Tag Archives: charting

A Major Technical Breakdown Just Occurred In Stocks

The much-anticipated December Fed meeting has finally come and gone, and the stock market did not like what it heard. The Fed raised rates by 0.25% and cut its expectation for 2019 rate hikes from three to two. Because the Fed didn’t sound as dovish as many  investors would have liked, the S&P 500 promptly fell 1.54% to a fresh 2018 low. From a technical perspective, today’s action is extremely concerning because the S&P 500 broke the key 2,550 to 2,600 support zone that I’ve been showing for the past couple months. Today’s breakdown increases the probability of further bearish action unless the index somehow manages to close back above that zone.

SP500 Breakdown Daily

The longer-term S&P 500 chart shows how critical today’s breakdown is. Today’s breakdown is the second important technical breakdown in recent months (the first one being the break below the trendline that formed in early-2016, which I said was a bad omen). Assuming today’s breakdown remains intact, 2,100 (the 2015 and 2016 highs) is the next price target and support level to watch.

SP500 Breakdown Weekly

High-yield or “junk” bonds continue to sink, which I’ve been saying is a sign that the U.S. shale energy bubble is about to burst:

HYG Weekly

Investment grade bonds are not falling quite as hard as high-yield bonds, but that could change if the LQD iShares Investment Grade Corporate Bond ETF breaks below its 110 to 115 support zone, which would foreshadow an even more powerful bond and stock market bust ahead as bond yields spike and stock buybacks grind to a halt (I explained this scenario in more detail a few weeks ago).

Please watch my presentations about the U.S. corporate debt bubble and stock market bubble to learn more:

For now, the market’s trend is unequivocally down as air comes out of the Fed-driven bubble. It makes no sense whatsoever to try to call the bottom, which is tantamount to catching a falling knife.

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Key Charts To Watch As Crude Oil’s Bust Continues

Crude oil’s plunge continued on Tuesday due to fears of a growing glut and economic slowdown. West Texas Intermediate crude oil fell 7.3% to $46.24 a barrel, while Brent crude oil fell 5.6% to $56.26 a barrel. Crude oil’s ongoing bear market confirms the warning I published on November 6th called “Is A Crude Oil Liquidation Event Ahead?”

After today’s drop, West Texas Intermediate crude oil is down approximately 40% since early-October:

WTI Crude Daily

Brent crude oil is down approximately 35% since early-October:

Brent Crude Oil Daily

In recent weeks, WTI crude oil broke below its uptrend line that started in early-2016 and the key $50 level, both of which are important technical breakdowns. The next price targets to watch are $40, then $30, and so on.

WTI Crude Weekly

Brent crude oil recently broke below both its uptrend line and its key $60 level, which is a bearish omen that puts $50, $40, and $30 into play as the next price targets/support levels to watch.

Brent Weekly

As I discussed a few weeks ago, crude oil is plunging because it is pricing in much slower economic growth and a likely recession, as well as growing inventories. I am particularly worried about plunging oil prices because I believe that it is going to pop the shale energy bubble that I have been warning about for years.

Here’s what I wrote in Forbes in 2014:

I am also growing increasingly concerned that the U.S. shale energy boom is actually another post-2009 economic bubble (it would be a part of the commodities bubble). In a zero-percent interest rate environment like we are currently experiencing, any economic boom can devolve into a bubble. Shale energy extraction is a very capital-intensive business that relies heavily on cheap credit to survive. Shale oil wells experience much faster decline rates than conventional oil wells, which means that energy companies must keep drilling at a furious pace just to maintain their production – a very costly proposition that is typically funded by copious amounts of debt.

Here’s what I wrote in Forbes in September 2018, when I summarized the shale energy bubble:

U.S. shale energy boom/energy junk bonds: This boom/bubble is closely related to the corporate debt bubble discussed above. Extracting oil and gas from shale via fracking is extremely capital-intensive and would not be feasible in a normal interest rate environment. Thanks to the artificially low interest rate environment since the Great Recession, the shale energy industry’s net debt surged to $200 billion in 2015 – a 300% increase from 2005. Rising interest rates and the bursting of the corporate debt/junk bond bubble will cause a major bust in the shale energy industry.

The oil price plunge and overall rising interest rate environment is causing high yield or “junk” bonds to sink. The chart below shows that the HYG high yield corporate bond ETF recently broke below a key technical level known as a neckline, which is a signal that further bearish action is likely ahead (which means that junk bond yields will rise). I believe that this is yet another sign that the shale energy bubble is at risk of popping.

HYG

For now, I am watching $40 and $50 a barrel as the next price targets in WTI and Brent crude oil. The HYG high yield corporate bond ETF is likely to gun for its early-2016 lows in the course of this energy bust.

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Here Are The Key Levels To Watch In The S&P 500

With all of the incessant market gyrations this year, most traders and investors are going into the end of the year extremely confused. The simple charts I’ve been watching and showing help to make sense of the noise and show a big picture point of view.

In October, the S&P 500 broke below its uptrend line that started in early-2016, which is an important and concerning technical breakdown. The S&P 500 is still holding above its 2,550 to 2,600 support zone that formed at the early-2018 lows. If this level is broken decisively, it would give another bearish confirmation signal.

SP500 Weekly

The chart below shows the 2,550 to 2,600 support zone on the daily chart:

SP500 Daily

If the S&P 500 is unable to break below the 2,550 to 2,600 support zone in the short-term, it may stage a bounce or relief rally off that support. While such a rally would assuage the fears of many investors, it’s important to beware of the risk that it may be the right shoulder of a bearish head and shoulders pattern (I’m not predicting that it is or isn’t – I’m just saying to be mindful of that scenario).Head and shoulders pattern

I’m concerned about a serious bear market ahead because of the massive bubble that formed in the U.S. stock market – please watch my video presentation to learn more:

For now, I am watching if the S&P 500 can close decisively below the 2,550 to 2,600 support zone or if it stages a bounce off this level.

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Here Are The Key Charts You Should Be Watching

I’ve shown many charts over the past few weeks, so I wanted to use today’s post to update them after the Fed’s Jerome Powell took more of a dovish tone regarding upcoming Fed Funds rate hikes, which caused stocks and other risk assets to rally in relief. Surprisingly, none of the important technical breakdowns I showed in recent weeks were negated by this week’s action.

As I’ve been showing since October, the S&P 500 broke below its uptrend line that started in early-2016, which I view as an important technical breakdown. Despite this week’s rally, the index is still below this important level. The S&P 500 is still holding above its 2,550 to 2,600 support zone that formed at the early-2018 lows. If this level is broken decisively, it would give another bearish confirmation signal. As I said one month ago, I am watching if the S&P 500 forms a bearish head and shoulders pattern.

S&P 500

The next chart shows the LQD iShares Investment Grade Corporate Bond ETF. I said that the 110 to 115 support zone is key line in the sand to watch. If LQD closes below this zone in a convincing manner, it would likely foreshadow an even more powerful bond and stock market bust ahead. This week’s action did nothing to change my view.

LQD

The chart below shows the VIX Volatility Index, which I said appeared to be forming a triangle pattern that may foreshadow another powerful move ahead. If the VIX breaks out of this pattern in a convincing manner, it would likely lead to even higher volatility and fear (which would correspond with another leg down in the stock market). On the other hand, if the VIX breaks down from this pattern, it could be the sign of a more extended market bounce or Santa Claus rally ahead. Interestingly, this week’s market bounce and Powell’s comments did not cause this pattern to break down.

VIX

Last week, I showed the key levels to watch in WTI crude oil after its shocking plunge in the past month. I explained that oil broke below its important uptrend line that started in early-2016, which is not a good sign (this breakdown is very similar to the S&P 500’s breakdown). WTI crude oil is sitting right above its key $50 level. A convincing break below $50 would likely signal further bearish action.

WTI

In last week’s crude oil update, I explained that crude oil’s plunge caused an important technical breakdown in the HYG high yield corporate bond ETF (because a good portion of outstanding junk bonds have been issued by shale energy companies). In recent years, bearish moves in crude oil often lead to bearish moves in the HYG ETF and vice versa. I believe HYG’s breakdown is yet another sign that the shale energy bubble is on the verge of popping. This week’s market bounce and Powell’s comments did not negate this bearish breakdown.

HYG

I am watching how these markets act at the key levels discussed and I will provide periodic updates when there are important developments.

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