Caution: Plenty of Event Risk on the Horizon

Running late tonight but I wanted to publish the two weekly Alert HQ charts, especially since I skipped last week.

By way of background, this past week had no news events of special importance but stocks returned to their winning ways. Looks like we are only allowed one bad week in a row before the bulls return.

The question is, will the bulls hang around this week? The Nikkei is down hard as I write this. China was up but is now falling, as well. Will U.S. stocks catch the same cold that Asian stocks seem to be suffering from?

We look for clues in some of the charts that follow.

The view from Alert HQ --

Charts of some of the statistics we track at Alert HQ are presented below: (Click to enlarge)


The above chart, illustrating our moving average analysis, is at a bullish level now but I think time is running out. There are no obvious bearish signs here, just a situation where it looks like stocks have been running for long enough so that the time is right for a breather. This is just a rough estimate that there is a cyclical component to the movement in the market and the chart above suggests that we've had two peaks close together and a bit of a downdraft should be expected.

The next chart provides our trending analysis. It looks at the number of stocks in strong up-trends or down-trends based on Aroon analysis. (Click to enlarge)


The same analysis applies to this chart. No bearish signs; indeed, bullish signs are quite strong here. Nevertheless, there are worries. The number of stocks in strong up-trends has not surged as strongly as the number of stocks showing strong moving average action as illustrated in the first chart. And that cyclical aspect also seems to be at work in this chart, implying a potential pullback.

Conclusion --

Caution, caution, caution. Not only do the charts above suggest stocks are due for a rest, there is plenty of event risk on the horizon. By this I mean that there are a ton of important economic reports coming out this week and an unanticipated failure to meet expectations could be the catalyst that initiates a slide in stock prices.

To be specific, this week's reports include: PPI, retail sales, NY Empire State Manufacturing Index, business inventories, CPI, capacity utilization and industrial production, building permits, housing starts, initial claims, continuing claims and the Philadelphia Fed index.

If every one of these reports turns out to be rosy, well then, stocks would deserve to surge again. Somehow, though, I suspect that is too much to hope for.

Comments

[enigmaman:]

Yes going forward cautiously is advised, very few of the experts will see the one thing that changes the direction of the market until we all can, yes this week there will be many reports to watch but its what you dont see that will get you, China response to our recent protectionist moves, N Korea indicating another nuclear test to come, Iran pounding its chest about it nuclear capabilities, Venezuela buying arms form Russia, there are many things out side the expected reports that can abruptly end this rally, there are unfolding events within the USA that can as well, so yes caution is advised

Sep 14 08:53 AM

[MarvinMBA:]

We all live in hope that things will get better for the guy in the street...hopefully things will turn around and job formation will start before there is hunger and rioting in the streets....unfortunately I think we are going to see some of this negative before its all over...MarvinMBA

Sep 14 09:46 AM

[hedonist:]

The analysis is simple...
The truckloads of unearned unaccounted for, easymoney thrown at the system are dictating markets...We're now in that illusionary part of the cycle, where we think it can actually work, notwithstanding that....

There are NO free lunches in life.
Where we are living now is in Dreamland.
Can it be that its THAT simple, that anytime u have a problem, just print money and bail folk out?
At that rate, one could start bailing out the whole world, and poverty would be eradicated!... It don't work that way dude.

The negative effects of having taken this easy way out will systematically manifest over time... at the moment we are in that upward tick, which is more like a lull before the storm.
What will eventually happen, is the excess liquidity will cause inflation, panic selling of Treasuries and stocks, a run to gold, and a collapse of the system.

Sep 14 09:51 AM

[manuel:]

it seems that many stocks are far above 200 day MA as well

Sep 14 09:54 AM

[manuel:]

sorry I am learning, but if a shorter term MA(20) crosses a longer term(50) isn´t that a bullish sign?

Sep 14 10:02 AM

[Trade Radar...:]

Manuel, you are correct. My caution arises from the fact that so many stocks have accomplished this. This indicator can't get much better but could easily get worse.


On Sep 14 10:02 AM manuel wrote:

> sorry I am learning, but if a shorter term MA(20) crosses a longer
> term(50) isn´t that a bullish sign?

Sep 14 10:41 AM

[GC39:]

My reading of the charts is a little bit more negative than yours. In march we had a positive divergence between SP 500 and the number of the MA Trends. Now it seems a negative divergence is building.
Regards

GC39

Sep 14 11:24 AM

[rrdaniel:]

What is the point of bringing the charts up, saying that they show bullish trends, and then coming up with the (final) opposite conclusion ?

Sep 14 12:20 PM

[dubious:]

"If every one of these reports turns out to be rosy, well then, stocks would deserve to surge again."

It seems that during past six months, virtually every economic report has met or beaten (lowered) expectations. The same reports have in many cases been subject to subsequent revision which indicates that the data actually missed expectations.

Our government, Wall Street, and reporting entities have a predictable bias to the upside and market analysts do a swell job of lowering expectations. I very much doubt a single report will fail to meet or exceed this week, as has now consistently been the case for 6 months.

Sep 14 10:13 PM