CLIFF NOTES: the “chart of my lifetime” is still just that – an amazing chart of, quite frankly, my lifetime. I think it’s safe to say that the pattern from genesis of the Dow Jones Transports has been defeated. A pattern that took 45,000 days (+) to form and complete. Again, please, let that sink in … read it again, and one more time. In the world of probability this was a highly probable pattern that should have at least cause some pullback congestion ….! NOPE … not even close. Take a look at the BREAKAWAY MOVE and the explosion from the pattern area. Reminds me of the GOOGLE short at 921…if you remember, that level held for 6 months! Then exploded higher in a 100 point gap that was definitely egg in my face. O U C H …but, this pattern was less than 10 years old and it held GOOG for 6 months. Please, again, go back a couple sentences …the Transports pattern was 100+ years old. The PATTERN didn’t even hold it for a week …
CLIFF NOTES 2: I’ve gone back thru BA, AAPL, WYNN, PCLN, FB, IBM, LNKD, AMZN, SBUX, etc and those patterns WORKED and while they have all retraced the initial crack lower they sure do appear to be ready to surge forward w/ the rest of the market.
CLIFF NOTES 3: I’m baffled, a little concerned and well quite angry. Why? Not because the PATTERNS failed or didn’t….that’s called probability folks. I’m sharing my emotions because this puppy NEEDS TO CORRECT and that’s a good thing. Mentors of mine that have traded for 40+ years have taught me (which I believe) cycles that are extremely reliable and some of the most BEARISH CYCLES that we have ever witnessed (if you know it or not) hit in MAY and NOTHING happened. Read that last sentence again … it was, literally, the perfect storm of cycles. Am I questioning the cycles – nope. I AM QUESTIONING WHAT THE HELL IS GOING ON !!!!
CLIFF NOTES 4: if you have read this far. thanks. so, in order to do what the subject line states I am spending this SAT AM W/ you to reevaluate the S&P 500 sectors that “weigh” more than 10% and, as I type, I have removed any bias from patterns or talking head pundits or any outside influences. It’s me, the charts and 10,000 hours + of chart time (see this link: http://www.dailymail.co.uk/news/article-1078842/Practice-makes-perfect-Why-takes-10-000-hours-success-according-academic.html )
Here we go …as of 5/31/2014
1. IT makes up 19% of the S&P 500. I have chosen to use the VGT ETF as a proxy.
- I see blue arrows which represent maximum measured moves since 2009. We are completing one of those moves up against the 5 year trend line.
- I see a black/yellow triangle which represents TIME and we are 7 weeks past the last major move w/out a “nice” correction.
- I see BEARISH DIVERGENCE
- I see an increase of volume which reminds me of FOMO “selling at the bottom” and “buying at a top”
- CONCLUSION: resistance and correction ahead. Expect anywhere from 94-100 to hold this puppy back. 64 is not out of the question for a correction.
2. Financials are 16% of the S&P 500. I have chosen XLF as our proxy vehicle for this sector
- I see the “basic” AB=CD (blue arrows) holding, so far.
- I see bearish divergence
- I see very very low volume
3. Health Care is 13.3% of the S&P 500. I have chosen the XLV as a proxy
- I see NO PATTERNS nothing but a straight up rocket ship. I reference Sir Isaac Newton and the law of gravity.
- check out the RSI … so much for bearish divergence. A YEAR OF IT! But, HERE IS A KEY POINT – NOTE THE SPIKE IN THE BEARISH (RED) VOLUME AT THE LOWS (BLUE SQUARES) EVERY TIME THE SELLING SURGES THE ETF BOTTOMS. LOOK FOR THAT AGAIN ….
4. Consumer Discretionary is 11.9% I have used XLY as the proxy vehicle.
- I see STRAIGHT up w/ a POTENTIAL BUTTERFLY SELL PATTERN FORMING.
- I see bearish divergence
- I see an intraday sell pattern.
5. Industrial s make up 10.7% of the S&P 500. I have chosen XLI as the vehicle proxy.
- I see the same picture as the past couple. An amazing and powerful bull move up w/ no hint of corrections at all. some daily patterns are present in/around here.
6. Energy makes up 10.5% of the S&P 500. I have chosen XLE as the vehicle proxy.
- please see this post on the IMPORTANCE of the ENERGY SECTOR w/ regards to SECTOR ROTATION and the business/economic cycle:
7. VIX – it’s different this time and there is NO FEAR IN THIS MARKET – NONE. All I can say (note: bold,underline, italicized) is REALLY ?????
8. I have shown the importance of ratio analysis and especially the XLP/SPX ratio. I expected it to be making new lows based on the equity action – NOPE, it’s showing remarkable strength which tells me the “big boys/girls” are rotation into this sector. Watching the “standard” .618 and .786 retraces to hold this pullback. If we go into new lows the equities will continue to surge …
Bart, great analysis and charts. The longer the markets stay “irrational” the bigger and quicker the reset will be. Enjoy your weekend.
THANKS … why is everyone so “afraid” of a pullback? In the natural course of things EVERYTHING expands and CONTRACTS …. continue expansion (like, say a balloon) will eventually POP instead of expanding a little, back off, and the expand MORE. Sooner or later, like a waste button on someone’s jeans the darn thing just pops …
…and almost kills cats. Fear not. The disruption to the patterns is caused by tape painting for month end billing by money managers. Look at it as their last big pay check. Intra day price motions are ascending with no resistance or reason… save marking a market for invoicing. Rationale solved by the traditional human condition of greed. Their mechanical action is the basis for classic blow offs.
The crest of the wave is formed on a massive irrational level. Demand is not established buy a full order book underneath it giving the market pricing structure. Volume dictates this… and a lack of it exists and it will diminish further into the next days and weeks.
So I say to you Herr Bart…
Dilegua, o notte! Tramontate, stelle! Tramontate, stelle! All’alba vincerò! Vincerò! Vincerò!”
Keep the faith.
You are only off on a few hundredths on a calculations of irrational human behavior. In short your calculations are correct. Your subject matter is irrational, which by definition should not be calculable.