Weekly Technical Market Outlook 3/7/2014

I hope everyone had a good week last week, I apologize for my lack of activity on the blog or on Twitter/StockTwits. I was in NYC for the Market Technician Association annual symposium. This was the first year I’ve attended the event and it was well worth the trip. We heard some excellent speakers from Ned Davis and Greg Morris to John Murphy and Ralph Acampora. JC Parets wrote a great post yesterday with some highlights from the event, definitely worth a read. It was awesome meeting many of you that I’ve connected with through Twitter and my blog as well as lots new traders from all over the world that came to the conference.

While I was away I did not get to spend nearly as much time watching the markets as I would have liked. Reviewing the price movement, we had some increased selling on Friday as the S&P 500 ($SPX) broke back through the previous March high. Equity bulls would have preferred to see that level hold as support. While it ‘felt’ like a panic selling as we cut through would-be support, we only saw roughly 70% of volume come from selling and 60% of issues trade down. Typically we see these numbers hit 80% or 90% during panic selling.

Equity Trend

The up trend is still intact for the S&P 500 ($SPX). If the sell-off that began on Friday continues I’ll be watching the previous low set in March to hold as potential support since the March high has already failed. We closed out trading last week with price just a few cents under the 20-day Moving Average, which I believe is positive for bulls as some would argue that the MA was not ‘fully’ violated just yet.

equity trendEquity Breadth

A few weeks ago I showed a chart of the number of New Highs minus New Lows totaled for the week. I mentioned that while the Advance-Decline Line was still showing strength, this indicator, that looks at the number of New Highs, was making lower lows. With the new all-time high in price last week for the S&P 500, we yet again saw another new low in the net number of New Highs minus New Lows (not shown).

As the chart below shows, the Advance-Decline Line held up well during heavy selling on Friday. This measure of market breadth is still above its short-term trend line and well above its long-term trend. The Percentage of Stocks Above Their 200-day Moving Average confirmed the higher high last week and stayed above its level of support on Friday. From a breadth standpoint, things still appear positive with the Advance-Decline Line still above its March high.

equity breadthEquity Momentum

Once again we saw another lower high in the developing divergence in the Relative Strength Index (RSI). In my opinion, momentum is currently the biggest concern for the uptrend in the equity market. While we still have fairly strong breadth as mentioned above, momentum has continued to weaken. On any further selling I’ll be watching the 49 level as support for the RSI indicator as marked by the dotted blue line. The MACD momentum indicator is also still showing a negative divergence, although it was able to make it above its March high which is slightly positive for stocks.

equity momentumBonds

It’s been a few weeks since I’ve discussed the bond chart, specifically the iShares 20+ Year Treasury ETF ($TLT). Price continues to trade in a range between $109 and $105. We did see a false breakout two weeks ago, but $TLT quickly fell back into its range. Looking at momentum and volume we are getting two different messages. With the Relative Strength Index (RSI), a negative divergence has continued to develop as it makes lower highs.

However, the On Balance Volume indicator, which adds up the number of shares traded on up days and subtracts volume on down days to measure buying and selling pressure, appears to be showing a bias towards buyers as more shares appear to be traded on positive days. The 50-day Moving Average continues to act as support during short-term sell-offs and since its current rising, is a positive area of support for those bullish on bonds.

TLT60-Minute S&P 500

The 60-minute chart for the S&P 500 ($SPX) has been giving us a lot of clues during the choppiness of trading these past few weeks. I’ve been watching the channel on this short-term chart with resistance at the March highs around 1880 and support at the March lows near 1840.We broke above resistance momentarily and were unable to turn resistance into support last Friday.

As the equity market challenged and broke through the previous high we saw a small negative divergence of lower highs created on the Relative Strength Index. This signaled that buyers may not have been as strong as many would have hoped. While the MACD was able to break its negative trend, Friday’s selling pushed it back under as sellers took over. One positive note is the trend line off the February and March lows. Selling on Friday was halted when this trend line as shown on the chart was hit and I’ll be watching this week if this trend line can hold up and buyers take back control of the S&P. If the trend line breaks then we’ll likely see a test of the March low which will act as a line in the sand before the start of a short-term down trend.

60 min spxLast Week’s Sector Performance

The energy sector ($XLE) was the strongest relative performer last week. I discussed the chart for energy in March 24th’s Weekly Technical Outlook. Utilities ($XLU), consumer staples ($XLP), and industrials ($XLI) were also positive last week. Consumer cyclicals ($XLY) and the financial sector ($XLF) were the worst performers.

Weekly sectorYear-to-Date Sector Performance

Not much as changed YTD as it pertains to sector performance. Utilities ($XLU) and health care ($XLV) continue to lead for 2014. With consumer cyclicals ($XLY) the worst performing sector for the year.

YTD Sector perfMajor Events This Week

This is a pretty light week for economic data with the FOMC minutes likely to garner the most attention. Commentators will likely be interested in reading further detail about the Fed dismissing unemployment as a critical trigger for interest rate policy.

Monday: Consumer Credit
Tuesday: JOLTS Report
Wednesday: FOMC Minutes
Thursday: Jobless Claims
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.

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.

Weekly Technical Market Outlook 1/27/2014

Last Monday I didn’t write a complete Technical Market Outlook from the lack of price action. This wasn’t the case with last week as we saw the global markets bleed red with domestic markets get lead lower largely by the Transports ($IYT).

In Friday’s report, SentimenTrader noted that when the Transportation Average has closed down 3% or more after hitting a new 52 week high, the data is pretty bearish. Jason goes back to 1900 and there have been eight other instances of this occurring. The median loss one month later has been 4.2% and down 5.2% three months later with the index down a median of 15.3% six months later. Now it doesn’t mean that’s where we are headed but the historical data is definitely leaning bearish for the transport industry. While this is pretty gloomy there are some charts I want to look at that show we may have at least put in a short-term low as traders appear to have shown signs of capitulation.

With that, let’s dig into the important charts for this week…

Equity Trend

This is one of the things I find so interesting about technical analysis. With the panic selling that was taking place on Friday, we ended up closing just a few hairs above our 12 month trend line (green dotted line). Obviously we are now under the 20-day Moving Average (red line) and the 50-day Moving Average (not shown) but until we break the 2013 trend line and begin to see the creation of lower highs and lower lows, the current up trend remains intact.

SPX Trend90% Down Days

It’s often said that when we see 90% of the stocks traded (issues) and 90% of the volume down in a single day that this is a sign of capitulation. While we didn’t see 90% of both volume and issues down on Friday we did see 90% of volume and over 80% of issues lower.

The chart below shows past examples over the last two years where we’ve seen at least 90% of volume and 80% of issues down in a single day. You can see that the market reaction over the following couple of weeks/months has been fairly positive. Now if you were to extend the chart and look at the Financial Crisis in 2008, you’d seen this type of action almost on a daily basis and obviously didn’t lead to higher stock prices. Are we seeing the same type of deterioration in the financial markets as during one of the worst periods in recent history? Few would argue yes. So while it’s possible we see some continued weakness, it does seem, based on this set of data, as well as the 40% move in volatility ($VIX) that nearly every weak hand was folded as traders were quick to head for the exits in fear of losing their precious 2013 gains.

80 90

Equity Breadth

The selling on Thursday and Friday didn’t seem to have much impact to the Advance-Decline Line. While the S&P 500 ($SPX) is back to late-December levels, the A-D Line is nowhere near its December levels. The Percent of Stocks Above Their 200-day Moving Average however wasn’t as lucky. This measure of breadth is now back under the falling trend line but still well above the December low. While we saw some negative movement in breadth, it’s by no means signaling a breakdown in the equity market, at least not yet.

breadthEquity Momentum

While the past few weeks had been enough time for the Relative Strength Index (RSI) to catch up with the equity market and slightly break into ‘overbought’ territory, the negative divergence in the MACD held out and helped pull stocks lower last week. The RSI is now testing the lower level of its bullish range, and I’ll be watching to see if buyers are able to step in this week and push momentum, at least the RSI indicator, higher and keep it from getting ‘oversold’ by breaking under 30. We haven’t seen much movement in the Money Flow Index as it’s stayed fairly constant with a slight negative bias.

MomentumVolatility

Along the same lines as the charts above, we saw signs of excessive fear in the $VIX curve. Below is a chart of the ratio between the 1-month Volatility Index ($VIX) and the 3-month Volatility Index ($VXV). Typically we see the $VIX trade at a discount (read: less than 1) to $VXV. This is normally due to traders being more fearful of market events further in the future than in the current trading environment. However, when we see large swings in the $VIX that show traders paying higher prices for current protection compared to protection from volatility 3-months away it pushes the ratio shown on the chart above 1 (which is called backwardation). Historically we have normally seen a short-term bottom put in for the equity market on past instances of backwardation in volatility. You can see a few examples of this in the chart below, when the $VIX has entered backwardation the S&P 500 ($SPX) has rallied.

VIX backwardationBonds

Make sure you check out my post from last week where I discussed The Bond Chart I’m Watching Right Now.

S&P 500 60-Minute

The resistance I’ve been watching over these past couple of weeks has held strong as the Relative Strength Index (RSI) began to break down and create a slight negative divergence (lower high while $SPX tested the previous high) on the 60-minute chart. The RSI has now broken below 30 and is ‘oversold’. How long momentum stays ‘oversold’ could give us a clue to how strong the sellers are in keeping equity prices depressed.

60min chartLast Week’s Sector Performance

It’s to no surprise that we saw two of the low-beta sectors show relative performance strength (meaning how the sector performed against the S&P 500). Utilities ($XLU) and consumer staples ($XLP), while down on an absolute basis, lead the nine S&P sectors for the week. Materials ($XLB) and industrials ($XLI) were the weakest sectors for last week.

Last weeks perfYear-to-Date Sector Performance

While we haven’t had very much data to look at for our YTD performance, I think it’s still important to see which sectors are leading as we get into 2014. Like last year, health care ($XLV) continues to be the strongest sector for this year with utilities ($XLV) coming in a close second. Like in the weekly data discussed above, materials ($XLB) are the laggard for 2014 so far.

YTD performanceMajor Events This Week

These are the economic reports I think traders will be watching this week. The bulk of the news coverage will likely be around the FOMC announcement on Wednesday as well as the GDP data on Thursday.

Monday: New Home Sales
Tuesday: Durable Good Orders and Case-Shiller Home Price Index
Wednesday: FOMC Announcement
Thursday: GDP and Jobless Claims
Friday: None

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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.