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The State of Market Bears? Comfortably Numb
Daily and weekly DeMark levels offer little if any indication to bears that bulls are exhausted.
Fil Zucchi    

It's eerie how fitting this masterpiece is to the way I envision the state of market bears. Last Thursday saw the biggest corporate bond issuance day of the month -- more than $15 billion -- while high-yield rates as measured by the Merrill Lynch High Yield Index are now at all-time lows (the data series goes back to 1996).  The upward grind in stocks is relentless as companies -- the only net buyers of equities [subscription required] -- are rarely price-sensitive in buying back their stocks with borrowed money.  Keep that in mind if you are asking yourself, "Who the heck is buying stocks at these levels?"  In fact, the better question may soon be, "Who the heck is selling stocks when prices keep going up?"  If market participants start pondering that, it could really bring about a real melt-up.

Before you think I'm drowning in Kool-Aid, I am keenly aware of the many issues percolating out there:

  • There are companies going public that not only should not IPO, they probably don't even deserve to exist, period.
     
  • On Friday CNBC was all about the second coming of penny stocks.
     
  • The US economy is in a perennial state of "Manana Recovery."
     
  • A number of companies trade at valuations that bear no resemblance to reality.
     
  • The geopolitical state of the world is a complete s***show and our government is behaving as if totally disconnected and ever more irrelevant to what is happening.
     
  • More specific to the internals of the market, the three-month curve of the Volatility Index (INDEXCBOE:VIX) has been around a +4 for a couple of days now.  That's very steep and usually a good warning that the market is about to correct.  However, in the rally that followed the 2011 correction (a +250 points move in the S&P 500 (INDEXSP:.INX), the curve steepened to as high as +9.3 and remained above +5 for weeks.
These are all very valid arguments as to why equities should not be going up, but none of them can trump the fact that stocks are going up, and the hose spewing fuel on this rally (i.e. cash handed to companies via sales of corporate bonds) is getting bigger every day.

Technically, the SPX breakout is picture-perfect (I know, volume stinks, the new highs are not good, the small caps are lagging, etc. But the SPX chart is still picture-perfect) and even DeMark exhaustion levels are caving:

  • The daily Risk Level on the S&P 500 Pit traded contract (i.e. the secondary exhaustion area following a completed Sell count signal -- in this case a Combo Countdown) has been broken on a "Qualified Basis."
     
  • The SPX weekly counts are not close to exhaustion yet and the Risk Level from the last Combo Sell is at 1932.70.
     
  • The one thing bears can hang their hats on is that, on a monthly time frame, the SPX printed a Combo Sell 13 in April, with the Risk Level at 1980.20.  No indicator is perfect, but DeMark Sequential Setup, and Combo Countdowns, have worked rather well on the SPX: it printed a Combo Sell 13 in October 2007, a Sequential Buy Setup in February 2009, and another Combo 13 in March 2011; it didn't work in April 2013 and that Risk Level was broken on a Qualified Level 88 points higher.
So, I offer the following: i) if you think that the market is going to crack because the fundamentals don't support it, that's been the case for more than five years; ii) the demand for corporate bonds, which fuel buybacks and higher stock prices, is only getting stronger; iii) the traditional SPX chart looks very very bullish; iv) the daily and weekly DeMark levels offer little if any indication to bears that bulls are exhausted; v) on a very short term basis the VIX curve suggests no fear in the here and now, and a growing "certainty" that risks are only further out in the future: this is typically a good setup for a correction; and vi) monthly DeMark counts do argue that between SPX 1883 and 1980 bulls may exhaust themselves, and if that is ultimately confirmed (by a bearish "Price Flip" for example, or a confirmed break of TD Reference Close Down) it would present the possibility of a large correction or even a cyclical bear market.

Twitter: @FZucchi
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Positions in SPX.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
The State of Market Bears? Comfortably Numb
Daily and weekly DeMark levels offer little if any indication to bears that bulls are exhausted.
Fil Zucchi    

It's eerie how fitting this masterpiece is to the way I envision the state of market bears. Last Thursday saw the biggest corporate bond issuance day of the month -- more than $15 billion -- while high-yield rates as measured by the Merrill Lynch High Yield Index are now at all-time lows (the data series goes back to 1996).  The upward grind in stocks is relentless as companies -- the only net buyers of equities [subscription required] -- are rarely price-sensitive in buying back their stocks with borrowed money.  Keep that in mind if you are asking yourself, "Who the heck is buying stocks at these levels?"  In fact, the better question may soon be, "Who the heck is selling stocks when prices keep going up?"  If market participants start pondering that, it could really bring about a real melt-up.

Before you think I'm drowning in Kool-Aid, I am keenly aware of the many issues percolating out there:

  • There are companies going public that not only should not IPO, they probably don't even deserve to exist, period.
     
  • On Friday CNBC was all about the second coming of penny stocks.
     
  • The US economy is in a perennial state of "Manana Recovery."
     
  • A number of companies trade at valuations that bear no resemblance to reality.
     
  • The geopolitical state of the world is a complete s***show and our government is behaving as if totally disconnected and ever more irrelevant to what is happening.
     
  • More specific to the internals of the market, the three-month curve of the Volatility Index (INDEXCBOE:VIX) has been around a +4 for a couple of days now.  That's very steep and usually a good warning that the market is about to correct.  However, in the rally that followed the 2011 correction (a +250 points move in the S&P 500 (INDEXSP:.INX), the curve steepened to as high as +9.3 and remained above +5 for weeks.
These are all very valid arguments as to why equities should not be going up, but none of them can trump the fact that stocks are going up, and the hose spewing fuel on this rally (i.e. cash handed to companies via sales of corporate bonds) is getting bigger every day.

Technically, the SPX breakout is picture-perfect (I know, volume stinks, the new highs are not good, the small caps are lagging, etc. But the SPX chart is still picture-perfect) and even DeMark exhaustion levels are caving:

  • The daily Risk Level on the S&P 500 Pit traded contract (i.e. the secondary exhaustion area following a completed Sell count signal -- in this case a Combo Countdown) has been broken on a "Qualified Basis."
     
  • The SPX weekly counts are not close to exhaustion yet and the Risk Level from the last Combo Sell is at 1932.70.
     
  • The one thing bears can hang their hats on is that, on a monthly time frame, the SPX printed a Combo Sell 13 in April, with the Risk Level at 1980.20.  No indicator is perfect, but DeMark Sequential Setup, and Combo Countdowns, have worked rather well on the SPX: it printed a Combo Sell 13 in October 2007, a Sequential Buy Setup in February 2009, and another Combo 13 in March 2011; it didn't work in April 2013 and that Risk Level was broken on a Qualified Level 88 points higher.
So, I offer the following: i) if you think that the market is going to crack because the fundamentals don't support it, that's been the case for more than five years; ii) the demand for corporate bonds, which fuel buybacks and higher stock prices, is only getting stronger; iii) the traditional SPX chart looks very very bullish; iv) the daily and weekly DeMark levels offer little if any indication to bears that bulls are exhausted; v) on a very short term basis the VIX curve suggests no fear in the here and now, and a growing "certainty" that risks are only further out in the future: this is typically a good setup for a correction; and vi) monthly DeMark counts do argue that between SPX 1883 and 1980 bulls may exhaust themselves, and if that is ultimately confirmed (by a bearish "Price Flip" for example, or a confirmed break of TD Reference Close Down) it would present the possibility of a large correction or even a cyclical bear market.

Twitter: @FZucchi
< Previous
  • 1
Next >
Positions in SPX.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
More From Fil Zucchi
Daily Recap
The State of Market Bears? Comfortably Numb
Daily and weekly DeMark levels offer little if any indication to bears that bulls are exhausted.
Fil Zucchi    

It's eerie how fitting this masterpiece is to the way I envision the state of market bears. Last Thursday saw the biggest corporate bond issuance day of the month -- more than $15 billion -- while high-yield rates as measured by the Merrill Lynch High Yield Index are now at all-time lows (the data series goes back to 1996).  The upward grind in stocks is relentless as companies -- the only net buyers of equities [subscription required] -- are rarely price-sensitive in buying back their stocks with borrowed money.  Keep that in mind if you are asking yourself, "Who the heck is buying stocks at these levels?"  In fact, the better question may soon be, "Who the heck is selling stocks when prices keep going up?"  If market participants start pondering that, it could really bring about a real melt-up.

Before you think I'm drowning in Kool-Aid, I am keenly aware of the many issues percolating out there:

  • There are companies going public that not only should not IPO, they probably don't even deserve to exist, period.
     
  • On Friday CNBC was all about the second coming of penny stocks.
     
  • The US economy is in a perennial state of "Manana Recovery."
     
  • A number of companies trade at valuations that bear no resemblance to reality.
     
  • The geopolitical state of the world is a complete s***show and our government is behaving as if totally disconnected and ever more irrelevant to what is happening.
     
  • More specific to the internals of the market, the three-month curve of the Volatility Index (INDEXCBOE:VIX) has been around a +4 for a couple of days now.  That's very steep and usually a good warning that the market is about to correct.  However, in the rally that followed the 2011 correction (a +250 points move in the S&P 500 (INDEXSP:.INX), the curve steepened to as high as +9.3 and remained above +5 for weeks.
These are all very valid arguments as to why equities should not be going up, but none of them can trump the fact that stocks are going up, and the hose spewing fuel on this rally (i.e. cash handed to companies via sales of corporate bonds) is getting bigger every day.

Technically, the SPX breakout is picture-perfect (I know, volume stinks, the new highs are not good, the small caps are lagging, etc. But the SPX chart is still picture-perfect) and even DeMark exhaustion levels are caving:

  • The daily Risk Level on the S&P 500 Pit traded contract (i.e. the secondary exhaustion area following a completed Sell count signal -- in this case a Combo Countdown) has been broken on a "Qualified Basis."
     
  • The SPX weekly counts are not close to exhaustion yet and the Risk Level from the last Combo Sell is at 1932.70.
     
  • The one thing bears can hang their hats on is that, on a monthly time frame, the SPX printed a Combo Sell 13 in April, with the Risk Level at 1980.20.  No indicator is perfect, but DeMark Sequential Setup, and Combo Countdowns, have worked rather well on the SPX: it printed a Combo Sell 13 in October 2007, a Sequential Buy Setup in February 2009, and another Combo 13 in March 2011; it didn't work in April 2013 and that Risk Level was broken on a Qualified Level 88 points higher.
So, I offer the following: i) if you think that the market is going to crack because the fundamentals don't support it, that's been the case for more than five years; ii) the demand for corporate bonds, which fuel buybacks and higher stock prices, is only getting stronger; iii) the traditional SPX chart looks very very bullish; iv) the daily and weekly DeMark levels offer little if any indication to bears that bulls are exhausted; v) on a very short term basis the VIX curve suggests no fear in the here and now, and a growing "certainty" that risks are only further out in the future: this is typically a good setup for a correction; and vi) monthly DeMark counts do argue that between SPX 1883 and 1980 bulls may exhaust themselves, and if that is ultimately confirmed (by a bearish "Price Flip" for example, or a confirmed break of TD Reference Close Down) it would present the possibility of a large correction or even a cyclical bear market.

Twitter: @FZucchi
< Previous
  • 1
Next >
Positions in SPX.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
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