Weekly Technical Market Outlook 6/9/2014

It’s great to see the S&P 500 ($SPX) hit new highs and actually be accompanied by signs of bullish confirmation. This wasn’t a luxury we had very often in 2013. While I think it’s possible we see some form of consolidation or short-term weakness, the bull market appears to be well intact.

Now speaking of potential short-term weakness, 75% of the data sets that make up my mean-reversion indicator flipped negative on Friday. Three of the past four instances I’ve seen this negative of a reading proceeded declines in the S&P 500 ranging from 10% to 17%. I view this as a window opening for the bears to jump through, it’s just a matter if they decide to take it, which requires price to begin to confirm.

Trend

Another new high keeps the trend in the S&P 500 ($SPX) positive. The index sits firming above its 20-day and 100-day Moving Averages as well as its trend line drawn off prior lows.

Trend

Breadth

As I mentioned in the first paragraph, with the new high we saw a host of confirming market internals. One of which is the Common Stock-Only Advance-Decline Line. This measure of breadth closed out the week on strength right along with the equity index. The Percentage of Stocks Above Their 200-Day Moving Average, while not at a new high, has been rising steadily from its most recent low made in May.

Breadth

Momentum

Last week I discussed how the Relative Strength Index (RSI) had broken above its falling trend line, which while bullish did not invalidate the negative divergence that had developed. However, on Friday we saw the RSI close above 70, which does in fact end the divergence that had been plaguing us for the last five months. The weekly RSI also broke above 70 which is bullish as buyers maintained control and prevents a negative divergence from developing on the longer time frame.

We did see the Money Flow Index break above its ‘overbought’ level, which has brought about some short-term consolidation or drops, which wouldn’t be much of a surprise as just like California Chrome, every horse needs to take a breather.

Six of the nine S&P sectors also have their daily Relative Strength Index’s above the ‘overbought’ 70 level. The three sectors that don’t have RSI’s above 70 are the three defensive sectors: Health Care, Consumer Staples, and Utilities. This tells me that buyers weren’t pushing up the major indices on the backs of the safe-haven pieces of the market, a positive sign for market bulls.

Momentum

‘Insider’ Selling

According to a report by Neil Leeson of Ned Davis Research, ‘insiders’ selling has picked up recently. In an article at USA Today Lesson was quoted, “Despite the fact that most investors feel they have no alternative to being fully invested (in stocks), there is one crowd of investors who has turned into pretty consistent sellers, and that’s corporate insiders.” When looking at the chart from NDR below you’ll notice there was a ‘sell signal’ albeit less severe generated at the start of 2013, which did little to prevent the equities market from marching higher.

NDR insider selling

Dow Jones Components Relative to 52-Week Highs and Lows

This is a chart I haven’t shown before on the blog. It’s something created by Decision Point, and looks at the individual components of the Dow Jones Industrial Average ($DIA) and where they sit relative to their respective 52-week highs and lows. If a Dow component is at a 52-week high then it receives a value of ’100,’ if it’s at the middle of its 52-week high and low then it receives a ’50,’ and so on. The below indicator takes the average of all 30 Dow stocks.

As you can see, when this figure breaks above 85 we’ve seen the bulls take a break from driving the train and stock prices see a period of decline. The most recent example of this was at the end of last year before the 6% drop in January. Looking at where we currently stand, on Friday’s close the Dow components had an average value of 85%, right at our mean-reversion threshold.

Dow 52wk hi lo

60-Minute S&P 500

As stocks continue their ascent we have the S&P above its 50-1hr Moving Average while making higher highs. The RSI indicator is hitting a historically high level.  Two recent examples of this momentum indicator hitting 82.74 was in February as the stock index ignored the lofty value and continued marching higher and in late-December, just before price peaked out and fell 6%. We’ll see which one traders decide to replicate.

60 min

Last Week’s Sector Performance

It looks like last week was another period of ‘risk on’ trading (I know a lot of you hate that phrase, sorry!) with Industrials ($XLI), Financials ($XLF), and Consumer Discretionary ($XLY) leading in relative performance. We can also see the chase for beta in who under-performed last week, Health Care ($XLV), Utilities ($XLU), and Consumer Staples ($XLP).

last week sector

Year-to-Date Sector Performance

While the Utility sector has stumbled recently, it continues to be the leader for 2014 followed by Energy ($XLE) and Health Care.

YTD sector

Major Events This Week

It looks like we are going to have a pretty uneventful week as far as economic reports are concerned.

Monday: None
Tuesday: JOLTS
Wednesday: None
Thursday: Jobless Claims, Retail Sales,
Friday: Producer Price Index
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.

Are Mexican Equities Ready To Bounce?

I’m happy to announce I am now a contributor for SeeItMarket.com. It’s a great site run by Andrew Nyquist with a lot of good content. I’ll be writing a post there once or twice a month.

My first post takes a look at Mexico ($EWW) as it’s been beaten down along with the bulk of the other emerging markets. There are some interesting developments on both the daily and weekly charts.

Here’s a piece: 

Mexican equities have been experiencing an awful 2014, with the iShares Mexico ETF (EWW) off nearly 12% YTD. The emerging market space as a whole has been a third rail for traders – touch it and you die. However, after heavy selling has taken place, it’s often time to start looking for opportunities and interesting chart setups. I think Mexican equities via the EWW is beginning to show signs that it’s ready to dust itself off and step back into the bull camp.

First I want to take a longer-term view of the iShares Mexico ETF (EWW). Two things stood out to me when I first started looking at the weekly chart of EWW. First was that it’s sitting on its 200-week moving average. This MA has provided nice support during the uptrend off the 2009 lows for Mexican equities. We saw it tested in 2010, 2011, and just briefly in 2013. In the zoomed in thumbnail on the right of the chart you can see that last week we closed under the 200-week MA but have since bounced back above it as buyers came back into this country-specific ETF.

Read the rest: Are Mexican Equities Ready To Bounce? (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.

Weekly Technical Market Outlook 3/17/2014

Happy St. Patrick’s Day! We go into this week of trading with an unusual $VIX expiration mid-week and five of the nine S&P sectors nearing their respective 50-day moving averages. All eyes will be on the Fed on Wednesday, with the expectation of another step up in tapering the Fed’s QE program.

Equity Trend

While we saw some selling last week, the equity  market is still firmly in an up trend. The January highs around 1850 need to be regained this week to keep the bull camp happy and to keep the previous high a solid level of support. I’ll also be watching to see how the S&P 500 ($SPX) acts around the 20-day Moving Average and if traders are able to re-take this short-term MA early in the week.

sp500 trendEquity Breadth

The Advance-Decline Line weakened alongside price last week. Since it shot up almost in a straight line in February, we do not have much to look for in regards to support for this measure of breadth, which means we can just look at the trajectory of movement it makes as price has declined. What we don’t want to see is breadth weaken at a faster pace than price, showing more severe selling than what may be showing up the day-to-day fluctuation of the S&P.

The Percentage of Stocks Above Their 200-day Moving Averages has once again fallen back under its resistance level of 72.5%. We were starting to see some strength in this data set, but that seems to have been lost with last week’s selling.

breadthEquity Momentum

The potential divergences that I highlighted two weeks ago stayed in place as price fell. With the Relative Strength Index (RSI) taking out its short-term low, we have a confirmed bearish divergence in equity momentum. We still have momentum in a bullish range, which favors an upside breakout. But if the RSI indicator is unable to break above 65 on any new highs then that will be one of the bearish signs we’ll be monitoring for prices to weaken further.

momentumGold

Gold ($GC_F) has been having a great 2014, unlike many other asset classes, with the shiny metal up nearly 15% year-to-date. In February I discussed gold breaking above resistance and showing a positive divergence in momentum. This helped give confidence in the run gold has had and taken it up to prepare for a test of $1,400/oz.

One moving average that doesn’t get mentioned very often for gold is the 300-day MA. This has acted as great support and resistance for gold and is something that’s being tested right now. As the 11-year chart below shows, during the bull market in gold, the 300-day MA acted as support during the majority of short-term corrections in price. In late-2012 we saw gold prices break through the long-term moving average and eventual 400 point drop.

Will this moving average once again be important for traders and act as resistance or will we see price break through and continue on to $1,400? If we do break the 300-day MA I’ll be watching the August ’13 high of $1,435 as the next level of resistance. The August high will likely bring about a fair share of supply into the gold market and may require bulls to take a breath if they plan to continue the up trend in price.

Finally, we also have a historically high reading in sentiment based on COT data for gold. According to SentimenTrader’s Gold Sentiment Score, gold topped out at 92% in September 2012 and is now registering at 75%, which is just under the ‘overbought’ level of 80. SentimenTrader notes that, “over the past 20 years, there have only been four other times that sentiment climbed to 75% while gold was still at least 10% below its previous 52-week high. [...] Each of those times, the rally was close to petering out, leading to negative returns over the next month (at least) each time, averaging -4.6%.”

gold60-Minute S&P 500

Like we saw on the daily chart, a bearish divergence in momentum developed on the 60-minute S&P 500 chart right before the down turn as well. On any further weakness I’ll be watching the March low just above 1830 as potential support. The RSI indicator is skirting around the 30 level, so it’s possible we see some form of over-sold bounce if things do weaken further and push this momentum indicator into ‘oversold’ territory.

60min sp500Weekly Sector Performance

Once again we see the utility sector ($XLU) take the lead in relative performance of the nine S&P sectors. However, one new development last week was seeing consumer staples ($XLP) step up from being an under-performer and show some strength as traders shifted their bias to the defensive sectors of the market.

weekly sectorYear-to-Date Sector Performance

Utilities ($XLU) and health care ($XLV) continue to be the dominate forces in sector performance this year. Energy ($XLE) and industrials ($XLI) are now the worst relative performances for 2014.

ytd sectorMajor Events This Week

This will be a busy week with economic reports. We will be getting some insight on inflation and the housing market to start the week, with the always important FOMC announcement on Wednesday.

Monday: Industrial Production and Housing Market Index
Tuesday: Consumer Price Index and Housing Starts
Wednesday: FOMC Announcement
Thursday: Jobless Claims and Existing Home Sales
Friday: Quadruple Option Expiration

 

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.