Taper Kabuki Dance - seattletechnicaladvisors.comseattletechnicaladvisors.com/images/3.23.15_Taper_Kabuki.pdf · 3/23/2015 · and 3-day RSI has so far failed to exceed 80; bearish

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Taper Kabuki Dance Seattle Technical Advisors The leading authority in Lindsay Market Analysis

Market Update March 23, 2015

Ed Carlson, CMT [email protected]

The taper kabuki dance continued last week with all of Wall Street parsing the Fed statement released on Wednesday trying to determine the significance of the removal of the word “patient”. Of course, the word “patient” has more than one meaning as the bulls will discover later this spring with a bad case of swine flu. In the meantime, this week looks to be just a preview of what is to come.

Taper Kabuki Dance March 23, 2015

SeattleTechnicalAdvisors.com Page 1

Internal Indicators VIX lost 2.90 to close at 13.02 and below its lower Bollinger Band (50, 1) which is where highs in equities are normally found (top). VIX tested the July trendline on Friday but remained above it keeping the positive divergence normally seen at major market highs intact. Short-term cycles call for a low early this week (a high in equities) and a high later this week.

McClellan Oscillator (center) was able to push above zero last week which is bullish. Watch for a break of the March bull trendline followed by a return to -150 at this week’s low.

Put/Call Ratio (equity only) dropped below its lower Bollinger Band on Friday triggering a sell signal (bottom).

Breadth Thrusts were triggered in my models on Wed and Thurs. This is bullish but does not rule out a short pullback.

New 52wk Highs saw a surge on Wed and even higher on Friday; bullish.

Arms index (TRIN) is not confirming the new high on Friday; bearish.



Sentiment AAII Sentiment Survey: Optimism fell to a two-year low according to the latest survey, a sign that individual investors have become more cautious about the short-term outlook for stocks. Pessimism rose to a five-week high; contrarian bullish.

Bullish sentiment fell 4.4 percentage points to 27.2% the lowest level of optimism since April 2013

Bearish sentiment jumped 6.1 percentage points to 31.5%. This is a six-week high.

Rydex Bull Bear Ratio, the ratio of assets in Rydex bull funds vs. bear funds, rose from 14.68 to 15.94 last week but is still within the sideways consolidation seen throughout 2015.

NAAIM Exposure Index, a weekly survey of active investment managers’ overall equity exposure rose marginally from 65.68 to 67.77 last week (bottom).



Hybrid Lindsay March Lows

The question for the last month has been “will the Mar 30 low be higher or lower than the Mar 11 low?” The confirmed sell-mode makes me think that equities have some unfinished business on the downside and the fact that BWI (bandwidth indicator) is falling in non-confirmation of last week’s rally isn’t helping the bullish case for a higher low at the end of the month.

On the other hand SPX managed to push above 2,093 on Thursday. 2,093 is the Dec high and breakout level in Feb making it an important level to watch. This seems to argue that the ultimate low for March (14mo and 21wk cycle lows) is already in our rear view mirror.

Clearly, if equities are able to print a new high (>2,117.39) before turning down into the hybrid forecast-low near the end of the month then we will have no reason to expect a lower low (but it could be a double bottom).

After the next low at the end of March/early April, the next hybrid high is expected near April 15.



Lindsay Three Peaks/ Domed House

As the Dow appears to be sketching out the Cupola of a Three Peaks/Domed House formation I thought this would be a good time to focus on that chapter of the book I am currently working on (The Complete Technical Analysis of George Lindsay: A Unified Theory of the American Equity Market – due in 2016). While that chapter is far from complete I have stumbled across an observation which will be new to the Lindsay corpus.

Lindsay wrote that a five-wave reversal is always seen prior to the cupola of the Domed House. This forms the First Floor Roof of the pattern. We can see a five-wave reversal during the December-January time period.

To time the high of the Cupola Lindsay spilled much ink in discussing various methods of counting from the low of the Separating Decline (October 16, 2014). In my work I have found an additional approach for forecasting the final high.

Since 1901 there have been 23 occurrences of the pattern (not including the current set-up). In 10 of the 23 patterns the count from the low of wave 5 was roughly 50% of the count from the beginning of the first reversal.

Of the remaining 13 occurrences all but three had some idiosyncrasy which warned that the counts would not match the typical scenario (Model 3, three peaks occurring before the bear market low, etc.).

In the remaining three instances it was found that the count from the low of wave 5 is roughly 50% of the count from the low of the Separating Decline. This is of great interest because the current forecast for a final high near May 25 makes the count from the low of wave 5 to be 112 days which is roughly half of the 222 day count from the low of the Separating Decline on Oct 16.





US Equities Bull Market

Equities rallied last week; SPX +2.66%, Dow +2.13%, NASDAQ +3.17%, and RUT +2.78%. BWI turned down in non-confirmation of last week’s rally and 3-day RSI has so far failed to exceed 80; bearish.

The short-term price oscillator is overbought warning of a pullback early this week.

Look for a return to the 150-dma near 2,024.

A breakout above 2,120 generates an initial price target of 2,150.

Cycles Short-term cycles point to a high today and a low due Mar 26-Apr 1. A 6mo cycle points to a low near April 1. Weekly and monthly cycle lows are due in March. A 35wk cycle high is due in May confirming the Three Peaks/Domed House forecast.

Coppock Curves: Daily and weekly both turned up last week but the monthly is still declining; intermediate term bullish but longer-term bearish.

Seasonality (since 1943) March (in pre-election years) experiences the normal ups and downs of the market until the second half when it rallies strongly.



Europe Bull Market

EuroStoxx 50 rallied to yet another new high last week gaining 0.11% to close at 3,658 but on Monday it reached its price target. Although it closed the week above the 21-dma it did test it intra-day on Friday at 3,595.Next support is at 3,414. BWI is turning up in confirmation of the late week pullback. The index has not been this overbought on a weekly basis since Mar 2006.

Cycles: The next low isn’t expected until mid-June. If the 21-dma is broken, look for a decline to 3,300-3,400.

Coppock Curves: Daily is falling, the weekly is overbought and the monthly is turning up.

Seasonality shows a big drop in early March but the index finishes the month higher than where it began.

German DAX-30 gained 1.60% to close at a new high 12,089. Thursday’s low is pivotal at 11,785. A break will confirm what we’re seeing in the EuroStoxx index. A close over Monday’s high at 12,167 will signal a continuation of the bull market.

The Coppock is not confirming the new high.

Coppock Curves: Daily has rolled over, the weekly is rising but overbought, the monthly is turning up.



Japan Bull Market

NKX225 gained 1.59% last week closing at 19,560 and a new high in the bull market.

The confirmation model is in a confirmed buy-mode but BWI has begun to fall indicating that the rally is long-in-the-tooth. The index has stretched beyond its 200-dma to the same extent seen at previous highs and the Coppock is not confirming the new high.

Price target is 20,000 but allow for a pullback to the 21-dma currently at 18,920.

Relative strength (vs. MSCI World) has broken out to new highs; very bullish.

Coppock Curves: Daily, weekly, and monthly are all rising; very bullish.

Seasonality shows a big drop in early March but finishes the month higher than where it began.

TOPIX Banks is confirming the new highs in the Nikkei 225; bullish the broader market. But relative strength is stalling here (bottom, lower) after breaking its 2yr downtrend in Feb.

Small Caps continues to make new highs even as relative strength continues to breakdown.



Emerging Markets MSCI Emerging Markets (EEM) rose 4.65% to close at 40.08. Confirmed sell-mode (sell the rips). The short-term price oscillator is overbought warning of a pullback.

Look for resistance from the Nov declining trendline at 40.50. A breakout may constitute a trigger of a bullish head-and-shoulders pattern (minimum measured move to 45.00) but the 200-dma at 41.82 has done a good job of providing support and resistance for over a year.

Relative performance is still in a bear trend; bearish.

Cycles call for a low in March and again in early May. Longer term, cycles point to an important high in July.

Coppock Curves: Daily and weekly are rising but the monthly is falling; short-term bullish.

Shanghai Composite (SSEC) broke out of its 2015 consolidation and gained 7.25% last week to close at 3,617 after the previous week’s engulfing bullish candlestick.

The Confirmation Model has moved into a confirmed buy-mode (buy the dips). Last week’s volume surge combined with the Coppock now high enough to expect a top should set up a buying opportunity.

Coppock Curves: Daily is rising but weekly is in decline. The monthly is rising.



US Treasuries, TNX TNX lost 8.61% last week (worst week since last Nov) to close at 19.30 and below the 30-dma. BWI has turned up in confirmation of the decline and 3-day RSI is sub-20; bearish.

The yield spread between 30s and 5s (bottom) looks like it is forming a bottom and may be setting up to challenge the 2014 bear trend. A widening in the spread was seen at the bull market highs in 2000 and 2007.

Cycles: A six-month cycle forecast the recent high this month and is followed by a decline into late-April. Look for another high in late May with equities.

Coppock Curves: Daily is declining and the weekly is rising (top). The monthly is still falling.

Seasonality: TNX typically closes March well below where it began the month.



US Dollar Bull Market

DXY lost 2.14% last week (its’ biggest loss since Oct 2011) to close at 98.17 and printed a bearish harami cross on Friday. DXY tested its 21-dma on Wednesday but closed well above it (96.00) all week. A break of that level will signal that the long-awaited correction has finally begun.

The price target of 102 (derived from the six-year triangle) is still there but it may have to wait if the 21-dma is broken first. The Coppock has reached the “good overbought” level confirming these highs. This implies a return to these levels or higher after a correction.

Cycles: Short-term cycles marked the previous week’s high. The first phase of the decline is expected to conclude in early April.

Coppock Curves: Daily has turned down but the weekly and monthly are still rising.

Seasonality: Early-year strength sees a peak in March followed by a decline until early May.



Euro Bear Market

Euro rose 3.35% last week (its biggest week since Oct 2011) to close at 1.0823. The 34-dma has done a remarkable job of turning back advances in the Euro and is currently at 1.11. The detrended oscillator is overbought warning of a pullback today or tomorrow.

A breakout from the 34-dma can be expected to see the Euro rally to its 144-dma and the 2012 support level near 1.20.

The Coppock confirms the previous week’s new low as it became “bad oversold”; expect a return to these lows (or lower) after any upward correction.

The 61.8% retracement of the 2000 bull market has been breached opening up the possibility for a return to the 2000 low near 0.85. The break of the descending triangle in Dec forecasts a minimum decline to 0.87.

Cycles forecast a high in mid-April.

Coppock Curves: Daily turned up but the weekly and monthly are still in decline; bearish.

Seasonality points to an early month sell-off followed by a rally and finally a drop to new lows by the end of the month.



Japanese Yen Bear Market

JY rallied 1.055% from important support at 82.00 last week to close at 83.30 and printed an engulfing bullish candlestick on the weekly chart. The detrended oscillator is overbought warning of a pullback today or tomorrow just as JY has reached expected resistance at its 30-dma. With the confirmation Model in a confirmed sell-mode there is probably still some unfinished business at these levels.

An 8-yr cycle low appears to have marked the Dec low in the Yen. However, five waves down imply that the larger trend is also down. For now, expect a multi-month upward correction.

Long-term, expect a minimum decline for the Yen to 66.00; the next important low is not due until springtime 2016.

Coppock Curves; Daily is falling but the weekly is rising. The monthly is falling but setting up a positive divergence as it refuses to confirm the end of year new low.

Seasonality shows big volatility early in March but finishes the month well below where it began.



Crude Oil Bear Market Rally

Crude rallied from the January low during last week’s expected cycle low to gain $0.88/bbl. last week and closed at $45.72. While the gain was small, the candlestick looks like it might be described as a reversal bar. Watch for the dollar to break its 21-dma for confirmation of a reversal in crude.

As of Friday crude is still below its 34-dma and 14-day RSI is below its own 20-dma; bearish. The Coppock is low enough to expect a bottom in crude.

Price target is the minimum expected 38.2% retracement at $68/bbl. However, the weekly Coppock confirmed the Jan low. Given the “bad oversold” nature of its decline we should expect a test of current lows (at a minimum) after any upside correction.

Cycles called for a low in mid-March. The next short-term cycle high is due the first week of April.

Coppock Curves: Daily is falling. The weekly is rising but the monthly is still in decline.

Seasonality: March is normally very bullish.

US Rig Count 1,069 rigs are currently operating, down 5.0% from last week's 1,125, and the lowest since March 2011.



Gold Bear Market Rally

Gold rallied $32.20/oz., closing at $1,184.80 and over the 21-dma. BWI confirms the rally and 3-day RSI is +80; bullish. The detrended oscillator is overbought warning of a pullback today or tomorrow.

The rally from Tuesday’s low has, so far, been a low momentum affair. With cycles pointing down for at least the remainder of the month, it may be prudent to wait for the cycle low or a break of the 89-dma at 1,210 – whichever comes first (see Seasonality).

Cycles: March should be a down month with the low not seen until the end of Mar or even mid-Apr. Look for new highs in the May-July time period when weekly and monthly cycles converge on a top then.

A declining triangle measures a minimum move ultimately to $950. A 4yr cycle low is not due until mid-2016 keeping the long-term outlook bearish.

Coppock Curves: Daily turned up, the weekly has rolled over. The monthly is starting to roll over; bearish.

Seasonality: Gold falls to a low in mid-March followed by a rally and a test of the low at months’ end.

Documents

Taper Kabuki Dance - seattletechnicaladvisors.comseattletechnicaladvisors.com/images/3.23.15_Taper_Kabuki.pdf · 3/23/2015 · and 3-day RSI has so far failed to exceed 80; bearish