Market Observations - as of Sep 28, 2018

Transcription

1 Market Observations - as of Sep 28, 2018 By Carl Jorgensen - For Objective Traders - For educational purposes only. Not Financial Advice. The month week, month and quarter ended with not much change in the overall markets and their trends. We did see some volatile Sector changes this week, and some reactions to the FOMC minutes even though the small rate hike was exactly as expected by most. Energy, Healthcare and Tech were some of the stronger sectors this week, while Financials, Materials and Industrials held back the Dow and S&P. The S&P and Dow continued their bullish trends this month and quarter, while the Nasdaq and Russell both have shown a one month pause and consolidated during September after two quarters of bullish trending action. Oil broke above its $71.5 resistance level this week but has not yet tested its highs from early July this year. The US dollar rallied a little late this week, but has not broken out of its range that it has been within since middle June. Gold oscillated a little late this week, but also has remained inside of its range seen since the break down Aug 13 th to new lows for this year. The big changes implemented this week with several key Sectors did not seem to have any dramatic impact on those stocks or ETFs that were impacted. The biggest impact was seen with the daily volume with the XLC sector etf now that several big tech companies have been moved into this Communications Services sector. The Fed minutes released on Wednesday of this week, did briefly created some mild volatility, as active traders reacted. Overall, the expected rate hike had been expected most of this year, and was likely fully priced into the markets. The BIG action this week may have been the strong drop in the Financial sector that started last Friday (Sept 21 st ) well before the Sept 26 th Fed meeting minutes. This selling in this sector continued every day this week, with stronger than average volume. What few gains had been briefly seen this year with the XLF were all given back this week, as Friday s close was back to the level of the close on Dec 1 st 2017, exactly. The XLF has had an ugly year, and is in the lower third of its 2018 range and closed at a level lower than any close in the past two months. Maybe this was some serious sector rotation and/or window dressing before the end of Q3 when fund managers are required to report their holdings? A major economic stimulus this year has the repatriation of off shore capital that has been moved back to the USA (due to tax law changes). Money has a way of finding a way to be put to work, and US companies will invest in a number of ways (stock buy backs, capital improvements & expansion, acquisitions, etc.) to show their share holders that they are not just sitting on large amounts of cash. Below is a chart from Tom McClellan s presentation this week (at StockCharts on Sept 26 th ) that shows the scope of this capital repatriation.

2 This 2018 stimulus almost makes the past 10 years or Quantitative Easing pale in comparison. In the next few weeks we will begin to see Q3 Quarterly Earnings being reported, so keep an eye on the calendar and your holdings so as to avoid a surprise. Now, let s look at the charts to see what they are telling us this week.

3 S&P 500 weekly chart as of Sep 28, 2018 The S&P paused within its bullish trend this week, with a small pull back from last week s new record highs. The Q3 Trend Line (Orange) remains as support. S&P 500 daily chart as of Sep 28, 2018 We saw a gap down on Monday this week, then mostly horizontal chop as the bull trend tested support at its 20 day SMA (Yellow) on Wednesday, and remained above both its 20 day SMA and its Trend Line (Orange) all this week.

4 DJIA weekly chart as of Sep 28, 2018 The Dow also showed a small pull back this week, after a record breaking new highs set last week. The Bull trend this quarter remains intact. DJIA daily chart as of Sep 28, 2018 Here we see a pullback Monday, Tuesday and Wednesday this week to return the Dow below its Jan highs (Orange line). Thursday and Friday were mostly horizontal. A little more than half of the prior week s gains were kept, with the pull back this week that did not even drop down to test its 20 day SMA (Yellow).

5 NASDAQ weekly chart as of Sep 28, 2018 We can see the Nasdaq oscillating the past few weeks as it has mostly remained horizontal. NASDAQ daily chart as of Sep 28, 2018 Here we can see the pause in the bull trend during most all of the month of September. This week saw a gap down and bounce up on Monday, and then chopped mostly sideways near its 20 day SMA on Tuesday and Wednesday. Thursday and Friday saw a very small rally, as tech ended the month with a little bit of buyers in control.

6 Russell 2000 weekly chart as of Sep 28, 2018 The Russell has seen about four weeks of a minor pull back, nearly to its 20 week SMA after making record highs at the end of August. Russell 2000 daily chart as of Sep 28, 2018 Here we can see the slow decline in the Russell during September with a cross below the 50 day SMA (Blue) on Wednesday of this week.

7 NYSE Advance/Decline Line daily chart as of Sep 28, 2018 We see a double top formed by the second high in the Advance/Decline at the end of last week, with this week declining below the 20 day SMA on Wednesday and testing support at the 50 day SMA on Friday. McClellan Summation Index daily chart as of Sep 28, 2018 The McClellan Summation Index also shows a decline every day this week, below the 200 day SMA (Purple) that saw a tiny bounce on Friday.

8 VIX daily chart as of Sep 28, 2018 The Volatility seen in the Options market this week remained low as the VIX stayed below both its 20 day and 50 day SMAs most all of this week. The very minor uptick in the VIX was seen in the last hour on Wednesday, after the FOMC meeting minutes release. There was also another minor tick up after the open on Friday where the VIX very briefly broke above 13%. OIL daily chart as of Sep 28, 2018 Here we can see the advance in Oil prices on Monday and Friday of this week, closing the week above the May 22 nd highs (Dark Blue line).

9 GOLD daily chart as of Sep 28, 2018 Gold remained mostly horizontal this week, below its 50 day SMA, with a small downward move on Thursday and bounce back on Friday. Gold remains in a narrow range since mid August. US Dollar Index daily chart as of Sep 28, 2018 The US Dollar Index also remained inside its range this week, even after a small rally on Thursday above its 20 day SMA and Friday to close the week above both its 20 day and 50 day SMAs. Most of the time since mid June, the Dollar has remained inside a narrow range.

10 TNX daily chart as of Sep 28, 2018 The 10 year US Treasury index rallied a little early this week to nearly retest its highs from May 17 th. On Wednesday this index gapped down at the open, and then dropped more the last hour (post Fed). Thursday was quiet and Friday gapped down to rally up a little. We see a double top forming with the highs from May and again this week. We will see in time if this level holds up as Resistance.

11 Dow Futures 1 min. chart as of Sep 26, 2018 Here I am sharing a 1 min chart of the Dow Futures (YM) contract to show the moves after the FMOC Minutes release on Wednesday this week. (Note the time scale is using Pacific Time zone.) The first reactions were positive, with waves up, and then a failed new high at F, soon followed by a lower low at G, both confirming the reversal to bearish momentum that continued until the close. We can also see the acceleration of sellers from J to M with a brief pause at K. This is a typical example of Reactions to news events, where the first move (bullish) can be in the wrong direction, as seen with the much larger move (-204 pts) and faster (25 min) acceleration to the Bearish side. Day trading takes lots of skill & practice, since decision must be very promptly made. Futures provide a lot of leverage (150x) thus is both a very dangerous place to learn discipline, but an efficient way to earn profits for the experienced pro. The purpose of this example is to see the similar patterns and behaviors on a 1 min chart, than can be seen on longer time frame charts. Next we will look at a few key Sectors.

12 Dow Transports daily chart as of Sep 28, 2018 The Transports moved down on Monday and Tuesday, as Oil moved up. This is the common reaction to higher fuel prices by the Transports. The rest of this week this sector remained mostly horizontal, even when oil increased again on Friday. Supply and Demand are also very important facts affecting both Oil (fuel) and the need for Transportation services. XLE daily chart as of Sep 28, 2018 Here we see the Energy sector mostly move with Oil prices early this week, and less so on Friday.

13 XLF daily chart as of Sep 28, 2018 The Financial sector has struggled most of this year. The Big Break out we saw last week on Sept 19 th and 20 th was brief, and began to pull back on Friday of last week. That pull back was strong and steady every day this week, as the XLF returned to and closed exactly at its Dec 1 st 2017 close price this week. Note the Strong volume the last 3 days of this week. This is either some big sector rotation, or window dressing for Q3? It is not like the Fed announcement on Wednesday was any surprise. The XLF closed this week below ALL of its key SMAs (20d, 50d and 200d) and in the bottom 1/3 of its 2018 range. Looking at key components in this sector, you will see similar strong selling the past 6 days (GS, MS, JPM, BAC, WFC, C, and AXP). The outliers continue to be V and MA that held up well this week.

14 QQQ daily chart as of Sep 28, 2018 The Tech sector had a good week this week, advancing on all days but Wednesday, and exceeding the highs from the prior week. The QQQ remains in consolidation mode since it has yet to exceed its late Aug highs. XLK daily chart as of Sep 28, 2018 We see a very similar chart with the XLK as we see in the QQQ (but the QQQ also has AMZN in it). Note the advances each day but Wednesday this week, exceeding the prior week s highs, and not yet testing the late Aug record highs.

15 SOXX daily chart as of Sep 28, 2018 The Semiconductor sector has been in consolidation for 2 quarters, and had a roller coaster week. Monday and Tuesday oscillated above and below its 20 day SMA, then gapped down below its 50 day SMA on Wednesday, remaining above its 200 day SMA for the balance of the week. The Consolidation triangle continued to close in on the price range of this sector. Remember, over the past few months, we have seen both positive outliers in this sector (AMD) and negative (AMAT). XLC daily chart as of Sep 28, 2018 The new Communication Services sector had a major change implemented at the beginning of this week, with big stocks being moved into this new sector like: FB, GOOG, GOOGL, NFLX, DIS and EA.

16 XLY daily chart as of Sep 28, 2018 XLY moved up each day this week but on Monday, moving back above its 20 day SMA on Wednesday. It has not yet exceeded its record highs from the prior week, so it remains in consolidation this week. XLV daily chart as of Sep 28, 2018 Talk about a low volatility, continued trend, XLV keeps marching slowly upward again this week. Not the continued sloped of each of the three SMAs as another sign of consistency of its rate of change. Q3 has been a very steady period for the XLV.

17 XLI daily chart as of Sep 28, 2018 The Industrials had a strong rally going since mid August that was knocked back down on Monday of this week. Tuesday the XLI tested its 20 day SMA, and remained in a narrow horizontal range the remainder of the week. XME daily chart as of Sep 28, 2018 The Metals and Mining sector, had a rally going the prior 2 weeks, but gave back a lot of those gains this week. The XME broke below its 50 day SMA and 20 day SMA this week, to find support at its May 1 st lows (Orange line) this week.

18 AAPL daily chart as of Sep 28, 2018 AAPL, like most of big tech this week, rallied up each day this week but on Wednesday. The highs this week exceeded the prior week, but have not yet retested the late Aug record highs. Therefore, consolidation remains the current mode for AAPL and most of big tech. AMZN daily chart as of Sep 28, 2018 AMZN rallied every day this week but on Friday, starting from support near its 50 day SMA and its prior Resistance from its July Highs (Grey line) that acted like new Support. The record highs from late August have not yet been retested.

19 NFLX daily chart as of Sep 28, 2018 NFLX rallied this week, exceeding the prior week s highs, but not yet testing the Resistance from the July gap day (Grey line). NFLX began this week with a test of Support at its 50 day SMA on Monday. NFLX has recovered more than half of its July-Aug drop since mid August. FB daily chart as of Sep 28, 2018 FB has not recovered from its July-Aug drop, and spent September in yet a lower range box. The small rally this week to above its DESCENDING 20 day SMA was mostly given back on Friday as more bad news about data/hacks came out.

20 GOOGL daily chart as of Sep 28, 2018 Alphabet had a rally week off of its Sept lows on Monday, up each day this week, to test Resistance at its July gap day Resistance (Green line) on Thursday this week, just below its 50 day SMA. NVDA daily chart as of Sep 28, 2018 NVDA began this week with a bounce off of support near its 50 day SMA on Monday, and gapped up a bit on Tuesday, where it paused the rest of this week. Friday an analyst upgraded on NVDA fuelled a gap up at the open, breaking above the Trend Line (Orange line) and the 20 day SMA (Yellow) was followed with a rally most of the day that nearly took NVDA to its prior record highs from late Aug.

21 AMD daily chart as of Sep 28, 2018 AMD has been resting, and chopping sideways for two weeks after a big rally the first half of September. The Rally on Monday was given back on Friday, as some volatility affected AMD while in its trendless pause this week. MSFT daily chart as of Sep 28, 2018 MSFT moved up on Monday, then paused in a narrow horizontal range the rest of this week, very near to its record highs from the prior week.

22 SQ daily chart as of Sep 28, 2018 SQ has a big rally in late Aug. up to $92 area before pulling back a little last week. Monday found support to rally up to its 20 day SMA. Tuesday gapped up at the open and rallied strong to deliver new record highs that day and every day this week (but Monday). SQ became a 90 to 100 candidate in late August, once it broke above $90 for the first time. This is a very old saying on Wall Street, that stocks that move up to 90 the first time, always move on up to 100. I can t find an example of where this does not happen. It s the same idea as Trends tend to continue. Indeed, SQ did its 90 to 100 run this week, all in one week, topping off at $ on Friday this week. V daily chart as of Sep 28, 2018 V (and MA) held up very well this week, while the XLF dropped over 4%, V remained rather flat, remaining right up near its all time highs all week. Again showing that it is indeed an outlier.

23 AXP daily chart as of Sep 28, 2018 Unlike V and MA, AXP is in the XLF and dropped every day this week, just like the XLF (not an outlier). JPM daily chart as of Sep 28, 2018 JPM retested its 2018 highs late last week, and then has dropped hard every day since, giving back all gains from the prior two months. Most of the XLF sector components look similar to this JPM chart. (GS, MS, BAC, WFC, C, AXP).

24 BA daily chart as of Sep 28, 2018 Boeing, one of the biggest Industrial stocks, had a strong week last week, but gave some of those gains back this week, as BA pulled back every day this week until Friday, when BA moved back up in one day to exceed its prior week s highs, and retest Resistance from its June record setting highs (Green line). LMT daily chart as of Sep 28, 2018 LMT bounced this week, after the 2 day ugly pull back last week. LMT not only recovered all those losses from last week, but exceeded last week s highs and closed higher on Thursday, than any close over the past 5 months.

25 CAT daily chart as of Sep 28, 2018 CAT, another key Industrial stock, did not have such a good week, giving back part of last week s gains this week and closing this week near its Sept 19 th close, the day it broke above its 200 day SMA (Purple) and Trend Line Resistance (Yellow line). As we can see from the chart, the Financial sector took a major beating this week, and will have to wait and see if this changes next week, or not. The Financial sector is a key indicator of a healthy economy, and has been the primary source of concerns over the past several months, while other key sectors show steady growth the past two quarters. Time will tell, and patience will be rewarded, when we stick to our plan, and wait for evidence to make our decisions. Trade Smart. CJ