S&P 500: Brutal Week, What’s Next?

The S&P 500 (NYSEARCA: SPY) made a new high of 293.94 on September 20th, 2018 but the entire move higher lacked momentum and also leadership.

The monthly RSI was at or nearing 90 which is extreme reading. The S&P 500 (SPY) made a lower high on October 3rd in what turned out to start the brutal move lower during the past week.

Prior to the decline, there seemed to be irrational exuberance from many market participants with some extreme complacency. A few such readings to mention here were the Equity Only Put / Call Ratio ($CPCE) and $VIX to $VXV ratio which were consistently showing complacency.

The question now is whether or not the pain is over for market participants.

Let’s take a look at some charts.

spy etf percent declines stock chart investors year 2018

The first chart depicts the percentage decline during 2018 during various corrections. (Courtesy: Brian Shannon – @alphatrends)

  1. February – 13.53%
  2. March/April – 10.11%
  3. October – 8.72% (so far)

Note: If $SPY retests February lows, that will be a 16.22% decline

spy stock market investing chart vwap year to date october 15

The next chart is the daily chart of S&P 500 ETF (SPY) with Year To Date VPOC.

The current decline from February lows to All Time Highs made in September came close to tagging 61.8% retracement (Fib retracement drawn with weekly chart). The current lows made on October 11th is 270.36 and 61.8% retracement sits at 268.59 which are likely to be tested. Price closed below 200 SMA on this timeframe and this happens to be the first time since 2016.

Additionally, $SPY held the Year to Date VPOC (Virgin Point of Control) at 272.73 for now but closed below the lower Bollinger Bands. On the weekly timeframe, $SPY has held it’s 50 SMA so far.

Most of the rallies seen across many years have started with such extreme readings below the 200 SMA and lower Bollinger Bands. Some of the extreme readings to mention were seen in RSI, Williams %R, $TICK. The New Highs vs. New Lows were at nearing

stock market tick indicator chart year 2018 through october 15

Additionally a sentiment gauge that some of the experienced traders look at is the CNN Fear & Greed. Intraday on October 11th, it had a reading of 4. Bounces occur in the indices at such extreme readings.

Potential Bounce:

s&p 500 spy stock chart 30 minute trading candles rally higher october 15

Where do we go from here? Does this bounce continue? Let’s take a look at a few potential levels where this bounce can fail.

  1. 5 day moving average (65 SMA on 30 minutes) is at 281.64. The posture is declining still and hence this can be the first hurdle to cross.
  2. 50% retrace from October 11th lows of 270.36 is 282.15. That will be the next level to watch.
  3. If the above two levels are surpassed, then look at 284.93 which aligns with 61.8% retrace from the October 11th lows.

Final Thoughts: October 11th lows will be visited again some point. Extensive technical damage has occurred in many charts in the shorter timeframe from this move lower. It is prudent for market participants to stay patient and disciplined and manage their position size and their risk.

 

Note: Author has no position in $SPY or $SPX at this time.

Twitter: @sssvenky

Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.

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S&P 500: Brutal Week, What’s Next?

The S&P 500 (NYSEARCA: SPY) made a new high of 293.94 on September 20th, 2018 but the entire move higher lacked momentum and also leadership.

The monthly RSI was at or nearing 90 which is extreme reading. The S&P 500 (SPY) made a lower high on October 3rd in what turned out to start the brutal move lower during the past week.

Prior to the decline, there seemed to be irrational exuberance from many market participants with some extreme complacency. A few such readings to mention here were the Equity Only Put / Call Ratio ($CPCE) and $VIX to $VXV ratio which were consistently showing complacency.

The question now is whether or not the pain is over for market participants.

Let’s take a look at some charts.

spy etf percent declines stock chart investors year 2018

The first chart depicts the percentage decline during 2018 during various corrections. (Courtesy: Brian Shannon – @alphatrends)

  1. February – 13.53%
  2. March/April – 10.11%
  3. October – 8.72% (so far)

Note: If $SPY retests February lows, that will be a 16.22% decline

spy stock market investing chart vwap year to date october 15

The next chart is the daily chart of S&P 500 ETF (SPY) with Year To Date VPOC.

The current decline from February lows to All Time Highs made in September came close to tagging 61.8% retracement (Fib retracement drawn with weekly chart). The current lows made on October 11th is 270.36 and 61.8% retracement sits at 268.59 which are likely to be tested. Price closed below 200 SMA on this timeframe and this happens to be the first time since 2016.

Additionally, $SPY held the Year to Date VPOC (Virgin Point of Control) at 272.73 for now but closed below the lower Bollinger Bands. On the weekly timeframe, $SPY has held it’s 50 SMA so far.

Most of the rallies seen across many years have started with such extreme readings below the 200 SMA and lower Bollinger Bands. Some of the extreme readings to mention were seen in RSI, Williams %R, $TICK. The New Highs vs. New Lows were at nearing

stock market tick indicator chart year 2018 through october 15

Additionally a sentiment gauge that some of the experienced traders look at is the CNN Fear & Greed. Intraday on October 11th, it had a reading of 4. Bounces occur in the indices at such extreme readings.

Potential Bounce:

s&p 500 spy stock chart 30 minute trading candles rally higher october 15

Where do we go from here? Does this bounce continue? Let’s take a look at a few potential levels where this bounce can fail.

  1. 5 day moving average (65 SMA on 30 minutes) is at 281.64. The posture is declining still and hence this can be the first hurdle to cross.
  2. 50% retrace from October 11th lows of 270.36 is 282.15. That will be the next level to watch.
  3. If the above two levels are surpassed, then look at 284.93 which aligns with 61.8% retrace from the October 11th lows.

Final Thoughts: October 11th lows will be visited again some point. Extensive technical damage has occurred in many charts in the shorter timeframe from this move lower. It is prudent for market participants to stay patient and disciplined and manage their position size and their risk.

 

Note: Author has no position in $SPY or $SPX at this time.

Twitter: @sssvenky

Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.

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2 Bullish Stocks: Twitter (TWTR) and Michael Kors (KORS)

Today I want to share 2 trading setups that I have my eye on.

The stocks are Twitter (NYSE:TWTR) and Michael Kors (KORS). Charts and commentary are below.

Twitter (TWTR):

The company needs no introduction as most of the fintwit people thrive on this platform. The company has a market cap of $34 billion.

The company reports earnings on July 25thbefore market open and the short float for the stock is 6.17%. January 2019 – 70 calls were bought today (June 26th) although there has been constant buying in this name.

twitter stock research trading forecast chart_27 june 2018

After the recent run to make a 52 week high, the stock has been consolidating on lower volume to let the short term moving averages catch up with price. Stock is holding both its 8 EMA and 10 EMA on the daily timeframe and has formed a bull flag. Inside Day printed today (June 26th). Trigger over Monday’s highs of 45.52 with a stop at either 43.33 if one wants a tighter risk or room to 21 SMA near 41.77. Targets are 50.55 and 55.01. Always take profits near targets. July 45 calls or August 50 calls are attractive although a spread will be more risk defined (45/55 call spread).

Note: The author has a position in TWTR at the time of publication. Any opinions expressed herein are solely those of the author for educational purposes only and do not in any way represent the views or opinions of any other person or entity.

Michael Kors (KORS):

Michael Kors is a luxury apparel and accessories manufacturing company headquartered at London, United Kingdom with a market cap of $10 billion. The company’s Annual ROE is 38.8% and last quarter’s percentage change in sales was 11%. Company’s next earnings is on 8/29/2018 before market open and the short float is 3.27%.

michael kors stock research trading forecast chart_27 june 2018

The stock has been consolidating sideways on much lower volume and has held relatively well compared to what the indices have been doing. Range break awaits over 68.58 on daily timeframe. Risk is at 65.20. Target 1 at 71.38, Target 2 at 75.20.  July 68 or 69 calls look decent or August 68 calls.

On the monthly timeframe, the stock has formed a bull flag and has held extremely well during the chop in June. It is above all moving averages on this timeframe. Traders can get involved this name on this timeframe on a break out over 70 with a stop under either 10 EMA which currently is at 59.55 or the monthly lows of 57.10. This is a long term swing with first target at 77.97 and additional targets at 84.58 and 90.87. A bullish risk reversal will be an ideal play (short August 60 or 57.5 puts and long 70/80 call spread or just 70/80 call spread if margin is not available).

Note: The author has no position in KORS at the time of publication but will consider a long position based on the monthly breakout. Any opinions expressed herein are solely those of the author for educational purposes only and do not in any way represent the views or opinions of any other person or entity.

Twitter: @sssvenky

Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.

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S&P 500 Technical Update: 4 Reasons For Caution Into Month End

The S&P 500 (NYSEARCA:SPY) had been consolidating to form a bull flag at the 2780 zone… until additional trade war related news between the US and China took center stage once more.

The reaction to the news was that price broke intermediate and important price support levels around 2751-2740 on the S&P 500 Index.

Range expansion to the downside took price down to an important support level on the daily chart – 2700, which also marks the 50 SMA on the daily chart. This support held.

Quite a bit of technical damage occurred on this move lower but there is some positive divergence on Williams %R, a momentum indicator.

Price confirmation one way or the other is required on Wednesday June 27th with month end and quarter end looming.

So what gives?  Let’s look at the chart and point out some things traders need to be aware of.

S&P 500 Chart

s&p 500 price chart analysis value buying zone june 27 2018

From a technical perspective, there are a few pointers that one needs to be aware of.

1.  Price stalled again at the 2780 zone which is the Year to Date Value Area High (VAH). Price stalled similarly during the last week of February and again during the week of March 12th.

2.  Inside Day or Week is a pattern that is quite powerful on either side of the tape, whether you are playing for a break higher or break down. The candle formation Monday (June 25th) and Tuesday (June 26th) is surprisingly quite identical to the ones on March 19th and March 20th when S&P 500 printed an Inside Day – a very tepid bounce after a big red day. Price broke down then. The same scenario need not occur but one needs to be aware that an inside candle can go either way.

3.  The Equity only Put/Call ratio ($CPCE) printed a reading of 0.52 today (June 26th). Similar readings have been noted during the entire month and this throws utmost caution as there seems to be a lot of complacency. Of course, what price does from here can be totally opposite of what has been mentioned but after a big red day, the Options Flow indicated a lot of call buying instead of put buying. In fact, there were massive put buying in $VXX. Overall caution warranted.

4.  Last but not the least, the Open Interest for tomorrow’s expiry and Friday’s expiry for $SPY indicates a potential for Delta Hedging.

Note: The author has $SPY 270 puts expiring June 29thFriday as potential hedge

Twitter: @sssvenky

The author has a position in SPY at the time of publication. Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.

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S&P 500 Weekly Review: Will Traders See A ‘May Swoon’?

A LOOK AHEAD FOR MAY OPTIONS EXPIRATION (OPEX)

It’s been a very tricky market tape for bulls and bears over the past couple of weeks. Bulls have been unable to press the stock market above resistance, while bears have been trying hard to break bigger support levels but in vain. A lot of sectors are breaking down, momentum and breadth is waning, and global issues especially with the so called “BREXIT” vote are looming in current and future headlines/news.

There are many calls for “Sell In May and Go Away”. Consolidation/Digestion occurs either via price or time. While the short term action is choppy/range-bound, all that the stock market indices have managed to do so far is to pullback 2-3% after a mammoth 11-12% rally higher.

The S&P 500 will be the focus today but we’ll hit up on several key stock market indicators, while touching on sectors and indices.

 

U.S. ECONOMIC REPORTS:

There are quite a few Economic Reports next week and all eyes are on the FOMC meeting minutes on Wednesday at 2:00 P.M. A lot is being talked about whether or not Fed will raise interest rates again this year or not plus recent talks of Negative Interest Rates as well (NIRP). One has to been wary about NIRP as those effects are seen in Japan. Other reports of interest are Empire State Mfg Survey and Housing Market Index on Monday, Consumer Price Index, Housing Starts and Industrial Production on Tuesday, Leading Indicators on Thursday and Existing Home Sales on Friday. Overall, it seems to be a busy week with respect to Economic reports. Additionally, there are representatives from Fed who will also be on tap this week.

us economic report calendar week of may 16

 

EARNINGS REPORT:

Earnings Season is coming to an end and investors are trying to digest a mixed bag of good and bad. Here are some key stocks reporting earnings this week:

MONDAY:  $LEJU, $A

TUESDAY:  $HD, $TJX, $PLCE, $RRGB, $MOMO

WEDNESDAY:  $TGT, $CSCO, $CRM, $LOW, $SPLS, $ADI, $LB

THURSDAY:  $WMT, $DKS, $GPS $AMAT, $AAP, $BRCD, $EGHT, $ROSS

FRIDAY:  $DE, $FL, $CBP

earnings-whispers stocks reporting earnings calendar_week of may 16

 

MARKET BREADTH & SENTIMENT INDICATORS:

From a Market Breadth Indicator standpoint, here are few you should take a look at:

 

SECTOR PERFORMANCE: CANDLESTICK GLANCE

From a stock market sector standpoint, defensive sector such as Utilities ($XLU) stands out the most. Basic Materials ($XLB) and Energy ($XLE) don’t look shabby. All others took a hit last week. The laggards mainly have been Technologies ($XLK) although they fared slightly better on Friday. Despite some sizeable moves in Financials ($XLF) in the prior week or two, they are still weak.

stock market sectors rsi indicator charts_may 16

 

The Relative Rotation Graph (RRG) chart showing the leaders and the laggards among the 9 sectors.

rrg stock market sectors rotation chart_may 16

 

$CPC – CBOE Options Total Put/Call Ratio:

$CPC spiked to 1.28 but then pulled back on Friday. This shows that there is fear stepping into the market (not reflected in $VIX) and market participants are buying puts for protection. While 1.28 reading is high enough, it certainly has more room higher and that can signal an interim capitulation type low for the indices.

equity put call ratio chart stocks_may 16

 

NAIIM EXPOSURE INDEX:

The NAAIM Exposure Index represents the average exposure to US Equity markets. The green line shows the close of the S&P 500 Total Return Index on the survey date. The blue line depicts a two-week moving average of the NAAIM managers’ responses.

The NAIIM Exposure Index was down to 49.55. It was above 80 just 3 weeks ago. This indicates that the active money managers are slowly but steadily not participating in the market. A reading of 36 or lower will be ideal for a sustained move higher in indices with room for these money managers to put money back to work.

naaim investor survey results_may 13

 

AAII INVESTOR SENTIMENT SURVEY:

AAII Survey ending 5/11/2016 shows that there are more bears than bulls. This is 3rd week in a row that the bears outnumber bulls.

aaii investor sentiment bulls bears survey_may 13

 

$NYMO (MCCLELLAN OSCILLATOR):

$NYMO finished the week at negative 46.16. Both breadth and momentum are waning and are negative as of now. $NYMO has room lower (-60 or lesser) before being oversold.

nymo mcclellan oscillator oversold bullish chart_may 16

 

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Stock Market Recap And Options Review: March 25 Expiry

The March options expiration ended with all three major stock market ETFs ($SPY, $QQQ and $IWM) finishing higher. $SPY closed well over its 200 SMA and is nearing potential resistance levels. While $QQQ also moved higher lethargically, $IWM consolidated well and broke out of a bull flag higher.

$TLT showed some signs of life and is trying to bounce with a potential chance of a break higher. $CL_F (Crude Oil) moved higher while $GC_F (Gold) bounced after moving lower. $DX_F (U.S. Dollar) continues its downward move and took another pounding last week.

Market breadth expansion was the norm with some intraday consolidation. With all that said, there are no sell signals yet to go short.

From a breadth standpoint, here are a few indicators that may provide clues for the upcoming week:

SECTOR PERFORMANCE:

From a sector standpoint, 6 out of 9 stock market sectors are overbought with 2 approaching 70 zone. Some consolidation next week with potential rotation into $XLV and/or $IBB is possible. $XLE and $XLF still have some room before being overbought.

stock market sectors chart overbought oversold march 21

$NYMO (McClellan Oscillator):

$NYMO moved lower, consolidated during the week and now it is back at overbought zone. While it can go higher, consolidation here or a pullback towards zero line will be ideal.

nymo mcclellan oscillator overbought march 21

$CPCE (CBOE Options Equity Put/Call Ratio):

$CPCE is now at 0.550, back towards the lower end where bounces have occurred. This means that with stock market indices near or at potential resistance zones, market participants may be rushing to buy protection, inducing some fear near term. This is showing some warning signs plus complacency near term.

equity put call index complacent stock market march 21

$VIX:$VXV:

$VXV is the 3 month volatility index. The relationship between $VXV and $VIX (30 day volatility) or the ratio between them if > 1.00 often spells trouble for equities. This volatility ratio continues to ease off lower but is at or nearing a point where this can bounce. It finished the week at 0.782. This is also showing some warning signs plus complacency near term. Another one to watch next week if there are short term pullbacks and some bounce in $VIX.

vix vxv volatility ratio stock market march 21

$SPY – Daily/Weekly and Open Interest:

On a Daily timeframe, $SPY began the week above the 200 SMA but started pulling back a bit towards the 200 SMA. The gap from early January was still unfilled. This is a normal reaction to any break higher to retest either the breakout zone or any moving average before higher. On Wednesday, it continued higher didn’t look back for rest of the week, even with $SPY going ex-dividend. On Friday, it printed a DOJI and that means indecision. There is a potential for a pullback or consolidation if the DOJI is confirmed lower at the start of the week.

Price is clearly above all moving averages and moving away from the 200 SMA. 8 SMA and 21 SMA have started to rise nice as well while 50 SMA is trying to flatten out a tad. From a momentum indicator standpoint, RSI is rising but near 70 and hence consolidation here is ideal first before the next move higher. MACD too is rising but getting a tad extended for the shorter timeframe. Here too consolidation is ideal. Slow STO though is embedded and is in the overbought zone. A pullback / consolidation here too may be on cards.

sp 500 daily stock market chart march 21

On the Weekly timeframe, $SPY has printed another bullish candle for the 5th successive week. Price on this timeframe is over its declining 50 SMA. The RSI on this timeframe is rising and in the bullish zone while MACD has made a bullish cross and rising too. It is still below median but constructive so far. Overall, with some consolidation, look for higher prices on $SPY towards 208 which happens to be the measured move of this move. (See $SPX chart for measured move).

sp 500 etf spy weekly chart stock market march 21

From an Open Interest standpoint, here are the potential scenarios:

Highest Calls: 206

Highest Puts: 200

  1. If $SPY starts the week lower, below 205, look for the 1st support around 203. If that doesn’t hold the next support zone is 201-200 where there are quite a few puts. Additional support zones are available if 200 is lost at 199, 198, 197, 195 and 194 and these are worst case scenarios.
  2. If $SPY moves over 205 and towards the 206 price level, with a lot of calls there, look for resistance. A pullback from there towards 203 is possible and scenarios outlined above hold good. But if 203 does hold and $SPY does move over 205 and 206, there is always a chance for it to move towards 207 and/or 208. I will not rule this higher move out yet with the bullish posture of the momentum indicators and price.

Note: Since these are weekly options, there can be quick changes to them during the course of the week. Pay attention to those changes as the above mentioned scenarios can change a bit depending on where the change is.

spy open interest calls puts weekly march 25

 

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S&P 500 Weekly Update: Stocks Fight To Hold Gains

Stocks rallied for the third consecutive week last week. Can the stock market make it 4 weeks in a row this week?

The rally last week was led mainly by crude oil, and small caps stocks, with the financials sector not far off. This undercurrent of support propelled the S&P 500 higher into the beginning of a thick price resistance zone.

Intraday levels of the McClellan Oscillator $NYMO reached levels not seen since 2008 last week and the indicator has remained overbought for the past 2 weeks. I certainly agree some of the market breadth indicators are overbought but that potentially has been the fuel for higher prices and what may be on the horizon for the next few weeks.

There has been quite a bit of consolidation and this has kept the Relative Strength Index (RSI) from getting too far ahead of itself. Overall the active has been quite constructive. Higher prices may be up next as many investors are still skeptical of the rally and continue to look for short opportunities with each move higher… and price keeps going higher.

That said, the longer term picture still shows lower highs which indicates that the market is still in a downtrend. The shorter-term bullish posture is threatening that, but that remains to be seen. Various sectors have shown strength recently, but broad leadership is still lacking. Lots of laggards bouncing sharply.

Below is a chart of the S&P 500 Index through last weeks close. You can see that RSI is in the bullish zone and indicates that the market is likely to consolidate gains here. The MACD is still rising and in good shape thus far. Stocks closed just above the 100 day simple moving average. While price may run to its declining 200 day SMA before a pullback, the ideal scenario will be to consolidate gains, then make a run higher towards the 200 day SMA. Momentum is still in the bulls favor but the bears are watching for any weakness.

S&P 500 Index (through March 4)

spx sp 500 index chart analysis stock market march 9

Market Breadth Indicators:

From a market breadth standpoint, there are a few charts that we should take a look at.

Sector Performance Review:

Looking across then core S&P stock market sectors, it’s clear most are acting bullish zone and rising near-term. Even laggards like the Financials (XLF) and Energy (XLE) participated in last week’s stock market rally. Healthcare sector (XLV) is a notable laggard that hasn’t participated int he broad 3 week rally. Overall, the action is constructive.

The Relative Rotation Graph (RRG) chart highlights the leaders and laggards across 9 key sectors.

relative rotation graph rrg sector performance march

CBOE Equity Put/Call Ratio:

The Put/Call ratio has dipped below the Jan and Feb lows. Is this an indication of some sort of complacency? It’s possible. With many sectors and indices rallying so far so fast, a pop higher could be on the horizon. Watch the Volatility Index (VIX) – if it stays below 20, then the Put-Call ratio may remain low(er).

equity put call ratio stock market indicator complacency week of march 11

NYMO (McClellan Oscillator): 

The intraday reading on on the McClellan Oscillator on Friday reached its highest reading since 2008 and settled just a tad below 2009 levels. Needless to say, it is overbought and stocks can use some consolidation.

nymo mcclellan oscillator overbought march 4 chart

VIX:VXV Volatility Ratio

VXV is the 3 month volatility index. When the ratio between the VIX and VXV is > 1.00 it often spells trouble for stocks. This ratio continues to ease up. This is another indicator to watch here to see if the market consolidation will remain orderly or not.

vix vxv volatility ratio indicator chart week of march 11

Thanks for reading and good luck this week.

 

Twitter: @sssvenky

The author has a position in S&P 500 related securities. Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.

 

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S&P 500 Weekly Update: Backing And Filling… Or Worse?

Last week we got the anticipated bounce in a stock market downtrend. We are giving back some of those gains to start the week, but the key question is:  What will happen next?

From what I see, I expect range-bound consolidation this week between 1884-1933 with big support at 1872 on the S&P 500 Index (SPX). Of course, there is a chance of going higher towards 1940-1950, however I will curb my expectations beyond that at least as of now.

Most sectors, from a very short term perspective came into the week overbought or nearing overbought levels. So some back and filling is expected.

We had a huge move from 1810 to 1933 or so. Crude Oil is trying to hold on to the gains from last week but struggling and looking lethargic. Watch for signs of decoupling from the stock market indices to cue an overall change in the character of the market (no signs yet).

Gold has held support near 1190 and bounced but best scenario might be some consolidation with a chance of higher prices. Bonds are something investors should be watching out for as safe heaven trades are catching a bid. That said, we will take it one step at a time. And as of now, the longer term picture for stocks is still pointing down. Not a whole lot has changed from that perspective despite some constructive action – the potential for the downside resumption cannot be ruled out.

Here’s the updated chart of $SPX.

spy chart technical price support levels for week ending february 26

Economic reports this week:

  • S&P Cash-Shiller, Consumer Confidence, Existing Home Sales, Richmond Fed Manufacturing Index came out on Tuesday
  • PMI Services Flash, New Home Sales, EIA Petroleum Status Report on Wednesday
  • Durable Goods Orders, Jobless Claims on Thursday
  • GDP, Personal Income Outlays, Consumer Sentiment on Friday

Additionally there are quite a few Federal Reserve representatives talking during the course of the week.

BREADTH INDICATORS:

From a Bread Indicator standpoint, here are a few charts/indicators to keep an eye on.

SECTOR PERFORMANCE: CANDLESTICK GLANCE:

From sector performance standpoint, most of the sectors have their RSI over median but only just bit. I would certainly not call that bullish but just constructive. None of them are either overbought or oversold. $XLU and $XLP are still the top performing stock market sectors overall.

stock market sectors relative strength index charts february

The Relative Rotation Graph (RRG) chart showing the leaders and the laggards among the 9 sectors.

relative rotation graph stock market sector for week february 26

$CPCE – CBOE Options Equity Put/Call Ratio:

The CBOE Options Equity Only Put/Call Ratio saw another spike to 0.87 last week. Some fear setting in may be near the clear resistance zones but still a lot of complacency on both sides of the stock market. Of course, the Volatility Index (VIX) shows no fear yet although still elevated at over 20. With some consolidation next week, see if this spikes a bit more.

put call ratio stock market indicator fear rising february

NAIIM Exposure Index Reading – 41.05: 

The NAAIM Exposure Index represents the average exposure to US stocks and stock market indices.

While the NAIIM Exposure Index reading has moved to 41.05, no real edge here.  Still pays to be careful.

$NYMO (McClellan Oscillator): 

The McClellan Oscillator took the stock market from mid-line to overbought in just a week. $NYMO did get over 60 mid week (last week) and ended the week at 51.25. A bit overbought but no edge here.

nymo mcclellan oscillator chart overbought february 21

 

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Stock Market Update: The Roller Coaster Ride Continues

Last week saw another week of selling in the stock market – fast controlled selling. But it gave way to another sharp oversold rally on Thursday after the S&P 500 undercut its lows. And the price action on Friday looked quite similar to January 20th although there were some positive divergences emerging over the very short term.

All bounces thus far have ended at either the 38.2% Fibonacci retracement or the 50% retracement on shorter timeframe charts (hourly etc.).

The path of least resistance is still down as all of the stock market indices are still below their 50 and 200 day moving averages and pointing downwards. Investor sentiment is very poor but nothing extreme. And there still is a lot of complacency on either side of the tape. As well, volatility continues to be elevated.

In my humble opinion, we have not seen the capitulation low type move yet so be careful.  That said, this move higher may have some legs so it’s important to use discipline when trading this tape.

Economic reports this week include:

  • Housing Starts, PPI-FD, Industrial Production and FOMC Minutes on Wednesday
  • Jobless Claims, Phily Fed Business Outlook Surevey, Leading Indicators and EIA Petroleum Status Report on Thursday
  • Consumer Price Index on Friday.

Additionally there are quite a few Federal Reserve representatives talking throughout the week.

Market Breadth Indicators:

From a market breadth indicator standpoint, the following are worth keeping an eye on.

Sector Performance: Candlestick glance:

From sector performance standpoint, none of the sectors are oversold. Financials ($XLF) and Cyclicals ($XLY) entered the week near oversold but most sectors have worked that off this week. Most of them are still in a serious downtrend while Utilities ($XLU) seems to have worked off its overbought condition.

stock market sector etfs relative strength charts february

The Relative Rotation Graph (RRG) chart showing the leaders and the laggards among the 9 sectors heading into this week.

relative rotation graph sector leaders stock market february 15

$CPCE – CBOE Options Equity Put/Call Ratio:

The CBOE Options Equity Only Put/Call Ratio spiked twice last week before easing off on Friday. It hit 0.96 which shows some fear but nothing indicating a capitulation type low. Anything over 1.00 or more importantly 1.10 signals extreme fear where there are more number of puts than calls. It finished the week at 0.71. The rally continues but investors are still on alert.

cpce put call ratio stock market bullish chart february 15

NAIIM Exposure Index Reading – 42.25: 

The NAAIM Exposure Index is a great investor sentiment indicator and represents the average exposure to US Equity markets. The green line shows the close of the S&P 500 Total Return Index on the survey date. The blue line depicts a two-week moving average of the NAAIM managers’ responses. As shown below, a week ago, the Index number had fallen back to the lower range towards 22.41. Last week it increased to 32.87 but still low enough for the mean reversion type move in the stock market indices to continue (which we are seeing this week).

naaim investor sentiment survey bearish february

AAII Bulls:

The AAII investor sentiment survey ending 2/10 suggests that the AAII Bulls were down 8.3 or 19.2%. It is probably matching or near the lows from July last year. This is a positive for the bulls over the short term and could support a mean reversion move.

aaii investor sentiment survey bulls bears february

$NYMO (McClellan Oscillator): 

The McClellan Oscillator (NYMO) finished the week at -4.70, almost flattish towards the zero line. This was neither overbought nor oversold but the move Thursday and Friday offered momentum into this week.

mcclellan oscillator nymo stock market indicator bullish chart february 16

S&P 500 Index – $SPX:

The S&P 500 closed the week at 1864.78. Last week I outlined a couple of scenarios on Stocktwits and Twitter.

  1. $SPX moves higher, the next target is right above to the declining 8 SMA at around 1869.93 or overshoot to 1872 and fall lower to retest 1850-1848 before resuming higher towards 1900+.
  2. From Friday’s close, retest 1850-1848 zone or even 1840 zone and then move higher towards declining 8 SMA at around 1870, consolidate a bit and move higher towards 1884 and with a small chance to 1900-1905.

A move towards 1900 will get many uncommitted shorts to cover and new longs to emerge and just above that level is a potential spot where a new leg lower could begin. We are still in a long term downtrend and possibly in a bear market with price below key moving averages. Some skepticism may breed higher prices and mean reversion. And a move to the 1920-1940 zone is not ruled out either. Keep an open mind, but stay disciplined.

Thanks for reading.

 

Twitter: @sssvenky

The author has a position in S&P 500 related securities. Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.

 

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Stock Market Update: Can The Bounce In Stocks Continue?

Are we out of the woods yet? The answer to this question is pretty simple: No.  However, the action at the end of last week and the month of January was constructive for the stock market.

That said, it’s been a rough start to this week and not a whole lot has changed from the past few weeks on a macro basis – feel free to read some of my previous stock market updates (here is last week’s blog post).

After a lot of back and forth price action within a 40-50 handle range on the S&P 500, it took a negative interest rate decision from Bank of Japan to kick of the rally on Friday and expand the range higher. The rally was on higher volume (even if you take out the last few minutes of re-balancing) with positive breadth expansion. A 90% up day where stocks, bonds, US Dollar, gold, oil and everything on earth was up before oil gave some gains – odd action there.

The entire day on Friday, bonds ($TLT) got a bid and a reason why Utilities $XLU were up too. With that said, the S&P 500 ETF ($SPY) regained its 21 day simple moving average and finished over it (before giving it back early this week). While the action was constructive on a weekly basis for stocks, it is important to remain cautious. As always a confirmation of prices ABOVE Friday’s closing price would be ideal.

Bottoms are not formed in a day so the back and forth price action isn’t uncommon as the indices have to form a base before rallying higher. The market may even want to undercut the current lows (if need be) – although that would only be bullish with some sort of technical indicators for the setup (i.e. a divergence).  There are a lot of ifs and buts right now, so consider this to be just a short term bounce within a much larger downtrend that could continue for some weeks ahead. Stay disciplined and watch your price levels and indicators to manage risk.

If last week was the most anticipated week with respect to earnings report, this week has some big name stocks reporting. $GOOGL blew the doors off but gave back some of those gains.  Other earnings reports this week include $GILD, $CMG, $XOM, $COP, $DECK, $YHOO, $UPS, $GM $LNKD.

There is no dearth for economic reports next week. Some of the important ones coming up are ADP Employment Report, PMI Services Index, ISM Non-Mfg Index, GDP and many more. Of course, the other one that everyone watches is the EIA Petroleum report that has been of great significance with Oil prices.

Breadth indicators:

From a stock market breadth indicator standpoint, here are a some things to watch.

Sector Performance – Releative Strength Glance:

From a sector performance standpoint, most of the sectors have moved higher out of the oversold levels from an Relative Strength Index (RSI) standpoint. Many of them have a bullish posture from RSI standpoint. Mentioned last week that Financials ($XLF) has been a laggard along with Materials ($XLB) and financials got a nice bid and look interesting going into the upcoming week. Many setups there plus in the Oil space.

stock market sectors relative strength index rsi charts january 29

The Relative Rotation Graph (RRG) chart showing the leaders and the laggards among the 9 stock market sectors.

rrg chart relative rotation stock market sectors january 29

NAIIM Exposure Index Reading – 42.25: 

The NAAIM Exposure Index represents the average exposure to US Equity markets. The green line shows the close of the S&P 500 Total Return Index on the survey date. The blue line depicts a two-week moving average of the NAAIM managers’ responses. Last week’s Index number has risen to 42.25. Still not a whole lot of participants.

naaim investor sentiment survey bulls bears chart january

$CPCE – CBOE Options Equity Put/Call Ratio:

The Equity Only Put/Call Ratio is around 0.58 and near another zone where complacency can set in but the good thing is that both the 10 and 21 MAs are sloping lower and normally bodes well for higher prices in stocks. But I do want to caution about any possible complacency.

put call ratio chart week ending january 29

$NYMO (McClellan Oscillator): 

It’s amazing when you look at how oversold the McClellan Oscillator was just a week or so ago and meandering below for the early part of last week. And 2 days especially with Friday’s move, $NYMO is at or near overbought levels. Of course, it can go much higher before being overbought but something to keep an eye on going into next week. $NYSI has made a bullish cross in the mean time.

nymo mcclellan oscillator chart overbought january 29

 

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