Sample mid-week Market Wrap (Thursday, March 6, 2014)

Thursday's Market Stats

1234market stats

Today, March 6th, marks the 5th birthday of the bull market which started from the March 6, 2009 low at 666.79. To a high near 1882 today, that's a 182% gain in 5 years. Not bad. Of course the same gain was made in half the time when SPX rallied from its spike low at 855 in October 1997 up to its March 2000 high at 1553. In fact the 5-year rally from March 1995 to March 2000 was about 1070 S&P points for a +224% gain. Now THAT was a rally. This one from 2009 has been pretty good but most of it only gained back what it lost into the 2009 low. Since the March 2000 high we've seen March as an important turn month so it's interesting that a market top could be setting up and it's one that will likely last for many years. Here is a list of previous March turns:

2000 -- completion of 1982-2000 rally
2001 -- significant low followed by large spike back up before continuing lower
2002 -- significant high followed by the strong decline into the 2002 low
2003 -- low that led to rally into 2007 high
2007 -- low followed by spike up into July 2007 high
2008 -- last dip in 2008 that led to strong bounce into May 2008 and then down hard
2009 -- significant low that led to the current 5-year bull market
2014 -- completion of cyclical bull market?

We've got an interesting alignment of days from the market lows to the completion of the cyclical bull markets. The previous cyclical bull, from the October 2002 low to the October 2007 high, lasted 1827 calendar days (5 years + 1 day), which was 1259 trading days. Now we've got a March 2009 low to a potential March 2014 high and the same 1827 calendar days and 1259 trading days from March 6, 2009 gives us March 7th, tomorrow. Oftentimes these cycles are more important than price levels so a possible final high, perhaps on a spike up following the Payrolls report, is something to watch for.

The SPX weekly chart below shows the coinciding price projections and trend lines that are important here. The 5th wave in the rally from June 2013 would equal the 1st wave at 1887. This is the one that's been in our sights since the February 5th low. Slightly higher, at 1896.50 is the projection for the 5th wave in the rally from June 2012, where it would be 162% of the 1st wave. The top of its up-channel from October 2011 is now just under the 1887 projection. From a weekly perspective we're "there."

SPX weekly chart

The daily chart shows oscillators overbought as price reaches resistance, typically not a good combination for bulls. If the market squirts higher on Friday, keep an eye on the 1887 projection and then the 1896 projection. Lastly there's a trend line along the highs from April 2012 - May 2013, near 1902. A blast much above 1900 would clearly be bullish but as always we'll want to see how the market closes. If the market starts immediately down Friday morning it would be a bearish sign. But the bears need to break below Monday's low near 1834 to prove the rally has completed. The form of the decline, if we get one on Friday, will provide the first clues as to whether or not the top is in

SPX daily chart

The little spike high this morning might have completed the 5th wave in the move up from Monday, which completes the 5th wave in the move up from February 5th. That's why the coming high is potentially very important. The fact that it's either already in place or could be in place on Friday, fitting the time cycle, is potentially uber important here. The first sign of trouble for the bulls would be a drop below Wednesday afternoon's low near 1871.

SPX 60-min chart

And while it's looking like price and time are coming together nicely for a final high we've got bullish sentiment quickly returning to very high levels. A chart that can be found on the CNN finance site shows their Fear & Greed index and as can be seen below it's definitely pointing at danger for bulls. Greed is in the Extreme Greed region, shown in the top portion of chart, and bottom portion of the chart shows the quick spike up in only one month, back up to past turning points. This has all the signs of sucking in the bulls into a market top as everyone who wants in is in and when that happens there aren't enough new buyers to keep the market heading higher. It's an interesting setup and we'll see how it plays out tomorrow and what it might mean for positioning in front of the weekend.

Fear & Greed Index, chart courtesy

Friday's pivot table:
1234pivot table

Sample intraday comments on bonds and stocks:

Bonds Seeing Some More Buying

Bond prices have chopped lower all day and looking at the 10-year I see a bull flag pattern. As soon as the bond market closed (15:00) the futures started a rally and ZN is testing its morning high, which is also at the top of its up-channel for price action since early January and the top of its resistance band at 125'200 to about 125'270 (this morning's high was 125'285).

A rally above 125'270 that holds above would be even more bullish for bonds and it's looking like it might do it. Continued buying in bonds will put additional pressure on the stock market.

ZN daily chart

RUT Uptrend Line

Sticking with the RUT’s short-term chart, if today’s bullish pattern is to hold into the close we should see the uptrend line from this morning hold, which is currently near 1135.80. The bullish wave count calls for an acceleration of the buying, which could happen if the shorts throw in the towel in front of the weekend.

Stops on this kind of bullish setup belong just below the last pullback — trail your stop up below each higher low and let it take you out or let ‘er rip to the upside. If still in a long position by the end of the day it will be decision time as to whether or not to hold over the weekend (not worth the risk in my opinion since it’s a counter-trend play).

RUT 2-min chart

SPX vs. ES

There are a few differences in the pattern for ES and SPX and I’m trying to reconcile them to see if one or the other will provide a better clue for the next move. Earlier this morning I showed a descending wedge pattern for ES, which calls for a up-down sequence to finish it.

The top of the wedge, which is the downtrend line from Tuesday evening, is currently near 1789, slightly above where SPX would close this morning’s gap. It would be a bullish break above that level and both would then confirm the short-term bullish expectation for a rally into Monday/Tuesday.

We could see a pullback to correct the bounce off this morning’s low before pressing higher but higher is obviously what the bulls need from here.

ES 60-min all-hours chart

The same a-b-c bounce shown for SPX is shown on the above chart and the c-wave would be 162% of the a-wave near 1809.50, in between the 50% and 62% retracements of its decline into Wednesday’s low. As long as the descending wedge pattern contains the price we could see a whole lot of chop inside it so be careful you’re not just feeding your broker by getting whipped out of your trades.

I lean to the long side into Monday but you know my longer-term opinion about this market and I don’t think bulls are going to be let off the train easily.