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Wednesday, 26 November 2014

The Day Before Thanksgiving

With Thanksgiving here I'll mostly be catching up with paperwork over the rest of the week. The globex action this morning has been very interesting and profitable, but my expectations for the rest of the day aren't high.

SPX turned in a 28th consecutive daily close above the 5 day MA, and though I've only been able to check this myself back to the beginning of 1962, I understand that is a new lifetime record for SPX since 1923, beating out the previous record of 27 closes above set in (cough) 1928. I'm certain that this move here is at least as much a sign of a healthy bull market as the 1928 record was, and would note that SPX doubled in value in the months after that last record was set, though there was some bearish action after that. At some point this record-breaking run will have to end, but this being Thanksgiving week might extend the run a couple more days. The 5DMA closed yesterday at 2060. SPX daily 5 DMA chart:
If this wasn't Thanksgiving week the short term outlook would be bearish, with a broken rising megaphone and two nested double tops in play here. It remains to be seen whether bears can make any headway in this slow tape, but if they can I'm keeping an eye on the open ES gap at 2061.75 and strong support at the weekly pivot at 2055.3 ES and last Friday's low at 2054.75 ES. As I have the SPX 60min moving average currently at 2055/6 (SPX), this is the key support area short term. SPX 5min chart:
If we see equities go higher on low volume holiday tape, and the stats for both today and Friday are bullish, then I have both the weekly and daily upper bands at 2079, and would be looking for strong resistance there. As both the pattern setup and the stats next week lean bearish I'd be seeing a hit there as a decent short entry. SPX weekly chart:
Today may well be very boring to trade as so many people are taking the day off. This might be a good day to finish early. I'll be doing a holiday post on the US Dollar and EURUSD tomorrow, and a morning post as usual on Friday.  Everyone have a great Thanksgiving! :-)

Tuesday, 25 November 2014

Unquenchable Exuberance

SPX closed above the 5 day MA yesterday and that took the number of consecutive closes above the 5 DMA to 27, which is a record as far back as my decent daily data goes back to the end of 1961. I was saying yesterday that this might be an all time record and Zero Hedge posted an article after the close yesterday confirming that, and adding that it equals a 27 day run in 1928. If we see another close above today then that would beat even that into a new SPX lifetime record.

There have been five previous runs of 20 or more closes above the 5 DMA going back to the end of 1961, and I've noted the stats on all of those for what happened after the end of the run in the short term, and also what happened over the next year. Those stats are on the chart but in summary the end led into a retracement of between 2% and 7% with the median retrace at 3.5%, and all of the previous five were up over the following twelve months, though as Tyler Durden noted, that wasn't the case in the case of the run in 1928. Even in that case however the market doubled again before it halved, so regardless history is telling us to expect more upside after some retracement. SPX daily 5 DMA chart:
The weekly upper band rose slightly more than I expected to 2079 and that is likely to be strong resistance this week. SPX weekly chart:
The daily upper band is at 2077, under the weekly upper band and now in easy range. SPX daily chart:
The CL chart is looking interesting here. Declining resistance from 93 has been pinocchioed a couple of times in recent weeks, but CL only closed above it for the first time yesterday. CL may have bottomed now but should at least be in a bottoming process. After a reversal pattern has developed I'll be looking for a move to falling megaphone resistance, currently in the 83-5 area. CL daily chart:
We may well see a hit of both the weekly and daily upper bands today and I'll be looking for resistance there. We may well then see a retracement that then breaks this amazing run of closes above the 5 DMA, which closed yesterday at 2057. This is Thanksgiving Week though and as we were seeing yesterday, it may not be possible to get a significant move down, or at all, this week.