Tutor Your Trade

Tutoring for your Investment trading

Articles

Charts Talk In Spite Of Market’s Nervousness

Posted by on 6:21 pm in Uncategorized | Comments Off on Charts Talk In Spite Of Market’s Nervousness

Charts Talk In Spite Of Market’s Nervousness

The stock market has been nervous this week as it has the earnings season, confirmation hearings and president Elect Trump’s long awaited press conference to put it on edge.  The daily gyrations in the stock market often mask what is taking place internally.

The Spyder Trust (SPY) was unchanged on Tuesday while the Dow Industrials were a bit lower and the NYSE Composite was a bit higher.  In contrast on the NYSE there were 1924 stocks advancing and just 1075 declining Tuesday which was a sign of internal strength.

So far in 2017 the Powershares QQQ Trust (QQQ) has gained 3.38% versus just a 1.77% gain in the Spyder Trust (SPY).  In 2016 the QQQ came quite close to its yearly pivot levels as the high at $121.52 was close to the initial yearly resistance at $122.06 and the low early in the year at $93.80 was above the year  S1 support at $91.28.

The Yearly Pivot Table shows the actual price ranges as well as the pivot projection for 2016.  For 2017 the pivot stands at $111.27 with the initial yearly pivot resistance at $128.73.  These will be the key levels to watch and if the QQQ should surpass the R1 resistance then the focus would be on the R2 resistance at $138.99.

The daily chart of Powershares QQQ Trust (QQQ) shows that it has been testing the daily starc+ band for the past few days as it is well above the strongly rising 20 day EMA at $120.25. The QQQ dropped below its EMA at the end of the year.

  • The Nasdaq 100 advance/decline  line made a new high on Tuesday as it slighly surpassed the December high.
  • The A/D line is above the rising WMA with more important support now at line b.
  • There are upside targets for the QQQ in the $125-$126 area.

The Spyder Trust (SPY) formed a doji on Tuesday which is a sign of indecision and is quite close to its 20 day EMA at $225.78. The daily starc- band is at $224.65 with more important support at $222.73, line c.

  • The S&P 500 A/D line moved above its WMA on November 8th (point 1)  and stayed above it until the latter part of December.
  • The S&P 500 A/D line has not yet made a new high in 2017 (point 2) so it has been diverging from the December high.
  • A decline in the A/D line below support at line d and the late December low is needed to confirm the divergence.
  • A daily close above $228 will signal a move to the $230-$232 area.

What to do?  The intermediate term analysis for stocks is still clearly positive as is the daily analysis. A correction back to good chart and retracement support would not be surprising in the next few weeks. The recent positive technical signs on the health care, biotech and transportation sectors indicated they are becoming market leaders.

A Trading Lesson that focuses on the yearly pivot analysis for the key market tracking ETFs and the major sector ETFs will be sent out to new and existing subscribers of both the Viper ETF Report and the Viper Hot Stocks Report at the end of the week.

2016 Price Ranges Were Spot On, What About 2017?

Posted by on 2:09 pm in Stock market strategies, Technical Analysis | Comments Off on 2016 Price Ranges Were Spot On, What About 2017?

2016 Price Ranges Were Spot On, What About 2017?

Stocks opened the New Year on a positive note as the major averages closed with nice gains and the 3-1 positive advance/decline ratios were a good sign. The new high in the Spyder Trust (SPY) last week was confirmed by a new high in the S&P 500 A/D.  The daily A/D lines did turn higher Tuesday but to signal a new rally phase we need to see several more days of strong market internals.

For many years I have lamented the financial media’s focus on year-end projections for the major averages. The gyrations in 2016 forced many Wall Street strategists to revise their outlooks throughout the year as I reviewed several weeks ago  (How High Can The Market Forecasts Go?)

I am lucky that unlike many of these market professionals my job description does not require that I make a year end price forecast.  The price targets I provide are based on chart formations and other hard data not on projected earnings or macro views of the economy.   The pivot price projections focus on the yearly price ranges but not where stocks will end up at the end of the year.

The discussion last weekend on the yearly price projections for the Dow Industrials spurred many email requests for a more in-depth discussion. The chart of the Dow shows that the pivot analysis based on the 2015 price ranges did a good job of identifying the Dow’s price highs and lows for 2016.

The close on January 6, 2016 at 16, 906 was well below the Yearly Pivot at 17,048 and just nine days later the Yearly S1 support at 15,746 was violated with the Dow trading below it for two days. The actual low for the year at 15,450 (point 1) was 1.3% below the yearly S1 support.  At the February 11th low (point 2) the Dow dropped briefly to 15,503 but one week later it closed at 16,413.

By early March, point 3, the Dow closed back above the yearly Pivot as it subsequently rallied 1000 points  to reach a high of 18,167 on April 20th. This was just below the Yearly R1 resistance at 18,727.  After the Brexit vote the Dow dropped to a low of 17,063 (point 4) but held just above the Yearly Pivot.

The Yearly R1 resistance at 18,727 was surpassed the week of the election (point 5) which made the next upside target at 20,029, the Yearly R2 resistance. The yearly high for the Dow at 19,987 was just 0.2% below the pivot R2 resistance.

For 2017, the pivot stands at 18,430 with the R1 resistance at 21,320 which is 7.9% higher than the 2016 close.  The Yearly S1 Dow support at 16,873 is 24.6% lower.

The gains of the small cap iShares Russell 2000 (IWM) in 2016 were impressive. The chart shows that the January plunge took the IWM to $92.21 which was just below the Yearly S2 support at $92.39. It was not until early June, point 2, that the Yearly Pivot at $114.17 was overcome. On the sharp drop in late June IWM held above the May low.

The Yearly R1 resistance at $123.42 was exceeded in September but was not convincingly overcome despite several attempts. The pre-election market correction dropped IWM to $114.41 which was just above the Yearly Pivot at $114.17. The close on December 8th at $137.47 was well above the Yearly R2 resistance at $135.95.

The 2017 Yearly Pivot analysis for IWM is at $121.99 with the R1 resistance at $151.07 is 12% higher than the 2016 close. On the downside the Yearly S1 support at $105.73 is 21.6% lower. The completion of the monthly trading range that I discussed in How High Can The Market Forecasts Go? has long term targets at $159.91 with major support in the $126 area.

The pivot analysis can be done on any time frame but I focus on the monthly, quarterly and yearly analysis.  I am currently working on a Trading Lesson that focuses on the yearly pivot analysis for the key market tracking ETFs and the major sector ETFs.

It will be sent out to subscribers of both the Viper ETF Report and the Viper Hot Stocks Report the week of January 9th.  It will also be sent out to all new subscribers who will also receive the biweekly reports. Each service is just $34.95 per month and can be cancelled on line at any time.

The Week Ahead: Too Many Stocks & Too Much Holiday Cheer?

Posted by on 6:31 pm in Uncategorized | Comments Off on The Week Ahead: Too Many Stocks & Too Much Holiday Cheer?

The Week Ahead: Too Many Stocks & Too Much Holiday Cheer?

The stock market was quiet ahead of the Christmas holiday which is not surprising as many investors and traders started their holiday early.  For the 2nd week in a row the Spyder Trust (SPY) has formed a doji which is a sign of indecision.

Clearly the enthusiasm over the Trump rally has waned over the past two weeks and the number of bearish articles has picked up. The concerns over the market’s health have again focused on the arguments that stocks are too expensive, sentiment is too bullish and the bull market is too old.

It is not surprising that some are starting to acknowledge some potholes on the yellow brick road. It seems as though some of the proposed cabinet members are behind schedule in the vetting process. Many believe that uncertainty has limited the economic recovery over the past few years so talk about increasing the nuclear arsenal and heightening tensions with China are not reassuring.

The better than expected 3.5% reading on 3rd quarter GDP did not give stocks much of a boost but the continued improvement fits in nicely with the bullish post-election scenario. Most economists are not that convinced as the Wall Street Journal’s survey of economists is looking for an average GDP growth of 2.2% in 2017 and 2.3% in 2018. They are looking for inflation to run at 2.2% and then 2.4% in  2018 with only a 19% chance of a recession.

The most popular reason that some feel stocks can’t go higher is based on the P/E ratio. Of course the debate on which P/E ratio is more accurate has not slowed down since October when I featured this chart comparing the views of Robert Shiller and Jeremy Siegel.

The post-election rally has triggered another dire warning from Nobel prize winner Shiller who warns that valuations are now near levels seen just before the 1929 crash.

As a market technician I do not focus on the P/E or other fundamental data as long as the bull market is still intact. The P/E worries will be right at some point but I believe the technical studies will warn of a bear market well ahead of the P/E ratios as they did in 2000 and 2007.

I do pay attention to the P/E of the key sectors and industry groups as those that are perceived to be cheap often have the best gains once the technical indicators give the signal. In my October 22nd column ” Market Insights From Past Election Years” I pointed out that for the Dow Jones Financial Sector ($DJUSFN)  ” 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.”

The updated chart illustrates the close on October 21st (line 1) as $DJUSFN dropped to a low of 436.78 just before the election  and closed on Friday at 507.43 as it is up over 16% from the low.  The DJUSFN has been testing its weekly starc+ band for much of the past six weeks so a pulback would not be surprising. The completion of its long term trading range has major upside targets in the 540-560 area which is 10% above current levels.

In last week’s in-depth report on S&P 500 Sectors & Industries Forward P/Es from Yardeni Research has the following forward P/E for the S&P 500 sectors. Three sectors stand out with forward P/E well below the 17.2 forward P/E of the S&P 500. The financials, health care and telecommunication sector have P/E’s that range from 13.7 to 14.4.

In the report they also provide the forward P/E ratios of the industry groups that make up each of these sectors. Those with the lowest P/E include life and health insurance (10.4), diversified financial services (10), biotechnology (11.8) and health care facilities (10.9).

These industry groups are more likely to be some of the favorites of money managers and funds as they look for bargains the New Year.

Though the health care sector still looks negative basis the weekly technical studies it has reached strong support. Some of these lower P/E industry groups may turn positive before their underlying sectors. These are likely to be some good buy candidates for Viper ETF clients.

The Economy

Last week’s data on Existing Home and New Home Sales suggests a positive 1st quarter for the homebuilders.  New Home Sales were up 5.2% while Existing Home Sales also beat expectations.

Despite the strong GDP report, Durable Goods were down 4.6% and the Chicago Fed National Activity Index came in weaker than expected. The Leading Indicators were unchanged in November  which is not yet indicating strong growth in the first half of 2017.

On Friday Consumer Sentiment came in strong at 98.2 which was a bit better than the consensus estimate. The Consumer Confidence is out on Tuesday and the long-term chart shows a clear uptrend.   Retail Sales are still holding in positive territory but it needs to move through the long term resistance at line a, to signal a major breakout.

Also on Tuesday we get the S&P Corelogic Case-Shiller Housing Price Index, the Richmond Fed Manufacturing Index and Dallas Fed Manufacturing Survey. On Wednesday we have the Pending Home Sales followed on Friday by the Chicago PMI.

Market Wrap

The Dow Industrials failed to surpass the widely watched 20,000 area though it did have an intra-day high at 19,987 on Tuesday. All of the major averages were higher led by a 054% gain in the small cap Russell 2000 and 0.46% gains in the Dow Industrials and Utilities. The S&P 500 was up 0.25% and advancing stocks led the decliners 1815 to 1289.  On Friday the volume was the lowest since the 2014 holiday.

The seasonal trend does favor higher prices next week as the S&P has gained over 1% during the last five days of the year since 1928. The NYSE Composite formed a doji last week and it is still below the resistance from the 2015 high, line a.

The NYSE A/D line broke through its resistance, line b, a few weeks ago which is a bullish sign. It does favor an eventual breakout above the 2015 highs. The weekly A/D line is holding above its WMA which is rising. The daily NYSE A/D line made a new high last week as it was stronger than prices.

The daily chart of the Spyder Trust (SPY) shows a short-term consolidation pattern that could be setting the stage for another push to the upside before the end of the year. The daily starc+ band is at $228.66 with monthly pivot resistance at $230.31.

The rising 20 day EMA is at $224 and there is a band of much stronger resistance, line a, in the $218-$220.50 area. The daily S&P 500 A/D also shows a short term trading range and if the rising 20 day EMA is violated there is stronger support at line c.

The Nasdaq 100 and Russell 2000 A/D lines are still acting positive as they are well above their rising WMAs.

What to do?   The technical readings and strong seasonal tendencies allow for another push to the upside as we head into the New Year. This could push the Spyder Trust (SPY) 2-3% higher and move the Dow Industrials well above the 20,000 level.

If the stock market does move to further new highs then it is likely more vulnerable as we start off the New Year. Many investors have likely held off selling because they hope for more favorable tax treatment in 2017. Also they may realize that they spent too much over the holidays and may have too many stocks.

Should the SPY reach the $230 level a drop back to $220-222 would not be surprising which would be a correction of 3-4%. Given the strong signals from the weekly and monthly A/D lines such a correction should be a buying opportunity for both traders and investors.

The recent surge in bullishness has made investors and traders less cautious. Some are buying stocks before they bottom or are holding on to stocks after they have topped out.  Not all stocks go up even in a strong market.

For example new short positions in MarketAxess Holdings (MKTX) at $162.26 were recommended in last Monday’s Viper Hot Stocks Report . This was based on the prior week’s close and doji sell signal along with the negative readings from the relative performance analysis. It closed down 8% for the week and after an oversold bounce it can still go lower.

This illustrates the importance of doing a careful technical review of any stock or ETF before you take a position. Once the market does correct or consolidate investors who are looking at the intermediate term should favor well-diversified ETFs that have a low expense ratios.

The Week Ahead: How High Can The Market Forecasts Go?

Posted by on 7:13 pm in Uncategorized | Comments Off on The Week Ahead: How High Can The Market Forecasts Go?

The Week Ahead:  How High Can The Market Forecasts Go?

The one-day market decline on the long awaited Fed rate hike was well supported even though the potential plan for three hikes in 2017 rattled a few investors.  The market bulls are still clearly in charge with the financial media beating the drums with a fervor that has not been seen in some time.

Even though there is no reason to doubt the market’s rally right now anytime the financial press chants “no reason to sell” I do get nervous. Typically it would take a 3-5 day decline to change the tune of the headline driven financial press but without a correction the bullish commentary still dominates.

Clearly the market sentiment has seen a dramatic shift.  In my column published last August “What’s Missing From This Bull Market?”  I focused on the fact that throughout the bull market there had not been a period of investor euphoria. This goes back to the famous quote from legendary investor John Templeton that bull markets “die on euphoria.”

The psychology of a market cycle is nicely illustrated in the chart above and typically the euphoric phase is accompanied by greater individual participation in the stock market. The most recent data suggests that a large percentage is still not invested in stocks but the interest has clearly increased.

According to AAII the most recent survey of individual investors 44.7% are now bullish but only 23% were bullish before the election.  The bearish % stands at 32.3% and is well above the extreme low in the 20% area.  The professionals have also become much less bearish as the very high cash levels have dropped significantly in the past month.

It should be no surprise that the forecasts from the major Wall Street strategists have seen a major turn. Seasoned investors but not all columnists realize that these forecasts often go through dramtic changes during the year.

Frankly these forecasts do not play any role in my outlook and I often use them as a contrary indicator. In August I commented that “The new high in the major averages and leading action of the advance/decline lines has still not convinced everyone of the positive market outlook as Goldman Sachs advised their clients on August 1st to “avoid all stocks for the next three months”. They are also sticking with their year-end target for the S&P 500 at 2100 which is 3.7% below current levels.”

This table from the Wall Street Journal  reveals their forecasts for 2017 and the high end at 2400 for the S&P 500 would imply just a 6.6% rise from current levels. If you want to learn more about the accuracy of their forecast I would suggest you read this excellent New York Times article by Jeff Sommer.  In reviewing the strategist’s forecasts he quotes independent statistician Salil Mehta “It’s not easy to be as bad as they are.”

The post election rally is not unprecedented as the Wall Street Journal pointed out (Stocks’ Biggest Postelection Rally Ever) there have been “five other instances in which the Dow jumped at least 5% in a five-week period following a presidential election.”

The most recent example occurred in 1996 as the Dow Industrials rallied from 6081 on November 5th to a high of 6606 on November 26th which was a gain of 8.6%. This was followed by a fourteen-day correction of 6% before the Dow again turned higher.

By March 1997 the Dow had reached a high of 7158 which was a gain of 17.7% since the election.  After dropping 11.7% in the next five weeks the Dow bottomed in April before rallying another 32% before it topped in August. From the close on Election Day to the close on August 6, 1997 the Dow rallied 35.8%.

It should be pointed out that in September 1997 the Dow had already broken out of an eight-month trading range, lines a and b. The upside target from this trading range was at 6600 which was exceeded in January.

As the Dow approaches 20,000 there have been some articles discussing upside targets for the Dow at 40,000. This view was promoted in 2000 in books by Harry Dent and David Elias as both suggested the Dow could go that high. Harry is known for his outside the box forecasts as he has incorrectly forecast several dramatic rallies and declines since 2000 in his many very popular books.

On CNBC last week, as well as on many other platforms, John Spallanzani from GFI discussed why the Dow could hit 40,000 in the next five years.  It is the Republican control of both Congress and the Presidency that leads to this bullish forecast as the Dow is expected to gain 15% a year until it reaches 40,000.

The more important question for investors is whether they can benefit from these long-term forecasts?  I would argue that they do more harm than good as I have found that too many investors and traders focus on the potential reward of every investment and not the risk.

Also the poor performance of hedge funds has reinforced my long held view that for most individuals basing your investment on a macro view of the global economy and markets is not a good idea. It is also the reason that I do not support those who want to force the Federal Reserve to stick to a pre-determined economic plan as opposed to adapting to the economy the Fed  is facing. Each recession and economic recovery are different and cannot be defined by set rules.

Investors and even traders should concentrate on determining whether the economy is expanding or contracting as well as whether the S&P 500 is in a bull or bear market.  As long as the economy is expanding and stocks are in a bull market investors should be in the stock market.

Since the spring of 2009 my stock market outlook has remained positive as my unique analysis of the advance/decline data has shown no negative signs as it did in 2007.  During the same period my analysis of the economy has never indicated that we have dropped back into a recession. As many may recall in in 2010 and 2011 there were periods when many felt that a recession was inevitable.

In terms of price targets I only discuss price targets that are based on the charts or technical analysis.  The current weekly chart of the Dow Industrials shows that the trading range, lines b and c, was completed in July.  Using the width of this trading range one obtains an upside target for the Dow at 21,332, line a.

The similar trading range in the S&P 500, lines c and d, has upside targets at 2456. This is 8.5% above Friday’s close which is not an unreasonable target in 2017.  The longer-term monthly chart shows the eighteen year trading range (lines a and b) that was completed in May 2013, point 1.

When there is an increase in bearish sentiment, as there was last summer, I have told investors to focus on the bullish nature of this breakout. The upper boundary of this range was 1576 and the lower end was at 666. Therefore the width of the formation was 910 points. This added to the breakout level of 1576 results in an upside target for the S&P 500 at 2486. It is likely significant that these two target levels derived from two different ranges are so close together.

The iShares Russell 2000 (IWM) is up 17.6% since the election as the markets are convinced that the small cap stocks will benefit the most from the Trump presidency.  The monthly chart shows that a broad trading range, lines b and c, developed in 2015 and 2016.

The November close at $131.61 completed the trading range and Viper ETF traders bought on December 5th at $131.95. The completion of the monthly range has long-term targets at $159.91, line a, which is over 17% above current levels.

The monthly Russell A/D line broke through its resistance, line d, last summer. The A/D line made a new high in November and is on pace to make another new high in December. The weekly and daily A/D lines are also in solid up trends and show not clear signs yet of even a short-term top.

This analysis does not mean the Dow will not reach 40,000 but if it does there should be meaningful corrections along the way.  This chart from dshort.com  shows the eight meaningful corrections since the bear market low in 2009. During the market euphoria that occurred from the 1996 election until March 2000 high there were a number of market corrections including the 22% drop in 1998.

It will be important for investors to use technical analysis including relative performance and on-balance-volume (OBV) to target those ETFs and stocks that are leading the market higher. Over the past few weeks there has been a rotation into sectors that had been lagging the market.

The Economy

There was a flood of economic data on Wednesday along with the FOMC announcement.  The headline Retail Sales number came in below expectations at 0.1% as a drop in auto sales had a big impact. Industrial Production and Business Inventories were also lower than the consensus estimates.

The Philadelphia Fed Survey came in strong at 21.5 which was well above the consensus estimate of 10.  The chart had formed higher lows over the past year, line a, prior to the recent surge. In the report “Manufacturers were much more optimistic about growth over the next six months.” The Empire State Manufacturing Survey was also strong and the flash PMI Manufacturing Index increased over the past month.

Builders are also quite bullish despite the increase in mortgage rates as the Housing Market Index rose to 70 from 63 the prior month.  The volatile Housing Starts Friday dropped 18.7% in November but this is typically a wide-ranging data series.

On Monday we get the flash reading on PMI Services followed on Wednesday by the Existing Home Sales Index. The main data is on Thursday with Durable Goods, GDP, the Chicago Fed National Activity Index and Leading Indicators. Friday we have the New Home Sales and Consumer Sentiment reports.

Interest Rates & Commodities

The yield on the 10 Year T-Note continued to surge last week, closing at 2.597%. The next widely watched target is in the 3.00% area.  Bonds are very oversold and the rise in yields has stretched the rubber band tight.

Crude oil closed higher but off Monday’s highs. The HPI did make a new high for the year. While several CNBC pundits say crude oil can’t overcome the $56 level the technical outlook suggest it can. Anytime someone in the financial media uses never or always I become skeptical.

Gold was crushed in reaction to the stronger dollar and looks ready to test the late 2015 lows.

Market Wrap

The major averages made their highs Tuesday but most other than the Dow Industrials closed the week lower.  The Dow Transports, which had led the market higher, closed down 2.5% followed by a 1.7% drop in the Russell 2000. The S&P 500 was down a fraction while the Dow Utilities were up 1.8%.  For the first time in many weeks the declining stocks led the advancing ones by a 2-1 margin.

The weekly chart of the Spyder Trust (SPY) shows that a doji was formed last week. The doji low was $224.05 so a close this Friday below this level will trigger a doji sell signal. The chart shows a well-defined trading channel, lines a and b, as the SPY came close to the weekly starc+ band last week. It now stands at $228.94.

There is minor support now at 222.84 and the rising 20-day EMA with more important in the $220.50-$221 area. The 38.2% Fibonacci retracement support from the November 4th low is at $219.38.  The weekly S&P 500 A/D line has turned lower but is well above its now rising WMA. There is major support at line c, which was former resistance.

The NYSE Composite came close to the 2015 high at 11,254 (line a) before it turned lower. The 20 day EMA and lower starc- band are now in the 11,000 area with further support at 11,908 which is 2% before Friday’s close.

The NYSE A/D line pulled back to its WMA on Wednesday before it turned higher.  A drop below the WMA and the support at line c would make a more complex correction likely. A convincing drop below the early December lows would be a sign of more weakness. The weekly A/D line did make a new high with the close on 12/9.

What to do?   The lower close last week increases the odds that we will see an overdue pullback. Many of the averages do not have to drop much before they reach good support.  I would expect that even if there is not much of a pullback the sector rotation will occur.

There are a number of ETFs that have not participated in the post-election rally and they are now closer to more important support. Several of the more defensive sectors bottomed a few weeks ago and did perform well this week.

Those who are not in the market should start a dollar cost averaging program is the market continues to correct or starts to move sideways. Look for a well-diversified ETF that has a low expense ratio.

Viper ETF clients are long a number of different sector ETFs and have open orders to by several on a further pullback before the end of the year.

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 an equal number of new buy and sell signals after last week which will be examined for new recommendations.

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 lessons and subscriptions can be cancelled anytime online.

 

 

 

 

 

 

 

 

 

 

The Week Ahead – The Markets According To Trump

Posted by on 11:03 pm in Technical Analysis | Comments Off on The Week Ahead – The Markets According To Trump

The Week Ahead – The Markets According To Trump

For investors 2016 is likely to be the best Christmas in many years especially in light of how the year started out. The stock market’s perception of how stocks will benefit in the new Trump world has clearly caused a stampede into stocks.  A several billion-dollar buy program hit the market last Wednesday afternoon which triggered one of strongest daily gains.

The focus has been on the Dow Industrials as a number of traders were wearing their Dow 20,000 hats on the NYSE floor last week. Until last week the Dow’s rally has been narrowly based as according to Paul Hickey from Bespoke ” The top five stocks account for 700 of the just under 1,300 gain” with Goldman Sachs (GS)  contributing 400 points or almost 1/3 of the Dow’s gain.

With Caterpillar (CAT) the Dows best YTD gainer up over 47%, there are four Dow stocks, Nike (NKE), Cocas-Cola (KO), Pfizer (PFE) and Disney (DIS) are all still down for the year. Disney has regained much of its losses as it is now up over 12% this quarter.

The weekly chart of Goldman Sachs (GS) shows that it broke its weekly downtrend in August, line a, when it closed at $162.11. The weekly relative performance completed its bottom on October 14 (line 1) as the RS broke its downtrend (line a). This was confirmed by the move in the RS above resistance at line c. It is up 33% since the election.

The stock is now very close to its all time high of $247.92 from the end of October 2007. Now maybe the stock ‘s strength is based on the anticipation that deregulation will make GS even  more profitable than it was in 2007. Of course it is also possible that the stock is rising because of the influx of Goldman executives into the new Trump administration. On a personal note  I am not in favor turning the Treasury Department over to another Goldman employee as their past performance has been less than impressive.

Now either explanation could be bullish for the stock of Goldman Sachs but does that mean you should now jump into the stocks that have been leading the Trump rally? The powerful action last week (see Market Wrap) does favor even higher prices as we head into the end of the year but things may be different as we move into 2017.

In my many years observing and investing in the stock market I have found that getting into crowded trades has generally turned out badly.  Instead those markets that are out of favor generally have a much better risk as well as reward profile.

The dismal performance of hedge funds who often pile into the same trade is an example of how this approach does often not work.  Financial stocks make up about 12.8% of the S&P 500 while information technology makes up more that 21%.  Health care makes up 14.7% and it could bottom in the coming weeks.

The beaten down consumer staples sector has a weighting of 9.9% but it is only up 4.8% YTD.  Both the Technology Sector Select (XLK) and Consumer Staples Sector Select (XLP)  have been recommended to Viper ETF traders.

Both were recommended with just a 5% initial risk while buying the SPDR S&P Regional Banking ETF (KRE) now would require a stop under the four-week lows and a risk of 11.5%. The Viper position in KRE, as discussed in last week’s trading lesson “Developing An Exit Strategy”, were sold a few weeks ago but even though I got out early I prefer selling into strength.

For those of you who are dying to jump into this market I would continue to recommend you favor those out of favor stocks or ETFs where the technical studies are turning positive.  I would also caution you not to alter your regular risk management approach to investing or trading. When a portfolio takes a  big hit after chasing a market it can have a long-term impact on performance. I also know that even the best laid plans of a new president are difficult, if not impossible to implement.

The S&P 500 has already exceeded most targets from Wall Street strategists as their average year-end target was 2146. It has certainly been a choppy year for the stock market despite the positive long-term readings from the advance/decline lines.

In an early June column I focused on the upside breakout in the monthly A/D line. It turned up in November and is on pace to make another new highs in December. The NYSE Composite is now just below the 2015 high, line a.

I concluded then that the “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.”

Even though a large number of reliable technical measures entered overbought territory a couple of weeks ago that has not stopped the market from moving even higher. A move in the Dow above 20,000 is a real possibility before Christmas but it will be more difficult for the S&P 500 to overcome the 2300 level.

Looking at the Wall Street strategists forecasts for 2017 the average target is at 2345 which is 3.9% above Friday’s close.  In my view the S&P 500 is likely to trade as high as 2400 and as low as 2120 in 2017 but I have no idea where it will close.

The latest reading from AAII shows that 43.1% are now bullish which is down from 49.9% two weeks ago. It is still below the long-term average at 38.4% but has not yet hit extreme levels above 55%. The bearish % rose to 26.4% as it is up from a recent low of 22.1%.

It should not be a surprise that CNN’s Fear & Greed Index is at 86 indicating extreme greed which is up from 42 and fear territory just a month ago. The longer term chart shows that is peaked near 90 during the summer and then dropped to 20 just before the election

There were a large number of large hedge fund managers that were bearish at the end of the summer and so far not many have changed their position yet.  In September I felt that their high profile negativity was bullish not bearish for stocks.

Many columnists used their negative outlook to support their own bearish forecasts as one commented that all of these big, smart traders couldn’t be wrong. I would be a more concerned if the perma bears, like Marc Faber or Peter Schiff, finally turned bullish on stocks.

The analysis of the small cap S&P 600 reveals that the 5-day MA of the % of stocks above their 50 day MA has risen to 81.90%. It is now very close to the April and July highs as it is one STD above the mean at 52.83%.

In contrast the same analysis of the Nasdaq 100 shows that only  57.7% are above the 50 day MA which is just above the mean at 53.6%.  The 5-day MA peaked well above the 80% level earlier in the year. For stocks pickers and subscribers to the Viper Hot Stocks Report this means that there should be more good stocks to buy.

The Economy

The strong economic data last week helped support the market’s bullish tone. Data on the service sector was strong last Monday as both the PMI Services Index and the ISM Non-Manufacturing Index are indicating strong growth.

Factory orders were up 2.7% in a mid week report but Friday’s sharp increase in the  mid-month reading on Consumer Sentiment to 98 really cheered stock investors as we head into this week’s FOMC meeting.

The economic calendar is full this week as in addition to the FOMC announcement Wednesday we have the PPI, Retail Sales , Industrial Production and Business Inventories. They are followed on Thursday by the CPI, Philadelphia Business Survey, Empire State Manufacturing Survey and the Housing Market Index.

On Friday we get the latest data on Housing Starts and quadruple witching which is the expiration date that includes stock index futures, stock index options, stock options and single stock futures.

Interest Rates & Commodities

Both short and long-term yields continued their dramatic rise heading into the FOMC meeting. It is hard to quantify how much of the decline in bond prices has been in reaction to the hiking of rates this week.  Certainly the change in rates seems to be pricing in a series of rate hikes in the year ahead. Bond traders may have bought the rumor but will they sell on the news?

The rise in the yield of the 30-Year T-Bond yield has been more relentless than I expected  as it has moved well above the 3% level in the past four weeks. The downtrend from the 2011 and 2014 highs, line c, has now been broken.  The next major resistance is in the 3.85-4.0% area, line b, with additional chart resistance above 4.5%, line a. Yields are well above the rising 20-week EMA at 2.683%.

The last equally sharp rise in yields occurred in 2012 as yields moved from 2.50% to 3.90%. A similar rise in yields now could take yields to the 3.50% area.

The February crude oil contract has soared from the early November lows and now looks ready to break out of its trading range, lines a and b.  This has upside targets in the $60 area. The HPI formed a bullish divergence at the low, line d, that was confirmed by the break through major resistance at line c.  It is acting stronger than prices and traders bought the energy ETFs on the November 29th drop.

Market Wrap

For the second week in a row the gains last week were broadly based with 2451 advancing stocks and just 666 declining.  Both the Dow and S&P 500 were up just over 3% while the Russell 2000 was up an impressive 5.6%. Even the previously lagging Dow Utilities were up over 2%.

In terms of sectors both the financial and technology stocks were up strong, up 4.6% and 4.3% respectively. Telecommunications, consumer goods, basic materials and consumer services were all up over 3% while health care gained just 0.64%.

The NYSE Composite finally overcame the resistance at 11,000 and is now just below the 2015 high at 11,254, line a. The NYSE has been lagging the other major averages and is now starting to catch up. The weekly NYSE A/D line shows a bullish zig-zag formation as it has turned up after testing its WMA.

The NYSE has closed above the daily starc+ band for the past three days  and the daily A/D line is now well above its rising WMA. The McClellan oscillator turned down on Friday after making a marginal new high last week.

The red hot iShares Russell 2000 (IWM) had another good week though it did form a doji  at monthly pivot resistance on Friday. The close was also above the daily starc+ band.  The daily doji a week ago set up a good buy on Monday’s open for Viper ETF traders.  There is extended monthly pivot resistance now at $146.

A daily close below $137.75 will trigger a daily doji sell signal but there is good support now at $134-$135 with the 20 day EMA at $131.81.

The daily and weekly A/D line analysis is positive on the SPY, QQQ and DIA as the Dow Industrials A/D line has finally overcome its major resistance.

What to do?   As the major averages continue to power to the upside many who are underinvested in stocks wish they had more. I think the main danger now is that investors may jump into stocks once they see how poorly their bond funds have done this year. Even though it is not easy I think a patient approach will be rewarded as yields are likely to turn lower in the next month.

In April I suggested that “those who were not invested 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).’

Though these ETFS are much higher now this I think is still the best approach for those not in the market.  As I mentioned earlier there are still some ETFs that are still declining or have just bottomed and the risk on these ETFs is more reasonable.

Though it may be surprising there are a number of stocks that are trading near their yearly lows and just need a strong close on good volume to complete their weekly bottom formations. I am looking for stocks like this to recommend to the Viper Hot Stock clients.

The Week Ahead: Risk Control In A Trump Market

Posted by on 12:13 pm in Uncategorized | Comments Off on The Week Ahead: Risk Control In A Trump Market

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.

wa11-25a

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%.

wa11-25b

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.

wa11-25c

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.

wa11-25d

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.

wa11-25e

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.

wa11-25f

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.

 

The Week Ahead: Buy, Sell Or Hold?

Posted by on 5:45 pm in Stock market strategies, Technical Analysis | Comments Off on The Week Ahead: Buy, Sell Or Hold?

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.”

wa11-18a

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.

wa11-18b

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%.

wa11-18c

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.

wa11-18d

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

wa11-18e

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.

wa11-18f

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

wa11-18g

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.

wa11-18h

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.

wa11-18i

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.

wa11-18j

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.

The Week Ahead: Investors Dodge A Bullet

Posted by on 12:07 pm in Uncategorized | Comments Off on The Week Ahead: Investors Dodge A Bullet

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.

wa11-11a

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.

wa11-11b

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.

wa11-11c

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.

wa11-11d

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

wa11-11e

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.

wa11-11f

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.

wa11-11g

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.

wa11-11h

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.

 

The Week Ahead: A Trick or Treat Market?

Posted by on 2:10 pm in Stock market strategies, Technical Analysis | Comments Off on The Week Ahead: A Trick or Treat Market?

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.

The Week Ahead: Market Insights From Past Election Years

Posted by on 3:37 pm in Stock market strategies, Technical Analysis | Comments Off on The Week Ahead: Market Insights From Past Election Years

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.