Weekly Technical Market Outlook 12/29/2014

Welcome back. I hope everyone had an enjoyable Christmas and was able to spend time with family and friends. While trading was a shortened week, the major indices were able to continue their drift higher.


Of course with the march higher in the S&P 500 ($SPX), the trend remains positive. While we often draw trend lines connecting lows, the chart below shows a trend line connecting the highs over the last year. You’ll notice we are bumping up against this level of potential resistance. We’ll see if traders deem this important based on the price action we see this week.


One of the biggest developments that took place last week was the final confirmation in the Common Stock-Only Advance-Decline Line. I had been discussing the divergence in this measure of breadth for the last several months. I’ve noted that the bulk of the other large-cap Advance-Decline Lines had already confirmed. We also saw the small-cap and mid-cap A-D Lines hit new highs as well. The Percentage of Stocks Above Their 200-day Moving Average while making improvement, remains in an established down trend.


Santa Claus Rally
Many traders have been tweet, writing, and discussing the historical seasonal advance in stocks, dubbed the “Santa Claus Rally.” Ari Wald, who serves as the Head of Technical Analysis at Oppenheimer wrote an article on the subject for The Technical Analyst. Ari turned his focus away from the crowd’s focus of how great Santa is for stocks and looked at what if Santa doesn’t show up. He writes, “However, performance in the next 1 to 2 quarters has tended to be below average when the S&P 500 closes lower during the SCR. For instance, the S&P 500 has averaged a 1.4% loss and a 0.6% loss in the subsequent 3 and 6 months, respectively, following a negative SCR, versus an average 2.8% gain and 5.3% gain, respectively, following a positive SCR.”

So while traders will be disappointed if they don’t get the juiced up gains many are expecting this week. It seems they take out their frustration on stocks during the following couple of months.

santa clauss

While breadth has now confirmed the rally in stocks, momentum continues to show a bearish divergence. The Relative Strength Index ans the MACD indicators remain below their prior highs. This isn’t that surprising since the bulk of the bounce off the December low spanned just a couple of days. It’s tough for indicators like the RSI and MACD to snap back as fast as price as, which is why this current divergence is not a huge concern to me at the moment. However, as I wrote about on Dec. 18th, the longer-term view of momentum still favors the bulls.


Is January Dangerous? 
Dana Lyons, who I’ve mentioned a couple of times on the blog, has continued to produce some great charts and tables. Recently Dana showed this table that goes back to 1900 and marks the number of highs and tops seen in the Dow. You’ll notice that December has seen the fewest short-term (3 month) peaks while January has seen the most short-term and longer-term (12 month) highs going back to 1900. We often hear that October is one of the most ‘dangerous’ months for stocks but Dana’s data shows that it’s actually January that’s seen the most bearish turning points for stocks.

January Dana

Last Week’s Sector Performance
While a shortened week, Utilities ($XLU) remained the best performing sector relative to the S&P 500. Consumer Discretionary ($XLY) which has not had a great year was the second best performing sector followed by Technology ($XLK). Health Care ($XLV), likely lead by biotech, had the worst week, giving reprieve to the Energy Sector ($XLE) for once, which was the second worst performer.

sector week

Year-to-Date Sector Performance
Utilities, Health Care, and Technology remain the best performing sectors relative to the S&P YTD. As oil prices have continued to decline the Energy Sector remains the worst performer.

Sector YTD
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 4/14/2014

Selling continued last week with the Nasdaq taking the brunt of the damage being off 3.10%, the S&P 500 down 2.65%, and the Dow down 2.35%. While the selling continued into the final hours on Friday, it appears the selling was strongest on Thursday, where we saw a larger share of volume and issues declining compared to Friday. We closed out the week with the S&P 500 under its lower Bollinger Band. We saw this occur four times in January before the buyers stepped back in and took the equity index higher.  At the end of trading on Friday we had six of the nine S&P sectors trading under their 50-day Moving Averages, at the January low all but utilities were under their respective 50-day MA.

Equity Trend

With last week’s selling we saw the S&P 500 break through the level of support I highlighted last Monday as well as its 100-day Moving Average. We are still 15 points away from the up trend that’s kept many traders bullish for the last five months. If we see the S&P continue to fall, I’ll be watching this trend line as the next level of potential support.


Volatility Backwardation

On Friday I tweeted out a chart of the $VIX futures curve and mentioned that April prices were now trading at a premium to May and June, which puts the $VIX into backwardation. This typically happens when option traders become more fearful of short-term volatility than longer-term price swings and has been a fairly good indicator of short-term bottoms in the equity market. Below is a chart of the ratio between the one-month $VIX and the 3-month $VIX in histogram form. When a bar breaks above 1.0 we know that the 1-month is trading above the 3-month (i.e. backwardation).

BackwardationS&P SKEW

Sticking with our fear/risk theme, I noticed an interesting development in the S&P SKEW index. SKEW attempts to measure the ‘tail risk’ within the options market. As the chart below shows, we’ve seen spikes in SKEW prior to previous short-term declines in the S&P ($SPX). For instance we saw a break of 135 prior to the drop in 2012 and more recently we saw SKEW begin to rise again over 135 in December, January, and February. However, we did not see SKEW rise prior to or during the most recent bout of equity weakness. It does not seem that option traders felt this was going to be a 2+ standard deviation event – we’ll see if they were right.

SKEWEquity Breadth

The short-term up trend I’ve been discussing in the Advance-Decline Line has now been broken. While the S&P is under its March low, the A-D Line is still above its March low when looking at all NYSE issues. Although when we focus on just NYSE common stock, it has broken through its respective March low – confirming the weakness in the overall equity market.

equity breadthEquity Momentum

With respect to momentum, we are at an important juncture for the Relative Strength Index. For the duration of the 2013 and start of 2014 up trend the RSI indicator has held above the 35 level, which is the lower end of the bullish range for this momentum indicator. With selling on Friday the RSI is now at 38, just a few points above this critical level of support.

We had a momentum break support in January before buyers rushed back in and took stocks higher but did not push the RSI over 70, this was the first chink the bulls armor. If we see another break under 35, after the Relative Strength Index was unable to get into ‘overbought’ status then we may see the creation of a bearish range as the current short-term correction develops into something more serious.


Crude Oil

With oil being in its historically bullish seasonality time period, it is also testing its falling trend line resistance. In March we saw oil drop and test its 100-day Moving Average, creating the lower end of a symmetrical triangle pattern. If price of crude oil can break this trend line resistance then we’ll also need to quickly see a break of the previous short-term high around $105.

Crude Oil

60-Minute S&P 500

In last week’s Technical Market Outlook I discussed the rising trend line off the February and March lows, which is where we had finished up trading two weeks ago. This level eventually broke and support became resistance when buyers attempted to regain control last Wednesday. This sent prices lower and the Relative Strength Index once again sits in ‘oversold’ territory as sellers overwhelmed buyers. We now have a lower-high as a down trend on the 60-minute chart is created. If we see buyers step back in this week then this trend line and the 50-1hr MA will likely be important levels to overcome.

60minLast Week’s Sector Performance

Utilities ($XLU) continued to lead last week with traders seeking shelter in the ‘risk off’ sectors of $XLU and consumer staples ($XLP). Interesting enough, health care ($XLV) was the second worst performer last week, largely due to its near 20% biotech weighting. Finally, financials ($XLF) was the worst relative performance sector last week.

Week Sector

Year-to-Date Sector Performance

I could pretty much copy and paste this portion of the Technical Market Outlook since it doesn’t seem to be changing very much this year. Utilities ($XLU) continue to lead while health care ($XLV) is still the second strongest, it’s lost much of its gain as biotech pulls it lower. Just three sectors are under-performing the S&P 500 YTD, with consumer discretionary (cyclicals) ($XLY) leading the pack of losers.

YTD Sector

Major Events This Week

This week we get another set of inflation data with the CPI report on Tuesday. Import and export data out of China has been weakening so it’ll be interesting to see what the Industrial Production numbers look like on Wednesday and if U.S. manufacturers are seeing any of the ripples from overseas.

Monday: Retail Sales
Tuesday: Consumer Price Index
Wednesday: Housing Starts and Industrial Production
Thursday: Jobless Claims
Friday: Market is closed


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 3/7/2014

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.