Weekly Technical Market Outlook 1/12/2015

Well this has been an interesting start to the new year. Just about every major news source has spilled ink on the ‘January effect’ and the impact of a down start of a year has on the performance for the year as a whole. In November I wrote about the predictability the time period between November and January had for the following year and that history has shown it to be a better indicator than simply monitoring January or the first five days of January. While there’s still another week left for this method, it’s currently showing a negative performance which is not positive for 2015 as a whole. But this week’s price action could reverse that and it’s something I’ll be keeping an eye on.

Trend
The trend of the S&P 500 ($SPX) remains positive as the recent short drop was ended with a higher low in price as the 100-day Moving Average acted as a low point. We’ll see if price is able to take out the prior January high and keep the up trend intact.

trendBreadth
While at the prior January high we saw the Common Stock-Only Advance-Decline Line break above its prior high, it has now gone back under the peak. However, like price it made a higher low on the recent drop. The Percentage of Stocks Above Their 200-day Moving Average remains in a clear down trend.

breadth

Hedge Funds Become More Gloomy
While hedge funds have struggled to shine like the bright star they believe themselves to be; according to a survey of 200 funds by Aksia as reported by the WSJ, they don’t have high hopes for equities in 2015. Over 70% of those surveyed do not expect returns to exceed 10%, potentially ending the streak of double-digit gains for the S&P 500.

Hedge fund WSJ

Yield Curve
As the yield curve has continued to seek out lower lows in 2015, following the pattern of 2014, this could have implications for the financial sector ($XLF). We typically see financials outpace the S&P 500 in a rising yield curve environment. The sector broke this trend after the relative performance bottomed in November and began to outperform the major index while the yield curve itself headed lower. However, this breakaway has since reversed recently with $XLF taking some punches over the last week while the S&P rallied.

yield curveMomentum
In the last Technical Market Outlook  I noted the negative divergence that had been taking place between the S&P and momentum. Price began to drift lower after that point and while the equity index has yet to regain its prior high, neither has momentum.

momentum

Gold
While the focus has been on oil over the last several months, Gold ($GC_F) has been consolidating on the weekly chart. After temporarily breaking below the 2013 lows, gold has risen back above and trying to hold $1,200. Momentum, specifically the Relative Price Index (RSI) and MACD indicators, have created positive divergences with the test of the prior lows. I’m watching to see if gold can get back above $1,250 and momentum continue to gain ground as buyers step back in.

goldCorn
I last wrote about corn in October, “Are Corn Prices Poised To Rise?” showing the break of the declining trend line, the commodity entering a bullish period of seasonality, and the low-level of sentiment. Since then we’ve seen corn prices continue to rise, with the Corn ETF ($CORN) testing $28. The Relative Strength Index (RSI) is now in a channel as price begins to weaken. I’m watching to see if momentum can break above or below its channel lines and if price can hold above its short-term low just above $26.

corn

Year-to-Date Sector Performance
As 2015 gets started the relative performance of the nine S&P sectors already looks like a repeat of ’14. Health Care ($XLV). Consumer Staples ($XLP), and Utilities ($XLU) have led for the first eight days of the year. While Energy ($XLE) and Financials ($XLF) are the worst performers so far this year.

YTD sector

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.

Let’s Make A Deal: Trader’s Edition

monty-hall-problem-doors_m

Learning to control your emotions can be one of the hardest challenges for many traders. These tests are often brought on by downturns in the market and/or drops in positions. Trading with full emotion is like driving with your eyes closed. You may make it a short distance but the chances of you safely getting to your destination unharmed are extremely unlikely.

A couple of weeks ago I was watching the movie 21, in which there’s a discussion of the Monty Hall Problem. It’s based on the game show Let’s Make a Deal, hosted by Monty Hall in the 1960’s in which there are three doors with a prize behind just one of the doors. You are the game show contestant and are given the choice of one of the three doors. After making your selection the host opens one of the doors and then gives you the choice of changing your selection. This is where emotion begins to leak into our thought process. No one wants to be wrong and the less action taken is often believed to minimize the ability of a wrong choice. So you stick with your first pick and two-thirds of the time you go home with nothing but a gift basket.

As traders each week, each day, each tick of the bid-ask spread we are presented with the choice of buy or sell. Each decision offers a zero-sum outcome. You either made money or not. Not making money does not equate to failure and many new traders have a hard time coming to that realization. Without a game plan when a position begins to go against you emotion can start to seep into your thought process.

This is what happens to contestants on Let’s Make a Deal. They are presented with the option to change their choice of doors after one door as been opened and reveal the prize is not there. This slight change in the variables, going from three doors to choose from two doors has a significant impact to the odds of you winning the prize. Since Monty Hall knows which door the prize is behind he knows which set of doors to choose from to open. The odds increase to two-thirds if you change your selection while they remain just one-third if you keep your original pick. The math and the odds are in favor of changing doors but many contestants let their emotion take over and they chose to keep their first choice. It’s as if they are frozen of fear of being wrong that their brain doesn’t allow them to act rationally.

As traders we perform our duties and we execute our trades not for entertainment but to follow a plan that should led to a profit. Allowing emotion to leak into that process can keep us from thinking clearly and choosing the wrong door. And unlike a game show, the market doesn’t give you a consolation gift basket.

So which door would you chose?

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.

The 15 Most Read Posts in 2014

As it seems many of us say at the end of each December, that year sure went by fast! In 2014 I wrote 108 blog posts (excluding this one!) and shared countless more charts and thoughts on Twitter and StockTwits. I’ve truly enjoyed connecting with many new traders and learning new things from all of you. As we close the book on another great year, here are the 15 most read posts in 2014:

1. Where Are We In the Business Cycle?

2. Being ‘Oversold’ or ‘Overbought’ Is Often Not Good Enough

3. The Best Traders in The World Miss Trades

4. Weekly Technical Market Outlook 7/21/2014

5. Dr. Copper Has Been Replaced

6. Weekly Technical Market Outlook 9/29/2014

7. Head & Shoulders Pattern in Small Caps

8. Weekly Technical Market Outlook 6/9/2014

9. Weekly Technical Market Outlook 7/28/2014

10. Market Stats, Fun Facts, and Why You Can Ignore Them

11. Using Sine Waves With Trend Analysis

12. Weekly Technical Market Outlook 12/15/2014

13. We Haven’t Seen A Market Top Yet

14. Weekly Technical Market Outlook 10/13/2014

15. Weekly Technical Market Outlook 9/15/2014

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.