SPY August 18, 2013

SPY daily chart through August 16, 2013

As I write this, it is the weekend, and traders who follow equities online know one thing: that's when fear and pessimism run wild. If you are a Bear, and you want to feel better about your positions, the weekend is the time to check in at online forums. Just gabble something about Egypt, the debt ceiling or use the word "tapering" and you are good to go.

Bears are some of the best traders in the business. They usually get paid, they just have longer to wait for their earnings than Bulls, and their proceeds come in big, sloppy buckets of honey all at once. Permabears are their own breed altogether and, no matter how low the market goes, they say it will inevitably go lower. They're sometimes right.

SPY is at the 50-day moving average. Either that holds, or we will see the 100-day moving average about 20 points lower. Wherever SPY does hold, the odds of a bounce increase the lower we go. Having held 1650 on Friday August 16, a bounce off that level remains possible. The late-day weakness, however, was a Bearish indication.

Fundamental data is something chartists usually avoid. It clouds the purity of the charts, which are assumed to incorporate all factors. Of note, though, is Barron's reporting net insider sales of over $500 billion dollars in the first two weeks of August. That is a lot of selling - to put it in perspective, half a billion dollars is about six-months worth of the Fed's current QE program. What this tells us is that a) the people who have the best insight on what they are buying and selling are, in fact, selling, and b) eventually they will be buying back in. The thing about their buying back in, though, is that it usually doesn't occur until things get really cheap. Oh, and c), even the Fed isn't big enough to really control the stock market, which either will reassure you or scare the daylights out of you.

Bottom line: we are at a decisive support point, at the 50-day moving average. It is necessary to see whether that holds before making any larger predictions. In the short term, SPY may be oversold, but that does not mean we should expect to see new all-time highs any time soon. Essentially, everyone is watching the 50-day moving average. When everyone is watching support like that, it tends to break, because nobody wants to buy until it is "safe," and it isn't safe until after things look darkest.

I look at a few more general topics below that may be of interest.

IBM

As stated previously, IBM has been and remains a fairly good bellwether for the market in general. The chart below suggests that IBM is at a make-or-break third retest of its recent lows. Watching IBM will usually give a clue where the overall market is heading, particularly since it is such a key component of the Dow Jones Industrial Average. Warren Buffett hasn't made much noise recently about his stake in IBM, but he's on the record (perhaps facetiously, who knows, but more likely not) as saying he would like the price lower anyway.

IBM daily chart through August 16, 2013

Long-Term Trends

Stocktwits posted the below chart, thank you, stocktwits (a great trading site). The chart pretty much speaks for itself. My interpretation is that, within the sort of longer-term sideways move we are in now, the market also tends to go sideways in a much compressed fashion after recovering from the final sell-off. This can take years, which can be necessary to "wring out the excess" and bring down multiples until they are attractive to new buyers again. So a breakout will have to wait. If we do get a real correction, it will be a doozy.

Only then does the market finally break out to a new, higher plateau with a good multiple expansion. The odds of a sharp break higher from here  (to, say, SPY 2500) in the intermediate term are not high. We remain within the plateau founded in 2000 and could see extended consolidation within the SPY 1600-1700 range, with a feint lower before the power drive higher. The sideways move is getting fairly long in the tooth. This is a good chart to revisit now and then.

Seasonality

The charts below speak for themselves. We are entering what traditionally is the weakest part of the year for stocks. Why? It doesn't really matter, it just is. Some good guesses are: expenses related to the start of the school year, Jewish holidays, and paying for summer holidays.

Declining Volume

Volume this past week was lower than any week since 1997. That seems odd - but volume has been declining steadily for years, so maybe it's not so odd. And it is the summer holiday season - right when you would expect volume to hit a low. Not sure this means anything at all, but it is of interest.