Monday, March 24, 2014

One of the best economic barometers for China, HSBC Markit Flash PMI, released another print under the break-even 50 level during the overnight session. The 48.1 print is the third straight contraction under 50, suggesting overall GDP contraction could fall below 7%. Markit’s flash PMI is the most reliable economic release when it’s compared to state run economic surveys. Recall the history of Mao Zedong when he started the Great Leap Forward in China over 50 years ago. When Mao wanted to know the economic status of grain production of various provinces, much of the reporting government officials, wanting to “look good” to Chairman Mao, gave vastly high production numbers to what was being produced. The result was widespread famine as local government officials did literally anything to insure the policies appear successful, including starving their own. While this example is an exaggeration, the point is, with little oversight, reporting of official government releases should be suspect. 

ImageThe flash PMI did not affect the Shanghai Composite (SSEC). The daily Shanghai Composite followed through with almost a 1% gain overnight from the bullish engulfing candle last week. These bad news is good news divergence looks promising for a 9 count TD Sell Setup on the daily. Note the previous daily TD Sell Countdown has been reinstated even though the SSEC broke under the daily TDST Support level at 2014.70. Since technically TD Sell Countdown should not exist, it’s more of an exercise of hypothesis right now. It is not shown on the chart but the 1949.46 weekly TDST Support level is serving as a primary floor for the SSEC.

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S&P 500 (SPX) SHORT TERM OUTLOOK: NEUTRAL

Switch to bearish if SPX is unable to close above 1872.18.

ImageLast Friday, the SPX recorded a TD Sell Setup perfected by the final 9th bar. Since the SPX was rejected just underneath the 1882.35 TDST Resistance and subsequently closed back under 1873.94, this puts the advantage back into the bear’s hands. Should the SPX close back above 1873.94, chances are TD Sell Countdown will commence with an end target of 1908.32. The main confirmation for the bears today is a bearish price flip under SPX 1858.83 (daily price flip) and 1842.81 in the days ahead. 

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S&P 500 (SPX) SHORT/INTERMEDIATE TERM OUTLOOK: NEUTRAL

Switch to bearish with a close below 1858.83.

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S&P 500 (SPX) INTERMEDIATE/LONG TERM OUTLOOK: NEUTRAL

Flip to bearish if SPX weekly closes below 1841.13 OR if all of the following occurs: SPX closes below 1859.45, Nasdaq 4245.40, and RUT below 1183.03.

ImageImageImageImageThe official bearish price flip for the S&P 500 is 1859.45, but if SPX does not close below 1841.14, it is more indicative of the S&P 500 keeping a neutral status. However, if one of the higher beta indices such as the Nasdaq or the Russell 2000 can jointly show weakness, that would be enough to suggest a bearish price flip on the SPX is all it needs to start a potential downside momentum trend. 

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S&P 500 (SPX) LONG TERM OUTLOOK: BULLISH

Flip to neutral if SPX closes below 1805.81 on the last day of March (updated March 3rd). 

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