SPX Pullbacks Are Volumeless, Stay the CourseTraders have seen this before, and it continues to play out as the global economic climate breaks down. Although these pullbacks in the SPX are often lofty and swift, it is important to realize volume is the most import factor when considering the validity of a pullback.
Here , we can see that the move in SPY is volumeless. The entire squeeze from the Feb. 11 low has seen volume under the 20-day average. On balance volume is not supporting this move.
Next, when deciphering a mere pullback following a steep decline or an inflection point, think what is the "smart money" doing?
Simple. They've been selling to the dumb money for the last five weeks . Corporate buybacks continue to be the only demand in US equities.
Fundamentally, the index is highly expensive versus historical valuations. At a 21.79 P/E, the SPX is over 5 points over its mean. It's over 11 points higher that the "sweet spot." Shiller P/E, which tracks 10 years of inflation-adjusted earnings, is at 24.98 (also, historically expensive outside a recession).
Furthermore, earnings are, indeed, rolling over (along with the business cycle) while real earnings growth is cratering at -14.5 percent. Last time that happen, the US saw a recession in the early-90s, the recession following the tech bubble and the 2008 financial crisis.
See that here !
Aside from there lack of conviction with permabulls being scooped up in buyback fever, the index is about 160 points of its most recent low. Yesterday, price action closed at daily resistance at 1,978 and near the 50% Fib. level from this years epic start.
If it can close above these two levels, the next level that is key is 2,020. If bulls overtake this level a potential retest of 2,071 is probable.
However, this is how I believe it will go as the dollar continues to strengthen and the Fed continues to be out of place:
A bear market scenario like those that followed the tech bubble and financial crisis would put the SPX near 1,078.
This year, we've also seen SocGen's Albert Edwards forecast a potential 75% decline for the broader index.
17 months ago, I published a chart showing a whopping 71% potential decline in SPY from then current levels .
Granted, this was merely based on historical references and calculation, but interesting nontheless.
Will you get a chair when the music stops?
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