Market Observations as of Dec 8, 2017

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1 Market Observations as of Dec 8, 2017 By Carl Jorgensen - For Objective Traders - For educational purposes only. Not Financial Advice. The Market Rotation we saw last week, with an exit from Tech into Industrials, Financials and some Retail continued at the open Monday of this week. The news over the weekend (Tax Reform approved by the Senate) was absorbed and then turned into a broad market minor correction. It seems like there are two stories or cycles that are a day or two out of sync. The Tech sector saw its highs early last week then sold off most of last week and continued early this week until Wednesday (Dec 6 th ) when it began to see dip buyers step in to begin to deliver a bounce. Most of the rest of the markets saw their new highs at the Open this Monday (Dec 4 th ) that then turned south and sold down until the dip buyers stepped in early on Thursday (Dec 7 th ) to bounce prices back up. This minor correction can reveal some interesting behaviors, both by the timing differences in key sectors, as well as the size or scope of this correction, or pause in the trends. A stronger than expected November jobs report on Friday did not hurt the bounce. Let s look at the recent Highs and the following lows over the past week or two to compare the major indexes and how significant (or minor) this brief correction was. We can measure and compare to other market dips (or events) over the past year to see how this past week looks in comparison. INDEX H Date High L Date Low Range Range as a % of Index H % of Range close on 12/8/17 S&P 12/4/2017 2, /6/2017 2, % 66% DJIA 12/4/ , /7/ , % 53% NazComp 11/28/2017 6, /6/2017 6, % 59% QQQ 11/28/ /6/ % 57% R2k 12/4/2017 1, /6/2017 1, % 26% **For the above study, we ignored the Friday fake news reactions swings (Dec ) to try to only gauge the correction in the trend the past week. Note that both the largest relative dip and the weakest recovery by the end of this week are seen in the Russell 2000 in our table above. This could be seen as a flight to safety in big cap stocks when volatility pops, with fewer speculators willing to remain holding small cap stocks. Also, Fund Managers rebalance their holdings before the end of the year, and will stick with big cap well known names to help ensure they keep their jobs. Another study one could do is to compare the daily peaks of True Range that were seen this past week with other peaks seen over the past year or so. This would help show the correction this past week

2 was more or less significant than the US Election last year, as an example. By placing a 1 period ATR on my charts these peaks are easy to see. By also showing a 14 period ATR it helps to see what normal volatility might be in comparison for the symbol being charted. As you can see, the correction this past week was very minor (1.5% to 3.3%) with the Tech heavy QQQs and the small cap Russell showing higher volatility. Most fund managers would not call the blip in the charts this past week a correction, and only use that word if there is at least a -10% change in value. If you use this definition, than it s been a long time since the markets have seen that size of a So what is next? No one really knows. We can see that the VIX shows us that this week ended with volatility back in the no fear content zone near the lows of the year. Also we have seen that all the past minor corrections this year did not change the overall bullish trend, but gave the dip buyers an opportunity to enter, re-enter, or add to their positions. If the bullish trend continues this next week, then new highs are not far away, and the odds are higher for this outcome based on history. It is also possible that the highs of last week are not exceeded, and may see markets chop sideways for a while, or dip below the lows of this past week. The odds for these possibilities are lower, but still very possible. Therefore, we continue to stick to our plan, and make our decisions based on the facts we see in the charts, and not our feelings or news events. Now, let s look at some charts, starting with the major indexes, then some market Internals. S&P 500 weekly chart as of Dec 8, The Weekly chart of the S&P show us that the dip this past week was very minor and was not significant enough to change the trend or even challenge the Trend Line Support (White line). Price remains above all three Moving Averages (20 week Yellow, 50 week Blue, and 200 week Purple).

3 Also note the Fibonacci Retracement study we has shown over the past two years (Purple) that is based upon the Highs in the summer of 2015 and the Lows from Q1 of See how we tested the 261.8% extension line late last week and again this week. We can see this area of Resistance and Support in the daily, 15 min. and 5 min. charts below. S&P 500 daily chart as of Dec 8, We can see the wide dip on Friday, as fake news was absorbed. We also see the influence of the 261.8% Fibonacci extension (Purple dash line) last week and this week. Note how the dip this week was not very significant, and did not even test the 20 day (Yellow) SMA area or the Trend Line (White) as support. By the end of this week about two thirds of the minor correction had been recovered.

4 S&P min. chart as of Dec 8, The 15 min chart above clearly shows the Fibonacci 261.8% area as Resistance on Thursday (Nov 30 th ) last week (Purple arrow). Note the support on Friday (Dec 1 st ) came to the opening low of the S&P seen on Nov 28 th (White line) as fake news was absorbed to see the S&P close last Friday after a sizeable bounce. Note that most of the selling was seen the last two hours on Monday and on most of Tuesday, with Wednesday this week seeing small bounces off of support. The bounce rally was seen on the last two days of this week.

5 S&P min. chart as of Dec Here on the 5 min chart we can see how the Fibonacci 261.8% level was Resistance on Thursday (Nov 30 th ) and then was Support at the open on Monday (Dec 4 th ) this week. The S&P turned down in the first hour after making new all time highs on Monday (Dec 4 th ) to then test this Fib level as Support briefly, before breaking blow this level. The following few hours this level was tested again as Resistance before the S&P began to see stronger selling the last two hour on Monday. This was the beginning of the correction after delivering the new all time highs early on Monday.

6 DJIA daily chart as of Dec 8, We did not show the weekly chart for the Dow this week, but it looks a lot like the S&P with a narrow range down week this week, that does test support of cause any doubt of the bull trend continuing. The daily chart shows us the new all time highs on Monday, as tax cut legislation looks to be making progress. This change later in the day on Monday as selling kicked in. Support was seen early on Thursday with a rally the last two days of this week to recover more than half of the minor correction this week.

7 NASDAQ daily chart as of Dec 8, The NASDAQ saw a much more significant correction over the past week and a half than was seen with either the Dow or S&P this week. Support was seen on Wednesday as the bounce began earlier for the Nasdaq then the Dow or S&P. By the end of the week 59% of this drop had been recovered. Note on the charts how the 20 day SMA was broken below but not the 50 day SMA. This brief break of the 20 day SMA (Yellow) was also seen in September, October and November, and each time the trend resumed. We have no evidence so far that this may not happen again. Time will tell.

8 IWM daily chart as of Dec 8, The Russell saw a new high on Monday of this week, but also saw a more significant drop to its 20 day SMA (Yellow) where it found support on Thursday. By the end of the week, only a quarter of this dip was recovered by the close on Friday. Note how both the 20 day and 50 day SMA are now together, after the larger correction the first half of November. IWM did close above its prior Resistance (Yellow line) this week, where that level did not quite hold as support the middle of this week.

9 NYSE Advance/Decline Line daily chart as of Dec 8, The Breadth of the minor correction this week is reflected in the Advance/Decline line above. We see new highs early on Monday this week, with support found early Thursday when the broad market bounce occurred.

10 McClellan Summation Index daily chart as of Dec 8, This index shows us the same story with acceleration related to the drop early this week, then a less exciting bounce Thursday and a quiet Friday.

11 VIX daily chart as of Dec 8, The VIX settled back down this week, with no big news events like last week. The week ended below 10% and near the lows of the year. VIX 5 min. chart as of Dec 6, You can see the relative spikes in the VIX late last week as news events occurred and were eventually absorbed by the markets. Note how the oscillations continued in smaller and smaller echoes after the news was over, to eventually return to a normal level.

12 Oil daily chart as of Dec 8, Oil oscillated a little this week but remained within its range for the past month. We do see hints with both higher lows and higher highs over the past 5 months along with upwards sloping 20day and 50day SMAs.

13 GLD daily chart as of Dec 8, Gold dropped below its 200 day SMA (Purple) on Tuesday and broke below its $1,263 support area (White line) the last two days of this week.

14 Now let s look at some key sectors. DJ Transports daily chart as of Dec 8, Last week the Transports exploded. This week they were mostly horizontal with only a small gain for the week. Keeping these gains is a good sign for a stronger and growing economy. Both the Dow Industrials and Transports delivered new highs on Monday of this week.

15 XLF daily chart as of Dec 8, Note the very large relative volume last week (Blue Oval) that carried thru a bit at the beginning of this week. The Financial were mostly horizontal this week, after delivering new highs early on Monday. Note how minor this dip appears in the context of the recent gains in this sector. This also confirms a growing economy, as it is in sync with the S&P.

16 XLE daily chart as of Dec 8, The Energy sector saw some volatility as oil prices bounced, but remains within its range from the past two months.

17 XLV daily chart as of Dec 8, The Healthcare sector saw a bounce on Friday, but it still remains within its range for the past three months.

18 QQQ daily chart as of Dec 8, The Big Tech heavy QQQ got hammered again on Monday to find support Wednesday at both its Nov 15 th lows (Grey line) and its Trend Line Support (Orange line) just above its 50 day SMA. The highs from Nov 28 th show that this sector started its dip 3 to 4 days earlier than most other market segments, and its bounce started on Wednesday, one day before most other segments. By the end of the week, about half of this correction had been recovered.

19 SOXX daily chart as of Dec 8, Unlike the QQQ, the SOXX Semiconductor sector started its drop on Nov 27 th, two days before the QQQ. Also, at the end of this week the SOXX has only recovered 21% of its overall drop the prior week.

20 XHB daily chart as of Dec 8, The Home Builder sector also saw a new high on Monday of this week, then dropped and tested its support early on Thursday, well above its 20 day SMA. This support was near the lows from the prior Friday (Dec 1 st ). Thursday also saw a two day bounce begin to end the week recovering over 50% of its dip range.

21 XRT daily chart as of Dec 8, The Retail sector kept all of its prior week s gains and added a little bit more this week, closing near its $45 Resistance.

22 XME daily chart as of Dec 8, This sector saw a dip and strong bounce to end the week up above last week and its 50 day SMA.

23 Next we will look at some key stocks for this week, starting with the 2017 prior monsters know as FANG. AAPL daily chart as of Dec 8, Apple saw a rather quiet and horizontal week this week as it remained below its 20 day SMA (Yellow) that has turned downward now. Apple looks like it is still consolidating after the new highs (Brown line) in early November.

24 AMZN daily chart as of Dec 8, Amazon is one of the stronger of the FANG stocks, making new all time highs the prior week, where the pull back began. Support from mid November was retested this week and respected. The bounce began Tuesday with a recovery of less than half of the prior range drop by the close of this week. The 20 day SMA (Yellow) has flattened a little as AMZN crossed back above this level on Wednesday where it remained for the rest of this week.

25 FB daily chart as of Dec 8, Note how FB retested its Oct 25 th lows (Yellow line) within 12 cents in the opening minutes on Tuesday of this week. Seems like the dip buyers did not wait for price to drop all the way to the Oct 25 th lows of $ and cut in front of the line with orders a few cents higher. FB remains inside of its range for the past two months.

26 GOOGL daily chart as of Dec 8, Alphabet briefly broke below its 50 day SMA this week, then it bounced back to end the week above its 20 day SMA. It remains inside of its range for the prior month or so.

27 NFLX daily chart as of Dec 8, Netflix broke below both its 20 day and 50 day SMAs early last week, and remained below both all of this week. The bounce the past four days did not return NFLX to above these SMAs or its prior Support and Resistance (Orange line). This chart shows NFLX as one of the weaker of the FANG stocks.

28 AMAT daily chart as of Dec 8, The drop last week that took AMAT below both its 20 day and 50 day SMA finally found some support this Tuesday (Dec 5 th ) but the following bounce did not deliver enough for AMAT to return to these SMAs. Also note how the weakness in AMAT is causing the 20 day to be now ready to cross below its 50 day SMA. A similar chart to AMAT is seen with NVDA that also closed every day this week below its 50 day SMA and did not bounce much the last half of this week either.

29 MU daily chart as of Dec 8, Micron broke below both its 20 day and 50 day SMAs last week, to find support early this week. The following bounce has returned MU to its 50 day SMA, where it briefly broke above on Friday, but still closed the week almost on top of this 50 day SMA. Semiconductor stocks in general have not seen much of a strong bounce this week. As for the retail sector, this week was mostly flat. M that saw a strong rally last week and WMT three weeks ago both were rather quiet and flat this week while they kept most of their gains from the prior weeks.

30 GS daily chart as of Dec 8, Goldman delivered higher highs early on Monday, but then dropped to find support early on Thursday, like most of the market seemed to do. The week ended near the middle of this minor correction range seen this week.

31 BAC daily chart as of Dec 8, BAC also started the week with a strong opening on Monday, to then dip only a little to see support early on Thursday. Note the small range for this week in BAC.

32 HD daily chart as of Dec 8, HD delivered new highs on Monday, and then it dropped to find support on Wednesday. The week ended with HD recovering most of this range this week, and closed well above last week s range. HD continues to show good relative strength. Ride your winners, and give them room to wiggle. Be careful to not keep you stops too tight.

33 DHI daily chart as of Dec 8, The low we saw last week on Friday (Dec 1 st ) was retested as support this week. DHI remained well above its 20 day SMA as it delivered a mostly horizontal week. This is strong since most other market sectors saw a minor correction this week. If you stops are too tight, you may get kicked out of a trade before the trend is actually over. If so, you can get back in, if you plan and the charts provide a valid opportunity to do so.

34 DE daily chart as of Dec 8, DE also had a mostly horizontal week, retaining the prior week s gains, and hardly dipping when most markets saw a minor correction this week. A good sign of strength.

35 CAT daily chart as of Dec 8, CAT started the week delivering new highs, and then only pulled back a little by Wednesday. Thursday saw a nice bounce, and a quiet Friday saw the week end keeping most of its gains from Monday.

36 X daily chart as of Dec 8, US Steel has been chopping horizontally the past 6 months, while it also has been delivering both higher lows (Green arrows) and higher highs (Red arrows) since July. Note the high odds pattern delivered in November. Do you see it? The Yellow Line Resistance is a clue. Also note the Trend Line Resistance (Green line) that was broken Nov 20 th with a bounce off of the 200 day SMA (Purple) support. This week X saw some large momentum as Resistance was broken. Let s look at an hourly chart to see that the chart told us last week.

37 X hourly chart as of Dec 1, Now do you see the pattern? The Highs from Nov 1 st (Yellow Line) provided Resistance that was tested and respected on Nov 24 th, then again tested and broke on Dec 1 st (Yellow Arrow). Also you can see the Trend Line (Green) that was broken on Dec 17 th (Blue Arrow). This market behavior shows us that the buyers are more persistent and are forcing a retest of resistance, again and again, while at the same time the conviction shown by the sellers is decreasing (shallower dips between each retest of Resistance), combine to indicate the higher odds of Resistance may soon break as that supply is fully consumed by the buyers, and price must move higher to find more supply. These behaviors can be seen occurring in various time frames, and they offer us clues that can be used to reveal opportunities. We saw this pattern a few months ago in the HD daily chart, and again this past week in the hourly US Steel chart.

38 BA daily chart as of Dec 8, Boeing saw a strong week this week without not much a dip when the overall markets were experiencing a minor correction. BA ended this week with more new all time highs. This is a very strong sign when it is seen in the context of the overall market movements this week. I hope you saw something in the charts this week that you may not have seen before. Practice is the best way to improve your skills. Trade Smart, CJ