About Andrew Thrasher

Andrew Thrasher, CMT is an Investment Analyst for an asset management firm in Central Indiana. He specializes and writes about technical analysis as well as macro economic developments.

Weekly Technical Market Outlook 4/21/2014

I hope everyone had a good weekend and a Happy Easter. I was out-of-town visiting family this past weekend so I did not have time to write a full Technical Market Outlook, but I do want to share a few thoughts….

-With the bullish move we had last week the trend of the S&P 500 ($SPX) is back above its 20-day and 100-day moving averages. The 100-MA has been an important level of support for the current up trend and it was good to see it hold on that short-term drop.

-Breadth has improved along with momentum as the Relative Strength Index held the level of support I mentioned last week. The NYSE Advance-Decline Line hit a new high but the Common Stock-Only Advance-Decline Line has yet to break out.

-This week I’ll be keeping a close eye on commodities. Specifically the PowerShares Multi-Sector Agriculture ETF ($DBA), which is closing in on its March high of about $29. I’m looking to see if ag commodities can break out or if the divergence that may be developing in momentum and volume keep this asset class from experiencing a second leg higher.

Be sure to check back later this week I’ll have some more content up on the blog. Have a great week!

Disclaimer: Do not construe anything written in this post or this blog in its entirety as a recommendation, research, or an offer to buy or sell any securities. Everything in this post is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in the blog. Please see my Disclosure page for full disclaimer. Connect with Andrew on Google+, Twitter, and StockTwits.

Did We Just See A False Break in Emerging Markets?

Last Friday I tweeted out this chart that shows the ratio between the iShares Emerging Market ETF ($EEM) and the S&P 500 ($SPY). I noticed that the ratio was approaching previous support as shown by the red arrows and the blue line. This was an important juncture for emerging market bulls, they needed to break this level to keep the music playing.

Well it seems the bears bulled the plug as the ratio between emerging markets and the S&P 500 produced a false break as it made an attempt to keep from turning previous support into resistance. At the same time we saw the relationship’s Relative Strength Index (RSI) work off ‘overbought’ status which is a sign of heavy buying as traders pushed up the relative performance of $EEM against $SPY. Going forward I’ll be watching to see if we get another rest of this resistance or of we see emerging market once again under perform U.S. equities and we get a re-test of the March low.

EEM SPY

Disclaimer: Do not construe anything written in this post or this blog in its entirety as a recommendation, research, or an offer to buy or sell any securities. Everything in this post is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in the blog. Please see my Disclosure page for full disclaimer. Connect with Andrew on Google+, Twitter, and StockTwits.

Weekly Technical Market Outlook 4/14/2014

Selling continued last week with the Nasdaq taking the brunt of the damage being off 3.10%, the S&P 500 down 2.65%, and the Dow down 2.35%. While the selling continued into the final hours on Friday, it appears the selling was strongest on Thursday, where we saw a larger share of volume and issues declining compared to Friday. We closed out the week with the S&P 500 under its lower Bollinger Band. We saw this occur four times in January before the buyers stepped back in and took the equity index higher.  At the end of trading on Friday we had six of the nine S&P sectors trading under their 50-day Moving Averages, at the January low all but utilities were under their respective 50-day MA.

Equity Trend

With last week’s selling we saw the S&P 500 break through the level of support I highlighted last Monday as well as its 100-day Moving Average. We are still 15 points away from the up trend that’s kept many traders bullish for the last five months. If we see the S&P continue to fall, I’ll be watching this trend line as the next level of potential support.

Trend

Volatility Backwardation

On Friday I tweeted out a chart of the $VIX futures curve and mentioned that April prices were now trading at a premium to May and June, which puts the $VIX into backwardation. This typically happens when option traders become more fearful of short-term volatility than longer-term price swings and has been a fairly good indicator of short-term bottoms in the equity market. Below is a chart of the ratio between the one-month $VIX and the 3-month $VIX in histogram form. When a bar breaks above 1.0 we know that the 1-month is trading above the 3-month (i.e. backwardation).

BackwardationS&P SKEW

Sticking with our fear/risk theme, I noticed an interesting development in the S&P SKEW index. SKEW attempts to measure the ‘tail risk’ within the options market. As the chart below shows, we’ve seen spikes in SKEW prior to previous short-term declines in the S&P ($SPX). For instance we saw a break of 135 prior to the drop in 2012 and more recently we saw SKEW begin to rise again over 135 in December, January, and February. However, we did not see SKEW rise prior to or during the most recent bout of equity weakness. It does not seem that option traders felt this was going to be a 2+ standard deviation event – we’ll see if they were right.

SKEWEquity Breadth

The short-term up trend I’ve been discussing in the Advance-Decline Line has now been broken. While the S&P is under its March low, the A-D Line is still above its March low when looking at all NYSE issues. Although when we focus on just NYSE common stock, it has broken through its respective March low – confirming the weakness in the overall equity market.

equity breadthEquity Momentum

With respect to momentum, we are at an important juncture for the Relative Strength Index. For the duration of the 2013 and start of 2014 up trend the RSI indicator has held above the 35 level, which is the lower end of the bullish range for this momentum indicator. With selling on Friday the RSI is now at 38, just a few points above this critical level of support.

We had a momentum break support in January before buyers rushed back in and took stocks higher but did not push the RSI over 70, this was the first chink the bulls armor. If we see another break under 35, after the Relative Strength Index was unable to get into ‘overbought’ status then we may see the creation of a bearish range as the current short-term correction develops into something more serious.

Momentum

Crude Oil

With oil being in its historically bullish seasonality time period, it is also testing its falling trend line resistance. In March we saw oil drop and test its 100-day Moving Average, creating the lower end of a symmetrical triangle pattern. If price of crude oil can break this trend line resistance then we’ll also need to quickly see a break of the previous short-term high around $105.

Crude Oil

60-Minute S&P 500

In last week’s Technical Market Outlook I discussed the rising trend line off the February and March lows, which is where we had finished up trading two weeks ago. This level eventually broke and support became resistance when buyers attempted to regain control last Wednesday. This sent prices lower and the Relative Strength Index once again sits in ‘oversold’ territory as sellers overwhelmed buyers. We now have a lower-high as a down trend on the 60-minute chart is created. If we see buyers step back in this week then this trend line and the 50-1hr MA will likely be important levels to overcome.

60minLast Week’s Sector Performance

Utilities ($XLU) continued to lead last week with traders seeking shelter in the ‘risk off’ sectors of $XLU and consumer staples ($XLP). Interesting enough, health care ($XLV) was the second worst performer last week, largely due to its near 20% biotech weighting. Finally, financials ($XLF) was the worst relative performance sector last week.

Week Sector

Year-to-Date Sector Performance

I could pretty much copy and paste this portion of the Technical Market Outlook since it doesn’t seem to be changing very much this year. Utilities ($XLU) continue to lead while health care ($XLV) is still the second strongest, it’s lost much of its gain as biotech pulls it lower. Just three sectors are under-performing the S&P 500 YTD, with consumer discretionary (cyclicals) ($XLY) leading the pack of losers.

YTD Sector

Major Events This Week

This week we get another set of inflation data with the CPI report on Tuesday. Import and export data out of China has been weakening so it’ll be interesting to see what the Industrial Production numbers look like on Wednesday and if U.S. manufacturers are seeing any of the ripples from overseas.

Monday: Retail Sales
Tuesday: Consumer Price Index
Wednesday: Housing Starts and Industrial Production
Thursday: Jobless Claims
Friday: Market is closed

 

Disclaimer: Do not construe anything written in this post or this blog in its entirety as a recommendation, research, or an offer to buy or sell any securities. Everything in this post is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in the blog. Please see my Disclosure page for full disclaimer. Connect with Andrew on Google+, Twitter, and StockTwits.