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The Week Ahead: Is The Fear Trade Your Best Bet Now?

Posted by on Jun 18, 2016

The Week Ahead:  Is The Fear Trade Your Best Bet Now?

It was a rough week overall for global investors and the comments from the FOMC made things worse not better. The focus prior to the Fed meeting had been on what the long term impact of negative bond yields could have on the world’s economy and whether voters in the UK would decide to leave the European Union.

The Fed’s concern over the health of the US economy and the polls that currently suggest that UK citizens now favor leaving have heaped more pressure on the indecisive investor. In last week’s AAII survey the bullish% dropped to 25.4% and is now further below its long term average.

Though it is difficult to really assess the professional sentiment we do know that many high profile hedge fund managers are expecting a sharp market decline. Based on commentary in the financial media and blogs it does not seem many are looking for higher prices.

As I cover in more detail in the Market Wrap section the stock market looked ready to complete its correction in the middle of last week but it did not generate enough positive momentum to signal that the market had turned the corner. This may happen this week but the spike in the VIX is a sign that the fear trade is the most popular now.

The possible exit of Greece from the Euro zone monetary union had been a concern during most of the market corrections since the bull market began. In each instance I thought it was unlikely as the economic costs with the common currency were too high.

In 2010, 2011and 2012 it was even more important that the technical analysis of the US stock market indicated that they were just corrections and not warnings of a major top. The fear trade did not work then as many sold their long positions near the market lows. I would argue that it is not the best trade for most right now.

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The United Kingdom’s stock market, the FTSE 100, has failed to rally much from the lows early in the year. Tt does look weaker that the major Euro zone markets. The correction did take the FTSE 100 between the 38.2% and 50% support levels before it bounced. The close last week was below the prior three-week low which is a sign of weakness. This suggests that no matter how the vote turns out their market could stay weak.

The senseless and apparently politically motivated murder of Jo Scott, a member of parliament who supported staying in the European Union could cause a shift in sentiment. My concern over the vote is not tied to how investments may do for the rest of 2016 but is more a concern of what it might mean to global politics in the years ahead. Historically periods of nationalism and isolation have often led to periods of conflict and war.

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When some look at the long-term chart of the S&P 500 they focus on the trading range (blue lines) that has been in effect since the latter part of 2014 which some interpret as a major top formation. That of course could be the case but the new highs in the monthly S&P 500 A/D line suggest that it is just a major pause in the overall uptrend.

In terms of the long-term market trend I think that the S&P 500’s breakout of the major trading range in 2013, lines a and b, is more significant. The width of the trading range has major upside targets in the 2400-2500 area. Though a retest of the breakout level at 1600 is always possible before the upside targets are met it will take many months before the 40-month moving average tops out.

The FOMC comments on inflation suggested they expect it to stay low and below their target level of 2% for some time yet the Market Vectors Gold Miners (GDX) rallied sharply after the FOMC announcement. It opened strong Thursday but then closed lower and was lower for the week. Still it is the long-term picture that looks more interesting.

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The monthly chart shows that GDX has been testing its starc+ band for the past three months. GDX formed double dojis in December and January that was followed by a doji buy signal in February. The major 38.2% Fibonacci retracement resistance is at $32.02 which is almost 25% above current levels. (if you are interested in learning more about Fibonacci analysis a new Viper Trading lesson was sent out on Friday and is provided to all new clients)

The monthly on-balance-volume (OBV) broke through major resistance, line a, at the start of the year as the volume the first three months of the year was quite heavy. The OBV is still clearly positive but the weekly OBV (not shown) has now formed a negative divergence. This increases the chances of a further correction that should be another buying opportunity as gold typically has a seasonal bottom in July.

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The continued decline in global bond yields got quite a bit of attention as even the yield on the 30 year Swiss bond dropped below zero late last week. The chart of the German 10 year Bunds shows that it dropped below support at line a, which completed its recent trading range. This is a sign that yields can even go lower as yields on the 10 year Japanese bonds and US 10 year notes have also dropped below their support.

The Economy

Despite the drop in stock prices and yields the economic news was generally better than expected last week. Retail Sales last Tuesday came in at 0.5% better than the consensus estimate of 0.3%. The Empire State Manufacturing Survey was again positive and it also beat expectations.

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A sharp decline in vehicle production helped drop the Industrial production by 0.4% in May and it further contrasts with the better numbers from the consumer sector. The Philadelphia Fed Business Outlook Survey was much better than expected but was misleading. As Econoday commented “the constructive looking 4.7 headline doesn’t match the details which are almost uniformly negative”. The chart looks a bit more positive as it has formed higher lows and this makes the next few reports even more important.

The Housing Market Index rose to 60, the best reading in five months as the homebuilders are showing a high degree of optimism. Housing starts were down 0.3% in May but show a very strong gain of 9.5% on a year to year basis.

The calendar is fairly light next week with Existing Home Sales on Wednesday, followed on Thursday by the Chicago National Activity Index, PMI Flash Manufacturing Index, New Home Sales and the Leading Economic Index. On Friday we have the Durable Goods and Consumer Sentiment.

Market Wrap

Despite bouncing on Thursday stocks spend the rest of the week declining with the Dow Transports losing the most dosing down 2.2% followed by over 1% declines in the Dow Industrials and S&P 500. The weekly advance/decline numbers were solidly negative with 1164 up and 1990 down.

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The market is clearly giving some contradictory signals as the VIX broke out of its base formation, lines a and b, last week. This is typically a bearish sign for stocks but the surge was not accompanied by a corresponding sharp decline in the market avrages. This may just be the result of a large number of traders positioning themselves for a Brexit vote against staying in the European Union.

Buying the VIX options and ETFs has been a popular but not necessarily profitable strategy for past year. I think they may be wrong again this time but it would like take a daily close below 17 to reverse the positive trend. Longer term the potential base in the VIX is something that should not be ignored.

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The drop early Thursday took the NYSE Composite below the support at line a, but it did not close below it. There is further support at 10,119 and then at the April low of 10,000. A weekly close below the quarterly pivot (QP) at 9808 would be a sign of a trend change.

The daily NYSE Advance/Decline line did make a new high on June 8th but stayed below its WMA for last week. It has now turned higher as the advance/decline ratios were 1.5 to 1 positive on Friday. A strong move above its WMA will be a sign that the correction is over. The McClellan oscillator is trying to turn up from the moderately oversold reading of -172 last week. A close back above the zero line would be an encouraging sign.

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The new highs in the weekly NYSE A/D line are questioned by some who say it is a result of the sharply lower rates as there are many interest rate sensitive issues in the NYSE. That however does not explain the new highs in the S&P 500 A/D and Nasdaq 100 A/d lines they moved well above the 2015 high.

The A/D is now close to initial support (line b) but is still above its rising WMA and in a clear uptrend. Typically before a significant correction the WMA will have already flattened out as was the case in late 2015 and also last summer. The weekly OBV did not make a new high with prices and has now dropped below its WMA.

The daily S&P 500, Nasdaq 100 and Russell 2000 A/D lines all made new highs with prices on June 8th but are currently below their WMAs. It would probably take a couple of positive days before they could move back above this short-term resistance. All are still well above the more important support at the May lows.

The daily relative performance analysis has improved on the SPDR Dow Industrials (DIA) as it is now acting stronger than the iShares Russell 2000 (IWM) while the PowerShares QQQ Trust (QQQ) has lost its leadership

What to do? The market correction I was looking for a few weeks ago has lasted longer than I expected. A strong close last Wednesday could have signaled that it was over but we did not get it. The market clearly seems positioned for a No vote on June 23rd so a Yes vote may could squeeze those who are short.

I still think it would take some time and further choppy trading to reverse the positive signals from the monthly and weekly A/D lines. A weekly close in the market tracking ETFs below the quarterly pivots would be a reason to become more cautious.

There no signs on the horizon that we are on the verge of starting a new recession so even if there is a sharper correction than I am expecting I still expect stock prices to be higher by the end of the year. The previously recommended ETF buying zones for Viper ETF clients have been reached but were selected with a clear focus on the risk.

Longer term investors should continue to favor positions in low cost , broadly based ETFs or mutual funds.

I will be traveling next week and the next regular Week Ahead column will be released on July 1st.

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Why I Liked This ETF On The Dip

Posted by on Jun 15, 2016

Why I Liked This ETF On The Dip

The stock market correction that started last Thursday has picked up steam as the market bears are getting louder once more as a couple of new layers have been added to the wall of worry. The upcoming Brexit vote does have a chance of rocking the boat temporarily but the longer term measures of the A/D line do not suggest that a vote related drop will complete a major top.

Of course the high number of bear market forecasts is positive as it should provide fuel for a rally. It is interesting that a four day pullback and 2% decline has stimulated this degree of bearishness. The market is now less overbought as the NYSE McClellan Oscillator has dropped from +141 last week to -208 Tuesday as I Tweeted earlier this morning.

The Spyder Trust (SPY) has pulled back to good support as it dropped below the monthly pivot at $207.77 before closing above it. This widely watched market tracking ETF formed a doji Tuesday and a close above $208.74 will trigger a positive momentum shift. I am still look for Spyder Trust (SPY ) to reach the quarterly pivot resistance at $214.58 with additional targets in the $218-$220 area.

One ETF that has been leading the Spyder Trust (SPY) higher all year is the Materials Sector Select (XLB) as it is up 8.3% YTD and is up over 29% from the lows early in the year. In contrast the SPY is up 2.6% YTD and 15.5% from the year’s low.

In last week’s “Why Didn’t I Buy This Mining ETF?” I explained why I was not ready to buy the SPDR S&P Metals & Mining ETF (XME) because the risk was too high. This meant that the correction needed to be watched. The situation was different for the Materials Sector Select (XLB) as the analysis of the weekly and daily technical studies demonstrate why I favored buying it on the recent dip.

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The weekly chart shows that the Materials Sector Select (XLB) bottomed almost three weeks before the SPY in the middle of January. There is next long-term resistance, line a, in the $50 area.

  • The weekly relative performance is one of my favorite indicators and it moved above its WMA in early February signaling it was now a market leader.
  • The weekly RS resistance, line b, was overcome in early March.
  • The weekly OBV formed sharply higher lows in January and this bullish divergence warranted new long positions.
  • The OBV has not yet surpassed the April highs but is still well above its rising WMA.
  • The recent correction has taken prices back to initial weekly support at $46.37.

The daily chart shows that a doji was formed a week ago which set the stage for a pullback.

  • The monthly pivot at $46.85 was reached on Tuesday with daily support, line d, in the $46 area.
  • The monthly pivot support is at $45.51 with the May swing low at $45.42.
  • The daily relative performance shows a well-defined pattern of higher lows, line e, and has just dropped below its WMA.
  • The daily on-balance-volume (OBV) made another new high last week but has also dropped below its WMA.
  • There is important OBV support now at line f.
  • The monthly R2 resistance is at $49.61 while the recent trading range has targets in the $50-$51 area.

What to Watch The overall market needs a couple of days of strong price action and 2-1 positive A/D ratios to confirm that the correction is really over. Last week our strategy for Viper ETF clients was to buy the Materials Sector Select (XLB) at two different levels as it corrected so the risk was tolerable. The key market tracking ETFs were also recommended on the correction but risk control as always is the key.

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Telltale Signs of a Correction

Posted by on Jun 10, 2016

Telltale Signs of a Correction

In over thirty years of following the markets it has become clear that deterioration in the daily advance/decline lines should not be ignored. In some instances the new downtrends in just the daily A/D lines coincide with a period of consolidation in the major averages. They are ultimately resolved by a resumption of the market’s overall up trend.

In other instances the daily deterioration can lead to a more pronounced market correction than can result in the weekly A/D analysis also turning negative. This can change a 3-5% market correction into a double-digit slide. In this trading lesson I will focus on the multiple time frame analysis of the A/D lines.

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This example from 2014 shows how a market’s loss of momentum can warn of something more. In August 2014 the NYSE started to bottom out as the A/D line moved above its WMA just two days after the lows which was the start of a nice rally that continued into early September.

On September 8th, the NYSE A/D line dropped below its previous low after failing to make a new high. This started a new downtrend which put the market in the correction mode. Two days later the more important support at line a, was broken even though the NYSE had just pulled back to its 20 day EMA.

figaa

After drifting lower for a few days the NYSE rebounded back to the Sept. 8th highs (chart next page) but the NYSE A/D line had weakened further as it was in a clear downtrend and well below its WMA This confirmed the rebound was weak. By September 26th the weekly A/D dropped below its WMA which was a sign of further weakness. Fourteen days later the NYSE made its low as it had dropped 9.9% from the early September high.

Four days after the lows on October 21st I commented in Forbes that the A/D lines had moved through first resistance. This was a sign that the A/D line analysis had turned positive.

fig1

The next period I would like to discuss is the first correction that occurred after the bottom in the stock market was confirmed in 2003. The weekly A/D line broke out to new highs in April 2003 (point 1) after moving above its WMA several weeks earlier.

The A/D line came down to test its WMA in August as the S&P 500 had consolidated for six weeks. The A/D line led prices higher out of the consolidation period and formed a series of higher high and higher lows.

The week ending March 12, 2004, the S&P 500 dropped sharply and closed below the doji low triggering a sell signal (see circle). The pullback was brief as the S&P 500 quickly rebounded to challenge its highs. The weekly A/D line ….

New subscribers to either the Viper ETF Report or the Viper Hot Stocks Report  for just $34.95 each per month get the full nine page report on Advance/Decline analysis as well as these four recent trading lessons.

Finding The Best Entry Levels

Finding A Good Exit Price

Profiting From Pivot Analysis

Multiple Price Entry Strategy

Trading Lessons are an important part of both service and are sent out every few weeks. There are designed to help subscribers better understand the markets. They are quite detailed with many specific examples.

 

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Why Didn’t I Buy This Mining ETF?

Posted by on Jun 7, 2016

Why Didn’t I Buy This Mining ETF?

The strong market close on Monday finally appears to have gotten the market’s attention as the tone of the market commentary has turned decidedly more bullish. Even the major Wall Street strategists have started to raise their year-end forecasts for the Spyder Trust (SPY) and the S&P 500.

Many are now accepting the view that the S&P 500 will make a new all time high though the NYSE Composite and small cap Russell 2000 are still well below their 2015 highs. The market’s strength has been forecasted since early March when the intermediate term analysis of the NYSE and S&P 500 A/D lines turned positive.

The daily A/D lines have been leading prices higher since February when I cautioned investors and traders “Don’t Follow Those Bearish Traders”. The recent surge in bullishness is likely due in part to fear as they have been fighting the rally since the S&P 500 was 150 points lower. They are likely concerned that because of their poor 2nd quarter performance they may lose investors.

It has been eleven days on the upside since the May 19th lows as the Spyder Trust (SPY) has gained over 4%. No market goes straight up or straight down so a sharp pullback is likely in the next week or two though it may come after the market makes new highs. The daily technical studies are positive so any pullback should be well supported.

For both investors and traders risk control is the key to success which is why I place so much emphasis on determining the entry strategy for the ETFs or stocks that I recommend. This process takes considerable time as a wide range of different methods are used to target the buying levels.

The SPDR S&P Metals & Mining ETF (XME) was on my Viper ETF buy list after last Friday’s close and it was up 2% on Monday, so what didn’t I recommend it?

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The SPDR S&P Metals & Mining ETF (XME) has assets of $600 million with 23 holdings and an expense ratio of 0.35%. Over 52% is concentrated in the top ten holdings. It was down over 50% in 2015 but is up 58% YTD and one should expect it to generally be more volatile than the Spyder Trust (SPY)

  • The weekly chart shows that XME after an early May high of $25.06 corrected to a low of $20.01, line a, in just over two weeks.
  • The longer term downtrend, line a, and the daily starc+ band are in the $25.50 area.
  • The 50% retracement resistance is at $27.09 which if overcome should signal a move to the 61.8% Fibonacci retracement resistance at $30.75.
  • The weekly relative performance moved above its WMA two weeks after the January low.
  • The RS turned higher last week after testing its rising WMA.
  • The OBV also bottomed before the major market averages made their lows and subsequently rose well above the 2015 highs.
  • The OBV flipped back to positive last week by surging back above its WMA.

The daily chart of the SPDR S&P Metals & Mining ETF (XME) shows that it gapped higher last Friday to close at $23.15. It moved even higher on Monday and is already close to the daily starc+ band at $23.95.

  • The 20-day EMA has turned up and is now at $22.03 with last week’s low at $21.42.
  • The daily chart support (line c) is now in the $20-$20.50 area.
  • The daily relative performance moved back above its WMA in the middle of last week and is now rising strongly.
  • The daily on-balance-volume (OBV) was stronger than prices throughout the correction and broke through resistance (line d) one day after the correction lows.
  • The OBV is already above the early May highs as it continues to act much stronger than prices..

So why not buy? The SPDR S&P Metals & Mining ETF (XME) closed on June 3rd at $23.15 which was 7.5% above the week’s lows. Even in a bullish trend a short-term pullback in such a volatile ETF could have triggered stops below the week’s low.

A more reasonable stop level in my view would have been under the weekly S2 support level at $20.63 and also the previous week’s low of $20.53. The 14-day ATR is 0.80 so a pullback of 1/3 the ATR from Friday’s high would mean an entry at $22.91. With a stop at $20.47 that would have meant a risk of 10.6% which in my view is much too high. It would have taken an entry at $21.49 to reduce the risk to 5%.

I will continue to watch this ETF as it is likely there will be a reasonable risk strategy in the next week oor so where the potential risk can be better controlled.

 

 

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The Week Ahead: Investors – Look Before You Leap

Posted by on Jun 4, 2016

The Week Ahead: Investors – Look Before You Leap

The S&P 50O finally was able to close above 2100 on Thursday only to have investors shocked by a much weaker than expected jobs report. It came in at 38,000 well below most analysts expectations as one so called ‘expert” was looking for 195,000. Since the start of the bull market this pundit has been looking for higher inflation, the destruction of the dollar and an economic collapse.

I have long argued that getting your investment plan from any expert’s comments, especially those on TV, is a prescription for financial disaster. Though many will not admit it becoming a successful investor requires hard work and dedication. Unfortunately many are under the assumption that if they can just pay someone a huge chunk of money for the “real secret” little further work will be required.

Trump University wasn’t the first and won’t be the last investment program to temp gullible investors by an easy path to investing success. In the past few years one trader told me at a conference that he had just paid $40,000 to enroll in a trading program and was confident that he would succeed. I am not optimistic that things panned out as he expected.

Thanks to the internet you are now able to research the past history of any advisor or expert you are thinking about following. If they are very bullish or very bearish you want to find out whether they have had this view for a few months or a few years. In the odd chance you can’t find anything then you should start taking notes of their advice and then study them before you make a decision.

It has long been my belief that anyone who is willing to devote the time and energy can become their own expert or advisor. Of course I favor a technical rather than a fundamental approach but there are a number of fundamental analysts that have done well over the long term. In the past I have written a number of trading lessons that explain the methods that I use to determine the market’s direction as well as pick ETFs or stocks to buy or sell.

Currently many analysts remain skeptical of the current market rally. Some have been bearish since early in the year while others have been warning about the coming market crash for many years. Even though the S&P 500 did close above 2100 last week the repeated rally failures at this level has been a common theme amongst the bears. This high negative sentiment is reflected in the currently high put/call ratios.

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As regular readers know I use the market internals or the A/D line to determine the market’s trend. By February 17th the bullish divergence in the S&P 500 A/D line (line b) was confirmed by the move above the resistance at line c. This signaled that the daily trend for the stock market was positive as was the case last October.

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At my end of February column “Should Investors Ignore “The Wall of Worry”? I pointed out that “the weekly NYSE A/D line has moved back above its WMA for the first time since the start of the year. A higher close this week could move the A/D line through its downtrend, line c, which would be a sign of strength.” The following week the downtrend was overcome and by the middle of April the NYSE A/D line had overcome the May 2015 highs which was bullish for the intermediate term trend.

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At the end of May there was another significant technical development as the monthly NYSE A/D line closed well above the monthly high from 2015, line 6. It has always been a very good indicator of the market’s health. At the end of May 2003 the A/D line moved to a new high, point 1, signaling that the bear market from the 2000 high was clearly over.

The monthly A/D line continued to make new highs in 2004, 2005,2006 before it peaked in the summer of 2007. At the October 2007 highs the A/D line formed a negative divergence, line a, and subsequently dropped below its WMA. It stayed negative until May 2009 when it crossed back above its WMA. By the end of the year the A/D line had surpassed the 2007 high, line 3.

The monthly A/D line made new highs in early 2011 before it corrected back below its WMA. By the end of January 2012, line 4, the A/D line had again made a new high. It surged to new highs again in 2013 and 2014 before it peaked in May 2015.

Until last month the A/D had been in a year- long trading range which makes the May breakout even more significant. Each day I look at all of the major A/D lines and the current analysis is included in the Market Wrap section. To learn more about A/D line analysis read “One Indicator Stock Traders Must Follow”.

The two technical studies that I find the most important for selecting stocks or ETFS are the relative performance and on-balance-volume analysis. This does take time as I look at the monthly, weekly and daily charts as part of my selection process. Since I routinely follow about 70 ETFS and over 150 stocks for my clients this does take quite a bit of time each weekend. It is included in Monday’s reports and last week I had five new ETF buy recommendations.

If you are just starting the path to becoming our own expert or advisor I would recommend that you start out by following a small number of issues like the major sector ETFs and just 15 or 20 stocks. Once you get a routine established then you can gradually add to the number of issues you follow.

The Economy

Many investors who are worried about the health of the economy and future earnings were disappointed by the jobs report. It does make it less likely that the Fed will raise rates at their June meeting. As I pointed out last week investors should understand that historically stocks do well in the first year or so of a rate hike cycle.

I see no signs of a recession on the horizon but there are still a number of weak economic trends that I will be watching in the months ahead. For those that do not have the time to follow all the economic indicators I would suggest you focus on the Leading Economic Index. Last week’s LEI chart pointed out that it typically tops out well ahead of a recession.

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The manufacturing sector is the main concern as last Monday’s Chicago PMI was below 50 at 49.3 and the Dallas Manufacturing Index dropped solidly back into negative territory. The PMI Manufacturing Index and the ISM Non-Manufacturing Index came in about as expected and are above the 50 level. The ISM has rebounded after being below the 50 level in late 2015 and early 2016.

The long-term ISM chart shows how it has acted during the recessions going back to 1970. The lower highs in the ISM (line a) is a concern and it would take several months of much stronger data for it to break the downtrend.

The consumer confidence came in weaker than expected while the recent data on consumer spending shows a healthy increase. On Friday, in addition to the jobs report the PMI Services Index and ISM Non-Manufacturing Index were both weaker than expected in May as the ISM had a sharp drop of 2.8 points. Factory Orders and Construction Spending last week were also disappointing.

This week Janet Yellen is speaking on Monday followed by Productivity and Costs on Tuesday. The calendar is light with jobless claims Thursday followed by Consumer Sentiment on Friday.

Interest Rates and Commodities

Interest rates were a bit lower last week as they dropped in reaction to the weak jobs report. They are still locked in their trading range. The dollar index dropped in early reaction to the report but actually closed the day higher. The weekly studies on the dollar index have improved but have not yet signaled that an important low is in place.

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The daily chart of the dollar index shows that the downtrend, line a, was briefly broken last week as the 38.2% resistance was overcome. The 50% level is still higher at 96.46. A strong close above this level will signal a move to the 61.8% Fibonacci retracement resistance at $97.45.

The daily OBV broke its downtrend, line b, three days after the lows and is still holding above its WMA. The HPI did form a slight negative divergence at the highs early last week. It has dropped below its WMA but is still above the zero line and the support at line c.

WA6-3f

The Comex Gold futures dropped below the 38.2% support at $1207 last week but closed above the week’s lows. The 50% support stands at $1176. The weekly studies are negative with the OBV dropping to new lows as the recent rally failed below the downtrend, line a. The HPI formed a negative divergence at the highs and has now dropped below the support at line b. The gold miners are acting much stronger as the GDX closed up over 11% on Friday.

Market Wrap

Friday’s decline in reaction to the weak jobs report was well supported as the major averages closed well off the day’s lows. The small caps bucked the trend last week as the Russell 2000 closed up 1.2% for the week while the S&P 500 was unchanged. The Dow Industrials and Transports were a bit lower while the Dow Utilities surged 2.45%. The A/D ratios were almost 2-1 positive and once again were much stronger than prices.

Health care and materials were the other top sectors last week gaining 1.5% and 1.3% respectively while the jobs report hit the financial stocks as they were down 1%. The technology sector and oil & gas stocks were also lower for the week.

There was a sharp change in bullish sentiment of individual investors last as the bullish% jumped 12.4% to 30.2%, according to AAII. This was a result of a switch from those that were neutral as the bearish% was pretty much unchanged. The VIX remains very low as it tried to bottom out as the market consolidated but failed to close above key resistance. The professionals seem to be predominantly bearish and it may take a close well above the all time high of 2135 in the S&P 500 to turn them around.

WA6-3g

The NYSE Composite held above its 20 day EMA last week and looks ready to overcome the April high of 10,593. The monthly pivot r√©sistance is at 10,738 (line a) with the May 2015 high at 11,254 which is 7.3% above Friday’s close. On a drop below the recent low at 10,369 there is a band of strong support in the 10,000-10,200 area, line b.

The daily and weekly NYSE A/D lines made further new highs last week as both continue to lead prices higher. The daily A/D line is well above its rising WMA and so far has not seen much of a pullback. The McClellan oscillator dropped to a low of -204 as the market made its correction low but is still stalled below the resistance at +150, line d.

WA6-3h

The weekly chart of the Syper Trust (SPY) shows that it is bumping into the May 2015 highs, line a. Once it is overcome the quarterly pivot resistance at $214.61 with the weekly starc+ band at $216.68. The width of the recent trading range has upside targets in the $218-$220 area. The mutli-year trading range has major upside targets as high as $240.

The weekly S&P 500 A/D line, as I noted at the time, broke through major resistance, line b, at the start of April. This completed the trading range, lines b and c, which strongly suggests that prices will also stage a significant upside breakout.

WA6-3i

The PowerShares QQQ Trust (QQQ) topped out ahead of the other major averages in April and corrected sharply as Wall Street turned negative on tech stocks and Apple (AAPL). By May 18th the QQQ started to outperform the SPY as indicated by the highlighted area (point c). By the end of the week the Nasdaq 100 A/D line also showed signs of bottoming, line b. This suggested that the QQQ may have been ready to lead on the upside and new longs were recommended for Viper ETF traders.

The QQQ held up well last week as the early decline on Friday was well supported. Once above the April high at $111.44 the all time highs are in the $115 area, line a. The Nasdaq 100 A/D line made a convincing new high last week which does favor an upside breakout with next targets in the $120 area. The weekly RS line is back above its WMA but needs to move even higher to confirm that the QQQ is a market leader.

What to do? The fact the A/D lines ended their corrective phase on May 25th confirmed that stocks were starting a new rally phase. I was looking for a pullback last week but it was quite shallow in the SPY, QQQ and IWM. The technical evidence, despite the concerns over the economy and the weak jobs report, still favors even higher prices.

Very few analysts or investors are looking for sharply higher stock prices in the 2nd half of the year but I think it is a real possibility. I would not be surprised to see the S&P 500 reach the 2200 level and 2300 is a real possibility. This would mean a rally of 9.5% from current levels.

In April i suggested that those who were not investors should consider a dollar cost averaging program where six equal investments were made over a period of time. Those non-active investors should consider a broadly diversified ETF like the Vanguard Total Stock Market ETF (VIT) or the Vanguard MSCI Europe (VGK) which I have recommended in the Viper ETF report. They have yields of 2% and 3% respectively with very low expense ratios.

More active investors might consider either the Viper ETF or Viper Hot Stocks services. Reports are sent out twice a week and subscribers receive regular trading lessons. Each service is $34.99 per monthly and can be cancelled anytime. New subscribers receive the five most recent trading lessons.

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