I have a lot of charts today. What are the charts saying? They are saying that the market is breaking down even more. And Canadian banks are breaking up at their tops, getting ready to come down -- and Canadian stocks also. And Europe -- which had held up quite remarkably considering the last two weeks -- also began to break apart.
First, let's look at American indexes: GSPC (S&P 500) broke support at 1403 and now is looking at support at 1331. It has more room to fall. We are not at the end of this sell-off. All three indicators in the second pane from the top are falling/negative. Note the orange and red indicator generally fall and settle at the bottom of the spectrum during a decline.
We will find the bottom when the trends (green lines in the top pane, and second pane down) make new highs and new lows.
OEX, S&P 100 Index: decidedly negative. The red indicator in the second pane from the top still has a long way to fall to reach a relative oversold condition.
NDX, Nasdaq Index: Tech stocks began this rally down. Tech stocks seem to be gaining momentum on the downside. Relatively oversold (M2F Alt, bottom pane) -- this does not mean a lot when selling urgency begins -- the same is true during a buying panic.
Both anti-stock indices we follow look strong and seem to be suggesting increasing strength: the US Dollar, and the VIX, the Volatility Index. When these issues rally, stocks tend to go down:
CANADIAN BANK STOCKS
Bank stocks began to break down on Wednesday and gained momentum through the rest of the week. The BKX, Bank Index, is not a pretty picture:see the third pane from the top, the ST Trend (green line) is breaking through support currently.
We wanted to show pictures of Canadian Bank stocks:
We are shorting Toronto Dominion Bank.
RY, Royal Bank of Canada, also is generating a terrible pattern technically -- we are short this bank also.
BMO, Bank of Montreal, is also making a top, apparently. Of the three Canadian banks presented, we would put TD and RY both ahead of BMO as short candidates based simply on the technicals. Still we are quite certain BMO will come down significantly.
EWC, the Canadian Stock ETF, is also breaking down, and seems to be topping.
Other banks are also in trouble, at least in terms of their stock price at the moment.
SAN, Banco Santander, seems to be topping. I don't see any way, judging from this chart, that SAN is going to escape the selling hitting banking stock.
We showed GS, Goldman Sachs, last week. GS is a short-sale.
JPM, JP Morgan, is also a short-sale, and perhaps the weakest of the American 'global' banking stocks from a technical viewpoint.
Citi, C, is stronger than JP Morgan. Still it looks to be making a top. This stock has not broken down yet. Note the positive position of our M4 21 indicator (black line, second pane from the top). Still, we are 'predicting' it will follow other banking stocks down.
It is not just Canada that seems to be breaking own in terms of its stock markets. Germany seems to be breaking. Spain -- how could Spain stocks rally -- knowing what we know about Spain? This proves that there really is no direct connection between stock markets and economic health. The stocks markets are gambling pits; and as long as people have money to bet, the gambling continue; and money can be made as long as one follows the majority positions (both long and short).
France looks a tiny bit less weak in terms of its ETF, EWQ, although it is still a short.
The Singapore ETF and the Brazil ETF are also broken.
We said in our last article that we were watching housing stocks, which we consider vastly overbought. They are overbought in the traditional sense -- many articles have appeared in Seeking Alpha documenting this, which I will not repeat here -- and when one considers where the world is heading economically, with the American housing 'recovery' likely to crash through this recent bottom. However, housing stocks have held up very well through the selling that began ten days ago.
Some housing stocks are running out of gas; and some still look ok. TOL (Toll Brothers) does not look so good. TOL should come down this week. If buying holds up in the face of this dismal chart, then more power to the buying public.
Pulte Group Housing (NYSE:PHM) is right AT CGTS and M5 support -- and is in danger of breaking down. I'm not predicting they will break down. I'm watching and waiting.
XHB, Homebuilders ETF: again, seems to be at a crucial point. Considering that stocks, generally speaking, are under pressure, and should remain under pressure in the coming weeks, we expect housing stocks to follow the markets down. Note however, the ST Trend (green line third pane from the top) is positive: higher highs and higher lows. There will be no meaningful selling until this patterns breaks down. In both TOL and PHM above, this pattern HAS broken down.
Largely the same picture for HGX, Housing Stock Index: CGTS and M5 are breaking down but the trend patterns are still positive (green line top pane, INT TERM; green line third pane from top, ST Trend).
I will not become really negative on the housing stocks until I see these trends reverse. I think this could happen today, or very soon. I think it will happen -- because the rally in housing stocks is not really legitimate. But, I'm waiting before I short.
OTHER STOCKS TO SHORT:
CONTINUING SHORT POSITIONS: We have been largely short the market for two weeks. Here are a couple of our continuing positions, which we think will go much lower.
NEW LONG POSITIONS: It is tricky to take long positions in a down market, but not impossible. For those who say we only play the short side of the markets, here are a few new long (trading) positions, two of which are inverse ETFs, meaning they're not REALLY long at all. Note how both ILMN and IMAX have ST Trends (green line, third pane from type) are poised and ready to spring up.
Best of luck to all,
Michael J. Clark
CGTS, Hanoi, Vietnam