"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat

Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput


Tuesday, June 24, 2014

Russell 2000 showing signs of Fatigue

The Russell 2000 is another one of those key indices that traders can use to gauge risk sentiment. By keeping tabs on it, one can hope to better understand overall market sentiment in general and thus, by consequence, money flows.

Last month, it appeared that the index was in real danger of breaking down as it flirted with the February low before it staged an impressive recovery. However, it has failed ( as of today) to go on to make a new all-time high. As a matter of fact, it has stopped short of reaching its previous peak and is currently down near 0.85% as I type up these comments. This is a warning from a technical analysis aspect that the market is showing some signs of fatigue.

I have noted a POTENTIAL ( and I am heavily emphasizing that this is a 'potential' ) Head and Shoulders pattern that could be emerging after a very long and protracted run higher. I am not one that jumps and shouts about the formation of everyone of these patterns as does seem to be the habit of too many novice analysts, but when one of these patterns arises after a very long trend, either higher or lower, it pays to monitor it closely.

I have noted the left shoulder, the head and a potential right shoulder. The pattern would however only be confirmed by two successive closes below then neckline noted. That is a good way's off just yet.

One of three things will happen -

1.) the pattern will be confirmed by two successive closes below the 1080 level which would generally indicate a more extended move lower.

2.) the market will move down and test the neckline and bounce higher setting up a potential consolidation pattern.

3.) the market will briefly set back before going on to make yet another all time high.

Notice, I am not making any predictions here - I am merely noting probabilities that we as traders need to be alert to.

The indicator I am using has not yet generated a sell signal in spite of today's move lower in the index itself but it is up near levels commensurate with previous downturns that have occurred over  the last 9 months.

I am also noting that the VIX is sharply higher today for some reason. Some nervousness is creeping back in! I wonder if it might have anything to do with the fact, that Yellen, Carney and Trichet are all on the record recently talking about the economy growing slower than anticipated? Who knows - but whatever the reason - equity bulls seem unwilling to drive stocks sharply higher right now.

It is going to be interesting to see the GDP numbers.


  1. The VIX, other than today, has been absolutely D E A D...dead. Complacency everywhere I say. When the Heavyweights get back from the Hamptons in the Fall the action should turn up. We are long overdue for a bloody October in the stock market...

  2. Thanks for writing on the stock market, I have been waiting for this for quite a while, hope to see more of these. FWIW, I would like to offer my thoughts.
    1) It may be a little early to tell if it's going to make to the new high, the uptrend from mid May is still intact.
    2) Seems to me that patterns more often than not morph into things very different. I remember a lot of people were screaming a NASDAQ head-and-shoulder pattern a short while ago but the next thing was it made a new high.
    These are just my 2 cents.

    1. Eric Williams;

      Yes, this market has continued to confound all the naysayers as every time it looks as if it might finally rollover, it springs back to life. I am unclear as to which one of the 3 scenarios might come to pass.
      I do know that trying to short into this market has been a very quick trade because when it reverses, it blasts the shorts to kingdom come.

  3. Dan,

    I have learned a lot from you. Question.

    Inflation expectations increased. But you have had 2 geopolitical events - ukraine and iraq. Did these two events have anything to do with tip spreads?

    Are the tip spreads based on geopolitical events is what I am questioning. Meaning the cost of oil has been artificially higher

    1. One other question. If Janet Yellen jawbones that she is more of a dove. Why would the market care? Meaning, we are going to taper in 3 months. Did the expectations of the taper change? Yellen may be perceived as a dove, but unless she changes her asset purchases, it's irrelevant. What is important is the economic data that affects your currency.

    2. jmsvett;

      That is a great question. There is a lot of speculative froth in that crude oil market related to geopolitical events and trying to figure out exactly how much of the current crude price is related to inflation expectations and how much to geopolitical events is very, very difficult.

      The commodity indices ( now that the CCI is no longer functioning) are very heavily weighted towards crude oil and the products so they tend to give an exaggerated view of the entire commodity complex taken as a whole.

      The grains, for example, are all moving sharply lower right now but the Goldman Sachs Commodity index keeps moving higher. Orange juice had a huge down day today but that will not be reflected in the index

      If we had no geopolitical concerns, I would say, given the rather mediocre strength in the US economy, that crude oil is artificially overpriced at these levels but hey, the specs keep chasing it. Let's watch the tape and see if some of them come out or they keep piling on every further.

  4. XLE and OIH were DESTROYED today.

    Wow, I got out at the exact top, thank's to Dan's analysis on the crude COT.


    1. Mark;

      After hours news sends crude oil surging higher so those things may turn around tomorrow. Hard to say but for now, the Wall STreet Journal apparently has a story scoop that the Obama administration has greenlighted for two oil companies to export ultra-light crude oil. The story says that the shipments could start as soon as August.
      There is a ban on crude oil exports that has been in place many years.

      Oil was up $1.50 barrel this afternoon before hitting resistance at $107.50 level once more. Now it is up over a $1.00 at $107.

      Very weird stuff to say the least.

    2. Mark...the new donate link is above Dan's pic }:^)

  5. Anyone here familiar with oil drill results? These bbl/d look really solid to me and was one of the O&G's that finished in the green today vs the sector:

    "Following breakup, Artek was able to complete its remedial work on the operation and is pleased to report that over a 64 hour production test period the well averaged 2.7 mmcf/d of natural gas and 944 bbl/d of free condensate or approximately 1,400 boe/d (67% condensate) at an average flowing pressure of 446 PSI. Also the Company drilled its first horizontal Doig well early in the second quarter of 2014 at B-93-I on the Fireweed property that Artek acquired in 2013 as an extension to its Inga area Doig trend. Subsequent to breakup, Artek successfully executed a 22-stage energized water fracture stimulation program on the well which after a 60 hour production test period averaged 3.4 mmcf/d of natural gas and 1,224 bbl/d of free condensate, or approximately 1,771 boe/d (69% condensate) at a flowing pressure of 857 PSI over the last 24 hours of the test period."

    1. Elijah
      High initial production is good as is high condensate but until it's run for a while and give an indication of the rate of decline you don't know what total return will look like.

  6. What gets me is not that people have very bullish views on gold, given the money supply it seems justified, but that they cant even wait until there is clear evidence of an uptrend before declaring that a massive up move is under way. And then they will forget that the 99 times before that they said the bottom is in, was not the bottom at all. How did reason and logic deteriorate to this extent? This is truly the end, not of the world, but of any kind of logic. Let gold go up for on this the 100th try they can truly say they were right all along.

    1. Arnie; Like I have said countless times, "Most traders deep down inside want to lose, so it is easy for them to blame their charlatan advisors, hacks, and clowns. sparks, of course

    2. Good post arnie. Im afraid your right Steve. Let general jims cannon fudder fans creat the bottom untill then im keeping long supply lines.

    3. good point Jasper; far too soon to call an end to pm bear mkts; sparks


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