Market Observations - as of Jun 8, 2018

Transcription

1 Market Observations - as of Jun 8, 2018 By Carl Jorgensen - For Objective Traders - For educational purposes only. Not Financial Advice. Over the past four months we have seen several examples of Consolidation Patterns in the major indexes, as the volatility explosion at the end of January and early February slowly calmed back down as there were several oscillations with both lower highs and higher lows that formed Triangles between Support and Resistance. We have seen several false break outs of either Support or Resistance, where price failed to follow through with new Highs and returned to inside a consolidating triangle although it may be with shallower slopes of Support or Resistance Trend Lines. The Nasdaq composite broke out its consolidation pattern in mid March to deliver new highs then fell back down all the way to its consolidation support level by early April. It then again oscillated inside its consolidation area until early May when it began a rally that accelerated on May 30 th to break out and deliver new highs this week. Sometime consolidation pattern break outs fail, and that is seen here with the trend reversing back to return inside a revised consolidation triangle. The Russell broke out in early May and has clearly trended upwards as it has often delivered higher highs and new all time highs many times over the past month. The S&P 500 index has been inside of its symmetrical triangle consolidation pattern for four months, and finally broke above its most recent Resistance Trend Line last Friday (June 1 st ). The S&P continued its rally most of this week. The Dow has also been inside of its descending triangle consolidation pattern for four months, and finally broke above its most recent Resistance Trend Line last this week at Wednesday s open. As of Wednesday (June 6 th ) this week, we now have all four of these indexes outside and above their consolidation pattern Resistance levels, with two indexes (Nasdaq and Russell) also having delivered new all time highs this week. This evidence indicates the strengthening of the bullish trends overall in the markets. This does not mean that next week will continue to be bullish, I only means that the evidence this week was of a stronger and broader rally. Anything can happen next week. Also worth noting, we saw both Tech and Semiconductor sectors often leading the markets over the past month, and that leadership changed this week, mid week, when Tech and Semis became the weaker sectors while Retail and Materials moved to leadership roles the latter half of this week. Also worth noting, that the Financials have remained weak over the past month after making a failed attempt at a rally in early May. Remember that the two biggest sectors in the overall markets are Technology (1 st ) followed by Financials (2 nd ). The lagging financials have continued to place some doubts on the overall economy. That doubt may likely continue until interest rates rise, and//or good stress test results are published. Time will tell. Gold and Oil were mostly quiet and horizontal this week, while the US Dollar dropped a bit. In addition to looking at the indexes, sectors and stock charts below, we will look at the relative performance of the F.A.A.N.G. stocks since Jan 2017 that will help reveal the leaders amongst the leaders. Now, let s look at some charts.

2 S&P 500 weekly chart as of Jun 8, 2018 Here we see the overall rally continue, with the pause in the markets the past 4 months that appears to have broken out this week. Note also the prior 3 to 4 weeks saw resistance near 2740 which was also support this week. S&P 500 daily chart as of Jun 8, 2018 Here we see the Trend Line Resistance (Green line) was broken above at the end of last week (June 1 st ) and continued this week. Also note how price as accelerated away from and above the 20 day SMA (Yellow) over the past 6 days. The S&P has yet to deliver new highs for 2018, but is nearing the mid March highs as a next likely test for possible Resistance.

3 DJIA weekly chart as of Jun 8, 2018 Like the S&P, the Dow has been in a bullish trend and has seen a pause in that trend as it takes time to consolidate. We see the Dow breaking above its Resistance Trend Line (Green line) this week. The prior four weeks saw the Dow loiter near its 20 week SMA (Yellow). DJIA daily chart as of Jun 8, 2018 Here we can see the Dow pause on Monday and Tuesday this week, then clearly break above its Resistance Trend Line (Green Line) at the open on Wednesday. Those gains were kept on Thursday and Friday as the momentum paused.

4 NASDAQ weekly chart as of Jun 8, 2018 Unlike the S&P or Dow, the Nasdaq did briefly make a higher high in mid March just to then quickly drop to find support in early April. After this oscillation we drew new Trend Line Resistance twice. The Orange line first, then the shallower sloping Green line. This Resistance was broken above the prior week and we can see better in the daily chart below. NASDAQ daily chart as of Jun 8, 2018 Here we can clearly see the two Trend Lines as Resistance (Orange and Green lines). Each was drawn 3 days after the extreme price high occurred, as that move was seen to be isolated by price s failure continue with a price pull back. Last week we saw Price break above this Tend Line Resistance (Green). This week we saw that rally continue 3 more days

5 before pulling back on Thursday. Friday saw a small bounce to recover about half of the prior day s correction. Russell 2000 weekly chart as of Jun 8, 2018 Here we can see the Russell bullish trend also paused this year and formed a consolidation pattern. Price broke above the Trend Line Resistance about 4 weeks ago. Russell 2000 daily chart as of Jun 8, 2018 Here we can clearly see the Russell break above its Trend Line Resistance on May 10 th then really accelerated to all time new highs on May 16 th. The rally has continued since, with a pause for a week May th. We again saw new all time highs this week. We

6 have drawn a Trend Line Support (Green) since the launch from the 50 day SMA (Blue) to help see when this rally ends or pauses. The 20 day SMA (Yellow) can also be used in a similar way. Next we will look at a few market Internals. NYSE Advance/Decline Line daily chart as of Jun 8, 2018 The Market Breadth again improved this week. We have seen the correlation over the past several weeks with this Adv/Decl line and the Russell 2000 are more stocks are advancing than are declining.

7 McClellan Summation Index daily chart as of Jun 8, 2018 The McClellan Summation Index shows us the acceleration of market breadth changes, and we see this week indicates some positive acceleration. VIX daily chart as of Jun 8, 2018 The VIX remained under both the 20 day (Yellow) and 200 day (Purple) SMAs most all of this week. The tiny move on Thursday could not lift the VIX above its 20 day SMA, indicating not much fear at all.

8 Next, let s look at a few key commodities, currency index and Bonds. Oil daily chart as of Jun 8, 2018 Oil was mostly horizontal as it found support near $64.25 this week. Price also remained near its 100 day SMA (Grey) most all of this week.

9 Gold daily chart as of Jun 8, 2018 Gold was also relatively quiet and horizontal this week ending near its 20 day SMA (Yellow). Gold has been in a narrow range for about 3 weeks and near its 50 week SMA. US Dollar Index daily chart as of Jun 8, 2018 The US Dollar pulled back a little more this week, ending the week at

10 US 10 year Yield daily chart as of Jun 8, year bond yields were also quiet and nearly flat this week. Next we will look at a few Sectors to see what this week shows us. This is one way to notice sector rotation as the leadership may change each day. Dow Transports daily chart as of Jun 8, 2018 The Transports remained in a narrow range again this week. There has not been much change in the past 3 weeks. With oil prices dropping over the past 3

11 weeks you would think you may see the Transports rally a bit over that same time period. Well, that s not what we have seen so far. Like gas prices, fuel likely goes up very fast, but down very slowly when compared to the price of oil. XLF daily chart as of Jun 8, 2018 The Financial sector has been very weak the past two months. We saw a small rally on Wednesday to take the XLF back above its 50 day SMA (Blue), but no follow thru nor higher highs by the end of this week. Remember, this is an important sector to watch for clues & confirmation of Economic trends. Time will tell.

12 QQQ daily chart as of Jun 8, 2018 We saw the QQQ both break above its Tend Line Resistance (Green line) and its Cup-n-Handle Resistance (Yellow line) late last week. That rally continued this week until the brief pull back on Thursday. On Friday we saw a small bounce to recover some of Thursday s correction. An alternate chart for the Tech sector can be the XLK, where you will see the same patterns. The Tech sector has often been the strongest leading sector over the past month. The F.A.A.N.G. stocks have been a bit part of this leadership over the past few years. Leadership changed the latter half of this week when we saw a move into Retail and Materials sectors. Watching for changes in leadership can be one way to get clues, and looking at key stocks in that sector can quickly reveal potential opportunities to find and trade the strongest stocks in the strongest sector. Or, if bearish, find and trade the weakest stocks in the weakest sectors. Either way, it is important to check often and remain alert for finding these changes sooner rather than later, when the risk to reward is usually better. SOXX daily chart as of Jun 8, 2018 Like Tech, the Semiconductor sector has often been a leader over the past month. Note the SOXX broke above its Trend Line Resistance (Green line) on May 23 rd, and then above its Cup-n-Handle Resistance (Yellow line) on May 30 th. After these break outs, SOXX continued this week until its leadership role changed on Thursday of this week. Friday found support near $

13 XLE daily chart as of Jun 8, 2018 The Energy sector was also mostly horizontal this week (like oil) as the XLE hovered near its 20 day SMA (Yellow). XRT daily chart as of Jun 8, 2018 The Retail sector had chopped mostly sideways and above its 20 day SMA over the prior 3 weeks. The XRT exploded upwards on Monday this week, delivering 4 month new highs. Nearly every day this week this sector continued higher with acceleration. Like most sectors, there may be just a few key stocks within the sector that account for most of the activity this week. One example is FIVE this week. Specialty Retail was a key area to look for these big movers.

14 XLV daily chart as of Jun 8, 2018 The Healthcare sector has been mostly horizontal for many weeks. It finally broke above Resistance (Grey line) on Wednesday this week. Again, look in the sector for the few key stocks delivering most of the action.

15 XLU daily chart as of Jun 8, 2018 Utilities again broke below their 50 day SMA at the end of last week, and below the 20 day SMA (Yellow) on Monday of this week after a failed new high seen on May 31 st. The May 31 st High was lower than the prior High seen on April 30 th, thus giving a confirmation of the bearish dominance. We saw Lower Lows on Wednesday of this week, below the prior Lows on May 18 th, also confirming the bearish dominance and trend. Both Lower lows and lower highs confirm a bearish trend.

16 XLB daily chart as of Jun 8, 2018 A sector that has shown increasing leadership this week was Materials. We see the Trend Line Resistance (Green line) Break on Tuesday followed by Resistance (Orange line) break the next day. This week ended with Friday finding new Support at prior Resistance (Orange line). Next we will look at some key stocks to see what those charts can tell us. Since the F.A.A.N.G stocks have been key leaders over the past few years, let s look at a chart to show us the relative performance of these five stocks as compared to either the S&P or the Nasdaq. We set up a chart that begins Jan with all plots set at the same point, then with a percent change vertical scale, we can see where these stocks are now, 17 months later. This is a great way to identify and compare leaders within a sector, or within an index.

17 SPY vs. FAANG stocks percent change over the past 17 months chart as of Jun 8, 2018 Note how every one of these 5 stocks have done better than the S&P for the time period being studied. The Strongest is NFLX and the weakest is GOOGL. Nasdaq vs. FAANG stocks percent change over the past 17 months chart as of Jun 8, 2018 You can clearly see how NFLX and AMZN really accelerated at the beginning of 2018 and put some greater distance between them and the other FAANG stocks. Again, NFLX has been the strongest with GOOGL being the weakest in this group where GOOGL has not done any better than the Index for the period being studied. Now let s look at some individual stock charts.

18 AAPL daily chart as of Jun 8, 2018 AAPL broke to new all time highs on Monday, chopped sideways until pulling back on Friday. It still ended the week above the prior Highs (Green line) from May. AMZN daily chart as of Jun 8, 2018 AMZN broke above the Trend Line Resistance (Orange line) on Monday and rallied to deliver new all time highs on each of the first 3 days of this week. After delivering a new High early on Wednesday, AMZN then pulled back to close down on Wednesday and Thursday. Friday saw a small bounce and ended this week remaining above the prior Trend Line Resistance.

19 NFLX daily chart as of Jun 8, 2018 NFLX broke above Resistance (Orange line) on May 23 rd and has continued upwards since. On Wednesday this week, NFLX paused then pulled back on Thursday. Friday saw a small bounce. NFLX has remained well above its 20 day SMA (Yellow) since its May 23 rd break out. FB daily chart as of Jun 8, 2018 FB had a pullback week that tested support at both the 20 day SMA (Yellow) and the prior Trend Line Resistance (Green line) as new support. The week also ended near the Prior Resistance (light Grey line) from early Jan and early May prior highs.

20 GOOGL daily chart as of Jun 8, 2018 Alphabet started out this week positive on Monday and above its Trend Line Resistance (Yellow line) just to turn on Tuesday and drop back below this Trend Line where it ended the week below this level. NVDA daily chart as of Jun 8, 2018 NVDA has a nice Monday, with a pause and new high on Tuesday. Wednesday Thursday and Friday was drops at the open each day with the Prior Resistance (Grey line) acted like new Support this week. NVDA held up relatively well this week, when the sector saw pressure the latter half of this week.

21 MU daily chart as of Jun 8, 2018 MU was hit hard last week then chopped mostly sideways this week before seeing a rally on Friday. This week MU remained well above its 20 day SMA (Yellow). AMD daily chart as of Jun 8, 2018 AMD continued is rally this week delivering higher highs Monday, Wednesday and at the open on Thursday. AMD sold down steady the first 90 minutes of trading on Thursday then again at the open on Friday. Friday saw a rally the first 90 min back up to the area where AMD closed the week. We were lucky to take some partial profits on Wednesday when we saw the wide range day as a clue to a possible exhaustion condition. The Bear Engulfing Thursday candle

22 was followed by a gap down at the open on Friday with an immediate rally back up above the prior day s lows. We were almost shaken out on Friday s open, but the action of the tape showed it was just a very brief gap down that was filled 17 minutes after the open. Anything can Happen. GS daily chart as of Jun 8, 2018 The Financial sector remains week, and GS shows us lower lows last week and a failed rally this week that could not close above the 20 day SMA Resistance.

23 SQ daily chart as of Jun 8, 2018 SQ has been one of the few stocks doing well in the Financial sector. Last week SQ broke above its Resistance levels (Green line and then Yellow line). This week SQ continued that rally with new highs on Wednesday. Thursday saw a bit of a violent pull back (nearly a 2 times ATR range day) but was NOT large enough to test the prior Resistance (Yellow line) as Support. Friday saw a bounce that recovered most of the prior day s correction. Price remains well above its 20 day SMA.

24 DE daily chart as of Jun 8, 2018 The prior week DE pulled back to test it s Support at the prior Support (Blue line) and the 20 day SMA (Yellow). That support held again the first two days of this week before the rally up on Wednesday. Thursday s highs nearly tested the May Highs, and then pulled back a little on Friday. We see a consolidation and ascending triangle over the past 15 trading days, since the break above the 50 day SMA on May 18 th.

25 BA daily chart as of Jun 8, 2018 BA chopped sideway the first 2 days of this week, and then rallied on Wednesday up to prior Resistance (Blue line) to the exact same price. At the open on Thursday BA delivered a new All time High, then pulled back a little to end the day with a small decline. The prior 2 weeks ended with little to no change, whereas this week ended with a positive change.

26 TSLA daily chart as of Jun 8, 2018 Tesla had its shareholders meeting on May 5 th, and certainly the comments from Elon Musk were widely published immediately following. With lots of traders using TSLA as a very popular (and liquid) instrument, there was little surprise to see a gap up at the open on Wednesday (May 6 th ). Having trading TLSA many times over the past years, I have seen how TSLA can over-react to such news driven events. We got long about 6 minutes after the open with the plan to hold on until velocity fades and begins to reverse. We ended up selling half about a half hour before the close on Wednesday. TSLA rallied up strong the first 18 min on Thursday then started to stall out. After a small dip and a failed rally, we exited the remainder of our TSLA position at about 51 min. into the session when TSLA was about $2 above its 200d SMA. This was a quick trade, since we know from experience how quick these reactions can be with this stock, so we adapted with a more aggressive tactic accordingly. With experience, you can adapt your trading style to the nature of the instrument. I did not change my trading system or methods other than use a much shorter time frame for my decisions, due to the higher volatility behavior of this stock.

27 HD daily chart as of Jun 8, 2018 We saw a Cup-n-Handle forming in HD in Mid May. The May 21 st test of Resistance (Grey line) failed the next day and formed a slightly deeper and broader handle, as well as dipping below its 20 day SMA (Yellow). The Trend Line (Orange) drawn from the Jan highs to the May 22 nd High, was broken on Monday (June 4 th ) when the prior Resistance (Grey line) was again tested. The next day at about 90 min before the close, this level was tested and broken above. Every day this week we saw higher highs and higher closes. This pattern shows that sometime patience is needed for Resistance to be eventually broken. All patterns can fail. This one worked, but just required a little extra patience. Trend lines, Support or Resistance levels, or Moving Averages are the most common reference points we use to identify price behavior, such as a break out. Each of these can fail at times, but the purpose is simply a measurement tool or reference point upon which we can make decisions. Ultimately we are measuring price movement as it relates to trending behavior or changes in behavior. These tools are not predictive, we just use then like a useful sign post (marker) along the way to help gauge price behavior at or near these key areas where behavior may (or may not) change. We hope you find value in the sharing of our chart observations and examples of applying simple Technical Analysis tools to our trading decisions. Trade Smart, CJ