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.

Commodities Rally But May Need A Breather

To start the year I said my one prediction for 2014 was that commodities were too beaten down and could rally. We finished 2013 with sentiment at historic lows and it seemed everyone had turned their back on this asset class.

In Phil Pearlman’s Yahoo! Finance article, 2014 Predictions from Some of the Smartest Market Watchers I said:

Sentiment for agriculture and metals are at or near historic lows. For example, nearly all three categories of the Commitment of Traders report, Commercial, Large Traders, and Small Traders are short or near a net-short position for gold. Typically we see the most hated areas of the market one year rotate back to strength the following year. I’ll be watching to see if this happens for the commodities market in 2014. While commodities are very weather dependent, there’s a chance we see at least a partial rotation back to the beaten down agriculture and metal markets.

Well I didn’t expect commodities to rally as fast as they have. Year-to-date the PowerShares Agriculture ETF ($DBA) is up nearly 11% and gold ($GLD) has advanced 7% while the equity market has gained just 1%. I still think commodities could see higher prices, especially with the awful winter most of the country has been having as well as the drought that’s hit the west coast.

However, I think the current rally is becoming a little overextended and must now contend with trend line resistance. Below is a weekly chart of the PowerShares Multi-Sector Agriculture ETF ($DBA) going back to 2010. I’ve drawn a blue line to connect the previous highs and this takes us to where price currently sits this week. $DBA has broken out of its weekly Bollinger Bands, as has the Relative Strength Index which is in the top panel of the chart. With stocks not replicating the 2013 pattern of “never go down” traders appear to have come to the realization that there are in fact other asset classes to own! The difference in the current rally compared to what we saw in 2010, was the slow advance that took commodity prices to historic highs. We rarely saw price break above its upper Bollinger Band on the weekly chart as buyers formed an orderly line to pick up their shares.

I would be comfortable with seeing $DBA consolidate at current levels or test the previous high near $26 from last October. This would allow those that have missed the boat the opportunity to participate and potentially take the ETF to its 2012 high of $31.

DBATaking a look at sentiment, specifically the COT data set, we can see traders have pushed this measure near historic levels. SentimenTrader creates this Commodity COT Master Indicator to show a global picture of commodity sentiment and how traders are currently positioned. While we aren’t there at highs yet, we are approaching a level that has previously cooled off rallies in the past.

COT Sentiment

Commodities are still an asset class I am watching for 2014 and is a place we may see traders seek shelter during any increase in volatility within the stock and bond markets. We’ll see what happens.

Source: SentimenTrader

 

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.

Is Gold Getting Ready to Break Resistance?

Patience has been a requirement for those that have been bullish on gold. Having dropped nearly 30% last year, the shiny commodity was one of the worst performing asset classes in 2013. That is exactly why its been on my radar for this year. With it’s historically low sentiment readings and lack of interest in the trader community, gold is an asset that could shine in 2014. We just need the right setup.

I’ve been watching the 150-day moving average as support and resistance for gold, (which is the 30-week moving average as show on the chart below). I’ve marked arrows to show past instances where gold has met this moving average over the last couple of years. In 2012 as gold began to consolidate the commodity began to whipsaw above and below the moving average before ultimately beginning its decline. During the drop in ’13 we hit the 30-week (150-day) MA three times as it smacked buyers in the face. Price is now back up against this level and I’m watching to see if gold bulls have what it takes to break above and send gold prices higher as it begins a new up trend.

Taking a look at momentum, specifically the Relative Strength Index (RSI) indicator, we can see a positive divergence was been put in place as price created a double bottom just under $1200 and the RSI put in a higher low. With the recent rise in price, the momentum indicator is now testing resistance at the 50 level.

If we see price break above its moving average while momentum breaks above its own resistance, I think that could be very bullish for this precious metal.

GOLD

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.