 1680 would make the current leg up 1.618 x the leg up from 1267-1475. Needless to say this is getting pretty frothy near term. The biggest gainers right now are the stocks with the largest short positions or they are complete junk. Examples on the large short positions include TSLA, SODA, GMCR, and OSTK. In terms of the junk it would be YRCW and solar stocks.

1600 was a bit of a congestion point and 1576 was the original breakout point. If the S&P 500 gets to 1680 a ~100 point correction would make sense. This feels very similar to the 7 month run from the summer of 2006 that ended in a violent correction in February/March 2007 that took back 98 points on the S&P. See below. I will never forget that 3%+ down day in February that seemingly came out of nowhere. But that is what happens when things get parabolic.

Note that the % of stocks in the S&P 500 above their 200 day moving averages was above 90% prior to the February 2007 sell off just as they are today.

Fundamental analysis has essentially been rendered obsolete at the moment. Remember that fundamentals win in the end. But one always must remember that markets can remain irrational longer than most traders can remain solvent.

I believe the S&P 500 is very close to an 80-100 point correction. From there I think it makes marginal new highs. From there I think it is then vulnerable to a correction of 8-10% or so. Needless to say I don’t see any reason to chase the broad market here as I believe the upside is limited relative to the potential downside when reality finally kicks in.

I continue to contend that 2014 will be trouble just as I did back in April. History argues that these cyclical cycles that last 4-5 years generally don’t end well. Once again 1924-1929 ending in the crash of 1929, 1932-1937 which ended in a 50% decline from 1937-1938, 1982-1987 which ended in the crash of 1987, and 2002-2007 which ended in the crash of 2007-2009. Now we have 2009-present or 2014.

I have seen 3 cyclical bull markets and 2 cyclical bear markets in my career. Never have I seen such meager economic growth and corporate profit growth celebrated by the market the way that they are right now. Buying now is basically wondering which sucker is going to come in and be the marginal buyer behind you.

2 analogies of buying the market here:

1. Buying right now is like trying to pick up pennies in front a steamroller.

2. Buying right now is like trying to pick up the crumbs after the loaf of bread has already been eaten.

Shocker….

10:55am CST

Economy not growing “as fast as expected”.

http://finance.yahoo.com/blogs/breakout/q1-gdp-rebounds-less-economists-expected-154102468.html?vp=1

Was it the huge negative/positive pre-announcement ratio that was the giveaway? Or the fact that top lines have continued to fall short in Q1 earnings?

I will go with both. So exactly how again are earnings supposed to ramp in Q2 and beyond again as Wall Street is expecting?

Seems very similar to 2007.

Heck of a Run in Gold

10:45am CST

At today’s high gold has basically retraced the entire crash of the Monday before last. It is also close to the 62% retracement of the move down from $1590-$1322. Lightening up here or hedging seems quite prudent at current levels.

This has nothing to do with my fundamental beliefs, just following the technicals.

Good Gold Thoughts From Grant Williams

10:15am CST

He discusses the “paper price of gold” and the “real price of gold” among other things.

https://www.mauldineconomics.com/ttmygh/bulls-hit