Tutor Your Trade

Tutoring for your Investment trading

The Week Ahead: A Trick or Treat Market?

Posted by on Oct 30, 2016

The Week Ahead: A Trick or Treat Market?

Just after noon on Friday it seemed as though stocks were going to finish the week slightly lower for the week but then the news from the FBI regarding new emails rocked the market. The S&P futures dropped 20 points in just over an hour. Though the market recouped much of these losses the tone of the market definitely changed.

Investors are wondering whether the start of the new month will mark the start of a new more friendly market or whether the end of October is setting the stage for more investor pain. In last week’s column I looked at the last three-election year markets (Market Insights From Past Election Years) and concluded that the price action was the most similar to 2012 when there was a sharp post election decline.

Let’s look at some of the positive and negative factors that are likely to impact stocks for the last two months of the year.

The Positives

According to the Investopedia  Sell in May and Go  Away  ” Since 1950, the Dow Jones Industrial Average has had an average return of only 0.3% during the May-October period, compared with an average gain of 7.5% during the November-April period.”

wa10-28a

Looking at the seasonal pattern for the Spyder Trust (SPY) going back to 1988 reveals that it typically bottoms in early October (line 1) and tops in late May (line 2). The weekly chart shows a short-term flag formation that requires a weekly close above $216.70 for an upside breakout and a close below $211.24 for a downside break. The weekly chart shows major support line a, is at $207.60 with the rising 40 week MA at $206.80.

The bullish sentiment for the stock market is still quite low with just 24.8% bullish according to the AAII survey of independent investors. The level of bullishness is close to levels normally seen at market lows.

As I noted at the February lows (Is There Blood In The Streets Yet?) “According to AAII the bullish% dropped 8.3% in the latest survey to 19.2% bullish just above the 17.9% reading from mid-January .”  At the bear market low on March 5, 2009 only 18.9% were bullish.

wa10-28bb

The analysis of the number of the S&P 500 stocks above their 50-day MA shows that the 5 day MA is at 34% which is well below the mean at 56%. The trend of the MA is still down, line a and at the October 2015 and January lows the MA stropped below 16%.  These low levels when accompanied by bullish signals from the market internals created low risk buy signals for Viper ETF subscribers.

The surprisingly strong advance reading of 2.9 for 3rd quarter GDP is an encouraging sign and is consistent with the improvement in some of the other economic data. The manufacturing sector could still do either way and needs to see significant improvement in the coming months.

wa10-28c

The strengthening economy is consistent with the sharp rise in yields from the July lows. The 38.2% resistance at 1.791% from the June 2015 high at 2.489% has been overcome. The 50% resistance is at 1.924% with the downtrend (line a) and the 61.8% resistance at 2.056%. There is additional resistance from the 2014 and 2015 highs, line b, at 2.258%.

This earnings season so far has been better than forecast which is what I have been expecting  since the summer months. A positive earnings quarter should help encourage more investors that stocks are worth the risk.

Though many investors fear higher rates there is clear evidence that gradually rising rates are good for stocks. The weekly MACD is rising and has moved further into positive territory with no signs yet of topping out. The daily MACD does show a loss of upside momentum. As money moves out of the dropping bond market some of the money should move into stocks.

The recent demand of inflation-protected bonds suggests that many are now more worried about the potential for higher inflation. A gradual increase in the very low inflation rate does allow employers to pay more as companies can charge more for their goods. Low and rising inflation is also typically a positive for the stock market.

wa10-28d

The monthly chart of the NYSE and the NYSE A/D line (One Indicator Stock Traders Must Follow) has both positive and negative indications for the months ahead. The monthly A/D line made a new high in September and looks ready to turn lower this month. It is still well above its rising WMA. In 2007 the monthly A/D line peaked in May and then diverged from prices as the major averages were making their highs.  It is also a positive that the weekly A/D line has also not formed any bearish divergences.

The Negatives

The monthly chart of the NYSE Composite shows that it formed a doji in August and a close Monday under 10,619 (the doji low) will trigger a doji sell signal. The last doji sell signal occurred in June 2015 as stocks did not drop sharply until August.

wa10-28e

The weekly chart of Spyder Trust (SPY) shows an eight-week flag formation and a close below $211.21 would project a move to the $204-$206 area. There is quarterly pivot support at $209.04 and a band of weekly support, line a, in the $207.72 area. The 38.2% Fibonacci retracement support from the January 2016 low is at $203.11 which is 4.4% below Friday’s close.

The weekly Nasdaq 100 A/D lines and Russell 2000 A/D lines are also now below their WMAs. The weekly relative performance analysis indicates that the Nasdaq 100 is still leading the market higher and therefore on a deeper correction it should not correct as much as the S&P 500.

wa10-28f

The 38.2% support for the NYSE Composite is at 10,149 with the more important 50% support at 9916. The most recent peak in the number of NYSE stocks making new highs was in June and has since formed lower highs, line b.

A contraction of new highs is not always a negative sign unless it is accompanied by an increase in new lows which just started to turn higher last Thursday and Friday. If this trend continues it will be consistent with a further market drop.

The development of divergences between the number of new lows and new highs is more effective at market bottoms as I pointed out at the February lows (see chart). This coincided with bullish signals from the market internals that set up some good buying opportunities for Viper Hot Stock traders.

Crude oil has been under pressure for the past eight days as the December crude is now close to the 38.2% support at $48.13. There is more important support in the $45.62-$46.87 area. The weekly indicators have turned down but the OBV confirmed prices and is well above its rising WMA. The HPI has not yet made new yearly highs but is positive and still above its support.  The daily studies on crude oil are negative do allow for a further correction.  A more serious decline in crude oil could put additional pressure on the stock market.

wa10-28g

The daily analysis on many of the inverse ETFs has turned positive with last week’s action. The weekly chart of Direxion Daily Small Cap Bear (TZA) shows that there is major resistance in the $35 area. It was recommended to aggressive Viper ETF traders initially on October 12th. Traders closed out half the position late last week for a 8.8% profit.

The weekly OBV on TZA has just moved above its WMA but does not show a major bottom formation.  The daily OBV does look much stronger and shows no signs yet of topping out.  For short-term traders I will be looking for new entry points in other inverse ETFs on a market bounce.

The bullish daily action in the inverse ETFs is also a negative for the overall market.  There are still a number of ETFs that are outperforming the market as the financial sector is still clearly a market leader.  On a deeper correction it is the relative performance analysis that will identify which sector ETFs are likely to be the best buys once the market tops out.

What to do?  The failure of the market to continue higher for two weeks in a row has kept the daily A/D lines in the corrective mode. This is a sign that the market correction is likely not over and that stronger support is likely to be tested. It would take several days of very strong market internals to reverse last week’s deterioration.

This means that Halloween is more likely to be a Trick than a Treat as the odds of a sharper correction in November are now higher.  There are no signs of a major top or the start of a new bear market so this means a deeper correction should still be a buying opportunity.   It would now take a move to new highs before weekly bearish divergences could form.

Over the near term a more defensive posture is warranted but a drop to the 2080-2100 area in the S&P 500 should be a good buying opportunity for those not in the stock market.  On a sharp 1% decline  I still favor a low fee,  broadly diversified ETF.

There are still a number a market leading stocks like Facebook (FB) and Vantiv Inc. (VNTV)  that Viper Hot Stocks traders are holding on the long side. There are an equal number of new buy and sells in this week’s scan but I will be focusing on new short positions.

Read More

The Week Ahead: Market Insights From Past Election Years

Posted by on Oct 22, 2016

The Week Ahead: Market Insights From Past Election Years

The earnings season got started with a bang last week as Netflix (NFXL) reported a 36.5% increase in year-over-year revenues and added 3.6 million subscribers. After closing Monday at $99.80 it opened Tuesday at $116.63 and continued to move higher all week closing at $127.50

The big banks also beat Wall Street’s expectations as strong trading revenue boosted stocks in Goldman Sachs (GS), Bank of America (BA), JP Morgan Chase (JPM) and Citigroup (C). For several years market skeptics have argued that the market could not go up without the financial stocks but this may now be removed from the wall of worry.

wa10-21a

The chart of the DJ US Financial Sector (DJUSFN) shows that it has been holding above the 20 week EMA for the past month. A weekly close above the resistance at 460, line a, would be a significant upside breakout and signal a move to the 500 area.

The weekly OBV has turned up from support at line c, but is still below its WMA.  The weekly relative performance broke its downtrend (line d) in August and then pulled back to its WMA. The way the RS line has turned up from its WMA consistent with a market leader.

Viper ETF subscribers are already long the SPDR S&P Regional Banking ETF (KRE) and will look to be a more aggressive buyer in the financial sector once the A/D lines move out of the corrective mode.

Many Wall Street strategists are not looking for stocks to move higher through the end of the year (Yearly Forecasts – Fact or Fiction) and the recent high cash level of fund manager’s also suggests a high level of bearishness.

wa10-21b

According to Bloomberg the BofA Merrill Lynch October Fund Manager Survey the cash levels are the highest since November 2001 .  According to Michael Hartnett, chief investment strategist at BofA, “This month’s cash levels indicate that investors are bearish, with fears of an EU breakup, a bond crash and Republicans winning the White House jangling nerves.”

The chart shows that the cash levels have been rising for several years. At the market high in 2007 the cash levels were below 3.5%. At the correction lows in 2010 and 2011 the cash levels were also low which did not allow for aggressive buying by fund managers at low prices.

Last week’s AAII survey reveals the individual investor is also not bullish as the % dropped 1.7% to 23.7%. The bearish % rose 4.1% to 37.8%. At important lows the bullish % can drop below 20% and we are not far away from these levels.

The financial media has been focused lately on what stocks may or may not do well whether Clinton or Trump wins. I think this may already be factored into stock prices but the fears could cause further selling in the weeks ahead.

wa10-21c

But what did the technical studies look in the last quarter of the past three election years. In 2004 the NYSE Composite gained 10.3% in the 4th quarter. The NYSE A/D line (One Indicator Stock Traders Must Follow) moved above and below its WMA in October 2004 before breaking out to the upside on October 29th (line 1). The NYSE A/D line was in the acceleration mode until early December as the NYSE Composite gained 6%.

In 2008 the NYSE A/D line resumed its downtrend on September 8th as it had completed a daily top in June as the A/D lines had been diverging from prices over the past year, consistent with a bear market.  The A/D line made new lows in October before rebounding into Election Day before it again began to drop.

The NYSE A/D line made another new low was made in November and even though the NYSE did rebound late in the year it was still down 23.5 % in the last quarter of 2008. The weekly A/D line did not complete its bottom until the spring of 2009.

wa10-21d

In 2012, the NYSE Composite was in a trading range for six weeks between mid-September and Election Day on November 6th. The day after the election the NYSE started dropping as it lost 5.6% in just 8 trading days.

Just seven days after the market’s low the A/D line moved through its downtrend (line a) as it had earlier moved back above its WMA. The A/D held above its WMA until late in the year when the market dropped over concerns about the fiscal cliff.  By the start of 2013 the A/D line had made another new high.

In the 4th quarter of 2012 the NYSE Composite gained 2.3% but from the November 16th lows it was up 7.6%.  Of course 2013 was the best year of the bull market as the Spyder Trust (SPY) was up 32.3%. The current market looks the most like 2012 in my opinion but that does not mean we have to see a post election drop before stocks can move higher.  As discussed in the Market Wrap section the first step should be a turn in the A/D lines.

wa10-21e

One tool I use to evaluate whether the market is overbought or oversold is to look at the 5 day MA of the number of stocks in a market average that are below  or above their 50 day moving averages. This chart looks at the status of the Nasdaq 100 as the moving average (red line) turned up last week after dropping almost to one standard deviation below the mean at 56%.  A move back above the mean and the downtrend, line a, would be positive.

The same analysis on the S&P 500 suggests it is even more oversold as its MA has turned up from below 30%. The current reading at 31% is well below the mean at 56% so once the market bottoms out there should be plenty of attractive stock picks.

fb

I will be looking for stocks like Facebook, Inc. (FB) which has been a market leader since mid-July when original longs were established by Viper Hot Stock traders.  As the market was drifting lower last week, FB staged a breakout of its trading range (lines a and b). The daily RS line has soared confirming it was a market leader. The weekly and daily OBV are also positive.

The Economy

The week started off on a sour note as the Empire State Manufacturing Survey came in at -6.8 which is the third negative monthly reading in a row. The Industrial Production was flat at 0.1%. Consumer prices rose the expected 0.3% in September and remember a bit higher inflation can be positive for the economy. The Housing Market Index on Tuesday was strong at 63.

wa10-21f

Housing Starts Wednesday were pretty much unchanged while the next day’s Existing Home Sales surged 3.2% in September. The Philadelphia Fed Survey on Thursday was better than expected at 9.7 which appears to break the downtrend, line a.  Further strength in the next few months is needed to support the view that the economy is improving.

The Leading Economic Index rose 0.2% in September which reversed the decline in August. It continues to demonstrate that there is no recession on the horizon.

There is a full economic calendar this week with the Chicago National Activity Index Monday along with the flash reading on the PMI Manufacturing Index. The S&P Corelogic Case-Shillar Housing Price Index is out on Tuesday, Consumer Confidence and the Richmond Fed Manufacturing Index.

The flash reading on the PMI Services Index comes out on Wednesday and  New Home Sales followed by Durable goods along with the Pending Home Sales Index on Thursday. On Friday we get the advance reading on the 3rd quarter GDP, Employment Cost Index and Consumer Sentiment.

Interest Rates & Commodities

dollar

The focus of the commodity markets and interest rates last week was on the dollar as it had its third strong week in a row. The chart of the dollar index shows a solid uptrend (line b) with the  starc+ band now at 99.48.

There is long-term resistance going back to 2015 at 100.85, line a. This is 2.2% above current levels as the dollar index has gained almost 5% from the August lows. The OBV and HPI are both positive but the OBV is now as strong as it was in 2014 and is well below the 2015 high.

The sharp rally in crude oil prices has once again caught many money managers on the wrong side as they have been forced to cover their short positions. For the December contract there is strong resistance in the $52 area with the 20-day EMA at $49.86. The intermediate trend is still looking strong though a pullback would not be surprising.

Gold prices have tried to stabilize despite the stronger dollar. Both the weekly and daily technical indicators are negative and show no signs yet of a bottom.

Market Wrap

There were minor changes in the major averages last week as the selling was counteracted by strong earnings from companies like American Express (AXP) and Microsoft (MSFT).  The Dow industrials were up 0.04% while the S&P 500 gained 0.38% and the Dow Utilities continued to rebound up 0.49%.

More significant was the 0.86% gain in the PowerShares QQQ Trust (QQQ) which tracks the Nasdaq 100 and the 0.47% higher close in the small cap Russell 2000.  The weekly advance/decline numbers were positive with 1968 up and 1151 down. This reverses the negative readings of the past two weeks.

wa10-21g

The range in the NYSE Composite last week was tight with short term resistance now at last Thursday’s high of 10,626 with more important in the 10,750-800 area. There is major resistance at 10,900, line a, with the weekly starc+ band at 10,980. The support from the prior week at 10,425 is now more important.

The weekly advance/decline line has bounced from its WMA and a positive close this week will strongly suggest that the correction is over.  The A/D line made a new high in September. The weekly OBV has turned up from support at line b but is still below its WMA.

The daily and weekly S&P 500 A/D line are still below their WMA but the PowerShares QQQ Trust (QQQ) is acting much better. On a move above the recent high at $119.48 the weekly starc+ band is at $122.85. The rising 20-week EMA is at $114.74 with the September low at $113.35 (line a) now represents even more important support.

wa10-21h

The weekly Nasdaq 100 A/D line has turned up but is still barely below its WMA. The A/D line has further support now at line c. The weekly on-balance-volume (OBV) looks even stronger as it moved through the long term downtrend, line d, on September 23rd and turned up last week.

The iShares Russell 2000 (IWM) dropped down to test the $120 level but then closed near the day’s high.  This means a strong close above the $125.53 area would project a move to the $130 area.

What to do?  The market has been very resilient in the past week and the action in the technology  stocks has been especially impressive. The higher weekly close as I noted last time does suggest that the worst of the selling may be over.

A day of very strong A/D numbers this week and the absence of any heavy selling could move the daily studies back to neutral. Several strong days could turn the analysis positive. By Election Day the A/D lines could move into the strongly trending mode when would warrant more aggressive buying like in the spring.

Those who are not in the stock market should look to one of the broadly diversified ETFs that have low fees.  If we do see another 1% daily drop in the major averages it should be a buying opportunity. It would take a daily close in the S&P 500 below 2126 to trigger more aggressive selling that could take it below 2100.

As I noted earlier the charts of 2012 seem to be the most similar to the current situation which means that stocks could rally sharply into year-end. This could take the S&P 500 well above the 2200 area. Viper ETF investors are long the market tracking ETFs as well as some sector ETFs. We will likely be adding new trading positions this week.

There are an equal number of new buys and sells in from my weekly scan of the Nasdaq 100 and IBD Top 50 stocks after Friday’s close.  New short positions were added last week but with last week’s action I will be looking for new market leaders, like Facebook (FB) to recommend to Viper Hot Stocks traders on Monday.

Read More

The Week Ahead: Monthly Signal Keeps Investors On Right Track

Posted by on Oct 3, 2016

The Week Ahead: Monthly Signal Keeps Investors On Right Track

Despite the market angst over the FOMC meeting and comments from the Big Bears since August that the stock market had to crash the major averages survived another month. Heading into the last day of the month the S&P 500 was just 2% below its all time high yet according to AAII only 24% of individual investors were bullish.

In addition to the last day of the month it is also the end of the 3rd quarter. Active managers are likely to again underperform their benchmarks for another quarter.  Earlier in the year a Financial Times article revealed that “98.9 per cent of US equity funds underperformed over the past 10 years, 97 per cent of emerging market funds and 97.8 per cent of global equity funds.”

wa9-30a

Looking at those funds sold in various Euro zone countries the message is the same as their chart indicates. Almost 100% of a actively managed equity funds sold in the Netherlands have failed to outperform their benchmarks over the past five years.

It has also likely not been an easy year for most individual investors in the US as the market plunged for the first six weeks of the year as the Spyder Trust (SPY) had a low of $178.33 on February 11th.  At the time only 19.2% were bullish in the AAII survey and over 48% were bearish. From the February low the SPY is now up over 21%.

Though there were signs in February “Is There Blood In The Streets Yet?” from a number of technical studies that the worst of the selling was over but still each month there was something else for investors to worry about.  This was the proverbial  “Wall of Worry” that is often the focus of the headline driven financial media that in my view does a good job of keeping investors out of the market.

The recent trend of weak earnings seasons has been used each quarter as a reason stocks can’t go higher and if it is a slow news week the TV media trots out those perennial bears who warn of a market bubble.  In April I pointed out “Why Bubble Fears Are Bullish For Stocks”  and each month I have tried to debunk the latest additions to the wall of worry.

It has clearly been a year of wide market swings as evidenced by the post Brexit vote drop as well the 400-point plunge on September 9th.  After the February lows it was the continued improvement of the A/D line in March that provided further evidence that the intermediate trend was positive.

On April 1st the S&P 500 A/D line moved above the 2015 highs which provided a strong signal that the stock market’s next major move would be higher, not lower. 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 d). 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 signaling that the bear market from the 2000 high was clearly over.

wa9-30b

The monthly A/D line peaked in May 2007 (point 1) and at the October 2007 highs it formed lower highs, point 2. The weekly and daily A/D lines also formed negative divergences which confirmed a bull market top. The monthly A/D line dropped below its WMA in December 2007 (line a) and did not crossed back above its WMA until May 2009.

By the end of 2009 the A/D line had surpassed the 2007 high confirming a new bull market. The ability of the monthly and weekly A/D lines in make new highs in 2010 through 2015 was a clear sign the bull market was still intact despite all of the market commentary to the contrary.

The monthly A/D line peaked in May 2015 and dropped below its WMA at the end of August, flipped above it in October and then back below it in January 2016. This is why the subsequent move to new all time highs last spring was so significant.

So what does this mean for the last quarter of the year?  The monthly NYSE A/D line is still well above its WMAs. It is important that the WMA is still clearly rising and it would take several months before it could violate the WMA.   (For more see the Market Wrap section)

The fact that the S&P 500 has been higher in every quarter of 2016 further increases the odds of a positive close in the 4th quarter. According to a CNBC article “of the 19 years in which the market rose in the first, second and third quarters, a negative fourth quarter only followed five times.”  This adds to the overall positive trend for the 4th quarter as stocks were positive 73% of the time.

For investors I have stressed that you should focus on the longer-term data and use the quarterly pivots for weekly trend analysis. Each week and month I review the technical studies as well as the relationship of the Friday close of the ETFs or stocks to their quarterly pivot. Those that close above their quarterly pivot have a positive intermediate term trend.

wa9-30c

The SPDR S&P Oil & Gas (XOP) has been a favorite of the Viper ETF Report for most of the year as there have been several profitable swings.  The weekly relative performance broke its downtrend, line b, in early March and just bounced off its WMA.  The OBV turned positive at the same time breaking its downtrend (line c).  It has stayed above its WMA ever since.

The OBV made a new high last week and XOP has been above its quarterly pivot since the start of the 2nd quarter. Additional long positions were added on the recent pullback and a close above $40.44 will give much higher targets.  The Herrick Payoff Index (HPI) on crude oil completed its bottom on Thursday as I Tweeted a chart on Friday. The recent students of the HPI class have appreciated how it has helped trade the swings in XOP.

wa9-30d

Even thought the averages have seen some wide swings there have been a number of stocks that have been steadily outperforming the S&P 500.  Once that showed up in the weekly scan for Viper Hot Stocks in early August was Electronic Arts (EA). It gained another 1.3% on Friday and the daily RS as well as the on-balance-volume (OBV) show very positive daily as well as weekly trends.

Though many advise avoiding stocks because of their high P/E or too high market averages there continue to be a number of stocks that have just completed their bottom formation.  In the over 150 stocks that I scan for my Monday stock  recommendations  I look for stocks that are either in solid weekly up trends that have corrected back to support or have completed weekly bottom formations.  These are also the methods that I teach in my individual training sessions.  (If you are interested email us at wentworthresearch@gmail.com)

The Economy

Though there was plenty of economic data last week but stock market seemed to pay little attention as traders were focused on the macro issues they felt were driving prices higher.   The final 2nd quarter GDP came in as expected but Thursday’s market decline was fueled over concerns about the viability of Deutsche Bank AG.

The focus this week will be on the monthly jobs report which means another round of debate on what the Fed may do on rates. The manufacturing data was better than expected last week as the Dallas Fed Manufacturing Survey and Friday’s Chicago PMI were both better than expected. This week we have the ISM and PMI Manufacturing indices on Monday.

wa9-30e

The stock market did seem encouraged by last Tuesday’s Consumer Confidence which was strong at 104.1 much better than the consensus estimate of 98.8.  As the chart shows this reading has exceeded the 2013 highs, line a, and caused a breakout on the charts. Friday’s Consumer Sentiment was a bit better that expected and the last half of the month bodes well for October.

On the housing front New Home Sales were down from August but there were some positive signs as  Econoday concluded that “This is a very positive report which underscores the accelerating strength of the new home market.” Pending Home Sales were weak and the S&P Corelogic Case-Shillar Housing Price Index was flat.

This Wednesday we get new data on the services sector with the PMI Services and ISM Non-Manufacturing Index. Both were weaker than expected last month so they are likely to be examined more closely this week.

Market Wrap

Few were expecting the S&P 500 to gain 3.5% and the Nasdaq Composite 9.7%  in the 3rd quarter. The outlook of most analysts and traders at the start of the quarter was not that positive. For the week the Dow Transports led the way, gaining 1.8% as the iShares Dow Transportation (IYT) has been recently favored on the long side by the Viper ETF Report.  The A/D numbers for the week were slightly negative with 1487 stocks advancing and 1638 declining. More stocks did make new weekly highs which is a plus.

wa9-30f

In 2015 the weekly A/D line formed a negative divergence in May, line b, and then dropped below its WMA in June. This weakness kept me from buying stocks and as I pointed out in early July  “Greece Isn’t The Real Problem” it was the weak technical outlook not the concerns over Greece’s debt that investors should focus on.  Stocks finally collapsed in August.

On February 26th (line 1) the weekly A/D line moved above its WMA and one week later  it overcame the  bearish divergence resistance at line b.  In 2015 it was eight weeks after the April high that the NYSE A/D finally dropped below its WMA. This would require several consecutive weeks of very negative A/D ratios.

The NYSE composite has been testing its weekly support at line a.  A weekly close above 10,818 will project a move above 11,000 with additional targets in the 11,200-500 area. For the new quarter the pivot stands at 10,644 and a weekly close below 10,487 would be a sign of weakness.

wa9-30g

The Spyder Trust (SPY) did manage to close the week higher despite selling early in the week. As I commented in Monday’s five-page report to clients “the market’s internal strength indicates additional weakness early this week should be followed by higher prices”.  The upside reversal late Tuesday and strong close Wednesday suggested the pullback as over as SPY held the support in the $213-$214 area.

The sharp drop last Thursday clouded the short term outlook  as SPY now needs a close above $217.53 to signal a test of the $220 area, line a.  The completion of the trading range (lines a and b)  has upside targets in the $223-$225 area.

The S&P 500 A/D line made a new high on September 22nd and is holding above its WMA. It has important support at line c.  The daily OBV is trying to break its downtrend as it has been acting weaker than prices while the weekly is acting stronger.

The Powershares QQQ Trust (QQQ) and the iShares Russell 2000 (IWM) have the strongest  relative performance and should lead the S&P 500 higher.

What to do?    My analysis still suggests the mid-September breakout of the trading ranges in the A/D lines does favor a further market rally as we start off the new quarter. Even though the outlook for stocks doing in the end of the year remains positive you should be prepared for more sharp down days.

Alcoa (AA) releases its earnings on October 10th and I still expect the earnings season to be much better than expected. With a stock market that is already in a positive trend good earnings should be supportive.  As I mentioned last time I still like the technology, biotech and small cap stocks.

Once the A/D lines start another strong rally phase I will likely look to some of the leveraged long ETFs for Viper ETF traders as they are already long the IWM and QQQ as well as other ETFs.

After Friday’s close there are 24 Nasdaq 100/IBD Top 50 stocks that have generated new buy signals and just 10 with new sell signals. There are also some new weekly doji  buy and sell signals.  For each of these stocks I look at the monthly, weekly and daily charts to find new recommendations for Viper Hot Stocks traders on Monday.

Read More