Finding absurdly high prices on securities these days is like shooting fish in a barrel, but one I’d like to point out in particular is the Dow Transports ETF, symbol IYT. Transportation stocks have been on an incredible tear, and as you can see from the past 5+ years, they haven’t had even a modest dip since November 2012:
Another day with no significant pullback and a new all time high yesterday. There is still definitely a small retracement needed soon but that will happen when it happens. In the meantime SPX is getting close to testing my main resistance zone, which is now in the 2011-21 area. On the daily chart the resistance levels in the zone are the daily upper band, currently at 2011, and rising wedge resistance from the January low, currently in the 2015 area. The daily upper band will most likely cross 2015 within a couple of days. SPX daily chart:
Last Thursday I was outlining the two main options for the current move as I see them. The first option is failure at 2010-20 resistance to make the second high of a double top targeting the 1800 area. The second option is that SPX breaks over that resistance and heads to currently theoretical channel resistance (from 1343 low), somewhere in the 2060-90 area. I said then that I favored the first option, but obviously we might see a break up into the second.
So where are we now? Well we haven’t reached my resistance area yet, but we have a clear 70% bearish rising wedge established from the 1904 low, and increasing negative divergence on the 60min RSI 14, the daily RSI 5 and, always nice to see, the daily NYMO. We have a promising looking top setting up for that 2010-20 test, and the odds of a failure there are improving. SPX daily chart:
My beloved son finally returns home tonight, so I’m going to be involved in that happy homecoming – - – but before I get into that, I just wanted to do a short, sweet post about this chart of the VIX, which I’ve sexed up with a few lines and circles:
 Simple chart update turns opinionated [separate the two, as needed]… and the title is changed from ‘US Stock Market’ to reflect said opinions.
The first chart shows the progress the SPX is making on our 60 minute view. It turned up above the support level noted a couple days ago and is now logically dwelling at the pattern neckline. This is still bullish obviously, having made a higher high. Resistance and the measured target (blue arrow) are noted.
The first thing to say today is that even on the bear rally scenario, the chances that the rally high was made yesterday are small. That’s because of the seventeen similar buy signals from the start of 2007, only two failed to reach the 70 level on the RSI 5, and both of those failed just over 60. The RSI 5 closed at 51.85 area yesterday and I am therefore assuming that SPX will test main resistance at the 50 DMA and the daily middle band sometime in the next three days. Those are both currently at 1956. SPX daily vs NYMO and RSI 5:
Each candle on the SPX:VIX ratio chart below represents one year. I last wrote about this ratio pair on July 31st.
You can see at a glance that price action has been extremely volatile, so far, this year and has nearly re-tested the lows of last year’s candle. The Momentum indicator remains elevated at an all-time extreme on this timeframe.
At the very least, bulls will have to push the price above the 150.00 level and hold it there to coax investors into putting their money in equities in the near-term…otherwise, we’ll continue to see volatile intraday swings, or even a much bigger correction in equities if price falls and holds below the 110.00 level. (more…)