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Daily Quant | 2015 | September
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2015 September

Wednesday, September 02, 2015

Posted by | The Daily | No Comments


Market declines 3% as downward surge accelerates…

Yesterday’s action saw a continued decline throughout the session as the S&P 500 traded down to 1903.07. We did see a rebound from the extreme lows that happened in the last 15 minutes of trade but the market closed at 1913.85. Once again illiquidity was at the forefront as the New York Stock Exchange once again implemented rule 48. This is the third time in the past seven trading days. This rule takes the restrictions from opening price setting by market makers. This lets market forces determine prices rather than a pre-market auction process.

The big story fundamentally overnight was a reaction to the massive declines across global markets in manufacturing and industrial production. This was further exasperated by the miss in the ISM Manufacturing index confirming the global slowdown is in play.

Today we will get a look at the ADP employment numbers as once again the global volatility has taken the focus off of the economics here in the US. We still have the unemployment numbers to be released on Friday. This should become a focus of market participants over the next day or so. Also, the pressure from China will be lifted as their markets are closed for holidays for the next two sessions and will open next Monday. With the holiday weekend ahead of the US, this sets the tone for a potentially treacherous opening next Tuesday. Should the declines in China continue then they will be open for two sessions before the US will open. This may cause many market participants to take caution ahead of the long weekend. This ultimately could mean short covering or even more liquidation. It is hard to tell at this time.

The big question is “Will the global slowdown end up to be a global meltdown?”

There are many factors occurring from China all the way to Europe. The current migration crisis in Europe could trigger mass dislocations of capital down the road. However, it is interesting that they are shutting down their borders to keep folks coming in primarily from Syria. They’re forcing people to be documented before entering… What a concept. But the big surge in migration is causing a lot of issues.  Most of the folks want to try to get to Germany. This is similar to what we are seeing here in the US as many are trying to get to this stronger economies on the planet. The social issues and potential cost to the European economy could be huge, setting the tone for yet another crisis in Europe.

As I mentioned earlier, we did see continuing liquidity issues in Tuesday’s action triggering much of the sharp declines that we saw.

The big VPM story as is that we saw a secular trend failure as the S&P and other key market indices have triggered monthly sell signals.

Basis the S&P 500 the average holding period for the secular model is 3.1 years. The trade that was just exited was long for 3.3 years, in line with the normal profile. The average time between the next long trade is 565 days or 1.5 years. This coincides with my analysis that I talked about in the Market Thunder show with expectations for a potential multi-year decline to unfold. Confirming this thought is the PPM #1 on a monthly basis is now showing a -.75 confirming the beginnings of a secular downtrend.

Also, the intermediate charts are confirming that we are in an intermediate downtrend with all three PPM’s in downtrend mode. This suggests that we will see a continuation in the month of September. The market should move down to the minimum targets that I’ve discussed before at 1820/1770 levels.

On the longer-term viewpoint, the markets are likely to decline substantially lower, with the possibility of going to 1620/1491. This certainly will not be a straight line to these levels. We will see support around the 1865/1840 levels during this initial decline. Most likely it will not be until sometime in October when we are begin to see an acceleration to the downside.

As I mentioned in yesterday’s commentary, if the market traded through the 1952 level it would signal a move to the 1936/1926 levels triggering a panic. We did see this unfold as we declined all the way down to 1903.07.

Expectations for today even though we closed under the critical 1920level, there is a possibility of a rally today back toward the 1940/1949 levels. However, there is only a 30% probability that the market can rally above 1949 at this time. The critical level on the upside today will be 1931.55. A penetration will suggest that the market will move toward this upper range. On the downside, the key level is 1905.50. A penetration would suggest a further decline possibly as low as the 1896/1886 levels. Currently, there is only a 30% probability for that to occur.

The most likely configuration is for an inside trading day to occur between the 1905 and 1931 levels. However, the three-day range indicator suggests that we are likely to have at least a 36 handle range for today so use the below support numbers to estimate more accurate numbers once the market is trading.

Should the market remain stable for the next two sessions, expect to see it move directly to the targets that I discussed above.

The market should open flat to higher, with a 60 percent probability to close higher, should the market remain above the 1905.50 level today.  

Today’s Key Levels

  RX 1949.20
  R3 1940.90
  R2 1931.65
Resistance R1 1922.20
Prior Close   1913.85 -58.33
Support S1 1905.50
  S2 1896.20
  S3 1886.85
  SX 1878.50

Tuesday, September 01, 2015

Posted by | The Daily | No Comments


Market fails closes below key level…

As I mentioned in the Market Thunder broadcast yesterday, if we were to close under the 1985.50 level on the S&P 500 then it would signal a decline toward the 1820/1770 levels. The S&P 500 closed at 1972.18, well below this level confirming this downward price objective. The secular models signaled an end of the three-year and four-month long bull market on the S&P. Please check the dashboard for more details on other secular model trades.

On a short-term basis, the market should trade down and test the 1952 level. A penetration of that level will signal a further decline to the 1936/1926 levels. I do expect to see some support at these lower levels before declining further. However, a close below the 1926 level would set the tone for a possible panic selloff. The overall configuration now has become very vulnerable to sharp declines should the illiquidity issue show up again on this next selloff.

Overnight the markets are down sharply as China PMI, Russia PMI, India’s PMI, and Italy’s PMI are all declining, illustrating the sharp world slowdown that is occurring. As I mentioned on Market Thunder, it does not matter whether the Federal Reserve lowers rates or not.  This market has been broken and will continue to decline over the next several weeks. The S&P futures are currently down 42 handles or 2.11%. It would appear we’re set for a very bad start to September.

The key level on the upside is the 2060 level. It would take a close above this level to negate this downward move that has been signaled. There currently is only a 20% probability for that to occur.

The three-day volatility indicator has moved down to 28.62 from 83.5 last week. I discussed that we should fall back to this level but it appears that we could see this uptick from here as this is about eight points above average volatility. If this indicator gets above 40 then it will also suggest that the illiquidity issue is likely to show up as well and will likely cause further deterioration and market sentiment.

The market should open sharply lower, with a 60 percent probability to close lower, should the market remain below the 1978.95 level today.  

Today’s Key Levels

  RX 2000.80
  R3 1994.05
  R2 1986.50
Resistance R1 1978.95
Prior Close   1972.18 -16.69
Support S1 1965.40
  S2 1957.85
  S3 1950.30
  SX 1943.55

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