We talk a lot about the S&P500 and Dow Jones Industrial Average. Lately it’s been the Nasdaq100 leading the charge and actually the only index that hit new highs this month. Each of these are popular due to their large-cap components. In other words, these indexes consist of some of the biggest companies in America and most are household names like Apple or Microsoft, Exxon Mobil and McDonalds. These indexes are either cap-weighted, where the largest companies represent the largest percentage of the index or price-weighted, as in the Dow Industrials, where the highest priced stocks represent the largest holdings in the index. Today I want to focus on a broader equally-weighted index to get a better idea of what the market as a whole looks like. [Read more…]
November 18, 2015
We are just about 6 weeks away from finishing up 2015 and as usual there are a lot of questions left unanswered. Now is as good of a time as any to look back at how we got here so we can take a weight-of-the-evidence approach and put together a thesis of what we should expect going forward. At AllStarCharts, we prefer to incorporate a global top/down approach focusing our attention on various liquid asset classes with exposure both domestically and outside of the United States. With our long/short mentality, we look for opportunities to profit from both good and bad markets striving for absolute returns regardless of the economic environment.
Today we’ll start with the U.S. Stock Market which is relatively flat year-to-date. In large-caps, the S&P500 and Dow Jones Industrial Average have gone nowhere this year, while the leader has been the Nasdaq100 (up 10% YTD) and the laggard is obviously the Dow Jones Transportation Average (down over 10% YTD). With the tremendous amount of dislocation between Transports and the Tech-heavy Nasdaq, we’ll call that a wash and chalk this year up as flat, at least for now. The problem is, that the indexes don’t tell the whole story. Even before the August sell-off, the amount of stocks still making new highs was an embarrassment as only a small percentage of them were still rallying. The Consumer Discretionary space and the Dow Jones Internet Index were two standouts without much company. Looking at things today, and over the past few weeks, even fewer names are participating. The Nasdaq100 was the only index to make new highs this month as the rest rolled over putting in lower highs across the board.
The word “Distribution” really explains what is going on here in the U.S. Stock market. We can see a massive topping pattern forming in the S&P500 right at the 161.8% extension of the entire 2007-2009 decline. We don’t look at this as a coincidence. This distribution is also taking place at exactly the March 2000 highs for both the Nasdaq Composite and the Nasdaq100. Again, not something we consider to be a coincidence. The question we want to ask going forward is simple: with very few sectors and stocks in the market left participating to the upside, is this the tell before a much bigger sell-off, or will certain sectors take leadership and carry this market higher going forward? In the S&P500 alone, almost 70% of stocks have corrected over 10% and close to 40% of them have fallen over 20%. Will this “market of stocks” collectively stabilize, rotate leadership and head higher? I would argue that no, this is definitely the lower probability outcome and in all likelihood we are heading much lower. From a risk vs reward standpoint, this still very much favors the bears. My levels are 114.40 for $QQQ AND 2080 for the S&P500. We only want to be short these averages if prices are below them and neutral if we are above.
Within the U.S. stock market, since we have a negative bias, we want to focus our attention on the laggards. With the Dow Jones Transportation Average easily the worst of the bunch, I think Airlines are the ones we want to short. Looking specifically at the Amex Airlines Index, we are seeing the exact opposite of what we saw in March 2009. If you recall, while the market as a group was putting in lower lows in the first quarter of 2009, the Airlines held in showing the relative strength at the time to spark a 330% rally, which by far and away outperformed the S&P500 and other indexes. Today, it is the relative weakness that is standing out as this index has been making lower lows all year in an environment where the other indexes continued higher into the Summer. The uptrend line from the 2009 lows in the Amex Airlines Index has now been broken and over the past few weeks have successfully retested it and rolled over. Momentum is in a strong bearish range and prices are trending below a downward sloping 200 day moving average. Bad things tend to happen in this type of environment. We want to be aggressively short a basket of these airlines as long as prices remain below the broken uptrend line from the 2009 lows. I would be adding to shorts if we break the lows from this week. Also see the ETF $JETS.
Looking more globally, it is hard to ignore the underperformance out of the New York Stock Exchange Composite. Although considered a local exchange, half of the biggest 100 names in this cap-weighted composite are foreign companies. The relative weakness here is further evidence that the U.S. is still the leader compared with the majority of the international stocks markets. The emerging space is particularly weak as the S&P500 is sitting at or near 11-year highs relative to the MSCI Emerging Markets Index. In the more developed countries, the Japanese Nikkei has held in relatively well compared to the U.S., but is currently in no-man’s land at best. Whether looking at the Nikkei specifically, or the Hedged Japan ETF $DXJ, which we like to use, with prices trading near flat long-term smoothing mechanisms, this is a headache waiting to happen and we want to stay away from it. I would put Germany in a similar neutral category, but leaning on the bearish side on both as we are below broken support which is new overhead supply in the Nikkei and the DAX.
On the long side of the International markets, I think the potential for further mean reversion in Latin America is certainly there, but it’s the probability, or lack thereof, that annoys me. We are focused on the Latin America 40 Index ETF $ILF and specifically within that group, the MSCI Brazil Index ETF $EWZ. Coincidentally, it would take breakouts above $25 in each of these to get me bullish and long for that mean reversion towards 28. But that’s all I’m seeing there.
Crude Oil is likely to have an impact in this space. I’ve been in the camp that Oil has bottomed out, although tactically I see little reason to be long from current levels. I’d like to see more backing and filling to create a base large enough to get this one going. Looking at this from a more structural perspective, the high 30s-low 40s was where Crude Oil prices would peak throughout the 1980s and 90s. Once that range broke out to the upside after the turn of the century, we expect this to be an area where prices bottom out instead. So I think we’re close. We are watching Heating Oil and Unleaded Gasoline futures as the tell. If prices can get and hold above the lows from throughout 2015, which are awfully close, I think that Oil can bottom out. If we start to see new lows holding in these other energy commodities, I think we’re in a lot of trouble in Crude Oil and anything with a positive correlation to the commodity.
Where I would prefer to focus my attention instead within energy is Natural Gas. In September of 2009, Natural Gas bottomed out at $1.92 before rallying above $7 over the next few months. In April 2012 the bottom was $1.83 before rallying over the next 2 years above $7 again. Last month Natural Gas hit $1.94 before reversing higher. This is one we want to own for a 20% rally here back towards $3. This is a tactical trade where for risk management purposes, nimble traders can use 2.40 as the line in the sand. Contracts roll next week, so adjust accordingly ($2.55 in Jan Futures). According to the CFTC, Commercial Hedgers, who we consider “the smart money”, currently have one of their largest long positions of all time. Bigger picture, the Crude Oil:Natural Gas ratio continues to fall. This bubble peaked at over 50:1 in early 2012 and the mean reversion back to the single digits is running its course. Today the ratio sits around 18:1, from a high of over 50:1 with a long-term average near 10:1. Also remember that we are in a reversion beyond the mean business, and not just a reversion to the mean. So an overshoot into the single digits in the ratio is most likely.
Moving over to the precious metals space, it’s hard to find a more beautiful downtrend out there in the world. With prices hitting new 5-year lows this week, sentiment is nowhere near as pessimistic as it has been at prior temporary lows in 2013 and 2014. I think this bullish (less bearish) outlook from the public will be the catalyst to take Gold under $1000 and Silver under $12. The risk/reward today is not as clean as it once was a few weeks back, but the trend here is lower and we want to continue to fade any strength in metals.
The U.S. Dollar should have an impact in this group as it has consolidated its gains from the past few years in one of the healthiest consolidations across the global marketplace. Back in March, we saw the most bullish sentiment towards the Dollar in history. The Commercial Hedgers were selling this thing like if it was going to zero. Anecdotally, the financial media who has never cared what I thought about the U.S. Dollar could not finish a phone call or email with me without asking my thoughts on the Dollar. Since then, however, the sentiment has dissipated and the hedgers have covered a lot of their bearish positions. It’s hard not to like the Dollar here. I think it continues to head higher after the recent breakout. This should have negative implications towards the Euro, which represents close to 60% of the U.S. Dollar Index. I would expect the Euro to continue to fall along with precious metals as we head into the first quarter of next year.
Next we turn to the Bond market. The collective waste of time of arguing about fed hikes or not continues to dominate the airwaves and interwebs. We try and ignore what the Fed has to say as much as we can and even more so Wall Street Economists. There is no group on planet earth that has been more wrong about anything as Wall Street Economists have been about the Fed. We prefer instead to focus on price, which at the end of the day is the only thing that will pay us. First of all, we are talking about a 35 year bear market for rates. Things don’t just turn on a dime. So to blindly short the bond market because “rates can’t go any lower” makes zero sense to us. Now, the short end of the curve and the long end are two different things. The 2-year US Treasury bond yield is highs this week not seen since 2010, but the 30-year yield hit fresh lows earlier this year and has not shown any signs of a major bottom. This dislocation has caused the yield curve to narrow. Note that an inversion of the yield curve (short-term rates exceeding long-term rates) is a heads up of a pending economic recession.
Since we don’t have time to sit around waiting for yield curve inversions, we prefer to focus on the here and now. Looking at the 10-year yield, widely considered the benchmark for U.S. Interest Rates, it’s the 2.4% level that stands out the most. This was the low in rates in 2010 and also twin highs in late 2011 and early 2012. We kissed that this month and quickly rolled over. Going forward, this is our line in the sand. As long as the 10-year is below 2.4%, we want to be buying U.S. Treasury Bonds very aggressively, particularly the 30-year Futures $ZB_F. Equity traders can turn to the iShares 20+ Year Treasury Bond ETF $TLT or $TLT options for non-futures exposure. We are not expecting any rate hikes in 2016 and regardless of any rumors, we want to be buying bonds here.
That’s it for now. Please feel free to write with any questions or comments that you may have.
Note: In next week’s letter we will spend time looking at Biotechnology, Palladium, Agricultural commodities and equities and some individual U.S. stocks like Apple, Amazon and Netflix on both the long and the short side.
Tags: $SPY $QQQ $UNG $USO $CL_F $NG_F $GC_F $GLD $SI_F $SLV $UUP $DX_F $EURUSD $FXE $TNX $TLT $ZB_F $HO_F $RB_F $EWG $DAX $NIKK $DXJ $USDJPY $6J_F $FXY $ILF $EWZ $XAL $JETS
I don’t know what’s going to happen tomorrow or next month or next year. No one does. But today I just want to keep it real and bring up an interesting development that is difficult for me to ignore. It’s no secret that the stock market currently has terrible breadth as only a handful of names were able to make new highs a couple of weeks ago and the only index to make a new high was the Tech-heavy large-cap Nasdaq100. The rest of them all put in lower highs (which is characteristic of a downtrend).
As the cliché goes, “This is a market of stocks, not a stock market”. But cliché or not, it’s true, and also under appreciated. When the market as a whole is making new highs, you want to see that being confirmed by a larger number of stocks and sectors also putting in new highs. The last thing you want to see is the opposite, as we are seeing today (and in the Fall of 2007 coincidentally?). If you recall, as the major averages were hitting new highs in October of 2007, only a few individual stocks were still hitting new highs. A popular group of those were being referred to as “The Four Horsemen” at the time as they were some of the only names still holding up. This group included, Google, Apple, Amazon and Research in Motion (Blackberry).
I remember this time very clearly as there was an ongoing joke at work that if you weren’t trading these 4 names, why bother even coming in? This is strictly anecdotal, of course, but an interesting coincidence that the media is constantly referencing a new group of stocks called “FANG”. The label for this group may not have been made up yesterday, but the frequency of mentions continues to grow. The FANG stocks include Facebook, Amazon, Netflix and Google. The question I pose today: Is FANG this cycle’s Four Horsemen?
I don’t know the answer and neither does anyone else reading this right now. But I find it very difficult to ignore the similarities between these two groups of stocks. Remember, like the 4 Horsemen, these FANG stocks have nothing to do with each other. Sure, they’re in the Internet space. They are each part of the Dow Jones Internet Index which is the only sector I see still hitting new highs recently (I guess Twitter’s stock must have not gotten the memo).
Take a look at each of the FANG charts. Then take a look at how many stocks are hitting new highs compared to how many were doing so a year or ago and a year before that. Compare this lack of participation sort of environment to that in 2007. Also look at the opposite scenario in the first quarter of 2009, where most stocks and sectors had already bottomed out in the 4th quarter of 2008. The “Market of stocks”, if you will, bottomed out in Q4 2008. It wasn’t until March of the following year that the indexes themselves put in their ultimate lows. To me we are looking at the opposite scenario today.
What do you guys think? Am I way off or perhaps on to something here?
Click Here for full access to my research. Feel free to look through our different packages. There’s a weekly research report here for everyone depending on your goals and approach to the market.
Tags: $QQQ $SPY $FB $AMZN $AAPL $NFLX $GOOG $RIMM $BBRY
Technical Analysis can get complicated at times. This really depends on the practitioner. Me, I like to keep things simple. When prices break a key level of support, that former support tends to be resistance on any rallies back to that level. The same thing on the flip side when former resistance turns into support on pull backs. Today I wanted to share a very clean example of this principle that we refer to as: Polarity.
If you’ve been following along, you know I was bullish Apple stock early in the year with an upside target just under $130. Since those upside objectives were achieved in late February, we said there has been no reason to be involved with this stock (at least from an intermediate-term perspective) until the sideways range since February resolved itself in one direction or another. We wanted to either buy the breakout above the lows 130s or short a breakdown below 122. Once we broke, the path of least resistance was lower (see: How Low Is Apple Going To Go August 20, 2015) and our downside targets were hit pretty quickly.
The problem since then is all of this overhead supply from that range since late February. All of that broken support turns into resistance. Where buyers once outweighed the sellers, there are now more sellers than buyers. The market proved that once prices broke support. We are seeing this polarity play out beautifully this week and have been pounding the table every Thursday morning on Benzinga Radio that we wanted to short Apple again into any strength towards that area.
Until Apple can prove it can stay above that 122-123 area, there is no reason to own this from an intermediate term perspective. I would continue to cover shorts between $100-$104 which was our downside target in August and is still an area where I think it makes sense to cover tactical shorts. Can it go lower than that? Of course. But for now, that’s where we want to keep taking profits.
This is technical analysis 101: Polarity. It’s playing out before our very eyes. I like it.
Click Here to receive weekly updates on these Apple charts above including the rest of the 30 Dow components on multiple timeframes.
Here we are almost half way done with the month of November and most of the major U.S. Stock Market averages have gone no where this year. The more popular indexes, S&P500 and Dow Jones Industrial Average, are both flat for 2015. The Smaller-cap indexes Russell2000, Mid-cap 400 and Russell Micro-cap indexes are all basically flat as well down less than 1-2% this year. The ones that stand out are the Nasdaq100 up 10% this year and the Dow Jones Transportation Average, down 10% in 2015. We’ll call that a wash. Markets are flat.
A couple of months back I laid out 3 possible scenarios for the S&P500 going into year end and into the first quarter. A retest of the August lows was what I figured would be the highest probability outcome. From there, it became more difficult to judge: we either keep retesting those lows and ultimately break, or consolidate and eventually break out to new all-time highs. This is still in question. So as usual, we want to take the weight-of-the-evidence to come up with a game plan.
First of all, as strong as the Nasdaq has been since the lows and recently hitting new highs, we are literally right at the all-time highs from March 2000. The question I’ve been asking (because I do not know the answer), is whether or not this is a “new” Nasdaq impossible to compare to 2000? I posed this question during my panel at the Finance Festival this weekend, and I still do not have an answer. I’m going to go with math and ask: OK, looking all over the world at all asset classes, stocks, bonds, commodities and currencies – is buying the Nasdaq100 right here at all-time highs, where it fell 80% last time we were here, the best risk vs reward opportunity? Stated this way, my answer is an easy no.
Looking more short-term I will say that the fact that S&Ps were able to rally back above 2040 to get back into this range since the first quarter is very impressive. That breakdown in August could have been disastrous, but now we’re back into it. This doesn’t necessarily argue for an uptrend, but for now, it takes downtrend out of the equation. Here we are near a flat 200 day moving average which screams: lack of trend. So it makes sense. As I said since mid-March, we want to be long if we can breakout above this range and get short if we break below. This worked well in August and we will continue to look for a new resolution out of this range before getting aggressive again in any direction:
Back in August, when we broke to the downside of this big range in S&Ps, I came up with some scenarios that would make me lean more bullish and be less pessimistic. I always think it’s important to make a counter-argument. There were 2 things I wanted to see, a rally that holds above 2040 in the S&P500 and the Dollar/Yen above 122. This level goes back to the market top in 2007 as we can see here:
And here is the short-term look. I would argue that if the S&P500 can stay above 2040 and USD/JPY remains above 122, it is hard to be bearish towards the U.S. Stock Market as a whole:
There have been plenty of opportunists over the last several months, both long and short. I wanted to stay away in since March, then hated stocks in August, but the weight-of-the-evidence suggested getting aggressively long in late September. I think we will continue to see tactical opportunities in U.S. Stocks, but where we stand today, this minute, I think the best places to be (long and short) are outside of the averages. I think you need to pick and choose between stocks and sectors. Notice the difference in returns between the Nasdaq100 and DJ Transportation Average this year. I would expect similar disparities between sectors and stocks going into the end of 2015 and early in the first quarter.
A wise man once told me, “JC, if you trade the averages, you get average returns”. I think where we sit today, this is even better advice than usual.
Click Here to receive weekly updates on all sectors and sub-sectors across the U.S. Stock Market including Energy, Financials, Technology and Healthcare. This package includes over 50 charts annotated with commentary.
Tags: $SPX $SPY $ES_F $QQQ $COMPQ $NQ_F $IWM $MDY $IWC
If you have any appreciation for supply and demand dynamics in the stock market you are likely to flip through a chart or two throughout your day. In my case, I flip through hundreds of charts a day, sometimes thousands. These include stocks, commodities, Currencies, Futures, ETFs, Indexes, and all on multiple timeframes – daily, weekly and monthly charts. One that keeps coming up on my radar is the Nasdaq, both the Composite and the 100. The reason is because we’re now back up towards March 2000 highs. This was the peak before the crash that took place over the next 2 years. It took over 15 years just to get back up here. But now what? [Read more…]
Are you guys having fun yet? I tend to enjoy this sort of market environment where stocks go both up and down. This is what we like to call, “normal”. For us market participants that look at all asset classes, particularly currencies and commodities, we know that normal markets move in both directions. Long-term trends can be up and they can be down, while counter-trend moves lasting weeks or months are the norm. For some people that only look at U.S. Stocks, that concept may have been forgotten as the major U.S. averages trended mostly higher the past 6 years, although we did have some short-term corrections along the way.
The title of this post, “It’s the Yen Stupid” was inspired by James Carville during Clinton’s presidential campaign in the early 90s. He used Economy, not yen, but I think you get the point. As market participants, we’re not here worried about China, or Greece, or a rising rate environment (that one is hilarious by the way), we only care about what is happening between supply and demand. Searching far and wide for clever reasons as to “why” the market is doing what it’s doing just seems like a complete waste of time. Remember that Mr. Market has never paid a single person in human history for
knowing guessing “why”. We would rather focus on things like “What”, “When”, and “For How Long”.
Coming into the new year, everyone had an opinion on what might unravel the bull market in U.S. stocks. We’ve heard them all, so there’s no reason to drag that nonsense on. Chatting with buddies of mine that look at markets in a similar way that I do, I always brought up the fact that the Japanese Yen was approaching lows not seen since 2007, just before the U.S. Stock Market peaked. With such strong negative correlations between Yen and U.S. Stocks, I thought that if we found support in Yen near the 2007 lows, it could present a major problem. Well, here we are.
Market observers will point out that it’s not the Yen dragging the S&Ps, but more so the S&P500 volatility causing unwinds in the Yen carry where short sellers of Yen now have to buy it back as they liquidate their speculative positions in stocks and other risk assets. That may or may not be true, but does it even matter? Is it relevant which one sparks which? Or do we just care that they move inversely? I’m a fan of the latter, obviously.
Here is a weekly bar chart of USD/JPY which shows the Yen bottoming out in the Summer of 2007, just around the time that all of the major U.S. Stock Market Indexes were topping out. Remember, in this chart Yen is the denominator, so a top in USD/JPY represents a bottom in Yen. Notice the failed breakout in 2007 above the prior two peaks from the previous 18 months. Now look today at how eerily similar the failed breakout this Summer appears on the chart:
There is a very strong negative correlation between U.S. Stocks and Japanese Yen. In fact, the further back you go, the higher the negative correlation coefficient becomes between the S&P500 and the Japanese Currency. We’re looking at levels near or above -0.9 across the board going back a month, a year, 3 years, 5 years, etc.
Is money flowing into Yen because it is coming out of U.S. Stocks? Perhaps. Is strength in Yen causing the selling in U.S. Stocks? Perhaps. Does it actually matter whether the tail wags the dog or just that there’s some wagging taking place here?
Facts are facts, it’s just math. I would argue that further strength in Japanese Yen will continue to wreak havoc across U.S. stocks and evening specials about markets in turmoil are here to stay. For a lower volatility environment and a stronger stock market, we want to see USD/JPY getting and staying above 122. This was the level in 2007 and it is the level that we’re once again focused on today.
Click Here to receive weekly updates on these charts as well as multi-timeframe analysis for the rest of the major currencies and 16 commodities futures contracts.
Tags: $USD/JPY $FXY $$6J_F $SPX $DJIA $qqq $RUT $IWM $IWC $COMPq $NYA $TNX $DIA
Apple is America’s favorite stock, there’s no doubt in my mind. There isn’t another stock or asset class out there that I get asked more about by friends or financial media. We love their products and it has the largest market capitalization of any stock. It therefore shouldn’t be a surprise that it gets so much attention. I was going through all of the Dow 30 components last night and $AAPL was one of the ones that stood out because it’s levels are so well-defined. We like clean charts and I think this is one of them.
The first chart we have today shows the weekly timeframes hitting out upside target near 130 back in February. This came from the 161.8% Fibonacci extension of the entire 2012-2013 correction. Since then I’ve been very consistent in reiterating that it’s been dead money at best and the opportunity cost is simply too much to bother with. Fortunately the market responded nicely at those levels and prices have since then rolled over. We can see on this chart that the $100-104 area really stands out. This was former resistance at the peak in 2012 (split adjusted) and some trouble once again last year before its final leg higher. That former resistance should turn into some support and that’s where I think we’re heading:
Notice how I also included the Fibonacci retracements from the lows in 2013 to this year’s absolute highs, which had slightly exceeded our upside targets temporarily before quickly reversing hard to the downside. The 38.2% retracement of that entire 2013-2015 rally is right near $104. This reiterates to me how important this area is for Apple.
Looking a bit more near term here is the daily timeframe showing prices breaking back down below that former resistance in November and February near $120 after the consolidation since hitting our upside objectives in February resolved to the downside. When sideways ranges like this, that tend to be continuation in nature, resolve negatively, that’s typically a bad sign. For right now the levels seem to be fairly clean. I would be fading any strength towards $120-121 where we run into that former resistance and support last month as well as the 200 day simple moving average that appears to now be flattening:
As far as downside targets go, that support near 104 stands out once again as this was resistance last September and support in January. I would be covering short positions down there. This is not something I would want to buy here as both weekly and daily timeframes suggest a neutral trend at best and most likely more downside.
If you want to look at Apple on a relative basis, this is now an underperformer. Funny how quickly things can change. Here we’re looking at $AAPL relative to the S&P500 breaking the uptrend line from the lows last year. I also included momentum readings so you can see how we are now in a bearish range hitting oversold conditions (14-period RSI). The new lows in momentum last month confirmed the new lows relative to the market. So not only do we not want to own this on its own, but relative to the market itself, it also looks ugly.
What do you guys think?
Click Here to receive weekly updates on these Apple charts above including the rest of the 30 Dow components on multiple timeframes.
Tags: $SPY $AAPL $qqq
For most of the summer I haven’t been writing much here on the blog. I wanted to take a little bit of time off and focus more on our portfolio as well as the research that we are publishing weekly to our paid members. Today I wanted to go over the large-cap US Stock Market Averages to see where we are within the context of the ongoing bull market since early 2009. The word “Neutral” has been a big theme for us this year when it comes to most of the major stock market averages, although there have been some great opportunities, both long and short, within the industry groups that make up these indexes. We’re looking at daily candlesticks, a 14-day relative strength index (RSI) to measure momentum, and a 200 day simple moving average that we use mostly for trend recognition.
First the S&P500: S&Ps have been stuck in a range for most of this year. After retesting the lows from mid-March, prices have bounced back sharply and are attempting to breakout above both the upper end of this range as well as the downtrend line from the all-time highs set in May. RSI is in a neutral range not hitting overbought or oversold conditions since November, but I would argue that it leans bullish as it stayed above 30 on this recent correction last month. The upward sloping 200 day moving average is also a bullish characteristic. A breakout above these former highs would be a positive and I would only want to own this if we’re above that level. The upside target upon this confirmation would be near 2170 which is the 161.8% Fibonacci extension of this range. I see little reason to force this long if prices are within this 2015 range.
Dow Jones Industrial Average: like the S&P500, the Dow Industrials have been stuck in a similar range all year as well. After a couple of false starts in late February and mid-May, the Dow is still within this sideways consolidation. Similarly to its large-cap counterpart shown above, the RSI in the Dow has stayed out of oversold conditions all year which is good, but looking more neutral than anything else. The upward sloping 200 day moving average is positive. If we can breakout above the upper end of this range, then I could understand the argument to get long. But if prices are below 18,150 I see no reason to be long. If we break out, I would still expect overhead supply to come in at 18,350 so I think patience here is best.
Nasdaq100: this to me has been the cleanest of all of the major U.S. Stock Market Averages. The overhead supply in this particular index has been much more clear than in the Dow Industrials or S&P500. In this case, we’ve been watching this 4560 level that was resistance in April, May and again in June. The more times that a level is tested, the higher the likelihood that it breaks. In this case, we got that breakout last week with our upside target being the upper of these two parallel trendlines that go back to the 4th quarter. This is currently just under 4700 where tactically we want to be taking profits. Momentum measured by RSI is much stronger here as we have hit overbought conditions since late last year without getting oversold at all this year. It appears overbought conditions are coming here once again which would confirm that momentum remains in a bullish range.
Overall, I have to say that “neutral” is really the word that explains the large-caps the best. Over the next week, I will be following up on this post taking a look at some of the individual sectors and sub-sectors that are in well-defined trends, both up and down. A really smart trader once told me, “If you trade the averages you generate average returns”. I think this statement is more true this year than in any other period that I can remember, and there’s nothing wrong with that. I understand that the headlines revolve around what the Dow did, or what level the Nasdaq hit or didn’t hit. But we’re not here to make headlines. We are only here to make money. Clearly trading the averages is not advised, particularly in a sideways environment. We want to focus on individual sectors. I’ll follow up with some of these shortly. Stay tuned…
Click Here to receive weekly updates on all of these charts including the small and mid-cap indexes as well using multiple timeframes.
Tags: $SPY $SPX $ES_F $YM_F $DIA $DJIA $NDX $QQQ $NQ_F
This morning I was down at the Nasdaq Marketsite chatting with Frances Horodelski on Business News Network about U.S. Interest rates and Large-cap stocks. We’re also looking at this multi-month consolidation in Apple within the context of a longer-term uptrend in the stock. We are looking for a decisive break in order to have any sort of conviction on the direction of the next move. We remain patient until then.
Here is the interview in full:
Click Here for more information on our Premium Technical Research Packages
Tags: $qqq $AAPL $TLT $TNX $ZW_F $ZB_F $WEAT