“Caution Warranted” – Look ahead for the week of 05/06/2016

Home/Weekly Recap/“Caution Warranted” – Look ahead for the week of 05/06/2016

After a huge move off of lows, indices finally hit a high the prior week and have started to pullback this week. Hitting resistance and pulling back is normal but the nature of the pullback was one to take notice. Last week or two were the ones to watch with respect to earnings and truly the earnings reports that have come in so far have not been bad except for the fact that the large caps started rolling down big time with earnings miss from $AAPL, $GOOGL and so on. They finished below the lower Bollinger Band and 50 & 200 SMAs even when $FB $AMZN had big beats. Pretty significant closing. $IWM seems to be stalling while $SPY is hanging in there thanks to commodities. And the Bank of Japan move was a dampener that actually kicked off the move lower with $FXY (Yen) moving higher big time while U.S Dollar ($DXY $DX_F) continues to get annihilated. That said let’s take a look at what is in store next week.

U.S ECONOMIC REPORTS:

There are quite  a few Economic Reports this upcoming week including PMI Manufacturing Index, ISM Manufacturing Index, ISM Non-Manufacturing Index, Non-Farm Payroll and many more. Additionally there are quite a few Fed Representatives talking this upcoming week.

us-eco

GLOBAL ECONOMIC CALENDAR:global-eco

EARNINGS REPORT:

Some of the Earnings Report of interest this week are:

MONDAY: $RGR $AIG $APC

TUESDAY: $S $ILMN $CVS $DVN $EL $ETSY $PZZA $GRUB $NTRI

WEDNESDAY: $TSLA $PCLN $TRIP $WFM $FIT $ABBV $TWC $MRO $TASR $KATE

THURSDAY: $BABA $GPRO $FEYE $MBLY $DATA $REGN $CYBR $MRK $YELP $SPWR

FRIDAY: $CTSH $GOGO

earnings-whispers

BREADTH INDICATORS:

From a Bread Indicator standpoint, here are a few that we should take a look at.

SECTOR PERFORMANCE: CANDLESTICK GLANCE:

From a sector standpoint, Basic Materials ($XLB) and Industrials ($XLI) continue to outperform with Energy ($XLE), Financials ($XLF) and Consumer Discretionary ($XLY) not too far behind. Healthcare ($XLV) and Technology ($XLK) have moved lower and continue lower. $XLK is getting near the oversold levels if you notice RSI. Defensive sectors Utilities ($XLU) and Consumer Staples ($XLP) have started moving higher after recent pullback or even weakness.

sector-glance-rsi

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

rrg

$CPCE – CBOE Options Equity Put/Call Ratio:

Complacency could be seen in the markets before this week and noticeable move was in CBOE Options Equity Put/Call Ratio. $CPCE went lower than December 2015 but now has turned higher but is right at a place where it has turned down lower. With $VIX unable to go over 18-20 levels, a turn in $CPCE may not be a surprise.

cpce

NAIIM Exposure Index Reading – 74.19: 

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.

Interesting that the NAIIM bearish extreme reading last week is now -50 after the pullback. The NAIIM Exposure Index did move to 74.19, a level that is higher than April 6th. A reading over 65 or 70 indicates that the optimism has gone beyond expectation. The upcoming week’s reading might be interesting.

Keep a close eye on NAAIM Exposure Index and also AAII survey for input on market sentiment (right below NAAIM).

naaim

AAII Investor Sentiment Survey:

AAII survey ending 4/27/2016 shows that Bears were greater than Bulls. As noted by Ryan Detrick (@RyanDetrick), this is the first time Bears > Bulls since late February.

aaiiPercentage of S&P Stocks ABove 200-Day Moving Average:

Finally, for many doubters of this rally who are still calling for a visit of 1800 or lower levels, please note that this rally did happen in solid breadth. This is a very good sign. Chimed in by Callum Thomas part of his Weekend Chart Storm (@Callum_Thomas).

callum_thomas_spx

$NYMO (McClellan Oscillator): 

With some waning momentum, $NYMO ended the week negative but note that is still at a spot that is neutral. Nothing much to pen or look here as of now but will be watching which way it moves as it will give clues early next week.

nymo

Insider Transactions Ratio:

Insiders still not loving stock up here. Insider selling technically started a few weeks ago, just intensified with large cap moves lower last week. This ratio is at 33 and still in the bearish zone.

insiders-transaction-ratio

$VIX:$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 ratio did turn up last week and finished at 0.851 but still in the lower zone. I’ll start taking notice once over 0.90 and then over 1.00. I won’t be surprised of another move lower first with $VIX over its Bollinger Bands on Daily timeframe.

VIX-VXV

$VIX Futures Term Structure – CONTANGO:

$VIX Futures Term Structure is still in Contango but notice that the curve is starting to flatten out after a steep rise.

backwardation

$VIX – CBOE VOLATILITY INDEX – (DAILY TIMEFRAME):

After 12.50 the prior week, $VIX stayed in the lower range and stayed low until after FOMC. It ripped higher Thursday and Friday but got extended quickly by peeping outside the upper Bollinger Bands before easing off the last hour. RSI is over median and a tad below the bullish range but rising. MACD made a bullish cross earlier and is rising.

vix-d

$VIX – CBOE VOLATILITY INDEX – (WEEKLY TIMEFRAME):

$VIX on a weekly timeframe popped higher but pulled back. The high for the week came in at 17.09 and resistance higher is at 18 to start with. RSI is turning up on this timeframe but below median. MACD is showing a slight turn but nothing much yet as it is well below median.

Overall, look for volatility to remain around this level or slightly lower.

vix-w

Resistance: 18, 22, 24, 30, 31, 35, 43, 44, 55, 80. Support: 15.67, 12.40, 10.00, 8.60

$VIX OPEN INTEREST:

Highest Puts: 14

Highest Calls: 18

This is $VIX open interest chart for May 4th expiry. There is a ton of calls at 18 which can act as resistance if $VIX does go higher. However, if $VIX fails to hold 15, getting back higher might be a tad difficult atleast until this expiry as there are high number of calls. 14 is support but any move lower than 14, might mean that the indices rally higher with the chance of $VIX going much lower. The reason I say this is that at 14, there is not much calls.

IMG_4485

$VIX for May 11th expiry states that 16 will be tricky to get over on the way up if $VIX goes below 15. Again with not much calls at 17 or 18, difficult to get over that. If $VIX stays below 15, high chances for it to see 13.50 again. Keep an open mind and don’t be biased holding $VIX or its product for too long.

IMG_4486

$SPY DAILY TIMEFRAME:

$SPY started the week on Monday a little lower initially but then moved higher with some strength during the day. Tuesday was within a small range with some sideways move, possibly waiting for FOMC input. Wednesday it printed a bullish engulfing candle potentially signalling higher prices. Bank of Japan news came in early in the evening hours on Wednesday and the futures started to go South with Yen ripping higher. On Thursday, $SPY moved lower towards the 21 SMA but barely held. Friday, it continued to move lower and closed the open gap lower. The last hour on Friday saw some buying and it printed a Hammer. This will need confirmation higher but there is resistance above at the 21 SMA start with. If price does stall there or at 208.40, a potential visit towards 50 SMA is possible and that comes around 203.21. So far, $SPY has printed another lower high.

As far as momentum indicators go on this timeframe, RSI is falling and just a tad below median but a small turn is seen. Need to watch this if it turns higher or continues lower. MACD made a cross lower and started to fall as well.

spy-d-clean

$SPY WEEKLY TIMEFRAME:

On the weekly timeframe, $SPY had printed a potential Evening Star the prior week and confirmed that lower this past week. Price on this timeframe is still over all moving averages. It did go below the 8 MA and reversed higher, atleast so far.

RSI on this timeframe is turning lower but holding over median for now. MACD though continues higher but right at median. These are potential signs of a pullback in the current uptrend.

spy-w-clean

$SPY OPEN INTEREST:

Highest Puts: 205

Highest Calls: 212

Scenarios:

  1. If price is to confirm the reversal on Friday and moves higher over 207, look for potential resistance at either 208 or 209 with those calls. On the $SPY chart, there is resistance at 207.25, 208.40 zones. But over 209, $SPY has room till 212. Not sure if it wants to run much higher but that can’t be ruled out if there is upside momentum with potential resistance at 210.25 and 211.20.
  2. Now, if $SPY either goes a little higher or decides to move lower, watch if 205 holds as it has heavy puts but not much calls there. And if $SPY does go lower below 205, 204 and 203 are next zones of support with the big zone at 200. Has the potential to run there if need be if the 50 SMA support cracks. A big caveat again here is that there are not many calls at the start of the week to push it higher from there. Something to very cautiously gauge.

IMG_4487

NOTE: All SUPPORT and RESISTANCE levels on a closing basis. Does not include after hour move lower or higher.

SUPPORT: 205.13, 204.40, 202.85, 201.60, 200, 199.50, 198, 197, 196.01, 194.8, 194.35, 191.7 190.5, 189.5, 188, 184.40, 183, 182.40, 181.92, 177.85, 173.71

RESISTANCE: 206.40, 207.24, 208.40, 210.25, 211, 212.24, 212.59, 213.35, 213.78

$QQQ DAILY TIMEFRAME:

$QQQ after moving lower was looking as though it was forming a small bear flag. It indeed was a mini-bear flag which broke lower and kept moving lower before ending the week outside the lower Bollinger Bands. In fact it moved lower and stayed below the lower Bollinger Bands 3 days in a row on this timeframe but it did print a potential reversal candle on Friday. It will need a confirmation higher for a reversal though. $QQQ is below all moving all the moving averages.

With respect to momentum indicators, RSI is nearing oversold zone but continues to fall. MACD is now starting to head back below median after the bearish cross.

qqq-d

$QQQ WEEKLY TIMEFRAME:

On the weekly timeframe, $QQQ moved lower and printed a red candle to confirm the bearish Harami from the prior week. RSI on this timeframe has started moving lower below median along with MACD.

All this suggests that any bounce might warrant additional pullbacks near term at the very least.

qqq-w

$QQQ OPEN INTEREST:

Highest Puts: 107

Highest Calls: 111

Scenarios:

  1. If $QQQ continues the reversal from Friday higher towards 107, that is the first resistance via OI. If it stalls there and reverses below 106, there is absolutely no calls to take it higher any further. So the potential is there to visit 103 zone by end of the week.
  2. If $QQQ can continue over 107, there is small resistance via OI between 108/108.5 via OI before 110.50 and 111 where the highest calls reside. As of now, that looks bleak.

Know the support and resistance levels on the $QQQ Daily/Weekly timeframe along with pivots and use the OI as a gauge for where price has the potential to stall on either side.

IMG_4489

NOTE: All SUPPORT and RESISTANCE levels on a closing basis. Does not include after hour move lower or higher.

SUPPORT: 104, 102.30, 100.40, 99, 98. RESISTANCE: 106, 107.8, 109, 110.

$IWM DAILY TIMEFRAME:

$IWM continues to reside in the ascending channel but showing wear and tear with potential stall in the current uptrend. It started the week with an inside day but moved higher on Tuesday and Wednesday negating a potential reversal. However, on Thursday, it started moving lower and continued on Friday. While price is below 8 SMA, it is still over 21 SMA on this timeframe. It is also holding over the 200 SMA thus far.

From a momentum indicator standpoint, RSI has starting moving lower and is falling but still over the median. MACD has made a bearish cross below but also holding well in the positive zone over median.

iwm-d

$IWM WEEKLY TIMEFRAME:

On the weekly timeframe, $IWM is still within that ascending channel but when looking at it closer, it looks more like a big bear flag than anything else. $IWM also printed a Harami on this timeframe to end the week and confirmation lower would potentially signal a reversal next week and the break of the flag or ascending channel.

RSI on this timeframe is turning but still holding over median as of now. MACD though continues to rise.

iwm-w

$IWM OPEN INTEREST:

Highest Puts: 108

Highest Calls: 116

Scenarios:

  1. With $IWM closing over 112, that is the first support zone via OI. If price stays over 112, price can see 115 or 116 where the highest calls reside provided it can get over 113/114 where there is some small resistance.
  2. Now if the price falls below 112, there is small support at 111 but bigger support zones are near 110-109.50. If they do hold, moving towards or over 112 will not be a big deal as there is some calls near 112. The other option is for price to move lower towards 108 where $IWM finds support and moves higher over 109. However there is small resistance at 109. Need to watch carefully if it stalls there or continues higher from there.

IMG_4488

NOTE: All SUPPORT and RESISTANCE levels on a closing basis. Does not include after hour move lower or higher.

SUPPORT: 111.5, 110, 109, 106. RESISTANCE: 112.75, 113.5, 113.75, 115.20, 116.3.

Indices are looking to be taking a pause and in a pullback mode after a humongous run from the lows. $QQQ looks to be the worst of the lot with more pullback potential but should it is below the Bollinger Bands and hence a bounce is possible for atleast a day or two to start with. $SPY looks to be bouncing on Friday and should it confirm the reversal, look to see if it can get over its 21 SMA and then 208.40 are which can act as potential resistance to start with. $IWM looks to be the strongest of the lot so far but some weakness seen. Energy has the potential to run higher with metals continuing their run as well. Overall, trade with caution as Friday’s action showed some momentum weakness underneath surface with weak internals.

One final thought. Stock buybacks are going to commence. (h/t @Callum_Thomas).

tos

Also, Urban Camel (@ukarlewitz) mentioned that “Into the close, be mindful of the positive first day of the month tendency” : http://quantifiableedges.com/1st-of-month-by-month-updated/”.

Hence please be cautious and trade with an open mind. Have a wonderful trading week. God bless!! Trade them well!

By | 2016-10-13T19:12:13+00:00 May 1st, 2016|