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Monday, 1 December 2014

The Week After Thanksgiving

Thanksgiving week is typically bullish, but the week after is not. The chart below from SentimenTrader shows this very well and the stats for today are obviously bearish.

My friend Cobra from www.cobrasmarketview.com adds that Mondays have been down 8 of the last 12, and that the first trading day of the month, for a long time a fairly automatic green close, has now been down 9 of the last 12. Altogether the historical stats are weighing in heavily against the bulls today:
I had been thinking that we would most likely see the end of the record run of daily consecutive closes over the 5 DMA today, but that happened at the close on Friday, ending the run at the new SPX lifetime record of 29 consecutive daily closes over the 5 DMA set at the close last Wednesday. That's an all-time record for the last 91 years of SPX data. SPX daily 5 DMA chart:
Now I have been looking hard at the historical stats for runs of this kind and the bad news for bears is that it is very unlikely that we are looking at a major top of any kind. The good news though is that looking at the five previous examples of runs of 20+ closes over the 5 DMA since the start of 1962, at the break below the 5 DMA the short term high was either made (three instances) or would be exceeded only slightly intraday (two instances). In the case of the two instances where there was a slightly higher high intraday the subsequent retracement was slightly over 2%. If we were to see that happen again here then I would have the target area 2030-5 SPX, though I'd note that the daily middle band closed on Friday at 2043 and we still need to see a trading hours break below the 50 hour MA, which closed Friday at 2061.33. SPX daily chart:
In the other three cases where the high was already in before the 5 DMA break, the subsequent retracements were 3.5%, 3.5% and 7%. If we were to see a 3.5% retracement from 2075.76 then that would target the 2003 area. That would be under the daily lower band, which closed Friday at 2007, and above the weekly middle band, which is likely to be in the 1990 area by the end of next week. This area would be attractive as a retest of 2000 and the Japanese QE break up, and might possibly fill the open gap from that break at 1994.65. SPX weekly chart:
Oil had a very bad week last week after the OPEC meeting resolved not to cut production. It seems increasingly likely now that the ultimate target on oil here is a test of the main rising support trendline from the 1998 low.  I posted that as an outlier target on an earlier version of the chart below in July 2013, and that trendline is now in the $48 area. We'd most likely see a decent bounce on the way there to deliver a better short entry. WTIC weekly chart:
I've been posting the rising wedge on AAPL for a week now without much sign of weakness so far. The bearish setup has been growing stronger however and if equities are going to be retracing this week then we should see this rising wedge on AAPL break down, though I'm not thinking this is a major high on AAPL either. AAPL 60min chart:
The historical stats are arguing strongly that either the short term high was made on Friday or that it will be made intraday today or tomorrow. From that high I am expecting at least a retrace into the 2030-5 area and the median retrace would be a retest of broken resistance in the 2000 area. I posted those targets on twitter before the globex open last night and I've not seen anything to change that view since then. However it's important to stress that the historical stats argue strongly against this high being a major high, and seasonality is also against the bears on the bigger picture until at least the end of December. I'll be looking for the low on this retracement to be a likely strong buy into the end of the year.

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