Tutor Your Trade

Tutoring for your Investment trading

OBV Analysis Warned of Apple’s Drop

Posted by on Aug 31, 2015

OBV Analysis Warned of Apple’s Drop

Volume analysis has played an important role in my analysis for over 30 years. It can be traced back to my discovery in the late 1970s of the late Joe Granville’s book New Strategy of Daily Stock Market Timing for Maximum Profit. In this book he wrote “stocks do not rise in price unless demand exceeds supply. Demand is measured in volume and thus volume must precede price.”

Over the years, I have explored the OBV in more detail and written extensively about multiple time frame analysis of the OBV in the past few years. In identifying both bottoming and topping formations in stocks or ETFs the relationship of the OBV to its 21-period weighted moving average plays an important roles.

This because you will not always see positive or negative divergences at a major turning point. At a market bottom divergences can be explained by a transition where the demand starts to gradually exceed supply as prices reach a low point. Negative divergences at a top are a result of the fact that fewer buyers (lower volume) are pushing prices higher.

Of course the OBV does not always warn you of tops or bottoms but with so many instruments to trade or invest in the OBV can often lead prices up or down which can help give you an edge. The recent decline in Apple, Inc. (AAPL) in reaction to its earnings was preceded by strong warnings from both the weekly an daily OBV.

aapl723a

The weekly chart covers both the sharp rally in 2014 as well as the trading in 2015. On March 21, 2014 (line 1), the weekly OBV broke through resistance at line b as it started to lead prices higher. The OBV had been above its 21 week WMA since early February. The stock price did not breakout to the upside until five weeks later so the improving OBV was revealing accumulation of the stock.

Using the 2014 lows, the OBV was in a clear uptrend, line c, that stayed intact until the first week of May. The OBV also made a series of higher high, line d, as it was confirming the price action. This changed on May 5th as the new weekly high was not confirmed by the OBV. The negative divergence, line e, should have put investors as well as traders on notice that the trend could be changing.

The decline the next week dropped the OBV below the prior low creating a new downtrend in the OBV. This confirmed the divergence and the following week the OBV just rallied back to its now flat WMA (line 2). This I have found to be a quite reliable topping formation. The decline in the OBV below the prior lows established the downtrend, line e, as key resistance.

aapl723b

The daily OBV moved back above its WMA in October 2014 as APPL rallied from the $101 level to a high near $119 just before Thanksgiving. The OBV formed a slight negative divergence, based on the daily closing price, at these highs, line c. This was now the key level of resistance to watch.

The chart of $APPL shows that it formed a flag formation (lines a and b) over the next seven weeks. This formation was completed on January 22nd and the following day the OBV (line 1) had clearly overcome the bearish divergence resistance at line c. This created a buying opportunity as the company was scheduled to report earnings after the close on January 27th.

Before the opening on January 27th I reviewed the monthly, weekly, daily and 240 minute charts of $AAPL and recommended buying $AAPL on a pullback even if it came on an earnings miss. Instead the stock declined ahead of the earnings and reached the initial buy level. The earnings were strong and $AAPL gapped sharply higher the next day.

The daily OBV stayed strong until early March as it then developed a trading range that ended on April 27th when it made a marginal new highs. The OBV support that developed in March and April, line e, was broken in early May. As $AAPL rallied to a new daily closing high on May 22nd, point 3, the OBV stayed below its declining WMA (line 2) which was a sign of weakness.

On June 9th the daily OBV support, line d, that went back to the January lows was broken. The lower lows in the OBV were consistent with a new downtrend that was negative. The rally from the July 9th lows was accompanied by well below the average volume as the OBV just rallied briefly above its WMA but that did not change its trend, line f. $AAPL needs to rally above the recent peak and the late June highs to suggest the worst of the selling is over.

This type of OBV analysis can be used on stock, futures and ETFs. The weekly chart of gold I featured last Friday revealed the OBV had dropped to new lows several weeks ago well ahead of prices. The analysis can be done on a number platforms and here are my suggestions.

  1. Monitor the weekly and daily OBV trend lines
  2. Watch the relationship of the OBV to its WMA on multiple time frames.
  3. Determine whether the WMA is rising or falling.

I will be adding additional examples of the OBV analysis in the coming months and will continue to post OBV charts on both Twitter and StockTwits.

Read More

The Week Ahead: A Replay of 2011 or 2012?

Posted by on Aug 22, 2015

The Week Ahead: A Replay of 2011 or 2012?

The stock market bulls finally threw in the towel last week as the selling accelerated from the opening last Thursday and was heavy into the close on Friday. The sideways trading over the past three months appeared to have been a tug of war between the bulls and bears.

As I have been pointing out since early July (Greece Isn’t The Real Problem) investors should have been worried about the technical deterioration not Greece. The uptrend in the major averages was accompanied by a downtrend in the A/D line which was a sign that just a small number of stocks were pushing the market higher.

after last week how much more can stocks decline before the correction is over?

The Markets

Fig13

 

 

 

 

 

 

The sharpest correction in the current bull market occurred in 2011 as the selling was exacerbated by the debt ceiling crisis and the downgrade of US debt. The stock market had turned higher in September of 2010 as the weekly S&P 500 A/D line had started a new uptrend by moving above the previous highs (point 1).

The weekly A/D line stayed well above its rising WMA until June 2011 as the Spyder Trust (SPY) rose from $102 to a high of $127 in May 2011. The S&P 500 A/D line dropped below its WMA in early June and stayed below it for five weeks. In late June and early July, the market rose sharply taking the SPY just a point shy of its previous peak.

Two weeks later, the SPY closed at a slightly new rally high but the A/D line formed lower highs, line b. On Friday, July 29, the A/D line dropped below its long-term uptrend and its WMA (line 2). The following week, the SPY opened above $122 but closed the week just above $112, a drop of 7.1% for the week. The weekly A/D line stayed below its WMA until early October, point 3.

The decline from July through October was preceded by a sideways pattern of the daily A/D line in both February-March and May. These periods resulted in corrections that dropped the SPY by 8% and 7% respectively. When the weekly A/D line dropped below its WMA on July 29 the market was therefore more vulnerable. In the next seven days the SPY dropped from its close of $120.84 to a low of $103.03. which was a decline of over 14%.

On October 4, the SPY made its final low of $100.91 in early trading before closing the day higher. Five days later, the daily A/D indicators confirmed that a bottom was in place as I wrote at the time in Be Bold, Be Fearless.Buy the Dip.

From the 2011 lows, the weekly NYSE Advance/Decline began a clear new uptrend and stayed above its WMA from the start of January until May 11 2012 when it dropped back below its WMA. At the time, the markets were also nervous about the Euro debt crisis and what countries might be forced to leave the Euro Zone.

Fig23

 

 

 

 

 

The weekly A/D line made a new high the last week of April before reversing two weeks later and dropping below its WMA on May 11 (line 2). By then the daily A/D line was already below its WMA and had also violated the April lows (line c). This confirmed the new downtrend. The decline lasted another fifteen days as the S&P 500 formed a doji on June 4, and the next day, a HCD buy signal was triggered.

The A/D line did not make a new low in early June, line d, forming a bullish divergence. The bearish sentiment was quite high at the time and in the June 6 column, Rally Potential That Bears Don’t Expect, I also pointed out the bullish divergences in the McClellan oscillator. The rally from the June lows lasted sixteen weeks as the S&P gained 16.4% from low to high.

In 2012, the first wave of selling resulted in a 8.5% decline in the SPY while by the June low the SPY had lost 10.2%. So where do we stand now?

As of Friday’s low the SPY has lost 7% while the Dow Industrials is already down 10%. Therefore a 10% top to bottom correction in the SPY may be a bit optimistic. In any case we should see a rebound in the next week and then another decline where signs of a tradable low could emerge. Alternatively we will see another 2-4 week period of sideways trading before the market sees a further decline. This is what happened in August and September of 2011.

A decline in the SPY back to the $192 area would be a 10% correction that would cause a very sharp drop in the already low bullish sentiment. However a 15% decline would take the SPY to the $182 level and I am sure would convince many that we are in a bear market.

The Economy

There is a close correlation between bear markets and recessions as stocks generally top out before the economy officially enters a recession. An important part of my market analysis is to follow a number of economic indicators. My favorite is the Conference Board’s Leading Economic Indicator (LEI). It is a composite of ten fundamental indicators and is reported monthly.

Fig33

 

 

 

 

 

As the excellent chart from www.dshort.com demonstrates, it has a good record of peaking out well before economy enters a recession. My analysis indicates that the NYSE A/D line typically peaks out well ahead of the start of a bear market. Last week the LEI declined slightly but it will take several more months of lower readings before one could conclude that it has topped out. The A/D line has not yet formed any significant intermediate term bearish divergence suggesting it is too early to look for a bear market.

Overall the economic data has improved this summer but there still needs to be work done especially in the manufacturing sector. Last Monday the reading from the Empire State Manufacturing Survey was a disappointment but later in the week the Philadelphia Fed Business Outlook Survey was better than expected. On Monday we will get the Chicago Fed national Activity Index with Durable Goods on Thursday

Of course it was the FOMC minutes last week that helped push the market over the edge as once again the debate picked up as to when the Fed would raise rates.

The Housing Market Index and Existing Home Sale data last week was positive as the homebuilder stocks rallied early in the week before they were also hit at the end of the week. This week we get the S&P Case Shiller HPI on Tuesday as well as New Home Sales that will be followed Thursday by the Pending Home Sales Index.

We will get an additional reading on the consumer with Consumer Confidence on Tuesday followed by the Consumer Sentiment on Friday. On Thursday we will also get the second reading on the 2nd quarter GDP.

Despite the heavy selling also in the Euro zone markets their Purchasing Managers report on Friday did show solid growth.

Interest Rates & Commodities

Fig43

 

 

 

 

 

 

Bonds and gold were some of the few winners last week. The 10 Year T-Note yield chart from last week indicated that yields would move lower and bonds would move higher. The uptrend on the weekly yield chart, line b, was broken last week and a break of the 2.00% level will suggest a decline to the 1.649% area, line c. The MACD-His had turned negative a week ago and has dropped further into the sell mode.

Of course crude oil prices were punished again last week which has caused some of the most bearish analysts to lower their price targets to $30 per barrel or lower. There are no signs yet of a bottom but the high level of bearish sentiment suggests that traders should be on the outlook for a short covering rally.

Fig53

 

 

 

 

 

It was a good week for gold as the futures gained $46 per ounce. The weekly high close doji buy signal last week was a positive sign that did materialize into a price gain. The resistance from late last year and early this year, line a, has now been slightly overcome. There is next resistance now in the $1200-$1215 area and the quarterly pivot resistance. The weekly studies have turned higher but still are well below their key resistance levels (lines b and c) suggesting that a major low may still not be in place.

Market Wrap

There certainly wasn’t any bargain hunting into the close on Friday as the major averages settled on their lows with the futures dropping even further after the close. The 1000 drop in the Dow pushed it down 5.82% for the week, pretty much in line with the 5.77% drop in the S&P 500. The Nasdaq Composite was hit the hardest losing 6.78%.

Fig63

 

 

 

 

 

As one would expect the market internals were very negative for the week with 2878 stocks declining and just 384 advancing. The weekly chart of the NYSE Composite shows that the next real support is at the October 2014 low of 9868 (line a) which is 3% below Friday’s close. The major 38.2% Fibonacci retracement support from the October 2011 low is at 9415 or 7.6% Lower.

The NYSE Advance/Decline line dropped below its WMA on June 12th warning that the market was in the corrective mode. The A/D line has next support at line b, which was the October low. The NYSE ARMs Index closed at 2.90, a level that may be signaling a panic low. The daily McClellan oscillator closed at -227 which is the lowest level since December 2014.

The NYSE closed below both the weekly and daily starc- bands with the monthly at 9833. The 20 day EMA was tested early last week and now stands at 10,723 but an oversold bounce is unlikely to reach this level.

Fig73

 

 

 

 

 

The Spyder Trust (SPY) also closed well below its weekly starc- band with the monthly at $193.35 which is just above the weekly uptrend, line a. For September the tentative monthly pivot support is at $188.36 or 4.7% below Friday’s close.

The S&P 500 A/D line dropped below its WMA the week of June 5th, line a. It made new correction lows this week and is still in a clear downtrend as it has been since July. There is nextgood support at the 2014 lows, line a.

The daily A/D line (not shown) has been in a solid downtrend since it formed a slight divergence in May and the failure of the A/D line to overcome this resistance was a sign that the correction was not over. On Friday the daily A/D line plunged well below the July lows.

The weekly OBV has been holding up much better than prices as while it has now dropped below its WMA it is well above the long term support at line d. The daily OBV just tested its declining WMA on Monday before it plunged.

For the Powershares QQQ Trust (QQQ) the next good support is in the $98.90-$100 area with the October 2014 low of $89.49.

The iShares Russell 2000 has already reached my initial downside target in the $114-$116 area. There is next major support for IWM in the $108.50-$110 area.

What to do?

I start writing the week ahead column early each Friday and the heavy degree of selling late in did change my focus. It now seems less likely that the current correction is going to resemble 2012.

A correction like 2011 or possible even 1998 when the Russian Ruble collapsed looks more likely. In 1998 the stock market topped on July 24th and bottomed in early October. We may not see as large a drop as we did in 201 or 1998 but it may last as long. As was the case in 1998 I expect the technical studies to give us ample warning that the market has bottomed.

In my June 30th column “Three Reasons To Stay Patient” I outlined the signs I was looking for to signal that the market’s correction was over.

Three reasons to be patient

Wait for clear signs from the A/D lines that the correction is over

AAII bullish% now at 35.6% needs to drop to the low 20% area

The percentage of S&P 500 stocks above their 50 day MA needs to turn up from the 20-25% level

The A/D line always is the dominant factor and it has been in a solid downtrend since early in the summer. With Friday’s plunge it will take some time before it can break its downtrend and start a new uptrend.

It is likely that the bullish % of individual investors will drop to the low 20% level in this week’s survey but as I have noted before it can bottom ahead of prices and stay at low levels for a number of weeks.

The percentage of S&P 500 stocks above their 50 day MA dropped to 20.36% on Friday while the 5 day MA is at 41.64% and still declining. The MA dropped below the 20 level last October so it can still get more oversold before it turns higher.

For those who are already committed to the stock market it is likely to be a rough month or so as the current decline could last into the fall. The only good news is for those who are not yet in the stock market as there should be an excellent buying opportunity once the stock market bottoms out.

My analysis shows no signs that we have started a bear market or that the economy is starting a new recession. Therefore I do expect a good market rally in the last quarter of 2015. I will continue to be watching the large diversified global ETFs that I discussed in early August.

Some of you may find my past articles beneficial in understanding the current correction.

The Week Ahead: Damn the Torpedoes …. – July 18th, 2015

The Week Ahead: Should You Trust Thus Rally? – July 11th

The Week Ahead: Greece Isn’t The Real Problem – July 4, 2015

If you are interested in my other market services or would like me to speak to your investment group I can be contacted at wentworthresearch@gmail.com.

I will be out of the office next week but will share my market thoughts during the week on both Twitter and StockTwits

 

Read More

Wait For The Bulls to Give Up

Posted by on Aug 20, 2015

Wait For The Bulls to Give Up

It was another rough close for the stock market on Wednesday even though the release of the FOMC minutes caused a brief bounce it was followed by further selling into the close. Overseas markets are sharply lower again ahead of the US opening as some analysts are now looking for a market crash.

The stock market’s grind lower as been met with several sharp rallies as bargain hunters periodically jump back into the market. This action has prolonged the decline as it has caused many to question their bearish forecasts and prematurely cover their short positions.

The downtrends in the market’s advance/decline lines have pointed to a market correction since June and while they tried to firm on Monday they have again dropped sharply with Wednesday’s close. Before this market can complete its correction we need to see signs of capitulation and panic selling.

This should be signaled by an extreme reading in the ARMS index (2.5-3.0) and an increase in the VIX to the 18-20 area. This may require a decisive break in the S&P 500 below the 2050 level . In the latest AAII survey the bullish % of individual investors dropped back to 26.82% and another drop to the 20-21% level is likely needed before the market can bottom

Clearly China and crude oil are driving the market lower at this time as the downside price targets for crude are getting more bearish. There are clearly no technical signs of a bottom for crude oil but a the topping action in the dollar index that I pointed out on Friday could help support crude in the weeks ahead.

A technical look at the key market tracking ETFs reveals that the small caps continue to look the most vulnerable while the Nasdaq 100 continues to hold up much better.

820Fig1

 

 

 

  • The NYSE Composite came very close to the August 12th lows on Wednesday.
  • A break below this level would make a drop to the monthly support at 10,4234 more likely.
  • This is about 2.3% below current levels and the weekly starc- band is at 10,381.
  • The declining 20 day EMA was tested Tuesday, a classic sign of a failing rally.
  • The NYSE A/D line failed to move above the July peak early this week and has now dropped below its WMA.
  • As I have been pointing for some time (Narrow Advance Warrants Caution) the lower lows in the A/D, line d, was a sign of weakness.
  • The McClellan oscillator has dropped below support and could move back to oversold levels.
  • It could form a positive divergence in the next few weeks.
  • Resistance now at 10,800 and then at 10,942 which is the quarterly pivot.

The Spyder Trust (SPY) dropped sharply below the daily starc- band last week before rebounding.

  • It has been able to hold the quarterly pivot at $207.38 on the recent declines so today’s close is likely to be important.
  • There is more important support in the $204.11-$205 area, line f.
  • The March low was $202.51 which is 2.7% below Tuesday’s close.
  • The S&P 500 A/D line moved slightly above its downtrend, line g, on Monday.
  • The pattern of lower highs was still intact and the A/D line is now back below its WMA.
  • The A/D line also still shows a long term pattern of lower lows, line h.
  • The daily OBV is in a steep downtrend, line i.
  • There is resistance now at $210.68 and then $211.45.

820Fig2

 

 

 

The PowerShares QQQ Trust (QQQ) reversed sharply Tuesday but is still well above last week’s low at $108.22.

  • The quarterly pivot is at $107.43 with further support at $106.50.
  • In early July the QQQ had a low of $105.83 while it reached $104 in late March.
  • The Nasdaq 100 A/D line has been diverging from prices since June when it formed sharply lower highs
  • This key level of resistance, line c, has been slightly overcome twice in the past month.
  • The A/D line is now below short term support but is still well above the July lows.
  • The daily on-balance volume (OBV) spiked in July but has since formed sharply lower highs.
  • The OBV is close to breaking support at line d.
  • There is strong resistance now in the $111.80-$113 area.

The iShares Russell 2000 (IWM) made a new high in June that was not confirmed by the Russell 2000 A/D line (point 1).

  • The rebound Monday again failed at the declining 20 day EMA with the quarterly pivot at $124.20.
  • The daily starc- band is at $116.88 with monthly pivot support at $115.60.
  • There is a band of long term support in the $114-$116 area.
  • The Russell 2000 A/D line violated important support in early July which confirmed the bearish divergence.
  • The A/D line made further new lows on Wednesday.
  • The daily OBV dropped below important support on August 12th and has plunged further over the past week.
  • There is initial support in the $121.40 to $123.53 area.

What to do? Over the past two weeks there have been several days where the early selling was well absorbed as the major averages closed well above the day’s lows. This has kept the market from reaching a selling climax as the bargain hunters have supported the market.

Since July I have been waiting for clear signals from the A/D line that the correction was over but they have not occurred. Given the market tone it seems like we need to see a selling climax and capitulation by the bulls before a bottom can be completed.

Therefore I continue to recommend a patient approach (Please Wait Until The Dust Settles) as any new buying should only be considered in those sectors and stocks which are already identified as new market leaders.

 

Read More

Volume Warned of Apple’s Drop

Posted by on Aug 15, 2015

Volume Warned of Apple’s Drop

Volume analysis has played an important role in my analysis for over 30 years. It can be traced back to my discovery in the late 1970s of the late Joe Granville’s book New Strategy of Daily Stock Market Timing for Maximum Profit. In this book he wrote “stocks do not rise in price unless demand exceeds supply. Demand is measured in volume and thus volume must precede price.”

Over the years, I have explored the OBV in more detail and written extensively about multiple time frame analysis of the OBV in the past few years. In identifying both bottoming and topping formations in stocks or ETFs the relationship of the OBV to its 21-period weighted moving average plays an important roles.

This because you will not always see positive or negative divergences at a major turning point. At a market bottom divergences can be explained by a transition where the demand starts to gradually exceed supply as prices reach a low point. Negative divergences at a top are a result of the fact that fewer buyers (lower volume) are pushing prices higher.

Of course the OBV does not always warn you of tops or bottoms but with so many instruments to trade or invest in the OBV can often lead prices up or down which can help give you an edge. The recent decline in Apple, Inc. (AAPL) in reaction to its earnings was preceded by strong warnings from both the weekly an daily OBV.

aapl723a

 

 

 

 

 

 

 

The weekly chart covers both the sharp rally in 2014 as well as the trading in 2015. On March 21, 2014 (line 1), the weekly OBV broke through resistance at line b as it started to lead prices higher. The OBV had been above its 21 week WMA since early February. The stock price did not breakout to the upside until five weeks later so the improving OBV was revealing accumulation of the stock.

Using the 2014 lows, the OBV was in a clear uptrend, line c, that stayed intact until the first week of May. The OBV also made a series of higher high, line d, as it was confirming the price action. This changed on May 5th as the new weekly high was not confirmed by the OBV. The negative divergence, line e, should have put investors as well as traders on notice that the trend could be changing.

The decline the next week dropped the OBV below the prior low creating a new downtrend in the OBV. This confirmed the divergence and the following week the OBV just rallied back to its now flat WMA (line 2). This I have found to be a quite reliable topping formation. The decline in the OBV below the prior lows established the downtrend, line e, as key resistance.

aapl723b

 

 

 

 

 

The daily OBV moved back above its WMA in October 2014 as APPL rallied from the $101 level to a high near $119 just before Thanksgiving. The OBV formed a slight negative divergence, based on the daily closing price, at these highs, line c. This was now the key level of resistance to watch.

The chart of $APPL shows that it formed a flag formation (lines a and b) over the next seven weeks. This formation was completed on January 22nd and the following day the OBV (line 1) had clearly overcome the bearish divergence resistance at line c. This created a buying opportunity as the company was scheduled to report earnings after the close on January 27th.

Before the opening on January 27th I reviewed the monthly, weekly, daily and 240 minute charts of $AAPL and recommended buying $AAPL on a pullback even if it came on an earnings miss. Instead the stock declined ahead of the earnings and reached the initial buy level. The earnings were strong and $AAPL gapped sharply higher the next day.

The daily OBV stayed strong until early March as it then developed a trading range that ended on April 27th when it made a marginal new highs. The OBV support that developed in March and April, line e, was broken in early May. As $AAPL rallied to a new daily closing high on May 22nd, point 3, the OBV stayed below its declining WMA (line 2) which was a sign of weakness.

On June 9th the daily OBV support, line d, that went back to the January lows was broken. The lower lows in the OBV were consistent with a new downtrend that was negative. The rally from the July 9th lows was accompanied by well below the average volume as the OBV just rallied briefly above its WMA but that did not change its trend, line f. $AAPL needs to rally above the recent peak and the late June highs to suggest the worst of the selling is over.

This type of OBV analysis can be used on stock, futures and ETFs. The weekly chart of gold I featured last Friday revealed the OBV had dropped to new lows several weeks ago well ahead of prices. The analysis can be done on a number platforms and here are my suggestions.

  1. Monitor the weekly and daily OBV trend lines
  2. Watch the relationship of the OBV to its WMA on multiple time frames.
  3. Determine whether the WMA is rising or falling.

I will be adding additional examples of the OBV analysis in the coming months and will continue to post OBV charts on both Twitter and StockTwits.

Read More

The Week Ahead: How Important Is China or The Dollar To Your Portfolio?

Posted by on Aug 15, 2015

The Week Ahead: How Important Is China or The Dollar To Your Portfolio?

The focus last week was on the devaluation on the Chinese Yuan that sent the global stock markets down sharply early last week and the outlook for China, as well as its currency dominated the focus of many analysts.

Basing one’s investment strategy on where the Chinese economy is headed has left many out of US stocks for the past few years. Some that took a macro view were convinced that the US stock market could not move higher while the Chinese economy was contracting. Though one cannot ignore the impact of global developments on the US stock market they should be viewed in the context of the long term trends.

The emerging market currencies were already under pressure before the Chinese acted and dropped even more as the Yuan was devalued. Most analysts in a Bloomberg survey are looking for further declines in most of the emerging markets through the middle of next year. One well known analyst thinks many could lose another 30-50% but maybe bearish sentiment is getting too high.

Fig12

 

 

 

 

It should be no surprise that 2015 has been a rough one for many of the emerging countries stock markets. A broad measure of emerging markets such as the MSCI Vanguard Emerging Markets (VWO) that was discussed last week was up over 10% in April and May. It is now down over 7% but is still doing much better than the iShares MSCI Turkey (TUR), the Market Vectors Indonesia ETF (IDX) and iShares MSCI Brazil Capped (EWZ) which are all down well over 20%.

The individual country ETFs, as I have always stressed when advising clients, are more suitable to trading than investing because of their volatility. They have had some years of great performance in the past few years as the iShares MSCI Turkey (TUR) was up over 66% in 2012 but down 27% the next year.

Fig22

 

 

 

 

 

 

 

The dollar index looks ready to close the week below the doji low from the end of July. This low close doji sell signal (LCD) signal was developed by John Person. It is generally quite reliable especially when it agrees with other technical studies. For example the September 2012 weekly LCD sell signal in Apple, Inc. (AAPL) was followed by a 40% decline in the stock.

By the week of April 24th the weekly on-balance volume (OBV) on the dollar index had already been below its WMA for a week. The OBV has just rallied back to its declining before turning lower which is typically is a bearish sign. The Herrick Payoff Index (HPI) also turned negative in April by dropping below its WMA. It has continued to decline.

The major 38.2% Fibonacci support and the monthly pivot support are both in the 92.42 area. A drop to this area would be a decline of 4.2% from current levels. This a type of decline could help some of the large multi-national companies whose earnings have been hurt by the strong dollar. I think such a decline would generally be a positive for the US stock market and do not think that China will alter its major trend.

The Markets

Even though the US stock market has seen two sharp rallies in the past two weeks there is no strong evidence yet based either the daily or weekly technical studies that the market’s correction from the June highs is over. Therefore as I stressed in the middle of last week in ” Please Wait Until The Dust Settles” it is not yet the time to be an aggressive buyer of the overall market.

Fig32

 

 

 

 

 

 

 

The first evidence that the correction is over will come from the daily studies which will be covered in the Market Wrap section after the market closes on Friday. The best buying opportunities for the overall market come when both the weekly and daily technical studies are both positive.

The weekly chart of the S&P 500 shows that the twenty-two week trading range, lines a and b, is still intact. A few hours before the close the S&P is trading just above the quarterly pivot at 2082 as it closed just below it last week. The weekly starc- band is at 2035 with the quarterly pivot support at 2029. There is initial resistance at 2112-2114.

The weekly S&P 500 A/D has turned up but is below its WMA. There is still a pattern of lower highs, line c, consistent with a market that is correcting. A move back above its WMA and this resistance would be positive. The A/D line has long term support at line d.

Just two weeks ago the AAII reported that the % of bearish individual investors jumped to 40.7% and at the time I wondered if the bearish sentiment was high enough? I my analysis I have found the % of bullish individual investors to be a more reliable indicator and the reading of 21.1% was low enough to get my attention.

Last week both the bullish % and bearish sentiment moved higher. The bullish % jumped to 30.5% while the bearish % is now at $36.5% up 4.5% for the week. The neutral camp accounts for the change as it now stands at 33.4%.

Fig42

 

 

 

 

The Euro Zone markets closed most lower as there are no clear signs that the Dax has completed its correction as is traded in a wide range last week. The economic data from the Euro zone came in weaker than expected as this table from Bloomberg indicates. For the first time in a year France showed no growth while Spain reported a 3.9% annual growth much better than Germany’s 1.8% GDP.

Late Friday the Euro zone finance ministers approved a 86 billion Euro bailout plan for Greece. My favorite ETF for Europe is the Vanguard MSCI Europe (VGK) which closed the week a bit lower. It still does not appear to have completed its correction.

Interest Rates & Commodities

Fig52

 

 

 

 

 

The yield on the 10 -year T-Noted closed a bit higher last week as the uptrend for the lows early in the year, line b, is still intact. It currently stands at 2.084%. The long term downtrend from the 2011 high, line a, is now at 2.660%. The weekly MACD has crossed below the zero line and the MACD-His has turned negative. This means one should keep a close eye on rates in the weeks ahead.

Fig62

 

 

 

 

 

 

 

The gold futures closed higher and above last week’s doji high so a high close doji (HCD) buy signal was generated. The next resistance is in the $1130 area with major resistance still in the $1155 area, line a, and the declining 20 week EMA.

The weekly studies have turned up but the OBV is well below its declining WMA. There is more important OBV resistance at line b. The Herrick Payoff Index (HPI) measures money flow using volume, open interest and prices. The weekly HPI gave advance warning of the sharp drop in prices and is still solidly in the sell mode. The daily HPI (not shown) is now closer to turning positive.

Crude oil was hit hard again last week losing another $1.71 per barrel and closing below the lows from early in the year. Bearish sentiment is very high on crude oil yet the sellers are still in charge. There are no signs yet of a bottom basis either the daily or week technical studies yet I think a sharp short covering rally is likely in the next few weeks.

Surprisingly the International Energy Agency reported last week that demand for crude is increasing at its fastest pace in five years and this could eventually trigger a short covering rally.

The Economy

Overall the economic data was pretty good last week as Tuesday’s numbers on Productivity were better than expected and Thursday’s Retail Sales were also a bit better than expected. Further improvement is needed in the next few months to signal that the consumer is really back in a spending mood.

On Friday the Producer Price Index was a bit higher than expected and Industrial Production rose to 0.6% based on higher vehicle production. The mid-month reading on Consumer Sentiment from the University of Michigan saw a slight decline to 92.9 from July’s closing reading of 93.5.

This week starts off with the Empire State Manufacturing Survey and the Housing Market Index which is one of the best readings of home builder sentiment. Then we get Housing Starts on Tuesday which may give the home building stocks an additional boost. The iShares Home Construction ETF (ITB) has been leading the market higher as it has outperformed the SPY by over 8%.

After the higher than expected PPI last week many will be paying more attention to Wednesday’s CPI report well as the afternoon release of the FOMC minutes. Then on Thursday we get the Philadelphia Fed Business Survey, Existing Home Sales and the Leading Economic Indicators.

Market Wrap

The higher close Friday kept the major averages in positive territory for the week as the Dow Industrials were up 0.60% and the S&P 500 gained 0.67%. The Dow Utilities led the gaining 2.34% while the Nasdaq Composite was up just 0.09%. The advancing stocks led the decliners by a 1.5 to 1 margin but there were 379 new lows but just 164 new highs.

Aside from the utilities the big winners were the oil & gas stocks which were up 3.07% followed by a 1.1% gain in the industrial stocks. The other sectors were up less than 1% with the consumer goods just barely in positive territory for the week.

Fig72

 

 

 

 

 

 

 

The daily chart of the Spyder Trust (SPY) shows that it closed just barely below the declining 20 day EMA. The daily downtrend is in the $210 area with more important resistance at $211.45. The daily starc+ band is at $213.13. The monthly pivot support was tested on Wednesday with the low at $205.36.

The S&P 500 A/D line turned up Friday but is still below the highs from earlier in the week. There is more important resistance for the A/D line at the downtrend, line b. The daily OBV is still well below its daily downtrend, line c, and its WMA.

Fig82

 

 

 

 

 

 

 

The iShares Russell 2000 dropped down to the $118 level on Wednesday before rebounding but it still closed below the chart resistance in the $120.60 area. The declining 20 day EMA is at $121.71 with the downtrend, line a, now at $124.20.

The Russell 2000 A/D line made new lows last week before turning higher. It is still slightly below its declining WMA while the downtrend, line b, is much higher. The OBV made sharply lower lows , line d, before turning up on Friday. A further rally in the OBV is likely to fail at it’s declining WMA.

There are now more stocks and a few sectors like the utilities that have already completed their corrections. I continue to recommend a patient approach (Please Wait Until The Dust Settles) as I would not be buying those ETFs that track the overall market at this time. I will be highlighting some promising stocks and sectors in the week ahead.

Read More