Submitted by Mark Hanna
Courtesy of MarketMontage. View original post here.
Monday we had asked if long term support could be breaking. All week the S&P 500 had been pushing up and down across a long term trend support line that connects most (not all) of the 2013 major lows. That trendline had only been broken once, in June, as part of the only major correction of the year. However yesterday’s late day selling helped break that line again and negative news out of Cisco Systems (weak guidance, job cuts) is hurting the tech sector especially this morning and futures are down significantly as it looks like we will get the official breakdown today. Breadth has been weak for a few weeks even as the indexes have held up but we’ve seen that on and off this year and it hasn’t mattered much in terms of signaling a weaker future. In fact a lot of old signals that used to work don’t seem to during QE markets. MACD also had a bearish crossover about 7-8 sessions ago.
Looking closer at the chart, using the SPY ETF there are a few gaps below – for some reason stockcharts is not showing the one from Jul 10-11 so I placed a box in orange below where it is – it actually is aligning with the 50 day moving average quite nicely. This would also fit with where a “head and shoulders” top would measure to – this formation is very obvious to everyone and again has failed numerous times to work during the QE market of 2013 so we’re at the point this year where if any technical pattern that is bearish in nature actually fulfills it is a surprise.
One has to be open to the idea that despite these poor technicals, at any second the market begins a V shape moved upward, as it has done countless times now since 2009 – based on the words of a Fed official or some European official or some Reuters or WSJ report or for whatever reason. These repeated violent moves up despite a weak technical background have simply worn out bears and made them very poor. Long term that is dangerous since so few now want to bet against this market since they have been constantly beaten over the head and hence one day when a real selloff of magnitude hits there wont be many shorts around who will be “natural buyers” (buying to cover) due to the constant interference by government, central bank et al forces – but that’s a discussion for another day.
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