About Andrew Thrasher, CMT

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

The Stock Market’s Drop Hits 2011 Levels

When looking at the market, moving averages are often used to help define trends and locate levels of possible support and resistance. Momentum indicators are also used to evaluate the ‘health’ of market trends and determine whether they are sustainable.

And both of these stock market indicators bear importance for active investors, especially in this current environment that is marked by selling pressure. Let’s take a look at a couple of these indicators in greater depth.

Keep Reading: Two Stock Market Indicators That Highlight ‘Selling’ Environment (See it Market)

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.

That Was Unlikely The Market Top & Where I See Things Going From Here

Last week was interesting to say the least. We haven’t seen that kind of selling like we did on Friday in a few years. I think many felt shocked by it because they have become numb by the lack of downside volatility in U.S. equities. We’ve been in a well-defined range for the bulk of 2015 and that provided some comfort for some traders. Did they think it would last forever? Come on.

At the end of July I wrote a post, The Greatest Risk of A Market Peak Since 2007. I laid out some of the troubling signs and charts I was seeing in the market. I ended that post by saying that the next step would be for price to ‘respond’. You could argue last week was that response. The Dow is now in “correction” territory and the S&P 500 broke past various previously important levels of support. So now what?

This is what I tweeted last night while many on social media and the major networks were starting to freak out because Asian markets were selling off and U.S. futures had turned red. I could be totally wrong, but it’s one scenario I could see playing out…

Friday’s selling has pushed a lot of market indicators into ‘oversold’ territory and triggered signals that have previously led traders to buy dips. Muscle memory is going to want to take over for mean-reversion traders this week. I’ll be watching to see if they can gain any control.

As I said above, we’ve broken support in the major indices. This is troubling and will cause sell orders to be placed. Weak hands and skittish investors will narrow their investment time horizon from years to minutes. This will likely push prices lower Monday and maybe Tuesday. The discussion will be over China, the Fed, and/or some random piece of economic data. More likely than not we see some whipsawing, possibly some lower lows in price. If we’re lucky maybe a positive divergence will come out of it…. and maybe not, maybe we do just the opposite, I’ll be watching market internals and price action to get a better idea of what’s happening. But from first blush, the selling last Thursday and Friday was too strong to maintain.

So you’re still concerned that we are near a market peak? We’ll lets play that scenario out. If we are (and who am I to say we aren’t?) at a market top then the first order of business would be creating a lower high, meaning a bounce would still be likely to come within the next couple of weeks. The levels of support that have been broken would likely get tested as resistance and fail. That’s what the bears will be looking for. There’s your worst case scenario – a rise in price that fails at prior support.

I’ll leave you with this great quote from Aaron Brown, Risk Manager for AQR Capital Management from a recent interview with Futures Magazine:

“There are 350 trading days until the 2016 elections. Historically, 32% of trading days were more than 10% below the peak of the last 350 days. I have no strong reason to think the next 350 trading days will be significantly different from history in this respect, so I think there’s a 32% chance that the S&P 500 on November 8, 2016 will be more than 10% below its peak from now until then.”

 

That’s how someone who manages risk looks at the market…. with math and probabilities not emotion.

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.

Can Solar Bounce From Here?

As the energy space as a whole has taken quiet a beating this year solar has been no exception. I try to not get caught up in the debate over the implications of the drop in oil prices impact on the solar market and whether the demand drops as crude becomes cheaper. My focus is, as always, price action.

When looking at the Guggenheim Solar ETF ($TAN), price is currently testing a level that has acted as support over the last several years. Price has found buyers at $32 during the last couple of touches at this level, will price react the same this time as well?

I’ve highlighted the support around $32 for $TAN in the chart below as well as the double top that took place earlier this year at $50. What I also find interesting is the 200-week Moving Average. While it has declined over the last two years it’s has also provided a degree of support to price when the two have come in contact. The 200-week MA is just below our price support level and is also beginning to level off and rise higher.

Turning the focus to momentum… The Relative Strength Index (RSI), as shown in the bottom panel of the chart, is very close to reaching a ‘oversold’ reading which could draw some buyers in looking for a mean-reversion. If we were to look at the daily chart of $TAN we would see signs of a bullish divergence being created between the RSI indicator and price. This is accomplished by momentum putting in higher lows while price creates lower lows – a positive sign for a potential bullish price reversal.

TAN

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.