The U.S. Equity Chart I’m Watching Right Now

Starting in late February I began to see some warning signs for the short-term movement in U.S. equities. On Feb. 23rd I wrote in my Technical Market Outlook, “While I think the current trend looks health the short-term price action appears to be stretched at the moment. Volatility ($VIX) momentum has been pushed down quite a bit. I wouldn’t be surprised if we see some bumps in the near future that could push the $VIX higher. We’ll see.” I also began tweeting some of the intraday/bearish charts I was seeing (here, here, and here). While the long-term price action in the S&P 500 still appears healthy (you can read more on this in the above mentioned Technical Market Outlook link) I still like to pay attention to the short-term price action as well.

Since then, volatility has risen about 20% and the S&P 500 has dropped a couple of percent, nothing major. But with this small period of weakness I want to show the U.S. equity chart I’m keeping an eye on that moves beyond just the intraday swings of the market.

Price
Below is a weekly chart of the S&P 500 ($SPX) going back to early 2012. Along with the $SPX I’ve included the 20-week (same as the often discussed 100-day) and the 50-week Moving Average. These Moving Averages have acted as support during prior dips in equities for the current up trend. As of the time of this writing, we are testing the 20-week right now. As price continues to make higher highs and higher lows, from a price action perspective things look fine and the trend is clearly up.

Momentum
Moving to momentum, I’ve included the Relative Strength Index (RSI) and the MACD indicators. Since 2012, the RSI has been in a bullish range as it moves from 40 to over 70. This is a good sign that buyers continue to move in and has helped define the ‘buyable dip’ theme that’s been taking place over the last several years. However, most recently, a bearish divergence has developed in both the RSI and the MACD momentum indicators. As price has trekked higher, momentum has begun making lower highs, which has typically preceded turning points.

If we do continue to see price move lower, taking the RSI and MACD with it, I’ll be watching to see if prior support in the Relative Strength Index is able to hold up and provide some relief for equity bulls. I will also be keeping a close eye on these longer-term Moving Averages (20- and 50-week) and see how price responds if (in the case of the 50-week) they do get tested.

In the meantime, I’ll respect the current up trend and the notion that breadth (not shown) has continued to confirm the the new highs in price which in my opinion should not be disregarded. But these are the levels I’m watching, we’ll see where price takes us.

S&P 500

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 2/2/2015

I was gone last week at the TD Ameritrade National Conference in San Diego but looks like it turned out to be an interesting week for the financial markets. While Volatility ($VIX) has expanded, I’m not seeing the same signs I normally do at past buy-able dips. For instance the number of stocks at new 52-week lows on the NYSE at the last S&P 500 October low was 617 and at the December low it hit 434, but this most recent dip has only seen 150 NYSE stocks hit annual lows.

January closed down by a little over 3%, making it the second consecutive monthly close lower since May 2012. Meanwhile, the 10-year Treasury Yield appears to be quickly approaching the 2012 low as January’s move nearly finishes erasing the rise in yield during 2013.

Trend
The trend of the S&P 500 ($SPX) is currently in a short-term period of consolidation while still maintaining its long-term up trend. Equities have retreated back to October ’14 levels while putting in a series of short-term lows near 2000 and a double top at 2060.

trend

Breadth
A few weeks ago we had, what turned into, a false break in the Common Stock Only NYSE Advance-Decline Line. Since then, stocks have been trying to find support near 2000 in the S&P 500 while the A-D Line has been able to create a slight series of higher lows over the last month. While the Percentage of Stocks Above Their 200-Day Moving Average is in a defined down turn, it too has put in a set of higher lows in January. Is this hinting at the direction equities will head in the coming weeks? We’ll see.

breadth

A Negative January
While many traders will likely look to January as an indicator for how the full year will turn out, I’ve already discussed the method that I prefer two weeks ago. Nautilus Research tweeted out the following chart which I found interesting. It shows previous periods where January has been negative following three positive years. As the table below the chart shows, of the seven prior occurrences only one follow year was able to squeak out a gain, which was still less than 1% at that.

Down January

Momentum
Coming into 2015 we had a bearish divergence in momentum which was followed by a false breakout in the S&P with stocks struggling ever since. However, like Breadth the Relative Strength Index has created a slight positive bias while the S&P continues to test 2000.

momentum

Financial Stress
Cris Sheridan at Financial Sense recently wrote an article showing the current bear case for equities. One of the charts Cris shows a compilation of the Federal Reserve Financial Stress Indices. You’ll see in the chart below that the indices have begun to rise after falling for the last several years. Three of the four Stress Indices are still below zero, while all four broke above the zero-line at the prior major market high in 2007. I’ll be keeping an eye on these sets of data and will be watching if they all continue to advance in the coming months.

financial stress

China
Like the U.S. equities did at the start of the year, Chinese stocks have created a potential false breakout on the weekly chart of the iShares China ETF ($FXI). This occurs after the Relative Strength Index (RSI) failed to confirm the breakout and put in a lower high, creating a bearish divergence. Volume also did not confirm the breakout with fewer shares being trading on positive days over down days as measured by the On Balance Volume indicator. Prior dips in $FXI have found support at the 50-week Moving Average. Will $FXI also end up declining back to its 50-week MA?

ChinaLast Week’s Sector Performance
Last week we saw the Materials ($XLB) sector as the best relative performer followed by Consumer Discretionary ($XLY) and Energy ($XLE). Technology ($XLK) and Consumer Staples ($XLP) were the worst relative performers for the week.

last week sector

Year-to-Date Sector Performance
While the S&P 500 finished in the red for January, Utilities ($XLU) and Health Care ($XLV) were able to pull out a gain for the month. While they had a rough last week of the month, Consumer Staples were still able to outpace the major index. Financials ($XLF) and Energy are the worst performers YTD.

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.

Weekly Technical Market Outlook 5/19/2014

The S&P 500 finished the week essentially flat, down just 0.03% while the Dow was off by 0.55% and the Nasdaq was able to pull off an almost half a percent gain for the week. Just two sectors closed under their 50-day Moving Average: Financials ($XLF) and Consumer Discretionary ($XLY).

While the equities market started to weaken after hitting new highs, we did not see the Volatility Index ($VIX) futures curve switch from contango to backwardation. Meaning, traders were not showing an increase in fear by creating a premium in front-month $VIX contracts compared to longer-dated contracts. For example, we saw the $VIX enter backwardation at the April ’14, January ’14, October ’13 lows. On Weds. I tweeted and on Thursday morning I wrote a post that we may see a spike in Volatility. During trading on Thursday we saw the Volatility Index advance by 12%, only to givemost of it back on Friday. I’m curious if we see more volatility enter the market and if the $VIX repeats its pattern of backwardation before stocks rally, or if that tiny dip was the extent of the selling. We’ll see.

Equity Trend

With last Friday’s strong bounce we finished the week relatively flat, which has kept us in this period of consolidation for the S&P 500 ($SPX). The January high of 1885 is still above us and needs to get taken out for the bulls to keep the train chugging back up to 1900. However, with the lack of lower lows we are still in an up trend.

Trend

Equity Breadth

Last Monday I discussed the double top we were seeing in the Advance-Decline Line (common stock only) as the S&P hit a new high. While the A-D Line retreated, it did not make a lower low, keeping the up trend in breadth intact. Although, when we look at the Percentage of Stocks Trading Above Their 200-day Moving Average, we did see it drop below the April low for a day before trying to reclaim the level on Friday.

breadth

Equity Momentum

Not much has changed in momentum for the S&P. The negative divergence in the Relative Strength Index is still with us, as is the divergence in the MACD.

Momentum

Bonds

I can’t do a post without including a chart of the 10-year Treasury Yield ($TNX) after its strong move recently. As stocks weakened last week we saw bonds have a fairly a nice rally. The 10-year Yield broke under a support level many traders had been watching and tested the October ’13 low. While many traders were positioned and calling for higher yields, the market rarely gives them what they want and last week was a great example of this. It’ll be interesting to see if yields rebound and get back above 2.6% or if bond bulls maintain control and push them back through the prior low.

10yr yield

Gold

While gold ($GC_F) had a great start to 2014, it’s begun to consolidate over the last couple of weeks. The 50-day Moving Average has been acting as resistance while the trend line off the 2014 previous lows has helped provide support. As we approach the apex of the two blue trend lines we will see a break, it’s just a matter of in which direction. Looking at the Relative Strength Index for a clue, the level of resistance (shown by the red box) that plagued gold for nearly all of 2013 appears to be back in play.

When looking at the seasonal trends in gold, we historically have seen a period of weakness begin in the latter-half of May. So if the bulls are not able to regroup soon, they will be facing a tough period of seasonality along with the above mentioned levels of resistance in price and momentum.

Gold

60-Minute S&P 500

As the S&P hit a new high two weeks ago we saw the negative divergence in the Relative Strength Index break as the momentum indicator kissed the 70 level. However, the divergence is still present in the MACD indicator. With Friday’s rally we can begin to draw a trend line off the higher low, which could act as potential support on any future short-term drops. As I mentioned on the Equity Trend section, 1885 is still a critical level for the index to contend with. With each attempt to break higher, including the momentary new high, we are able to work off more supply at 1885, which is bullish for stocks.

60min

Last Week’s Sector Performance

For the third week in a row we saw the Utilities ($XLU) sector under-perform the S&P 500. While it started off the year as a leader, we are beginning to see some deterioration in the relative performance for this defensive sector. Technology ($XLK) was the best performer last week, followed by Health Care ($XLV) and Materials ($XLB). The worst performers were Financials ($XLF) and Consumer Staples ($XLP).

Week Sector

Year-to-Date Sector Performance

While Utilities weakened in relative performance last week, it still remains the best performer YTD. Followed by Energy ($XLE) and Health Care. Consumer Discretionary ($XLY) and Financials still remain the only two sectors to be under-performing so far for 2014.

YTD Sector

Major Events This Week

This is a pretty light week for economic releases. We get the FOMC minutes on Wednesday and a couple pieces of housing data later in the week. With a lack of economic data to move the market we’ll get a better idea of the risk appetite for stocks as traders are allowed to focus more on the price action and internals and less on gov’t reports.

Monday: None
Tuesday: None
Wednesday: FOMC Minutes
Thursday: Jobless Claims and Existing Home Sales
Friday: New Home Sales

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.