Saturday Review’s recording and transcript (for 11/13/2014)

For your convenience, following is a transcript of the Market”s Bigger Picture portion of this weekend”s Saturday Review (linked here):

Good morning. Welcome. It’s Saturday. Time for the Saturday review and there’s a cold snap coming literally hours away if not minutes from bringing snow with it. Seasonally, the market is looking forward to, we just had Veteran’s Day. We have Thanksgiving. January effect right around the corner. Taxes laws selling pressures. Maybe had something to do with the last down draft. I say last because I want to differentiate from the current that may be building, but traditionally, there’s tax law selling pressures. October’s a tough month. Santa Clause rally. Seems to be a little early this year. Often, when we see the Santa Clause rally, which is really just an early version of the January effect when tax law selling pressures have subsided or when the equilibrium has flipped. When there is such an early rally or pre-Santa Clause rally is the word, there’s another dip. Not everybody gets out when they wanted to and whoever is buying the dip, even from an investment standpoint, maybe looking at some pretty quick gains, back to resistance.

In any case, we have two directions, two possible directions. The prevailing direction always gets the benefit of the doubt. The reason why the prevailing direction always gets the benefit of the doubt is because that is just the odds that whatever happened yesterday or over the last several days will continue happening tomorrow. I used to interview top traders and technicians on one of my previous sites. The one I launched back in the 90s, and I won’t say who it is, but he was on the phone with me. This was before we had webinars. We just had a chat change and a subscriber asked the question, what do you think is a good buy for tomorrow? And I relayed that question to him and he asked his assistant, “tell me the top three stocks today.” So, we are certainly going to try to tempt fate by calling every single higher high the high.

Everybody ready for the but? There is no but. But there is a however. However, there are some things to consider. As I started out describing that the timing of being in October, already having recovered pretty much all if not all of the drop. That alone on that time schedule leaving two entire months before January, before year-end, does create the potential for at least a higher low. So that is a template that traditionally if there’s an early recovery, why not. There’s time for one more dip and probably a round trip back up. But apart from that, that really is my only bearish template. There is nothing impressive about buyers. It’s not that buyers are making any great strides here. Let’s just look at the last week in context.

So, here’s the last week beginning Monday, basically around there. We had a new high, not necessarily a new high close on Friday. That is not necessarily bearish. Had the market wanted to turn down, it could have. It wanted to reverse down without leading any unfinished business above. Of course, there were some other things going on like the trend exchange, but based on that one indication that trend extremes just do not print on Fridays. If there’s a new high close on a Friday, that is probably not the end of the trend. Even if there is an immediate down turn, it’s going to recover for another higher close. That is a defensive tactic, a self-preservation tactic for a rally because we have that extra real estate and if needed to be able to rest on those laurels. It wasn’t delivered or wasn’t produced last Friday and that did not matter the market expanded higher anyway. It took a few minutes Monday morning, and even then, the entirety of Monday’s gain was at one surge.

But since then, there’s been nothing. There’s been probes. There’s been overnight highs. Monday afternoon was the first three consecutive timing windows:noon hour, bias environment, and last 60 to 90 minutes. Everything after 11:30. It was the first instance of three consecutive timing windows to print exclusively above all prior intraday highs for the trip. And that’s an important event. I call that a trend change warning. It is not the trend change signal. In fact, it often is exceeded, but it is a warning and it does not always produce a trend change. And that is the bullish scenario. That there’s a trend change warning. Basically the clock starts counting down. Where we set the clock to, the countdown clock, we don’t, but basically, its that concept that this can continue indefinitely, but not intimately. That price continues ranging around that Monday afternoon high. That price can probe higher, but it is not making any gains. Monday’s highs, the higher the session that contains that set up is a relevant reference point, landmark. That’s 2035 bases features. We’re looking at cash right now, but bases features 2035 was Monday’s high and it’s been influential through timing windows, through closes. Closes above it have only been overlapping it. Probes above it have not made it more than one timing window, exiting more than one timing window, if that at all above it, that is above 2035.

So, it is holding tight, but even though this can continue indefinitely, at some point, this distribution is absorbed and rather than becoming top heavy and finding that buyers being distributed to have been depleted, so that there is no more buyers to continue supporting that ongoing stream of supply. Supply runs out before buyers. So, that’s the bearish scenario that last Monday’s trend change signal had its shock, and now it is back up to more rally. There is, of course, the midpoint that passed down immediately. The longer that trending, especially when it is relatively narrow, longer that trending persists, the less likely that the ultimate resolution is the immediate resolution. The less likely that the first break is in the direction of the ultimate resolution so that if this range intends to break lower, it is going to need to probe higher first aggressively. If this range breaks aggressively lower first, after so much time, we will give someone the benefit of the doubt because there’s no unfinished business above. So we will give sellers the benefit of the doubt for at least being able to produce a corrective drop of 61.8% retracement of the rally which actually creates about 2011 bases features. This is about 2018 for these prior lows, basis cash.

We will give them the benefit of the doubt that that for retracement because that’s easy. That doesn’t require attracting new sponsorship. It just requires having run through the buyers that you had. Price call fall of its own weight, is an old general saying. But if price breaks lower first, we will expect that to be only a temporary correction. Probably only 61.8% correction of the now, or coming up to, I should say, two week old rally leg and then whatever the intent, that will return to the highs.

A couple of questions.There are many corporate buy backs in the last two months and that should keep the market going higher. What do I think about that?Also, banks are taking over where the fed left off by the bond purchases.

I don’t really think about that. Those are regarding turning a technical analysis, the theory is to turning a technical analysis is that smarter people than me have thought about it and factored that into or discounts that into what they are willing to pay or take in buying and selling and the degree to which they’re looking forward at things like that and many other things, is what’s cleaning the patterns. How deep are they willing to let price fall before it recovers. How long does it take to recover versus how long it took to drop, a lot of different pattern points, but from a fundamental standpoint, if those buybacks are still slated going forward, then that is certainly something that is not scaring away buyers and stuff to attract sellers, but I suspect that is all discounted in the price. Corporate buybacks do not have to happen at any particular time. I think they are basically tasked with resolution. Tasked with buying back x-amount and then working the order basically over the course of time. So, they will support their own stocks, but not necessarily prevent the market from turning down.

So, not necessarily a big turning point here I don’t think. That this is on the verge of launching a new and durable rally leg because if there’s a false break higher, the next higher objective and that is above 23950 which has been outstanding for a while, 23950 basis BF which is where we have been topping out except for one probe. The next higher resistance point is 2048, so a false breakup to 2048 and reversal down would give the benefit of the doubt that sellers are already taking control of that reversal down is back under the prior lows. Remember, we had in this ongoing pattern a set up that was outstanding that once there was a probe above a prior sessions high, if it was reversing, it was going to reverse under that prior sessions low. The pattern has already delivered it on Thursday from a minimum objective for this reversal was back under Wednesday’s low that is a little responsible to do that but that is off the table now. That means that if there is another fresh high that reverses back under a prior sessions low, or that reverses the reversal, it’s not just to get to or probe the prior sessions low, but it is the corrective dip or more.

Question:In looking at the open interest in excess options for the next week would be quite beneficial for market makers to take the market down. Interesting. I will look at that. I don’t generally look at that because I haven’t looked at that except in the past. It definitely creates vulnerabilities and it’s probably already what is keeping pressure on the market, but for a timing tool, I have not had success with that, but it just adds, I agree, to that vulnerability.

Alright, one more discussion about the broader market that is just to compare among indexes. So, here’s our control group, the ES, higher highs. Big pull back under the prior low to a relevant degree, but see how it compares to the Dow which kind of gotten carried away relatively speaking. It’s higher high is not so much or at least it is poking it’s head above the plane. It’s retracement down where that last swing corrected 100% basis ES. The Dow was more shallow. Again, it is an ES. It sort of landed here but extended down deeper. And here which really then an extension as being the institutional side of speculative activity or reflection, have very shallow pull back and now are coming in just a little bit under, under performing the Dow, relatively speaking to prior highs certainly outperforming both but as far as the rate of improvement, trying to see the speculators, speculations in the case of the NDX that is based on more chasing yield, the yield of the equity return versus the 0% borrowing cost to get it.

Trying to see what that speculative fervor is relatively speaking, slowing. Wouldn’t know it without comparing historically, and then the poor man’s speculative index just making it back to break even versus the last time. So speculation is starting to be sucked out of its market and speculation has kept us from getting overly bearish or at least leaving the door open to a recovery on every other downleg, and that seems to be waning.

So, let’s go back to the Dow. The Dow which is what we are going to call the Russell, the poor man’s speculative index, then we are going to have to call the Dow the dumb money. Basically, the no brainer money would be polite. Portfolio managers who are mandated to have some degree, if not a large degree of exposure to equities at all times who may not feel like going out on the speculative curve be it Russell, NDX, or S&P even among the 500 companies to choose from but just the “safest” was widely followed, much liquid, oldest, most consistent reporting, less surprises, and that the Dow is out performing both the speculative and are control group, the S&P, suggests that not necessarily at a turning point, but that the no brainer money does not see the risk or the reward that is being with the risk broadening their horizons but it is not a turning point yet.

Real quickly, just comparing there was an interesting blip up this week. That was Thursday. Again, there is the Dow, big blip up Thursday, and during the bias environment, or as the bias environment gets underway, probing into negative territory and recovering it. So, outperforming S&P’s which big blip up before the noon hour already, probing into negative territory, and not recovering out of it. So the Dow outperforming even on a microscale there for only one day so it’s not yet a signal but except when we want to watch for other symptoms or the same symptom repeating itself especially since it is premature to consider that to be a reversal since at least on the same day that NDX also probed higher also reversed in the negative territory going into the afternoon’s bias environment and closed positive. Notice that the next day, Friday, trended higher but did not do anything that Thursday’s session had not already accomplished. If there’s going to be a turning point, it ought to be obvious within 24 to 48 hours and 48 hours is on the long side.

So, Sunday, Monday gapping up, trending up. Buyers do not have any traction here, so if they don’t make it through the opening 15 minutes of volatility pointing higher, whatever that preliminary level is because they don’t go on to trigger bias up, then that’s not necessarily a sell signal but any touch of resistance in that environment is. If we’re going through the week and we’re selling off, again, once especially with the ES, once that breaks under a prior low, so for instance, with ES if we’re breaking under Wednesday’s low again, not necessarily Thursday’s, but Wednesday’s low again, then we will do a benefit of the doubt and see there being a corrective dip underway. Should be a new mentality when we get out of the week after.