Intermarket Chart Attack: Bounce Then Trounce?

This analysis was provided to my fishing club members Sunday, February 11th, to prepare them for a likely intraweek market bounce before the pullback resumes in earnest. This is my version of an Intermarket Analysis chart review which graphically represent relationships (strong and weak) that can foretell how the undercurrents are moving to better identify where stocks/sectors/indices are flowing. You can see my last Intermarket Chart Attack here.

February 11 Market Commentary:

Yes, we have fallen ~10% and many are wondering where we go from here – both short and intermediate term. Those in my room know I work very hard to look for ‘signs’ beyond price action (which was unrelentingly up past year) so as to position in advance of a volatility move, regardless of whether it is a stock, sector or index. We were short into the 1st downdraft. We were short into the 2nd. We are still short but not in size as I am unsure of timing for the the next downdraft. I think we bounce at some point next week but I also believe the total correction will be ~20% when all is said and done – for this move – and even then, I am unsure what follows until we get there.

The following charts ‘help’ me arrive at these ‘Market Calls’ but they are but guardrails. I am much more ‘wholistic’ and flexible! I am not a quant trader simply because I do not trust in math when psychology is involved. I am evolving with these markets. I am punished and rewarded and ever devoted to the craft of trying to stay close to them. Kinda like my teenagers ;-).

As you know, last week’s volatility move was once-in-a-lifetime. It’s one thing to forecast and position for it, like we did, but even I didn’t expect the total implosion that occurred next in XIV and SVXY. Ironically, I had actually uttered the sentence the very week before that XIV was “the most dangerous chart on the planet!” I should have known. I’ve read and written enough about it. But when the baby finally decides to be born, a mother has NO IDEA how painful it will actually be until ‘it’ happens.

That little ‘monster’ is out now. And there is no putting it back in. We were lucky, and good, to be positioned for the downdraft in markets. It made for a good week of returns: ~300% realized PnL. So now we likely must embrace the chop, the digestion, the suggestion of both higher and lower markets. No one ‘knows’. But I have my strong suspiciouns this pullback is not done; it’s just starting!

Volatility is not done. I know, we just had a life-changing volatility event, but my Stock-Bond-Volatility Ratio analysis says the market pullback is not done. Unfortunately, this is the only chart I don’t make available, even for members. Here is a snipit:

This parabolic move in the NYSE Composite that I highlighted January 28 has retreated back to a weekly trendline, but more likely it retreats another 1000 points to where it broke out post election…that’s why I am calling for a 20% pullback for this ‘event’.

Those white circles highlight periods of weakness in the market. Some short-lived – like Summer 2013 – and some long-lasting – like the year leading up to May 2016. Point is, when the McClellan Summation Index falls below 0, like it has, and after a 10% pullback in the indices so far, it indicates the pullback is not done.

False break-outs that lead to fast failures typically don’t resolve right away:

I rarely show this chart but I watch it with great interest. Right now, that long-awaited SPY correction to ‘catch down’ with RSP:SPY ratio has finally MOVED! And another reason I believe we are only 1/2 way in this current market pullback:

But this says intraweek ‘bounce’:

Another case of ‘bounce then lower’ for me:

And why I see a bounce soon before falling further:

I fully expect a small bounce in small caps before a big break:

About when HYG and XLE stabize and bounce off channel support:

Commodities, like Copper, look like they are just rolling over:

Gold is on minor support but is likely a much better buy at lower levels. As I’ve mentioned several weeks in a row, I believe Gold/Silver trade ‘down’ into the the next rate hike and then reverse higher:

This is how I feel about Gold and USD:

Crude is ‘1/2 way’ there:

Financials look half done:

I think German market rollover is 1/2 way to target:

China has some support but I’m betting lower as well:

I’m just going to add this chart of the Nikkei with no comment:

And then say how I think this is the next ‘most important chart on the planet’:

And THIS ONE, of course!

With that, Careful and Happy Trading!


Friendly Sidebar:  It’s easy to subscribe to my Free Fishing Stories/Blog.  You are also invited to Come Fish With Me in my LIVE Trading Room for custom analysis or receive actionable trade ideas with my real-time Trade Alerts! Thanks for reading and Happy Trading.

At LaDucTrading, I analyze price patterns and intermarket relationships across stocks, commodities, currencies and interest rates. I develop macro investment themes to identify tactical trading opportunities and employ strategic technical analysis to deliver high conviction stock, sector and market calls. Through LIVE portfolio-tracking, across multiple time-frames, my real-time Trade Alerts via SMS/email frame my Thesis, Triggers, Time Frames, Trade Set-ups and Option Tactics. I selectively use Unusual Option Activity (UOA) and Deal Flow but no proprietary indicators – just solid chart pattern recognition, volatility insight and some big-picture perspective thrown in. Twitter:  @SamanthaLaDuc

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