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Markets are in the process of breaking out. As the charts above show, the S&P500 is now out of its August/September/October trading range. The Dow has broken out; the Nasdaq 100 broke out of a less defined range on 10/14. The small cap Russell2000 is still mired in that range.

As the 2nd chart shows, the SPX has moved above its 50 moving average, and has penetrated the 100 day. The 200 day seems to be acting as a magnet, pulling equities towards it. A better way to describe that phenomena is that when the SPX was 20+% away from the 200 day, it sets up a bit of mean regression.

The caveat is we have seen bull and bear traps in the past. I prefer to use closing data. Any reversals here would be ugly, especially heading into the weekend.

Category: Markets, Technical Analysis, Trading

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

41 Responses to “SPX Breakout”

  1. MaxMax says:

    If this breakout holds, Barry, then we’ll have to award you the Golden Touch Timing Award for your recent reshufle.

  2. Chief Tomahawk says:

    What a head case! (The indicies I mean)

    Watched a little CNBC yesterday and every guest on was saying the lows were in for the year….

  3. Pantmaker says:

    Weak shorts covering…that is all.

  4. RW says:

    Short-term trading cash in active swing trades and working but intermediate cash remains on hold with the exception of a long bond position. This market is so sensitive to shock I am loathe to do more tactically. Strategic allocations haven’t changed substantially in nearly three years and aren’t likely to in this climate.

  5. Frilton Miedman says:

    There are a handful of bloggers I give more credit to than others, Barry is one of them.

    Recalling BR back sometime in March or early April saying he’d gone 70% into cash while others were saying the opposite.

  6. machinehead says:

    ‘Ward, I’m worried about the Beav EFSF …’

  7. GreatWarrior says:

    Wow Barry, only after SPX running up 14+% you told us this morning about the the Buy – Tactical shift 2 weeks ago.
    And now SPX Breakout?! Are you selling now to your readers? Loyal readers are your sheeple toys?

    ~~~

    BR: GreatWarrior is an anonymous coward, who does not warrant a response.

    But for anyone else who may be new here, and not familiar with how we work, here are a few details.

    We have been pretty open describing our buys and sells, along with our philosophy. The earlier post (where GreatCoward also tried to comment) refers to the announcement made when we sold, the explanations as to why, as well as a link to our discussion of the new buys on CNBC 4 days ago.

    Over the course of almost 20,000 posts, we have made almost 2000 related to Investing and/or Trading. We have maintained a high degree of transparency and honesty. They are all there, are never taken down, and except for the exceptionally lazy (like our commenter) its all there for the taking.

    Haters think they can behave poorly because they are anonymous and there are no consequences. It turns out that is not quite true. The commenter — who not only is insulting, but is wrong to boot, is typical of the sort of troll anticipated in our disclosures, item 14:

    14. Confidentiality: Any information we obtain from legitimate commentors is strictly confidential. This includes email addresses, IP address and actual names. They will not be revealed unless we receive a valid subpoena from a legitimate law enforcement agency or court of law. Spammers, Trolls and Asshats receive no such guarantee . . .

    Hence, this penalty disclosure:

    GreatWarrior
    sftong2000@hotmail.com
    IP Address 208.108.225.1

    Read the disclosures before commenting . . .

  8. rob says:

    LOL… about Greatpussy… way to go BR! Nice. As to anyone else that wants to comment on BR timing and not “sharing” it with us… come on, pony up and put your money to work with him. I personally think he is being very gracious to share what he does with us!

  9. crunched says:

    I cannot scream loud enough that this is a head-fake. Yes, we may close above this range for a couple of days, but there has to be something LEGITIMATE to keep us heading higher. And even if Europe comes up with a great plan, it will still involve creating a ton of debt which will kill the euro – which will send the dollar higher – which will kill the stock market. That’s not even taking into account the obvious implications of austerity the new debt will create. That equals no growth for the Euro zone.

    AND HOW STUPID IS EVERYONE TO BELIEVE THIS BS ABOUT MORE QE???? HILSENRATH?! THE WSJ?! HAVE YOU SEEN THE CROWDS IN THE STREETS OF NYC?? THE REPUBLICANS WILL CRUCIFY OBAMA IF HE PULLS THAT THIS CLOSE TO THE ELECTION. Especially, with no signs any of it has worked, other than to server as a backdoor bailout to the banks. Real interest rates are closer to 3 – 4%. Oil has moved back up. QE, yeah right!

    The fact that every money manager on Wall Street prays that we have a year end rally won’t cut it. And ramping the futures in the pre-market, and churning the market higher with the robot only leads to nasty, vicious selloffs since there are no real buyers holding the stock.

    Head-fake. Either right when the Euro plan is announced next week – if details aren’t up to par. Or, about a week later once the implications settle in and everyone remembers we’re heading into a recession here.

    ~~~

    BR: You may be right . . . but your degree of emotionalism suggests you will not likely catch the trade . . .

  10. crunched says:

    See week of 4/26/11 on S & P for likely scenari0. If we’re lucky, April 2010.

  11. crunched says:

    …but my money is on April-May 2008

  12. dead hobo says:

    On one hand, HFT has become pervasive enough so that the various strategies usually offset each other. All forms of strategy, ethical and otherwise, battle it out and appear to offer a degree of predictability as a result. Investment Science provides an analysis tool for this predictability. Real people also get into the mix, but HFT dominates.

    Computers need rules and traditional technical analysis works well if all work from the same playbook, as most appear to do. Thus, Investment Science, again, offers insight into market behavior.

    HFT also allows rogue tape painting if a clever algo can trigger a transaction frenzy. Unless the breakout continues -or- unless something comes out of the woodwork from a fundamental perspective to support the breakout, then I truly believe the breakout is only a random line on a graph. Algos next week might use it as a reference point, but without something of value to support it, sometimes a line is only a line.

    Look, if I see a trend that appears to be durable enough to last 90 days, I’m there. Even if ultimately it’s only worth 2%, that’s 2% I didn’t have before. I don’t see it yet. It might appear, but only as algo ping pong. Show me some underlying support (not you personally).

    Being an old asshat, (my preferred designation is son of a bitch) I am still frugal with my strategies. If I make it to about 2x in wealth, I will peel off about 5% of that and become a mad and reckless trader. I think I would do good at it, but I am too conservative to risk potential grocery money intended for use in my 80s or 90s for a little fun like that.

    Good luck to you.

  13. Futuredome says:

    Crunched, your trying way to hard. QE is irrevelant only if not used to meet the target. QE before was far to small before so it was irrevelant. Nothing being considered is newsworthy. At some point, econ-bears need to move on from the FED centric viewpoints. The inability to represents the failure of the blogosphere. You overreact to pointless data and get mad by blathering out something about oil being higher?

    The Republicans are the party of NGDP targeting. They just want to be in power. Obama wants more fiscal stimulus(as does OWS and Bernanke, who was lobbying).

  14. dead hobo says:

    crunched Says:
    October 21st, 2011 at 2:08 pm

    I cannot scream loud enough that this is a head-fake. Yes, we may close above this range for a couple of days, but there has to be something LEGITIMATE to keep us heading higher.

    reply:
    ——–
    Re your European observations … there isn’t enough free money in the world to support Europe’s debt problems for the next few years. Merkel and Sarkozy are whistling past the cemetery. Add in the conflict between market expansions and rising oil prices that always accompany equity growth today, while holding personal incomes low and constant, and my doubt becomes more pronounced. All world markets are in a world of hurt.

    My personal forecast is the markets fall dramatically because European problems become honestly known and understood and surrendered to. The Fed does QE3 and probably QE4, buying some form of agency or foreign debt that is good, just distressed. Equity markets rejoice. Everything else until then is noise. (PS Europe eventually sorts out its problems and the EU suffers as a result … maybe we will see Occupy EU groups start to form)

  15. Scott says:

    Barry, quick technical question if you don’t mind.

    In your charts, you’ve used the SMAs. Another chart done using the EMAs shows the SPX actually above the 100dema and well above the 50dema and actually challenging the 200dema.

    Can you help us evaluate whether it is better to be using exponential moving averages or simple moving averages?

    Thanks!

    ~~~

    BR: I learned that you use the exponentials on longer term charts — but its merely lines, and I dont get to crazed about them

  16. mark says:

    Am I the only one to note the irony of all the high confidence predictions following immediately on the post about Kahneman’s article on the hazards of overconfidence?

  17. dan10400 says:

    Isn’t the corollary of the “bear trap” of a breakdown at the lower range, a breakout of “bull trap” at the upper?

    @mark – agreed.

    ~~~

    BR: Yes, that is why I mentioned “The caveat is we have seen bull and bear traps in the past.”

  18. Khav says:

    @dan10400 – that’s what I was thinking too. I’m guessing that’s why Barry has a question mark after “Breakout” on the chart….

  19. crunched says:

    To also point out… those who ‘manufacture’ these rises use the ES and SPY as their primary instrument to incite all the tradebots. (since their algos key off of those symbols) That’s why today/this week… the NASDAQ, RUSSEL, and BONDS aren’t confirming this move higher.

  20. SysAdmin says:

    @greatwarrior

    it is probably not a good idea to “work” from home. and troll. Your employers at the the Ohio Dept. of Education might not approve.

    Waiting for a flight, time on my hands, and I could not resist.

  21. Frilton Miedman says:

    For the record, BR DOES include a question mark after the words “breakout” in yellow print on the chart.

    I buy the Mark Hulbert theory, there are three categories of market timers, liars with an agenda, honest mistakes, and honest predictions that turn out to be correct .

    BR fits the last two….been spyin’ him for a few years now.

    BR made absolutely NO secret of the fact that the “could” be a breakout.

  22. Mike in Nola says:

    Not to worry; the EU has plenty of hopium left to distribute.

  23. BusSchDean says:

    I am not much of an investor but the complaint above reminds me of when Peter Drucker was sued by someone who followed what Drucker did and…lost money. Of course, so did Peter. Duh!

  24. Fritz1234 says:

    If the Sp500 and other broad indexes were to settle here or higher on Oct 31, the markets would have completed an outside month reversal (the low in October is lower than the low made in September and the October 31st settlement is higher that the high made in September). Does an “outside month reversal” exist in technical analysis?

  25. Omnivore says:

    @sysadmin

    Your note kind of creeped me out but then I took it to the next logical step just to see what would happpen. It took me (having only modest Google-fu) 3 minutes to find @greatwarrior’s name, office phone number, and linked in profile. Yikes. I think I scared myself.

    I’ve been reading and learning here for a while and appreciate the care taken to moderate the discussion.

  26. Mike C says:

    Looking to Jan 2008 – May 2008 as a template of what we are seeing here. Economy goes into recession November 2007 but in early 2008 there was still a debate about whether a recession was going to happen or just a slowdown. Market sells off January 2008, two months of consolidation and then a major rally right up to the declining 200 DMA in May 2008 at 1440. We all know what happened after that.

    My base case scenario is we rally right up into the declining 200 DMA/existing neckline resistance at 1260-1270 and then start the substantial downleg as everyone finally comes to realize what ECRI already said which is that recession is unavoidable at this point.

  27. Irwin Fletcher says:

    Ouch!
    I never knew what troll meant so after the spanking today I looked it up.
    Having been put into the penalty box before for arguing, not being allowed to comment,
    I had to register under another user name. Just want to make sure that making comments that sometimes may disagree with the host isn’t the same thing. I read this blog to learn.

  28. Futuredome says:

    Mike, a recession is ALWAYS going to happen. That doesn’t mean it will happen now. Nor it is. I don’t get the blogosphere. I get the free market totalitarian types that follow “old money/Rothschilds” types like Ron Paul. They want complete global capital owner control. They have to destroy the system and countries to create the new world order.

    But many people just don’t seem to understand, recession is a creation of oversupply and limit of resources. Which is not the US’s problem. It is the US’s problem because they allow foreign countries to steal its growth, conspiring with capital owners, which the Ron Paul’s won’t stop, because they won’t intervene in capital markets(tariffs won’t work, another one of Saint Ronnie’s red herrings).

    Never again should the crime of 73 be repeated. Sent the laborer back a generation.

  29. PeterR says:

    Rising wedge TBD at MA(200), 61.8% retracement, and broken H&S support — now resistance? Have a good weekend.

  30. Irwin Fletcher says:

    In other words, I have been reading this site after my partner recommended it two or three years ago. The market insights are terrific, the links are insightful, while the politics are left leaning IMO. Just want to understand if differing views are welcomed or considered “trolling”. Having said that, accusing the host of something unethical as the great warrior did shouldn’t be tolerated.

  31. icm63 says:

    Richard Wyckoff would classify this current break out as an “up thrust after distribution”, a head fake more bluntly, or a bull trap. No volume, no change in 52 week new highs to lows. Aweful so far !

    see more: http://www.readtheticker.com/Pages/Blog1.aspx?65tf=372_richard-wyckoff-tags-on-the-sp500-2011-10

    The real reason for the risk on rally: http://www.readtheticker.com/Pages/Blog1.aspx?65tf=384_euro-up-stocks-up-euro-down-stocks-down-2011-10

  32. Frilton Miedman says:

    Irwin Fletcher Says:
    October 21st, 2011 at 6:31 pm
    ….. The market insights are terrific, the links are insightful, while the politics are left leaning IMO. Just want to understand if differing views are welcomed or considered “trolling”……

    I can’t speak for Barry, but if I were a blogger and someone accused me of fraud by selling against my readers as in “Are you selling now to your readers? Loyal readers are your sheeple toys?”, I’d object to being accused of fraud too,

    As for the Politics, if open and honest discussion of the reality of political bribery, progressive taxation, bad foreign trade policy, high unemployment or historic wealth disparity is “left leaning”…You probably wanna take it up with Teddy Roosevelt, he’s the one that started it all.

  33. DeDude says:

    Irwin;

    My experience here has been that Barry welcome debate and even tolerate “rough” debate. Completely unfounded slander of the host will sometimes get a negative response. This is the first time ever that I have seen an “outing”. I suggest you not ever accuse him of trying to trap and trade against his readers or clients. But I presume you would not do that anyway, whether it had consequences or not. So far it has seemed to me that Barry welcomes opposing view, and outright tresure them if they are well founded in facts and well argued.

  34. Key sectors are still below August lows: energy, basic materials, industrials,… This move (out of the trading range) is led by both consumer sectors, technology and utilities. All of them sprung up higher on relatively low volume. All sector charts/analysis:

    http://penguinsgoldenegg.blogspot.com/2011/10/out-of-trading-range-but-not-out-of.html

    Once you have utilities at new highs, while other sectors are 10% to 30% below their highs, you know there is a high probability we are in the last stage of a bull market. That stage will take some time to unfold, so we might have a Q4 rally ahead of us, but I don’t think it has much room to go before the next leg down…

  35. philipat says:

    I agree with the earlier poster that there is a great deal of very helpful investment input in these pages. Of course, when it comes to specific investment advice, as with everything else, you get what you pay for!!

    In response to a different post, I don’t know if it’s just me, but I would not describe the political leanings of these boards as”left leaning” but more Libertarian/Common sense independent on either side of the centre depending on the issue. Don’t the people get tired of the old game of “Divide and conquer” played by the 1% using the two party system?

  36. market_disciple says:

    My suspicion is it’s a bull trap.

    This sharp rally has been triggered by market being oversold, good earnings reports, global sentiment too negative, asset rotation from bonds back to equities, seasonal strength, and lastly on “hope” the European crisis would be solved. It’s that last component that convinced me to switch back to cash when equities were trading near the top range, which could’ve been a premature defensive decision. However, I’m quite content capturing 2/3 of the rally. I prefer to watch from the sideline at this juncture and re-evaluate with a clean slate.

    There’s a likelihood equities would continue to rally to SPX 1,250 in the next few days, where there would likely be profit taking and shortselling. I’m quite certain it would pullback and retest the top range breakout line at the very least. If it doesn’t hold, it would probably go lower to the middle of the range (SPX 1,150). If 1,220 holds and it eventually breaks out higher than 1,250 and oil trades higher than $90 as a confirmation, I’d establish a long position again for a potential rally back to 1,35o.

    P.S. Watching 20-30 different futures markets and their correlationship is like listening to a symphony to me. In this case, the symphony was a cacophony in August & September and sounding more in harmony recently. Right now I’m paying more attention to the commodity markets which ideally should validate/invalidate this rally.

    Good luck everyone.

  37. [...] the breakout last week above the 3 month trading range at ~1220-25 last week suggests more upside from here, assuming the [...]

  38. Swing Trader says:

    Oct 27, 2011 2pm

    Since your post, markets are up how much ? Almost 10%?

    Nice call.

  39. S&P 500 Extends Best Month Since ’74, Euro Rises on Debt Accord

    Stocks surged, extending the biggest monthly rally in U.S. equities since 1974, and the euro strengthened as European leaders agreed to expand a bailout fund to stem the region’s debt crisis. Treasuries and German bunds fell, while metals and oil led a rally in commodities.

    The Standard & Poor’s 500 Index rallied 3.2 percent to 1,281.38 at 1:44 p.m. in New York, sending its October gain to 13 percent and erasing its 2011 loss. Benchmark gauges in France, Italy and Germany rose more than 5 percent as German and emerging-market stocks extended gains from this year’s lows to more than 20 percent. Even as Italian and Spanish bonds climbed, yields held near levels seen two weeks ago. The euro topped $1.40 for the first time since Sept. 8. Ten-year Treasury yields rose 16 basis points and copper added 5.9 percent.

    Equities, commodities and the euro rallied as French President Nicolas Sarkozy said the euro region’s bailout fund will be leveraged by four to five times, and investors have agreed to a voluntary writedown of 50 percent on Greek debt. Sarkozy spoke with Chinese leader Hu Jintao today as Europe seeks help from the Asian nation in the bailout effort. U.S. data today showed the world’s largest economy expanded last quarter at the fastest pace in a year.

  40. [...] Breakout/New Trading Range: Last Friday’s breakout saw S&P and Dow break free of the range they had been mired in for 3 months. The breakout seems [...]

  41. [...] Cap Growth (see Reducing Cash). There were numerous factors why, but one of the factors was the breakout of the SPX over the 1225 level. Yesterday’s close below that level is [...]