I’ve blogged a bunch about the power of using technical analysis and ratio analysis. you don’t have to read a 500 page diatribe about the fundamentals (which are important) but you plot A/B and see if it’s going UP or DOWN. UP A is outperforming .. DOWN and A is underperforming. DONE.
so as everyone gets their panties in a knot about the Death Cross (I like to call it the Iron Lotus – actually got a “like” from Blades of Glory on Twitter – how cool is that?), China and the Yuan and a low VIX and let’s see what else … blah f’ing blah. I go to the chart. What is it telling us?
John Murphy – technician extraordinaire – taught us in the CMT program to look for discretionary and staples to give us clues. How do you find clues? do the ratio….
Here it is …
what sticks out to me …? we have the SAME PATTERN at the top … but it also took time to finally crack. to the tune of 2-3 years….
I’ve drawn some simple trend lines to watch and if/when they are taken out on a weekly close below then it’s time to look for Will Ferrell’s head on the ice because the Iron Lotus failed (meaning the sharp skate cut his head off … tragic) Take a look at the “get out” portion of the trend line from 2007 time frame. We can see it got tested and then it broke … time to get defensive. Believe that’s a good playbook for now …until tested and broken the band “should” play on ….
here’s the $NYA overlaid .. note the distribution that occurred at the 2007 top.
here’s the XLY/XLP ratio w/ the $NYA/XLP overlaid on top of it … why is it important? Well, as you can see, much like the last post: http://bartscharts.com/2015/08/08/bill-and-teds-excellent-adventure-meets-the-matrix-in-two-charts/ we can see that the ratio of the NYA/staples is plumbing all time lows … this is not a very good picture.
so, if the rotation really occurs out of the discretionary’s, believe this ratio will break support and start downhill fast.
so, now we have some trend lines to watch for weakness.
CLIFF NOTES: the biggest development of this past week was the CLOSE above our pattern level on the XLF. It is my belief, and history has shown, that the banks LEAD us UP and LEAD us DOWN. As long as the banks are stable, this market will continue it’s “Wizard of Oz’s” climb …also, my last post had the “white flag” at the bottom as I have given up and thrown in the towel to the bear patterns. It’s different this time …
yesterday was a quarterly option expiration AND an important S&P reweighing .. our last post at the sectors of the S&P 500 were dominated by technology, energy and financials … that changed, pretty substantially. now, hot of the presses the sectors are:
information technology 18% : using VGT as a proxy. see chart below. SELL PATTERN complete/completing.
financials 16.4%: using XLF as a proxy. see chart below. SELL PATTERN complete/completing.
health care 13.1%: using XLV as a proxy. see chart below. no discernible pattern however it’s approaching PARABOLIC
consumer discretionary: 12.5%: using XLY as a proxy. see chart below. no discernible pattern however it’s approaching PARABOLIC.
industrial 11.1%: using XLI as a proxy. see chart below. SELL PATTERN complete/completing
energy 10.3%: using XLE as a proxy. see chart below. no new high, an extension sell pattern complete at 88 but perhaps 97 is where it will go.
so, note the inclusion of health care, consumer discretionary and industrial and there close to parabolic states continues the advance. additionally, am using VGT and the NASDAQ as proxies for the IT sector. 70% of the S&P 500 are either approaching parabolic or SELL patterns are completing …