The selling Monday was well absorbed as all the major averages closed well off the day’s lows. This set the stage for Tuesday’s powerful rally. The technical picture started to change on December 22nd as the technical tools that measure the advance/decline data were turning bullish. As noted in the 12/22 Tweet the McClellan oscillator has broken its downtrend from the October highs.
So far few analysts seem impressed by the action this week but the advance/decline lines on the Nasdaq 100, NYSE Composite and S&P 500 are now acting stronger than prices. The lack of enthusiasm from Wall Street and the relatively low individual bullish sentiment (26.3% according to AAII) will allow the market to move significantly higher. Let’s look at the charts.
The Spyder Trust (SPY) just dropped back to its 20 day EMA on Monday creating a good buying opportunity. The post FOMC rally high of $207.25 has now been overcome which is a positive sign.
- The flag formation, lines a and b, has key resistance in the $208.80-$209.60 area.
- Initial upside target at $215 while an upside breakout has targets in the $218-$220 area.
- The S&P 500 A/D line is in a bullish short term uptrend after Monday’s slight pullback.
- The A/D line is already close to the early December highs and should overcome resistance at line c, by early 2016.
- The daily on-balance-volume (OBV) is still lagging prices but is now testing its downtrend, line d.
- The weekly OBV (not shown) has been positive since early October.
The Powershares QQQ Trust (QQQ) is acting stronger than the S&P 500 as the relative performance(RS) has identified it as a market leader all year. I just posted a new video on RS analysis which can be found on You Tube. The QQQ dropped down to my initial support zone on Monday before gapping higher Tuesday.
- There is next resistance at $115.40-$116, line e.
- A close above this level will complete the trading range (lines e and f) with upside price targets in the $120-$122 area.
- The Nasdaq 100 A/D started to lead prices last week signaling that any pullback should be well supported.
- The A/D line broke out to the upside on Tuesday as resistance at line g was overcome.
- This is provides strong bullish evidence that prices will also breakout to the upside.
- The OBV is also close to making new highs as it held above support on Monday.
What to do? The futures are a bit lower before the opening and while the market may digest its recent gains over the next day or so any weakness will be a buying opportunity. The Health Care Sector Select (XLV) also broke out on Tuesday. It would take several days of heavy selling and quite negative A/D numbers to turn the outlook back to negative.
Editor’s note: If you like Tom’s analysis and want specific entry/exit advice on ETFs check out Viper ETF Report his premium newsletter.
The strong 3-1 positive A/D numbers have confirmed the bullish short term formations discussed in yesterday’s Tweet. The NYSE A/D line is now in a short term uptrend and the McClellan Oscillator has broken the downtrend from the October highs.
The SPY, QQQ, DIA and IWM formed triggered high close doji buy signals with Tuesday’s close above Monday’s doji highs. This is bullish and it would now take a drop below Monday’s lows to reverse these short term positive signals. Futures are showing nice gains 90 minutes before the open with the Euro zone markets also up sharply.
The S&P 500 A/D line has moved back above its WMA suggesting the Spyder Trust (SPY )could rally back to last week’s high of $207.25. A close above this levels could set the stage for a test of the $209-$210 area.
As long term readers know I run a series of exhaustive scans each weekend and three stocks could give positive weekly signals if they close above their key levels on Thursday.
IntercontinentalExchange (ICE) dropped in the past two weeks to test the 20 week EMA at $245.14. It formed a doji last week with a high of $253.19. Dojis are consistent with market indecision and a close above the doji high will indicate that the weekly uptrend has resumed.
The monthly pivot resistance stands at $259.29 with the daily starc+ band at $260.67.
- The weekly trend line resistance, line a, is in the $275 area with the weekly starc+ band at $278.60.
- The weekly relative performance is still in its long term uptrend, line c.
- The RS line is now trying to turn up from its WMA.
- The weekly OBV has been acting stronger than prices as it has surged to new highs.
The daily chart shows that Monday’s close was just below the 20 day EMA at $251.97.
- There is short term support now at $244 with stronger at last week’s low of $240.37.
- The daily RS line is now testing its WMA but is still well below the December high.
- The daily OBV completed its bottom formation last week and made a new rally high on Tuesday.
Monolithic Power Systems (MPWR) is a $2.6 billion dollar company provider of small energy efficient solutions for a wide range of markets.
- The weekly chart shows that a doji was formed last week and a weekly close above $65.46 would be positive.
- The weekly starc+ band stands at $72.56 which is over 10% above current levels.
- There is weekly support at last week’s low of $62.05 with the 20 week EMA at $59.56.
- The weekly relative performance broke through resistance, line a, on Sept. 4th several weeks ahead of prices.
- The weekly OBV surged above its WMA on October 2nd as the overall market staged an important upside reversal.
- The OBV has dropped back to its WMA and may turn higher this week.
- The daily RS line is back above its WMA but the OBV is not.
Yahoo, Inc. (YHOO) has been under fire since its recent earnings and the ever changing corporate plans. There does not seem to be much in the way of positive sentiment for the stock so a strong rally would be a surprise.
- YHOO closed Tuesday above last week’s doji high of $34.07 with further resistance from three weeks ago at $36.39.
- The weekly starc+ band is at $38.23 with the 50% retracement resistance from the November 2014 high at $39.67.
- There is even stronger resistance in the $42-$45 area.
- The weekly relative performance broke its downtrend, line b, three weeks ago.
- A move in the RS line above the October high will confirm it is a market leader . See my You Tube Video – RS Analysis Part 2 for more examples of RS bottom formations.
- The weekly OBV is not nearly as strong as it is just above its WMA.
- The OBV has important resistance at the downtrend, line c.
- There is weekly support at last week’s low of $32.21
What to do? These three stocks, given the positive short term action in the overall market could provide some surprises as we head into the end of the year. Therefore watch to see if they close the week above last week’s doji highs.
Editor’s Note: If you are interested Tom’s weekly scans of Nasddaq 100 & IBD top 50 stocks along with specific advice you might try the Viper Hot Stocks Report, just $34.99 a month. You can cancel anytime on-line.
The stock market’s bullish reaction to the FOMC rate hike did not last long as after last Wednesday’s strong close the sellers again took over. A week ago I was not convinced that the market would able to recoup the prior week’s losses and was looking for rally failure but not a market plunge.
As I noted in Thursday “Can Stocks Now Pass The Test?” one positive from the market’s recent decline has been the drop in bullish sentiment. As I said the “AAII survey reveals that the bullish% dropped 4.6% to 23.9%. This is the lowest reading since it hit 21.1% on July 30th. This was supported by a 9.5% rise in the bearish % to 39.4%.”
The additional selling on Thursday and Friday is not likely to turn more investors bullish for this Thursday’s survey. German investors appear to feel different about the market as the recent survey from ZEW Economic Institute rose to 16.1 from 10.4 the previous month. The chart does suggest it has bottomed. The survey of analysts and institutional investors shows that “confidence is growing that the German economy is sufficiently robust to meet these challenges in the coming year,” said ZEW president Clemens Fuest.
The weekly chart of the German Dax Index shows that they have had a good record recently. At the October 2014 lows when most of the world was negative on stocks the sentiment index bottomed at -1.6. The Dax was the stellar performer in early 2015 as the ZEW sentiment peaked in March at 54.8 just a few weeks before the high.
For the next 25 weeks the Dax dropped sharply reaching its low in October of 1.9 as the US market had bottomed early in the month. Clearly over the next few months I will be watching this indicator closely. Some of the economic data looks more promising for the Euro zone markets than it does for the US.
The Euro zone PMI Employment Index from Markit has just broken its downtrend (line a) . This confirms the strong uptrend from the 2009 and 2013 lows, line b. The data on manufacturing in Italy showed the strongest growth in the past four months while the German Manufacturing PMI is also expanding. The Eurozone PMI is still in its uptrend from the 2013 lows.
The economic focus last week was on the FOMC and the only real bright spot for the economy was the Leading Indicators last Thursday as it rose 0.4% above the consensus estimate of 0.2%. Strong Housing Permits gave it a boost as did low short term rates. It was held back by the weakness in the manufacturing sector and last week’s regional surveys did not help.
The Empire State Manufacturing Survey declined for the 5th month in a row. The Philadelphia Fed Manufacturing Index rose last month but turned down in December dropping to -5.9. Industrial production was also weak last Wednesday.
Also on Wednesday the PMI Manufacturing Index Flash came in at 51.3 which was the lowest reading in the past three years. Then on Friday the Kansas City Fed Manufacturing Index came it at -8.
In the housing market the data was better as the Housing Market Index came in at 61 consistent with strong but slowing activity as it was a bit lower than the past two months. The Housing Permits rose 11% as multi-family permits were up 27%. More good news from homes under construction which are showing a 18.3% gain on a year to year basis.
This did not help the home builders Friday as Toll Brothers (TOL) was down over 2% while Pulte Group (PHM) lost 1.6%. Both were negative basis my weekly analysis on December 11th so this was not surprising. If you are a stock or option trader you may find my weekly scans of the Nasdaq 100 and IDB Top 50 stocks helpful in your trading.
In last week’s article Time To Short High Flyers Like AMZN or NFLX? my analysis favored bearish option strategies in Amazon.com (AMZN) on a rally from the prior week’s close of $640 to the $672-$680 area. It hit a high of $682 early Thursday (stops above 685 were recommended) as it dropped below $665 on Friday.
This week we start out with the Chicago Fed National Activity Index followed by the 3rd quarter’s final GDP and Existing Home Sales on Tuesday. Durable Goods are out on Wednesday along with New Home Sales and Consumer Sentiment.
Interest Rates & Commodities
The yield on the 10-Year T-Note rose slightly last week but is still below the key resistance in the 2.51-2.60% area, line a. The weekly uptrend is now at 2.06% with further support just below 2.00% A drop below the more important at 1.82% would signal much lower yields. The weekly MACD has turned lower and could give a sell signal in the next few weeks.
It was another wild week for crude oil as the march contract lost another $1.36 per barrel. The lower weekly trend line support, line a, has been reached but there are no signs of a bottom from the weekly OBV.
The Spyder Gold Trust (GLD) was hit hard on Thursday and closed the week lower. The weekly OBV has made a further new low while the gold miners are acting much better. A good rally is needed in the miners over the next week or so to support my bullish case.
Many commentators expressed optimism in their post FOMC analysis as they concluded the market’s reaction was a sign that the Fed rate hike had come off just as planned. Therefore the heavy selling Thursday and Friday has caught many by surprise.
Though the positive sentiment of German investors is likely a plus as we head into 2016 that does not mean that investors will not have a bumping ride as we head into 2016. I expect the bearish market commentary to increase as we head into the end of the year. Investors are likely to become even less bullish in the next few weeks which will be a positive for stocks.
Over the past 65 years the S&P 500 has closed higher in December 49 times with an average gain of 1.59%. The S&P is currently down 3.6% for the month which at this point makes it the worst December since the 6% decline in 2002. The S&P needs to close back above 2080 to put it back in positive territory for the month.
The relatively high 3.37 reading in the ARMS Index as of Thursday’s close was a sign that market was getting sold out so we could see a rally by Christmas. This indicator was created by world renowned technician and old friend Dick Arms Dick. He wrote The Arms Index (Trin Index): An Introduction to Volume Analysis, as well as many other excellent books on technical analysis.
I shared my analysis of his excellent technical tool last year in “Profiting from Panic Selling” and Thursday’s reading that those on the short side should not be greedy. It will sometimes peaks as the market bottoms but sometimes the extreme oversold reading will come a week or two before a market bottom.
The NYSE’s drop to the daily starc- band on Monday suggested it was not a time to sell but the rally Wednesday failed right where it should have at the declining 20 day EMA. The starc- band is now at 9773 which is a potential downside target this week. There is long term support on both the weekly and daily charts in the 9500 area.
The wide range on the weekly chart allows for more volatility in the week ahead . There is major resistance now in the 10,200-10,600 area. The weekly A/D line is back below its WMA but both the daily/weekly are still above the recent lows. There is major A/D line support at line e. The weekly OBV is below its WMA after a new high just three weeks ago. The McClellan oscillator closed at -107 and is well above the Monday low of -294. Therefore a bullish divergence could form on a drop below last Monday’s lows.
The 0.3% drop in the Spyder Trust (SPY) last week does not tell the real story as the ranges were wide. The weekly starc- band is at $196.04 with the quarterly pivot at $195.06. There is even stronger support now in the $193 area, line a.
The weekly A/D line is below its WMA but still well above the major support at line b. The daily A/D line (not shown) did make a new low on Friday keeping the short term downtrend intact. The McClellan oscillator closed at -107 and is well above the Monday low of -294. Therefore a bullish divergence coudl form on a drop last Monday’s lows. The weekly OBV is still above its WMA and the long term support at line c.
As I noted last week the PowerShares QQQ (QQQ) still shows the best daily relative performance analysis (see chart) . The weekly RS analysis for the QQQ and the Technology Sector Select (XLK) still indicates they are market leaders. Once the current decline is over these two ETFs are likely to do the best. I will be sending a full ETF sector report out to existing and new Viper ETF clients before the opening Monday.
What to do?
There is no way to sugar coat it as the bears are in charge after last week’s action. As I said last week ” I would expect the current turmoil to continue for a couple of more weeks as it will take time or a very powerful stock market rebound to reverse the recent technical damage”.
That said the potential for some short term bullish divergences to be formed next week should not be ignored though any rally would have to be very strong.
If you take the view that some of last week’s decline was a result of tax-loss selling it should be over this week. The wide swings recently have only favored short term traders as the volatility has made even swing trading difficult.
There are some interesting developments in the overseas markets and the emerging markets, as of last week’s close, appear to be in the process of forming double bottoms. Even though the FOMC rate hike has some analysts even more concerned about these markets they could be the surprise winner of 2016.
Those who are just getting into stocks through dollar cost averaging positions in globally diversified or S&P tracking ETFs or low cost mutual fund I still believe will be pleasantly surprised in 2016.
Traders will have to continue to be nimble and avoid being greedy. As we get closer to the holidays taking some time off might not be a bad idea as you don’t want to sour your holiday spirit with a losing trade.
Because of the Friday Christmas and New Years the next Week Ahead column will be released on January 8th. I will still be watching the markets over the holidays and you can follow my comments on Twitter and StockTwits.
My best wishes to all of you and your families for the holidays. My thanks for your continued support. Tom
After many months of excruciating debate on a possible rate hike, the FOMC finally acted. Stock investors may have reacted even more bullishly to the Fed’s apparent plan to raise rates gradually in the future. Plunging stock prices last week had turned the momentum negative and pushed many of the market measures into oversold territory.
The heavy selling turned individual investors more negative as the today’s AAII survey reveals that the bullish% dropped 4.6% to 23.9%. This is the lowest reading since it hit 21.1% on July 30th. This was supported by a 9.5% rise in the bearish % to 39.4%. This is a positive sign for the market.
Wednesday’s gains were impressive as the Dow Utilities led the major averages with a 2.7% gain. The small cap Russell 2000 slightly outperformed the S&P 500. The seasonal trend analysis for the Russell 2000 typically bottoms in late November but technically it has not yet completed its bottom formation.
Is this burst of upside momentum enough to push the market to new all time highs? The action the rest of the week will help us answer this question.
The NYSE Composite closed Wednesday barely above its 20 day EMA and a close above last week’s high at 10,408 will be a positive sign. The prior swing high is a bit higher at 10,523 with the downtrend, line a, in the 10,700 area.
The A/D ratios were almost 5-1 positive as the A/D line has turned sharply higher but it still below its declining WMA. The recent drop under the November lows is still a concern and the A/D line needs to overcome the resistance at line b to signal a major bullish shift.
The McClellan oscillator hit -294 on Monday and closed Wednesday at 76 breaking the downtrend, line c. The lower lows in the oscillator, line e, is not typical of a market bottom. The bullish divergence at the October lows was typical of an important market low.
The Spyder Trust (SPY) managed to close well above its 20 day EMA at $206.70 and is now not far below last week’s high at $209.73. The daily starc- band is at $210.55 and there is major resistance in the $212 area, line a.
The S&P 500 A/D line did drop below the October and November lows, line h, last week. The A/D line failed to make a new high at the start of the month and therefore is still in a short term downtrend. The weekly A/D line needs additional strength for the rest of the week in order to move back above its WMA resistance.
The daily OBV has moved back above its WMA but is still below the downtrend from last summer’s high, line i. The intra-day charts show initial support now at $206.80-$205.60.
The PowerShares QQQ Trust (QQQ) is clearly acting the strongest of the market tracking ETFS as it just briefly violated the November lows, line b, on Monday. The QQQ is still locked in its six week trading range with resistance is at $115.75. A breakout above line a has upside targets in the $120-$123 area.
The Nasdaq 100 A/D line held above the November lows, line d, on the recent correction. The A/D line is back above its WMA with key resistance now at line c. A strong close above this level would be a bullish sign for the overall stock market.
The daily relative performance analysis has identified the QQQ as a market leader since September. The RS line made a new high a week ago. The RS line is on the verge of moving back above its WMA.
The monthly RS analysis, as I discuss in yesterday’s You Tube video , identified QQQ has market leader since the bear market low in 2009.
There is initial support now in the $112.60-$113 area with Wednesday’s low at $111.89
What to do? The recent sharp decline weakened but did not change the positive intermediate term outlook. The A/D lines need to again start leading the market higher as they did in October before a more aggressive buying strategy is warranted. I will have an update on the closing weekly data Saturday in my Week Ahead column.
Editor’s note: If you like Tom’s analysis and want specific entry/exit advice on ETFs check out Viper ETF Report his premium newsletter.
Most of the major averages did manage to close higher on Monday despite some early selling. Still the A/D ratios were 3-1 negative with the Dow Transports along with the small and mid-caps losing around 0.5%.
The close last Friday at the daily starc- bands did not favor chasing the short side Monday. As I commented to subscribers of the Viper ETF Report Monday “there were some signs of panic selling but to signal that the market is bottoming we need to see a powerful upside reversal this week.”
The S&P futures and Euro zone markets are showing impressive gains in early trading but there is key resistance in the 2050-2067 area. In last week’s scan of the Nasdaq 100 and IBD top 50 there were none with positive momentum. The plunge in stock prices has made many holders of the year’s best performers like Amazon.com (NFLX) or Netflix. Inc. (NFLX) quite nervous but is that a reasons to sell now?
Amazon.com (AMZN) was down about 1.8% in the past week but is still up near 112% for the year. This is impressive when compared to the flat action in the Spyder Trust (SPY) The weekly chart includes Monday’s gains and shows that dojis were formed in two of the three past weeks.
- These are a sign of indecision and last Friday’s close below the doji lows was a negative sign. A move back above $685.50 is needed to reverse this negative signal..
- There is next support at $622 with the 20 week EMA at $590.60.
- The relative performance analysis ( discussed in last week’s You Tube video) has been above its WMA since the start of the year and still looks strong.
- It is well above the long term support at line b which is consistent with a market leader.
- The weekly OBV has also been positive since January and it dropped close to its WMA last week.
The daily chart of AMZN shows a two month trading range, lines d and e, as it came quite close to its starc- band last week.
- AMZN is holding well above the 50 day MA at $624.71.
- The daily RS line is still in an uptrend and moved back above its WMA on Monday.
- The 20 day EMA is at $659.79 with additional short term resistance at $670-$680.
- The daily OBV does look weaker as it dropped below its WMA on Nov. 30th.
- The support at line g has been tested and it is below its declining WMA.
- The volume on a further rally should be watched closely.
Netflix, Inc. (NFLX) dropped 3.7% in the past week but is still up over 147% YTD. The weekly chart shows the recent pullback from the recent highs, line a, with key resistance now in the $133 area. On a move to new highs the starc+ band is at $143.34.
- The relative performance has been in a clear uptrend in 2015 and made a new high three weeks ago.
- It would take a drop below its WMA and support at line c, to signal that it was no longer a market leader.
- The weekly OBV has also been in a strong uptrend and made a new high just two weeks ago.
- There is important OBV support at line d.
The daily chart shows that NFLX dropped back to good chart support Monday as it had a low of $114.66 before closing near the highs at $120.67. This a good sign and a close back above $125.50 would be a short term positive.
- The daily relative performance dropped below its WMA late last week but is now trying to turn up.
- The RS line is still well above the support at line f.
- The daily OBV is also still below its WMA as volume Monday was average.
- At the recent high the OBV was not as strong as prices.
- The 50 day MA stands at $113.67 with the daily starc- band at $112.79
What to do? As I noted in Friday’s Week Ahead column because of the technical damage any rally this week needs to be watched closely especially with the FOMC meeting. The market could accelerate to the upside on an FOMC rate hike but it also possible that this is already factored into the market.
These two stocks have been widely outperforming the Spyder Trust (SPY) and if you have been holding these stocks for their incredible run in 2016 taking some profits or hedging your gains would be a prudent step.
For nimble traders AMZN looks the best for establishing a short term bearish option strategy on a move back to $672-$680area but I would cut your losses on a close back above $685.