Expert technical analysis of financial markets by JC Parets
In this week’s members-only letter we discuss the following topics:
In this week’s members-only letter we discuss the following topics:
It’s been awfully lonely being a China bull over the past couple of months. All I keep hearing is how China is falling apart and slowing and all sorts of negative sentiment towards the country and its stock market. In the real world, however, where we are forced to live and where only price pays, we’ve seen emerging markets dominating for 2 months and I think the squeeze higher we’ve seen in China is just getting started.
First, here is a chart of the Shanghai Composite breaking below last August’s lows to start the new year. After a couple of months down there, we are now back above those former lows confirming a failed breakdown. I think this is the catalyst to continue to send Chinese stocks soaring: [Read more…]
In this week’s members-only letter we discuss the following topics:
In this week’s members-only letter we discuss the following topics:
This weekend I did my regular global macro review. This is when I go country by country analyzing the weekly and daily charts of all of the stock markets around the world. Each chart includes a momentum study (14-period RSI) and a 200 period moving average that we use to help with trend recognition. I trade indexes all over the world, simply because I can. Why wouldn’t I? [Read more…]
Dear Readers,
We have to trade and invest in the market that we have in front of us, not the one that we want. Therefore we have to be able to approach the market from a completely unbiased perspective. We don’t care if the market doubles in price or if it gets cut in half. We want to try to take advantage of moves in both directions. This is America after all.
I know it’s not sexy, but since October 23rd, we have wanted to approach the major U.S. stock market averages from a more neutral perspective. This is the day that both the S&P500 and the Dow Jones Industrial Average first got above what was then, and still is, a flat 200 day simple moving average. Securities in that sort of environment create headaches, for both the bulls and the bears. The reason is because [Read more…]
As far as stocks go, it’s hard to find a worse area than Emerging Markets to have been in over the past few years. We’re talking about a group of countries whose stock markets do nothing but underperform the U.S. and most of the other developed nations. More recently, they’ve been crushed on an absolute basis over the past 6 months. Although our initial downside targets were hit in August, I would expect the overhead supply and downside pressure to continue to persist.
In Early August, we took a look at the MSCI Emerging Markets Index ETF suggesting that a downside break was imminent. Below is an updated weekly chart of Emerging Markets breaking down below the lower end of the two converging trendlines defining its consolidation over the past 6 years or so. In addition, prices broke that $37 area that had served as support since 2010. The more times that a level is tested, the higher the likelihood that it breaks. After several tests of support over the past 5 years, that level finally gave way. It was only a matter of time:
Notice how on that breakdown in August, prices were able to hold on to the 61.8% Fibonacci retracement of the entire 2008-2011 rally. Although finding support near that level was a positive, it’s what we have to worry about going forward that has me concerned. All of that former support that broke over the past few months is now overhead supply. This has been a common theme I’ve been pointing out here in the U.S. stock market. The same problem can be seen in Emerging Markets.
Here is a closer look at the breakdown in EM over the past couple of months. Look at all of that overhead supply that is now going to be a problem going forward. On any strength into that level near $37, the sellers are just sitting there waiting to sell to you. This is the, “Please just get me back to break even” crowd that is holding on to all of this supply. In my opinion, this is simply way too much supply to absorb in the near term and a sustainable rally in Emerging Markets is likely not happening any time soon. This is definitely a ‘sell strength’ market, particularly towards $37.
In this chart above I also included a 200 day simple moving average. When prices are trading below these downward sloping smoothing mechanisms, especially one as long as 200 days, we know the intermediate term trend is still down. In addition, look at momentum plotted down below. We are looking at a 14-day RSI hitting oversold conditions. This is characteristic of a downtrend and we haven’t even put any bullish divergences to suggest a sustainable rally could be coming.
I see nothing to like here and all signs are pointing to lower levels. The best way to take advantage of this, in my opinion, is to sell strength, particularly above $36 if we get up there. I’m not suggesting we’re getting a rally to those heights, but if we do, I think it’s a sell. The original shorting opportunity came a few months ago. So I think ‘sell strength’ is the dominant theme here that we want to focus on.
Related Posts:
Overhead Supply in the Dow Components
Overhead Supply in Healthcare & Biotechs
The Problem Now Is Overhead Supply
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