Market Observations - as of Jul 6, 2018

Transcription

1 Market Observations - as of Jul 6, 2018 By Carl Jorgensen - For Objective Traders - For educational purposes only. Not Financial Advice. The shortened Holiday Market week saw mostly horizontal chop until Thursday afternoon and Friday when the bulls helped most markets break out of their consolidation patterns above Resistance that had contained price for up 8 days. Industrials and Financials mostly remained weak as they did not break out late this week. Other sectors, like Biotech and Healthcare rose to the top at the end of this week. Gold remained weak and Oil strong, as both traded mostly sideways this week. The US dollar pulled back a little this week as concerns about the flattening yield curve has investors worried. Market Breadth increased with the bulls finding some convictions on Thursday and Friday while the VIX dropped back down below 14% on Friday. Volume was mostly light this Holiday week with a few exceptions mostly on Thursday and Friday, as the bulls showed their convictions. We will look at a few Intra-day charts (15 minute) to a little more clearly when things changed this week. The bigger picture charts (weekly) take president, and clearly show a long term bull trend, that paused a bit after late Jan 2018 new highs. Some charts show us a resumption of the bull trend as confirmed with higher highs (higher than the Jan 2018 highs) while other charts have not shown us higher highs, yet. We keep an eye on the longer term charts in order to keep our observations in context. Is there a trend or not? If there is a trend, is it bullish or bearish? Is it new or old? If you ever feel uncertain while looking at a chart, often the context will be clearer if you remember to look at the next larger time frame chart. As a swing trader, we focus most of our time and make most of our decisions based on the daily chart. However, one should always look at a longer term chart (weekly) in order to keep the market Context clearly in mind before entering into any trade. I may use intraday charts on occasion just to better time my entry or exit, based on the behavior seen in the charts. We will also look at the flattening yield curve, what data it uses and what that currently looks like. Now, let s look as some charts to see what they have told us this week.

2 S&P 500 weekly chart as of Jul 6, 2018 Here we see the long term bull rally, then a pause and correction in Feb that continues to form a consolidation pattern to this day. This week we saw a bounce off of the 20 week SMA support. The S&P has not broken below its 50 week SMA since S&P 500 daily chart as of Jul 6, 2018 Here we see a rally that ended in mid June, and pulled back to below its 50 day SMA in 7 to 8 days. The following 8 days saw alternating up and down days within a range, forming a consolidation pattern, the broke out late this week. Going forward, what is KEY to watch for is if the S&P can exceed its prior (June) highs. If it can, then that is confirmation as both higher highs and higher lows signal bullish trend. If, however, price cannot exceed the June highs, and we see a Lower high, then that is a clue for Bears to increase their convictions after seeing the Failed New High (FNH). The Yellow Trend Line will be the next possible Resistance to test, then the June highs would be next key test. TIME WILL TELL, so it s good to be prepared for either.

3 S&P min. chart as of Jul 6, 2018 Here on the 15 min chart with Trend Lines (Orange) drawn in to show Support and Resistance over the 8 days of horizontal consolidation. Price broke above this Resistance late on Thursday and continued the first half of Friday. The last half of Friday was quiet and horizontal. We will have to wait for next week to see if this break out persists or fails. Remember, the S&P has not yet exceeded its Jan 2018 highs of , so the larger picture is that of still remaining inside of the bigger consolidation area.

4 DJIA weekly chart as of Jul 6, 2018 The Dow has been the weaker of the US indexes, but also shows a longer term bull trend, that is in consolidation since Jan 2018 highs. This week we saw a small bounce off of Trend Line (Red) and 50 week SMA support. This week closed below its 20 week SMA. DJIA daily chart as of Jul 6, 2018 We see the pull back since mid June to the 200 day SMA (Purple) then 8 days of horizontal chop. Friday did see a positive close for the week back above the 200 day SMA, but not able to move above the 8 day consolidation range nor the 20day or 50 day SMAs. We continue to see if and when the Dow breaks out of its Consolidation triangle.

5 NASDAQ weekly chart as of Jul 6, 2018 The Nasdaq has been one of the strongest US indexes and it HAS delivered higher highs twice since the Jan 2018 highs, confirming it is not in a consolidation pattern, but has resumed its bullish trend. This week formed a bullish engulfing candle as price remained above the 20day, 50day and 200 day SMAs. NASDAQ daily chart as of Jul 6, 2018 Here we see the June correction back to test the 50 day SMA (blue) as support. A consolidation pattern was formed over 8 days, then a break out on Friday to return above the 20 day SMA (Yellow). A Retest of the June Highs is a KEY level to watch going forward. If Friday s rally continues and eventually delivers higher highs than seen in June, then that would signal confirmation of the bull trend resuming. If, however, we see price stall out and deliver a Lower high than the June highs, then that FNH (Failed New High) is a confirmation signal that can encourage the bears to sell with conviction. Being prepared for either event, helps one know in advance what to do if.

6 NASDAQ 15 min. chart as of Jul 6, 2018 Here on the 15 min. chart we can see the consolidation pattern formed over 8 days, then the break out late on Thursday that continued in the first half of Friday. The last half of Friday was quiet and horizontal. Similar story as we saw on the S&P. Russell 2000 daily chart as of Jul 6, 2018 The Russell saw a strong rally during May and much of June to deliver a new All Time High on Jun 20 th. The next two days saw a pull back that broke the Trend Line Support (Grey line) late on Thursday (Jun 21 st ) and all day Friday (Jun 22 nd ) just before the Reconstitution of the index that weekend (Vertical Purple Dash Line). The following week saw a pullback continue nearly to test the 50 day SMA as support. This week, after another test of that support, the Russell rallied every day this holiday week to cross above its 20 day SMA (Yellow) on

7 Thursday. The Russell did not have an 8-day consolidation horizontal period like the other indexes did. It had a brief 1 week correction as Reconstitution was absorbed last week, and then resumed its bullish Rally this week. Next we will look at a few market Internals to see what happened this week in the overall markets. NYSE Advance/Decline Line daily chart as of Jul 6, 2018 Note how market breadth remained sideways just above and below its 20 day SMA (Yellow) until clearing moving up on Thursday and Friday of this week to higher highs for 2018 on Friday. McClellan Summation Index daily chart as of Jul 6, 2018 Note how the McClellan Summation Index shows us decelerating market breadth for about 8 days, then no change this week until Friday with a positive acceleration in market breadth.

8 VIX daily chart as of Jul 6, 2018 Not the VIX was above its 50 day SMA (Blue) and 200 day SMA (Purple) for 8 days, and then dropped back below on Friday of this week to end the week below all 3 SMAs and below 14%. We see interesting correlations with the Nasdaq and S&P during the 8 days of chop seen in those indexes during the same time period. OIL daily chart as of Jul 6, 2018 Oil saw a strong rally last week, but then chopped mostly sideways this week within its range near the 2018 highs seen on Tuesday of this week.

9 GOLD daily chart as of Jul 6, 2018 Gold has been dropping over the prior months and seemed to find support on Tuesday of this week at $1, The following bounce off of this support was neither too impressive nor sufficient to approach the 20 day SMA. US Dollar Index daily chart as of Jul 6, 2018 The US Dollar slid back a little this week from its highs the prior week. It remains above its 50 day SMA (Blue). There has been a lot of chatter and worry expressed about the flattening yield curve over the prior few weeks, so let s look at the data to see what the charts tell us.

10 US 2yr Yield daily chart as of Jul 6, 2018 US 10yr Yield daily chart as of Jul 6, 2018 US 30yr Yield daily chart as of Jul 6, 2018 The Yield Curve is a way to look at different maturity US Treasury bond yields to see the relationships between short term (2-year), midterm (10 year) and long term (30 year) yields. In a healthy growing economy we see an Upward Curve formed from short term to higher longer term yields.

11 From Investopedia : Yield Curve Shapes - Yield Curves come in three shapes: 1. Upward or Normal Yield Curve: This curve occurs when short-term rates are lower than long-term rates, as noted in the above example. 2. Inverted Yield Curve: This curve is formed when short-term rates are higher than the longer part of the curve. 3. Flat Yield Curve: This curve occurs when there is little or no change between short-term and long-term rates. Read more: Yield Curves

12 investments/yield-curves.asp#ixzz5kaoxvhca Here is a link to the US Treasury s web site with Daily raw data on Yield Curve Rates this year: Note the left side of the above chart and the relatively flat Yield Curve from 2yr on out to 30yr Yields.

13 A common way to evaluate the Yield curve, is to find the difference between the 10 year and 2 year Yields. This is called the Ten minus Twos and is shown in the above chart inverted and offset by 30 months to the VIX. This shows an interesting correlation, but may or may not be statistically predictive. Many other economic cycles are also at play, and it is hard to say what a cause is and what an affect is. US Jobs data were rather strong again on Friday of this week, and US Q1 Earnings were positive record breakers. The US economy continues to grow at a slow to medium pace, while Europe is mostly flat, and China is not growing but shrinking. With so many complex supply chains and international trade, the world economies seem to be more inter-related than in prior decades. Q2 Earnings begin this next week, with several key Financials on Friday (July 13 th ) like JPM, WFC and C. As objective traders, we ignore the predictions by so called experts, and trust no one. We focus on the evidence we see in the charts, from actual transactions made by traders putting their money at risk, and not the reasons why they have done what they did. By recognizing behaviors, and what behaviors seem to more often occur, we can stay on the side where the odds are better. Like the casinos that have the odds in their favor on every game, we strive to understand the odds, and have discipline to stick to the favorable odds while carefully managing risks. Anything Can Happen. We do not ignore every possibility nor the random nature of what may happen next. Thinking about what you will do if, and rehearsing it mentally, prepares one for most every surprise. This is the purpose of risk management. Next, let s look at some key sector charts to see what they tell us about this week. Evaluation of sectors from week to week helps to identify trends and changes that expose sector rotations taking place.

14 Dow Transports daily chart as of Jul 6, 2018 The Transports continued to chop horizontally near the 200 day SMA (Purple) this week, lifting only a little on Friday when most markets saw active bulls. With expensive fuel as Oil remains near its highs of 2018, it s no surprise the Transports remain near support. XLF daily chart as of Jul 6, 2018 Financial sector remains ugly and near its 2018 lows again this week. Most of the sub-sectors are also ugly (GS, JPM, MS) big financial service, (WFC, BAC, C) Big banks, while a few Consumer Credit services have remained strong the past few months (MA, V and SQ).

15 XLE daily chart as of Jul 6, 2018 Energy continued to chop sideways this week dancing with both its 20 day (Yellow) and 50 day (Blue) SMAs. QQQ daily chart as of Jul 6, 2018 The big Tech sector chopped sideways for 8 days, then broke out on Friday this week as it crossed back above its 20 day SMA after several tests of support at its 50 day SMA.

16 SOXX daily chart as of Jul 6, 2018 The Semiconductor sector had a difficult two weeks that ended with a test and break below its 200 day SMA last week. This week we saw another test of Support, then a rally above the 200 day SMA on Thursday and Friday this week. The week ended with the SOXX still below both its 50 day and 20 day SMAs. XRT daily chart as of Jul 6, 2018 The Retail sector started this week with lower lows to find some support on Monday. The rallies each day this week helped XRT to cross and close above its 20 day SMA on Friday.

17 XLV daily chart as of Jul 6, 2018 The Healthcare sector chopped sideways near its 50 day and 200 day SMAs at the end of last week and the beginning of this week, to then rally above its 20 day SMA on Thursday and end the week above its Trend Line Resistance (Orange line) on Friday. IBB daily chart as of Jul 6, 2018 Bio-techs were the strongest sector on Friday. As you can see the Rally off of the 20 day SMA on Thursday was followed by a big gap up to the Trend Line (Orange) at the open and a Rally on Friday to close above most all the prior highs but the highs in Jan 2018.

18 XLI daily chart as of Jul 6, 2018 The Industrials barely could rally on Friday and could not move above the prior 8 day chop zone. XLU daily chart as of Jul 6, 2018 Utilities continue to rally every day this short week after breaking above their 200 day SMA late last week. No sings yet from the bulls of being done. Not shown are XLB which chopped sideways for a second week, while XME had a small rally off of its 200 day SMA support this week while remaining below both its 20 day and 50 day SMAs at the end of this week. Next we will look at a few key stocks for this week.

19 AAPL daily chart as of Jul 6, 2018 AAPL continued to mostly chop sideways and remain mostly above its 50 day SMA support again this week. Friday saw enough of a rally to take AAPL back above its 20 day SMA and deliver new highs for this week. Volume was below average every day this holiday week. AMZN daily chart as of Jul 6, 2018 AMZN also remained mostly sideways again this week dancing around its 20 day SMA. AMZN remains near its All Time Highs while it paused this week with light volume.

20 NFLX daily chart as of Jul 6, 2018 NFLX chopped sideways this week until Friday when it rallied above its chop zone the prior 5 days. FB daily chart as of Jul 6, 2018 FB had been chopping sideways and slightly downward over the prior 6-7 days, then rallied Thursday and Friday to deliver new all time highs by the end of the day and week. FB saw about average volume on both Thursday and Friday this week, which is not bad for this being a short holiday week.

21 GOOGl daily chart as of Jul 6, 2018 GOOGL also mostly chopped sideways for 7 days before breaking above its chop zone and its 20 day SMA on Friday on light volume. NVDA daily chart as of Jul 6, 2018 NVDA has chopped sideways and under its 50 day SMA for 9 days. Friday saw the highest close for this chop period but not a test or cross above the 50 day SMA.

22 AMD daily chart as of Jul 6, 2018 AMD chopped sideways for 8 days then rallied on Friday to break out of the consolidation chop zone and above its 20 day SMA (Yellow) on above average volume. GS daily chart as of Jul 6, 2018 GS has chopped sideways for 9 days along its support area and lows of 2018 near $219.

23 SQ daily chart as of Jul 6, 2018 One of the strongest stocks in the sector this year that has often ignored its sector. SQ broke above its 20 day SMA on Thursday and continued to rally on Friday. MA also broke back above its 20 day SMA on Thursday and V did the same on Friday. AXP remains inside its horizontal chop zone where it has been non-trending most of this year. CAT daily chart as of Jul 6, 2018 CAT has been in its chop zone for 8 to 9 days below prior support (Orange) new Resistance and just above its new Support at $ DE, CAT, BA and LMT all remained inside their horizontal chop zone again all of this week and near their lows for the year.

24 TSLA daily chart as of Jul 6, 2018 News came out last weekend that Elon bragged about making his weekly production goal for TSLA. Monday saw a big Gap Up to prior Resistance (Yellow line) from Jan 2018 highs and then a strong sell off of the highs all day back below the 20 day SMA. Tuesday (a half day prior to the Holiday) saw continued strong selling and high volume as TSLA dropped to its 50 day SMA (Blue). Thursday saw more selling the first hour to find new support near $ then an $18 bounce and a close just below its 50 day SMA. Friday saw a small gap down and rally that could not close TSLA above its 50 day SMA. Note the nearly $35 spike in True Range on Monday was bigger than the one day spikes in May or June, but not as big as the $36 spike in April. TSLA is a very liquid stock, and has very liquid options contracts, since it is a favored instrument for active day and swing traders. As you can see in the chart, having about monthly huge move can provide opportunities for the quick and agile trader, thus it continues to be a favored trading instrument.

25 SCCO daily chart as of Jul 6, 2018 With the weakness in the Metals and Mining sector over the prior months, you can see that SCCO briefly broke below its Feb 2018 lows (Yellow support) last week, and then briefly broke below its next Support level (Blue line) from Nov 2017 prior Resistance. Note now both the 20 day SMA and 50 day SMA have been sloping downwards since early to mid May. Note how SCCO crossed below its 50 day SMA back on April 25 th, and then bounce to nearly test the 50 day SMA as new Resistance on June 6 th. This failure to touch or cross the 50 day, and the lower high (and lower lows) were formed, gave a higher odds bearish trade opportunity on June 7 th. The 200 day SMA (Purple) failed as support as price gapped below on June 19 th. Being patient usually pays, if you can let the charts tell you when they are done. Study the sequence of signals, and that can help prepare you for futures opportunities. In mixed markets, it helps to improve your odds by holding both bullish and bearish positions, and letting the winners run, while keeping the losses small. Trade Smart, CJ