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The Week Ahead: Risk Control In A Trump Market

Posted by on Nov 28, 2016

The Week Ahead: Risk Control In A Trump Market

As the euphoria in the stock market continues to build with each new high in the major averages .  The extent of the rally and the fund flows suggest that some investors are now  investing with little regard to risk.

Some of the professional media analysts were not exhibiting much caution even though a guest analyst suggested waiting to buy the the financial stocks like the regional banks.  In the short period since the election it seems that many have thrown caution to the wind with a few analysts using those most dangerous words “this time is different.”

The rally has focused on the Russell 2000 and the financial sector. The last fifteen-day winning streak in the Russell 2000 occurred in February 1996, According to the Wall Street Journal  the Russell 2000 was 2.4% higher after the long winning run in 1996 and was up 8.7% in the next three months. The gain in February 1996 was 6.1% much less than the current 12.7% gain.

The starc band analysis has had a good record of alerting investors and traders to price extremes in stocks, ETFs and commodities. The bands were developed by the late Manning Stoller who was a colleague for many years and he had great market insights.

These bands are based on adding or subtracting two times the average true range (ATR) from a moving average. Manning had determined that using 2 ATR would incorporate 92% of the price activity but if 3 ATR were used about 99% of the price activity would stay inside the bands.

When prices are above the stac+ band prices are in a high-risk buy or a low risk sell area.  If prices are below the starc- band they are in a high-risk sell area or a low risk buy area. These bands are used extensively in both the Viper ETF Report and Viper Hot Stocks Report to indentify high or low risk buy or sell areas as well as to determine profit-taking levels.

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Three weeks ago the Russell 2000 Index closed at the weekly starc+ band and for the past two week’s it has closed well above the 2XATR band (point 3).  With Friday’s close at 1342 it is now just 1.3% below the 3XATR band (in blue) at 1360.

Since 2001 the 2XATR starc+ band has only been tested and exceeded one other time which was in May through early June of 2003. After the 2XATR was first reached (point 1) it was tested for the next two weeks before a 3.7% correction that lasted one week.

This was followed by a 14.7% rally that lasted three week as the 3XATR starc+ band was reached at point 2.   The Russell 2000 traded sideways to lower for the next four weeks as it corrected over 6% before the uptrend resumed.

Clearly the Russell and the iShares Russell 2000 (IWM) are now in a high-risk buy area as using a stop under the 20 week EMA at $122.36 would mean a risk of 9%.   The current analysis indicates that a 3-5% correction is very likely before the end of the year but it still may come from higher levels.

In the October 22nd column “Market Insights From Past Election Years”  I discussed the bullish action of the DJ US Financial Sector (DJUSFN)  and noted that “the RS line has turned up from its WMA consistent with a market leader.”  The key level to watch was the resistance at 460 which was surpassed with the close at 472.13 on Friday November 11th.

For the past three weeks DJUSFN has closed above its weekly starc+ band as it has gained over 8% since 10/22.  The last time this measure of the financial sector closed above its weekly starc+ band was in May of 2013 and six weeks later it had corrected over 7%.

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The bank stocks have been one of the top performing financial industry groups since the election as the Dow Jones US Bank Index (DJUSBK) it is up 16.1%.  The long term monthly chart shows that it is now trading above the monthly starc+ band  and has reached long term resistance, line a, that goes back to 2000-2003.

The SPDR KBW Regional Banking ETF (KRE) has gained almost 19% since the election as it has closed above the weekly starc+ band for the past three weeks and is now just below the monthly starc+ band.  The  Viper ETF Investors sold their position last week at $51.86 for over a 23% profit.

The KRE closed a bit higher Friday at $52.30 and could even reach the $53-$54 area before there is a meaningful correction.  It is likely to be even higher in next six months so  I will be looking for a 3-5% correction as a new buying opportunity.

So should investors and traders view risk differently in the new Trump fueled market? I would argue that investors should consistently apply the same risk management approach even in unusually bullish or bearish times. It is important that the focus is on the risk not the reward of any investment or trade.  If you are a patient and do not invest or trade emotionally you are less likely to buy the high and should have a lower risk.

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The bullish sentiment has continued to expand as 49.9% are now bullish up 3.2% from the prior week while the bearish % has fallen 4.5% to just 22.1%. The chart shows that the bullish % has moved one full standard deviation above the mean but as I noted last weekend  this is still not at an extreme level of bullishness and it often tops out well ahead of prices.

The Economy

In general it was a good week for economic data as the Chicago Fed National Activity Index was still negative but did improve sharply from last month. Existing Home Sales were up 2%  and Durable Goods jumped an impressive 4.8%. New home Sales were down 1.9% in October but up 17.8% on a yearly basis.

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Consumer Sentiment also has rebounded to 93.8% which is up from last month’s reading of 91.6.  This has broken the near term downtrend which is an encouraging sign.  The flash reading on PMI Services also held firm from the prior month.

This week we have the Dallas Fed Manufacturing Survey with the 3rd quarter preliminary reading on GDP. The Consumer Sentiment is also out on Tuesday along with the S&P Corelogic Case-Shiller Housing Price Index.

On Wednesday we have the ADP Employment Report, Chicago PMI and the Pending Home Sales Index. Just ahead of the jobs report on Friday we have the ISM Manufacturing Index, the PMI Manufacturing Index, Construction Spending and the regular Thursday jobless claims.

Market Wrap

It was another banner week for the stock market and finally the A/D numbers matched the strength of the averages as 2454 stocks were up and just 662 down. The Russell 2000, Dow Transportations and Dow Utilities all gained over 2%.

Basic materials were up 2.9% for the week, followed by 2.4% in the industrials, 2.3% for oil & gas and consumer services were 2.1% higher. The energy stocks held up well in Friday’s short session while crude oil reversed sharply and triggered a daily doji sell signal to close the week lower.

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The NYSE Composite finally overcame the resistance at 10,750-800 with the weekly starc+ band at 11,023. There is quarterly pivot resistance at 11,239 with daily support and the 20-day EMA at 10,682. The weekly A/D line has now clearly moved above its WMA but is still below the September high. The daily A/D line (not shown) has broken the downtrend from the September highs.

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The Spyder Trust (SPY) was up 1.38% last week and is now just below the weekly starc+ band at $223.52. The quarterly pivot resistance stands at $226.82.  There is minor support at $220 with the rising 20 day EMA at $217.67.

Both the weekly and daily S&P 500 A/D lines have moved above the September highs which confirmed the price action. Last week the A/D line had just moved above its WMA which made this week’s close more important. The weekly OBV is very close to making a new high.

The Russell 2000 A/D line has moved well above the previous all time highs and has confirmed the price action.  Neither the Nasdaq 100 or Dow Industrial A/D line has made new highs but they are above their weekly and daily WMAs.

What to do?  Bond yields continued to rise last week as the yield on the 10 year T-Note rose to 2.372%, closing well above the weekly starc+ band for the third week in a row. Clearly the bond market has already priced in a December Fed rate hike and even more. A fair amount of the new money going into equity ETFs is coming from the bond market.

Though the market did not complete a short-term top last week which I thought was likely but a risk-focused approach is still best. For those on the sidelines it is hard to watch the market move higher and higher without chasing it.  The market correction is likely to be even sharper if stocks move higher again this week.  Those who are underinvested should look to start buying on the first sharp down day

There are still some ETFs that are just starting to join the party and I will have some new buy orders for Viper ETF clients on Monday.

The weekend scan for Viper Hot Stock traders revealed eleven stocks with new buy signals and as always I will also be reviewing last week’s scan to see if any stocks have moved to attractive buy levels.

If you are interested in my market analysis during the week and want specific recommendation you might consider one of my services. Each is only $34.95 per month and includes regular trading lessons along with the twice a week reports. New subscribers also receive four of the most recent trading lesson and subscriptions can be cancelled anytime on line.

 

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The Week Ahead: Buy, Sell Or Hold?

Posted by on Nov 19, 2016

The Week Ahead:  Buy, Sell Or Hold?

The summer ended with a long list of big name investors who shared their dire forecasts for the global stock markets. Some were looking for a 10-15% correction but others were looking for much more.  Individual investors were also skeptical about the stock market as according to AAII just 23.6% were bullish on November 3rd while over 42% were neutral.

In last Thursday’s survey 46.65% are now bullish while the neutral camp has dropped to 26.77%. The bearish % is at 26.6% as it has only dropped 8% from before the election.  The bullish % reading is the highest since February 19th 2015.

According to AAII  “There isn’t a clear trend as to how the market has performed following unusually large two-week increases in bullish sentiment. The median six-month gain for the 13 periods when there was a larger two-week increase in optimism was 5.9%. Though above the historical median for all periods, the number is skewed upwards by a 34.5% gain following the two-week, 26.1 percentage-point increase in optimism on March 19, 2009.”

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The bullish % is still well below extreme levels as the highest reading during this bull market was 63.3% on December 23, 2010 (point 1). The S&P 500 did see a 6% drop in February and then peaked in May which was a 9% gain from the December 23rd close.

As the chart indicates the bullish % rose to 57.9% on November 13, 2014 (point 2) and then the S&P 500 continued to grind higher until May of 2015 as it gained 4.5%. In my experience a high reading in the bullish % is not a sell signal as the market rally can continue for some time.

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Maybe this is the start of the stock market’s euphoric stage that is typically the last stage of a bull market as was pointed out in the famous quote from John Templeton .  I commented in August (What’s Missing From This Bull Market?) that historically major tops such as those in 1929 and 2000 have been accompanied by more investor participation and euphoria.

The public participation in the stock market is still quite low which is also not normal for a bull market top. Maybe this is starting to change as $44.6 billion has moved into equity ETFs since the election. A good part of the funding has likely come from the bond market as the dramatic rise in yield and drop in prices has panicked many investors. Barron’s reported that the 4% decline in Bloomberg Barclays Global Aggregate Index was “the biggest two-week loss in more than a quarter-century.”

It has been a tough eight days for those trying to buy the index tracking ETFs or the financial sectors as there has been little in the way of a pullback to buy. I think that those who jumped into the market late last week may have to take some heat as I think there will be a better risk entry point in the weeks ahead.

I place considerable emphasis on the entry price for all ETF or stock positions as I discussed in a recent article “Finding The Best Entry Levels”. I have found that too many investors and traders get caught up in the emotion of the market especially when it is moving relentlessly higher and therefore they end up buying too high. Then when the market corrects they are often stopped out before the overall uptrend resumes.

I found that a combination of the relative performance and the on-balance-volume (OBV) can do a superior job of alerting investors to those ETFs or stocks have the best profit potential when the risk is still manageable.  In early October when the SPDR KVW Regional Banking Index (KRE) was recommended to both investors and traders the risk on the position was 4.8%.

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This Viper ETF recommendation was based on the positive weekly studies and the daily studies (line 1) had also just turned positive. KRE had closed the prior day at $42.27 and my buy level at $41.90 which was hit the next day.

I recommended that traders sell their position last Monday as KRE had closed well above its daily star+ band. It had also closed the prior week above its weekly starc+ band which indicated it was now in a high-risk buy area.

On Friday it closed at $51.50 which was above my exit price for traders but investors are still long. The starc  bands help me decide whether to buy, sell or hold. This does not mean that KRE cannot still move higher but it does indicate that the inevitable correction may be very sharp.

In last week’s chart of the E-Mini S&P futures I pointed out that the overnight drop in the futures on the market’s surprise reaction to a Trump victory took the futures below the weekly starc- band. This is a fairly rare occurrence and indicated that at the lows the S&P futures were in a high-risk sell but a low risk buy area.

These bands are interpreted totally differently than the Bollinger Bands. When a market has rallied up to the daily starc+ band after completing a technical bottom they tell me to wait for a few days as the market is likely to either consolidate or correct.  Often in a sustained uptrend prices will not reach the weekly starc+ band for some time which makes it more likely that I will hold onto a position as long as the technical studies stay positive.

By looking at the monthly, weekly and daily starc bands you can often identify important price extremes.  In August and September 2011 gold futures closed above the weekly starc+ bands for two consecutive months and it had also exceeded the weekly starc+ bands for three weeks in August. The gold futures peaked at 1923 in early September which was the start of a multi-year decline.

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There is still a number of industry group and sector ETFs that have just bottomed or they are in the process of bottoming so there are still ETF opportunities. There are also a number of stocks that look attractive. Texas Instruments (TXN) is a Viper Hot Stocks pick that just broke out of its weekly trading range (see arrow) with Friday’s close. The weekly RS and OBV stayed positive as TXN moved sideways and then the OBV broke out to the upside a few weeks ago.

The Economy

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The stock market rally has been fueled by hopes of what they think President Trump will do to make the economy get even stronger. This interesting chart from S&P Capital IQ shows what the stock market has done under various president s going back to Truman.  On this table the performance under President Ford is likely to be the biggest surprise to many.

The economic data last week suggested that the economy was already getting stronger.  The Empire State Manufacturing Survey, Philadelphia Fed Business Outlook Survey and even the Kansas City Fed Manufacturing Index are suggesting continued improvement in manufacturing. This trend needs to continue over the next few months.

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The Retail Sales came in at 0.8% and September was revised up to 1.0%. The yearly rate has broken its two year downtrend, line a, which is a positive sign. Thursday’s Housing Starts report indicated a 25.5% surge which was the best reading since August 2007.

Friday’s report on the index of leading economic indicators (LEI) showed a modest 0.1% gain. But more importantly it is still in a positive trend and as I have pointed out in the past it has a good record of topping out well ahead of the start of a recession.

There is a fair amount of economic data in this holiday-shortened week with the Chicago Fed National Activity Index on Monday followed on Tuesday by the Richmond Fed Manufacturing Index and Existing Home Sales.  The Durable Good Orders Wednesday are followed by the flash PMI Manufacturing Index, New Home Sales and Consumer Sentiment.

The markets are closed on Thanksgiving and will close early on Friday when we get the flash reading on PMI Services.

Interest Rates & Commodities

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The yield on the 10 Year T-Note continued to surge last week rising from 2.117% to close at 2.335% as the downtrend from the 2014 and 2015 highs, line a,  has been broken.  The next resistance is at 2.489% which was the 2015 high and then in the 2.600% area.

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The January Crude Oil contract triggered a daily doji buy signal on Tuesday (point 1) but so far it has not been able to close well above the 20 day EMA at $46.71. There is good support now at $44-$44.50 and then at the doji low of $42.95. The daily OBV is still below its WMA and has formed slightly lower lows. The HPI has formed a bullish divergence, line c, which is consistent with a market bottom.  The HPI could correct still back to its WMA one more time as part of the bottoming process.

Market Wrap

The small cap stock and Dow Transports led the market higher again last week as the Russell 2000 was up 2.6% and the Dow Transports gained 3.2%. The Dow Industrials were up just 0.1% while the S&P 500 had a 0.80 % gain.  The Nasdaq Composite was up 1.6% as it made a marginal new high on Friday.

The weekly market internals were positive with 1982 stocks advancing and 1149 declining. The telecommunication stocks led the market gaining 3%, followed by a 2.2% gain in the oil & gas stocks and just under 2% in both consumer services and financials.

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The Spyder Trust (SPY) is very close to making a new all time high but it does look likely in the next few weeks. The daily starc+ band and quarterly pivot resistance stands at $222.06. The 20-day EMA is rising strongly but is well below the market at $215.40. The daily starc- band is now at $213.90 and it was tested  on four consecutive days just  before the election. The support at $208.38, line a, is now the key level to watch.

The weekly S&P 500 A/D line has moved above its WMA but is still well below the September high. It needs much stronger A/D numbers to confirm a new market high. The divergence will not be a problem as long as the A/D support at line b, is not broken. The weekly on-balance-volume (OBV) has moved above its WMA but has not yet made new highs.

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The NYSE Composite has been lagging the other major averages but has now broken its downtrend, line a. It is still well below the September highs and the resistance at 10,800-900. The rising 20 day EMA at 10,607 now represents good support.

The daily and weekly NYSE A/D lines are the weakest of those that I follow. The short-term downtrend, line c, was tested last week but has not been overcome.  The WMA is trying to turn higher but the A/D line needs to surpass the important resistance at line b, to confirm that the correction is over.

There were signs last week that the decline in the tech sector was over so I recommended that Viper ETFs traders add to their longs in the PowerShares QQQ Trust (QQQ) and to buy the Technology Sector Select (XLK) near Monday’s lows.

The Nasdaq 100 A/D line did break its near term downtrend last week suggesting that the worst of the correction is over.  A near term pullback is still possible this week. A strong move in the QQQ above $118.40 is needed to confirm that the correction is over.

The Russell 2000 A/D line is still rising sharply and is now very close to confirming the new all time highs. It is overdue for a pullback which may come in the holiday-shortened week when the volume is light.

What to do?  Plunging bond prices and soaring stocks dominated the action again last week but a near term reversal is still likely in the next week or two. It should present a buying opportunity but the starc band analysis does not favor buying the strong market sectors at current levels.

This is now becoming a more popular view but trading during Thanksgiving week is often quite choppy so it is definitely not a time to make an emotional trades. I suggest you consider incorporating the starc bands into your analysis as they will help you determine whether to buy, sell or hold.

The A/D lines on the SPY, QQQ and IWM have all moved out of the corrective mode but those on the NYSE and DIA have not. Though there are no signs of trouble from the strong daily A/D lines but the lagging action of the weekly A/D lines does require close monitoring in the weeks ahead.

The Dow Industrials do look a bit more vulnerable on a pullback as DIA formed a doji last week at the weekly starc+ band. This could provide an opportunity for short-term traders. For Viper ETF clients I am looking for a rotation into those sectors which have not rallied like the financial stocks since the election.

This could be a better week for stock traders as Viper Hot Stock traders have several open buy orders in stocks that need a low volume pullback in order to reach buying levels where the risk can be better managed.

If you are interested in my market analysis during the week and want specific recommendation you might consider one of my services. Each is only $34.95 per month and includes regular trading lessons along with the twice a week reports. New subscribers also receive four of the most recent trading lesson and subscriptions can be cancelled anytime on line.

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The Week Ahead: Investors Dodge A Bullet

Posted by on Nov 13, 2016

The Week Ahead: Investors Dodge A Bullet

It is doubtful that anyone will forget last week for many years to come. The political and financial ramifications will have an impact for the next four years or more.  Though it is way too early to guess what will happen it is doubtful than pollster will be one of the top ten career choices for new college graduates.

It was certainly perplexing week for the market but last week’s action is should influence stocks for the rest of the year.  The corrective patterns in the A/D lines as we started the week suggested the bounce before the election did not mean that the correction was over but the post-election action has changed that view.

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The futures markets conviction over a Clinton victory ended about 8:00-8:15 EDT as after trading as high as 2152.50 it closed at 2140.25. The selling was relentless for the next four hours as the S&P futures bottomed out at 12:15 AM as the S&P futures hit a low of 2028.50. At the lows the S&P futures were down 107 points or over 5%. Just over four hour later the futures were back above the 2100 level.

The fact that the selling was absorbed by the futures market overnight was a blessing for investors but not all traders. Those were long inverse ETFs or put options did not have the opportunity to reap the same gains as futures traders.  If the futures had even been down 40-60 points when stocks opened at 9:30 AM Wednesday morning it would have been ugly.

It is likely that panic selling would have occurred as many widely held ETFs would have opened sharply lower taking many investors out of their positions near a short-term market low. This is why I feel investors really did dodge a bullet on last Wednesday’s open.

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It could have been as bad as August 24th of 2015 when the Dow Industrials dropped 1000 points in early trading. The chart above from an SEC Report shows that the S&P futures were  down slightly over 5% as the stock market opened.  In just five minutes the futures were trading almost 7.5% lower and the SPY was trading down 7%.

The SPY had dropped 5.6% the previous week so the sharply lower opening added to investor’s pain but 10 minutes after the lows the losses had been cut in half. From the low on Monday August 24th at $177.63 the SPY rebounded to close the week at $194.03 as it was up slightly for the week.

It was not until early October (A Surprising Turn In Stocks This Week?) that the market internals indicated that a bottom was in place and that a buying opportunity was at hand.  There are some ways that once can identify a panic low and one of my favorite techniques is to use the starc bands.

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This weekly chart of the continuous E-mini S&P 500 contract reveals that since 2014 prices have only dropped below the starc- band five times.  The long tail (the bar under the candle body) is an indication of demand at lower levels.  In early February of 2014 (point 1) the futures had a low of 1732 on Wednesday and then closed the week at 1793 as the NYSE A/D line moved above its WMA.

There was a similar price extreme in the middle of October 2014 (point 2). In this instance the S&P futures dropped in part to a panic in the bond market. The futures had a low of 1813 on Wednesday October 15th before the futures rallied nicely to close the week higher at 1880. Three days later the daily NYSE A/D line turned positive as it broke through its downtrend (October 17th Buy Signals Get Stronger).

The weekly starc- band was also slightly broken in January of this year (point 4). The weekly bar also shows a long tail as the S&P futures bottomed on Wednesday January 20th before also closing the week higher. These lows were slightly broken in February but the starc- band was not reached.  The market internals and sentiment signaled on February 23rd that a bottom was in place.

Of course just because the futures drop below the weekly starc- bands does not mean that the market must have completed a bottom.  As discussed in the Market Wrap section even though some work needs to be new buy signals are looking more likely.

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The powerful gains last week confirmed the bullish outlook for two ETFs that were recently recommended to Viper ETF clients. The  SPDR KBW Regional Banking (KRE)  was up 15% this week as the RS analysis turned positive in early October (line b) signaling it was a market leader. Both the RS and on-balance-volume (OBV) have surged higher and have confirmed the recent highs.

Vanguard Financial ETF (VFH) also rallied sharply this week from $49.52 to just above $55.  The RS completed its bottom on October 19th as the resistance at line c, was surpassed. The daily OBV has been lagging but the weekly OBV is acting very strong.

Both of these ETFs as well as others are trading above their starc+ bands and this makes a pullback or some consolidation likely in the next week. There are several sectors that appear to be have bottomed and a pullback next week should be a buying opportunity.

The Economy

The main economic data last week was Consumer Sentiment as the mid-month reading rose to 91.6 which was up nicely from last month’s reading of 87.2%.

The calendar this week starts with Retail Sales, Empire State manufacturing Survey and Business Inventories on Tuesday. This will be followed by the PPI, Industrials Production and the Housing Market Index.

On Thursday we have the Consumer Price Index, Housing Starts and the Philadelphia Business Outlook Survey. The week concludes with the Leading Indicators and the Kansas City Manufacturing Index.

Interest Rates & Commodities

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The rise in interest rates was even more dramatic than the stock market rally as the yield on the 10 -Year T-Note rose from 1.783% to 2.117%. The rally has been much stronger than I expected as I thought it would stall in the 1.90-2.00% area.  Given this rise in yields a Fed rate rise in December appears to have  already been approved by the bond market.

The yield has closed well above both the daily and weekly starc+ bands which is a sign that the rise in yields is likely to stall in the coming weeks. On the monthly yield chart I have highlighted the most recent sharp rise in yields that occurred in the summer of 2013.

In 2013 yields rose from 1.675 in April to a high of 3.026% in December 2013.  The monthly chart shows next resistance in the 2.35% to 2.47% area and the long-term downtrend, line a. A pullback in yields to the 2.00% area would not be surprising before the end of the year.

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The gold market has gotten much attention recently as there are signs that inflation is picking up.  The SPDR Gold Trust (GLD) rallied up to the resistance in the $125 area (line a)  in early November before prices turned lower. Prices are now close to the 50% retracement support at $115.55 with the more important 61.8% support at $111.86.

Crude oil prices have remained under pressure and while the daily indicators are negative they have a chance to turn positive this week.  This could be enough to complete the daily bottom formations in the energy ETFs.

Market Wrap

Even though the major averages posted impressive gains, 10.2% for the small cap Russell 2000 and 5.4% for the Dow Industrials the weekly A/D numbers were disappointing. There were 1781 advancing stocks and 1355 declining last week. It was another strong week for the Dow Transports as they gained 6.2% which was quite a bit better than the 3.8% gain in the S&P 500.

The financial stocks led the market higher gaining 7.8% and they were closely followed by a 7% gain in the industrial stocks.  The Clinton defeat also spurred a sharp rally in the health care sector as it was up 6.1%.

According to AII the number of bullish investors surged last week to 38.9% a rise of 15.3%. Most of these came from the neutral camp as the bearish % dropped just 5% to 29.3%.  The widely watched Fear & Greed Index which was at 14 last week (extreme fear) closed neutral at 48.

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The daily advance/decline lines are not yet in agreement over the recent rally. The NYSE Composite closed back above its quarterly pivot as did the SPY, QQQ, DIA and IWM.  This reversed the negative signals from the past few weeks.

The A/D lines look the strongest on the iShares Russell 2000 (IWM) as it closed at new all time highs and well above the September highs, line a.  The IWM closed well above its daily starc+ band with the weekly now at $128.27. There is quarterly pivot resistance at $129.29 and then $134.37. The rising 20 day EMA is at $120.61.

The daily Russell A/D line has surged above its downtrend, line b, and is now in an uptrend. The A/D line is still well below the September highs. The Russell 2000 A/D line is the only weekly A/D line that has moved above its WMA. The daily and weekly OBV are now both positive but neither has made a new high with prices.

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The Spyder Trust (SPY) approached the previous highs at $218.51, line a, but was unable to break through last week.  There is initial support now at $214.32 and the quarterly pivot with the rising 20-day EMA at $213.30. The lower boundary of the recent trading range, line b, is now at $211.30.

The S&P 500 A/D line has moved well above its WMA but is still below the downtrend line c, which needs to be overcome to signal that the correction is over.  The daily A/D line is above its WMA but the weekly is not. The daily OBV just reached its downtrend, line d. The weekly OBV (not shown) has reversed back above its WMA which is positive.

The big tech stocks declined last week as they were sold over concerns they would underperform in a Trump administration. They were also likely sold to raise cash to buy the financial and industrial stocks. I do not expect this to last as there are number of tech stocks that have shown up on the weekly Viper Hot Stocks buy list.

What to do?  The sharper correction I thought was possible last week was over in just a few hours. It continues to be a tough market for those on the short side as only nimble futures traders were able to bank outstanding gains on the market’s sharp drop. Viper ETF traders were stopped out of their positions in the Direxion Daily Small Cap (TZA) for over an 8% profit before the election. Those who had bought the ProShares UltraShort S&P500 (SDS) later were stopped out with a 0.8% loss.

The sharp drop in the bond market last week likely has some bond market investors worried and this is likely to continue as yields move even higher. The Vanguard Total Bond Market Index Adm (VBTLX) has over $161 billion in assets and it lost 2% last week. Other bond funds with a longer maturity likely did even worse and this could provide an unpleasant surprise in some year-end statements.

The daily technical studies have improved more quickly than I thought was possible. Even though all the A/D lines have not moved out of the corrective mode I think this is looking more likely. However as the market moves higher it will be important that the technical studies start to lead prices higher.

It does look as there will be some good trading opportunities in the last six weeks of the year in both ETFs and stocks.

Viper ETF clients are long a number of different sector ETFs and have open orders to by several on a pullback which could occur this week.

The Viper Hot Stocks Report recommends both long and short stock positions based on the weekly scans as well as the monthly indicators. There were a large number of new buy signals after last week so I will be looking to cover remaining short positions and add more long positions.

Each service is only $34.95 per month and includes regular trading lessons as well as the twice a week reports. New subscribers receive four of the most recent trading lesson and subscriptions can be cancelled anytime on line.

 

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