Market Observations as of Mar 2, 2018

Size: px

Start display at page:

Download "Market Observations as of Mar 2, 2018"

Abel Walters
5 years ago
Views:

1 Market Observations as of Mar 2, 2018 By Carl Jorgensen - For Objective Traders - For educational purposes only. Not Financial Advice. The markets were mixed this week as volatility raised its head back up. If you look at the daily charts with the recent Highs (late January) and recent Lows (Feb 9 th ) in mind, and compare where price is now within this range, you can see in your mind (or on the screen) a relative measurement that helps to determine the strength or weakness for the stock, sector or index you are evaluating. This week ended with: the Dow at the top of its lower third of its Feb. range, the S&P and Russell near the middle of their range, and the Nasdaq composite in the upper third of its range. We did see a few new all time highs this week with the strongest stocks. Overall, we see a consolidation triangle pattern forming on most daily charts over the prior month that provided a lower high early this week. Over this past month we have used a relative approach to identify the strongest sectors and stocks, as well as the weakest. This has given us an advantage as volatility increases, and a few stocks have done very well through a rough period in the markets. During the first week or so of Feb, we looked at how much of the prior month s gains (January & December) were given back as the markets dropped. Then after the Feb 9 th lows, we would look at how much of that drop was recovered as a comparison. We have provided examples each week of how this relative evaluation has produced opportunities even in some ugly markets. The other key lesson to learn from February is that volatile markets are fast markets. We need to pay close attention to the charts, their velocity and changes, and be a bit quicker to make our decisions. It s been a great market for experienced day traders with lots of opportunities on volatile days. Likewise, this is a very dangerous market for new traders who may not have a clearly defined process and discipline to follow it without delay. This is not a safe market to learn these skills. The smart thing to do, is not trade the volatility, but studies it closely to gain some experience without any risk (no positions) in the markets. The week starting with a gap up at the open on Monday followed with a reasonable rally all day. The bulls showed they remained in control from the prior Friday (Feb 23 rd ). The rally continued for the first minutes on Tuesday then reversed as the sellers took control. The reason why is not important (new fed chair testimony? Tariff talks?), the key is that the character of the tape (charts) changed. How significant this change was not clear until we saw more and more confirmation as the day turned more and more negative. By the last hour of trading on Tuesday, we began to see confirmation in the major index charts as they were breaking their Bullish Trend Line Support (drawn from the Feb 9 th lows to Feb 22 lows). Below you will see some 15min. charts that help illustrate these changes and the confirmation as Trend Lines were broken. As the week progressed, we saw more selling, and would begin to draw Trend Line Resistance between the highs seen on Tuesday and Wednesday (Green Trend Line). This trend became steeper Wednesday and Thursday, so we drew a steeper Trend Line Resistance (Blue Trend Line). These trend lines on the intraday charts would serve to help us define a confirmation once price breaks above these Resistance lines, to then be ready to see the switch from bearish to bullish behaviors.

2 On Friday, we saw this accelerated selling (Blue line) continue with the gap down at the open. Within the first hour, the buyers stepped in and a rally followed to recover the losses from the open and change the day into a positive gain for the day. We saw confirmation of this change from bearish to bullish as our Bearish Trend Lines (Blue) were broken about 2 to 3 hours into the day on Friday. Even if you primarily trade using daily or weekly charts, you can use intraday charts on occasion, when markets are volatile, to avoid fighting the tape (trend). The key is to not be distracted by the increased noise (and data) seen on shorter time frame intraday charts. This noise can easily lead to making poor trading decisions. The most important aspect is to have a specific decision point and defined purpose of using the intraday chart. For me, the simple trend line, drawn between clear extremes in price, give me a decision point as confirmation of a change in character. This week we will look at weekly, daily, and 15min. charts for each of the major indexes, to see clearly how the week played out as we saw two reversals in the trend. S&P 500 weekly chart as of Mar 2, 2018 The S&P ended this week with a bearish engulfing candle as volatility increased this week over the prior two weeks. Price closed just above the 20 week SMA (Yellow).

Price ended this week below both SMAs, with a range wider than the prior week, and near the middle of its range as defined from the Jan. 26 th to Feb. 9 th drop.

3 S&P 500 daily chart as of Mar 2, 2018 Here we see the up days on Monday and Friday this week, with down days on Tuesday, Wednesday and Thursday. The 20 day SMA (Yellow) has been sloping downward for about 20 days now and the 50 day SMA (Blue) is flattening out. Price ended this week below both SMAs, with a range wider than the prior week, and near the middle of its range as defined from the Jan. 26 th to Feb. 9 th drop. Also, Friday closed after recovering about half of its prior day s range and above the prior day s close. S&P 15 min. chart as of Mar 2, 2018 The Bullish Trend Line (Red) from the Feb 9 th lows to the Feb 22 nd lows was broken in the last hour on Tuesday. The high for the week was in the first hour of Tuesday, but our confirmation did not occur until the last hour that day. Note the acceleration down the last

two hours on Wednesday (Feb 28 th ) the last day of trading for February. We drew the Green Trend Line Resistance late on Wednesday, as we then had two extreme highs to draw a line.

4 two hours on Wednesday (Feb 28 th ) the last day of trading for February. We drew the Green Trend Line Resistance late on Wednesday, as we then had two extreme highs to draw a line. As accelerated selling continued at a similar pace into Thursday, we could draw a steeper trend line (Blue) as the highs were clearly seen by mid day on Thursday. This Trend Line Resistance (Blue) remained in place as the markets gapped down at the open on Friday. Buyers began to step in on Friday, about a half hour after the open, and began to drive price back upwards. About 2 hours after the open on Friday, our Blue Trend Line Resistance was broken, and we had our confirmation of the bulls taking control. Note how our confirmation may occur an hour or two (or more) after the actual change (High, or Low) occurred. That s ok. Remember, at the time the high of the day (or low) occurs, there is no way to know that that was the high of the day (or low) until AFTER it occurs, since you need price to change direction and persist in the new direction in order to confirm that change has occurred. After the fact, it s easy to see the high or low of the day, but at the time it occurs that is impossible, so be comfortable with that fact, and define your own sufficient confirmation point. S&P 5 min. chart as of Mar 1, 2018 Here we have added a 5 min chart as seen at the end of the day on Thursday (March 1 st ). We can see the break below of the Red Support Trend Line the last hour on Tuesday, then a bounce to test the old Support line (Red) as new Resistance in the first hour on Wednesday (Red arrows). Also note how the 5 min / 50 SMA (light Blue) seemed to provide Resistance many times Tuesday, Wednesday and Thursday, after price broke below this SMA about 75 min after the open on Tuesday (light Blue arrows).

DJIA daily chart as of Mar 2, 2018 Like the S&P, the Dow also crossed below its 50 day SMA on Wednesday this week after closing above this SMA for

5 DJIA weekly chart as of Mar 2, 2018 The Dow also painted a bearish engulfing candle this week as volatility increased greater than the prior two weeks. Unlike the S&P, the Dow closed this week below its 20 week SMA. DJIA daily chart as of Mar 2, 2018 Like the S&P, the Dow also crossed below its 50 day SMA on Wednesday this week after closing above this SMA for only the prior 3 days. The Dow ended this week near the top of its lower third of the range defined by the drop in early Feb. Also, note how the Dow closed Friday below the close of the prior day, unlike the other indexes.

the last hour of Tuesday, accelerating the selling the last two hours of Tuesday thru the open on Friday.

6 DJIA 15 min. chart as of Mar 2, 2018 Like the other indexes this week, we see the Dow breaking its bullish trend line support (Red line) in the last hour of Tuesday, accelerating the selling the last two hours of Tuesday thru the open on Friday. The bounce Friday broke above the (Blue) accelerated bearish trend line Resistance about 2 hours into trading on Friday. NASDAQ weekly chart as of Mar 2, 2018 Note how the close this week was above the prior week s close, and comfortably above its 20 week SMA.

chart as of Mar 2, 2018 On the 15 min chart we see how the Nasdaq dropped on Tuesday and crossed below its Trend Line Support (Red line) mid day on Tuesday just after also

7 NASDAQ daily chart as of Mar 2, 2018 Note how the Nasdaq on Friday recovered nearly all of its losses from the prior day. The Nasdaq also closed the week above both its 20 day and 50 day SMAs. NASDAQ 15 min. chart as of Mar 2, 2018 On the 15 min chart we see how the Nasdaq dropped on Tuesday and crossed below its Trend Line Support (Red line) mid day on Tuesday just after also breaking below its 15min 50 SMA. The Selling accelerated the last two hours of Wednesday and persisted at the faster pace all of Thursday and early Friday. About two hours after the open on Friday, the bearish Trend Line Resistance (Blue line) was broken as prices bounce to recover most of Thursday s range.

The big bounce on Friday half of the week s range and end the week near the middle of its Jan 24 th to Feb 9 th range.

8 Russell 2000 daily chart as of Mar 2, 2018 The Russell crossed below its 50 day SMA (Blue) on Tuesday after only one prior day of a close above. The big bounce on Friday half of the week s range and end the week near the middle of its Jan 24 th to Feb 9 th range. Russell min. chart as of Mar 2, 2018 We see the Russell breaking below its Trend Line Support (Red line) early on Tuesday, and then breaking above its Trend Line Resistance (Green line) about two hours after the open on Friday.

McClellan Summation Index daily chart as of Mar 2, 2018 The velocity of the breadth drop

9 NYSE Advance/Decline Line daily chart as of Mar 2, 2018 Market breadth remained wide as lots of stocks participated in the drop and bounce this week as we see above. McClellan Summation Index daily chart as of Mar 2, 2018 The velocity of the breadth drop this week was not nearly as fast as was seen in the first week of Feb, but we did see a bit this week.

Oil daily chart as of Mar 2, 2018 Oil dropped from $64 resistance Tuesday and Wednesday this week, and

10 VIX daily chart as of Mar 2, 2018 Options Volatility bounced this week as the VIX increased Tuesday thru Thursday back above the 20% level, to then drop just below and end the week at 19.59%. Oil daily chart as of Mar 2, 2018 Oil dropped from $64 resistance Tuesday and Wednesday this week, and remained mostly horizontal Thursday and Friday. Note how this chart looks like the inverse of the US Dollar again this week.

US Dollar Index daily chart as of Mar 2, 2018 The US Dollar Index increased

11 Gold daily chart as of Mar 2, 2018 Gold dropped on Tuesday to below its 50 day SMA where it remained for the rest of this week. US Dollar Index daily chart as of Mar 2, 2018 The US Dollar Index increased Tuesday and Wednesday briefly above 90 to then drop back down Thursday and Friday to end flat for the week.

XLF daily chart as of Mar 2, 2018 The XLF dropped with the markets on Tuesday thru the open on

12 Dow Transports daily chart as of Mar 2, 2018 The Transports found Resistance at the 50 day SMA (Blue) Monday and Tuesday this week, before dropping back down to below both SMAs. XLF daily chart as of Mar 2, 2018 The XLF dropped with the markets on Tuesday thru the open on Friday this week, but then its Friday bounce ended the week just above the prior day s close and below both SMAs.

When compared to other sectors, this remains a relatively weaker one.

13 XLV daily chart as of Mar 2, 2018 The Healthcare sector is below both its 20 day and 50 day SMAs, and is closer to its Feb 9 th lows than its Jan highs. Friday did recover a lot of Thursday s drop. When compared to other sectors, this remains a relatively weaker one. QQQ daily chart as of Mar 2, 2018 The QQQ tech sector (or the XLK as an alternate) ended the week above both its 20 day and 50 day SMAs, and closer to its recent highs than its Feb 9 th lows. This has clearly been one of the stronger sectors the past few weeks.

SOXX daily chart as of Mar 2, 2018 The Semiconductor sector recovered the majority of its Thursday s drop on Friday, as well as ended this week above both SMAs and near the top of its recent range.

XLU daily chart as of Mar 2, 2018 The Utilities sector is a classic place for scared money to run to for safety, but this chart does not show us this happening the past month.

14 SOXX daily chart as of Mar 2, 2018 The Semiconductor sector recovered the majority of its Thursday s drop on Friday, as well as ended this week above both SMAs and near the top of its recent range. This is clearly one of the stronger sectors the past few weeks. XLU daily chart as of Mar 2, 2018 The Utilities sector is a classic place for scared money to run to for safety, but this chart does not show us this happening the past month. In December and January, when the overall markets were very bullish, this was a bearish sector. But the early Feb drop saw this sector fall to lower lows as well. The bounce the prior two weeks could not deliver a higher high, and selling resumed this week. Seems this has NOT been a place for money to seek safety, as in past bearish markets. XLU closed this week again below its 20 day, 50 day and 200 day SMAs.

XME daily chart as of Mar 2, 2018 The Metals and Mining sector has been horizontal two to three weeks, and ended this week

15 XLP daily chart as of Mar 2, 2018 Like utilities, consumer staples has not been a place for money to seek safety this past month. XLP is below all 3 SMAs again this week. XME daily chart as of Mar 2, 2018 The Metals and Mining sector has been horizontal two to three weeks, and ended this week near its 50 day SMA, and in the upper half of its recent range. The talk this week about possible Tariffs on steel and aluminum has created some extra volatility but not much change in this sector so far.

Next let s look at a few key stocks to see what their charts are telling us. AAPL daily chart as of Mar 2, 2018 Apple briefly delivered new all time highs this week.

16 Next let s look at a few key stocks to see what their charts are telling us. AAPL daily chart as of Mar 2, 2018 Apple briefly delivered new all time highs this week. It has remained above all 3 SMAs the past two weeks and ended the week near its Nov highs (Orange line and arrow). Note how AAPL is near the top of its recent range, and did not drop much on Tuesday or Wednesday this week. This has been one of the stronger stocks, and due to its size, has helped keep the Nasdaq and technology the stronger index and sector. AAPL has been more horizontal than trending the past four months as can be seen with the horizontal 20 day and 50 day SMAs and Price Range.

NFLX daily chart as of Mar 2, 2018 NFLX also delivered new all time highs this week. Note the rally Friday that formed a bullish engulfing candle wider that the range of the prior four days.

AMZN daily chart as of Mar 2, 2018 Amazon has also been one of the few strong stocks that have remained in a bullish trend the past month.

17 NFLX daily chart as of Mar 2, 2018 NFLX also delivered new all time highs this week. Note the rally Friday that formed a bullish engulfing candle wider that the range of the prior four days. NFLX has consistently been one of the strongest stocks, and this can be seen with all three SMAs sloping upwards. NFLX is one of the very few stocks that remain trending the past two months. AMZN daily chart as of Mar 2, 2018 Amazon has also been one of the few strong stocks that have remained in a bullish trend the past month. Note how price remains above all three SMAs again this week, and all three SMAs remain sloping upwards to the right. Also, AMZN delivered more new all time highs earlier this week. For a stock to remain in its own bullish trend, while the broad markets sell off, is a very impressive show of strength that should not be ignored.

FB closed within the lower half of its Feb range this week. These are not signs of strength. The horizontal (non-trending) behavior is now going into its 5 th month.

18 FB daily chart as of Mar 2, 2018 FB dropped back below its 50 day and 20 day SMAs again this week after only two prior day closing above both SMAs. Note how little of Thursday s losses were recovered on Friday. Note how long the 20 day and 50 day SMAs have been moving sideways, and the 20 day has turned down the past month. FB closed within the lower half of its Feb range this week. These are not signs of strength. The horizontal (non-trending) behavior is now going into its 5 th month. GOOGL daily chart as of Mar 2, Alphabet crossed below both its 50 day and 20 day SMAs again this week. It recovered very little of its Thursday s losses on Friday, and ended the week below both SMAs and in the lower half of its recent range. Like FB, not a sign of strength, and mostly horizontal for four months.

Not the strongest, but relatively stronger than many this week.

19 NVDA daily chart as of Mar 2, 2018 NVDA ended this week above its 50 day SMA, near its 20 day SMA, and in the upper half of its recent range. The 20 day SMA has been more horizontal the past month, but the 50 day SMA still has a positive slope. Not the strongest, but relatively stronger than many this week. MA daily chart as of Mar 2, 2018 MA delivered new highs this week, remains above all three of its SMAs, and near the top of its recent range. All three SMAs have some positive slope. All are signs of strength in an otherwise ugly market.

The 20 day SMA has become flat, but the 50 day and 200 day still have some positive slope.

20 JPM daily chart as of Mar 2, 2018 JPM took a bit of a beating this week, with selling Tuesday thru early Friday. It briefly broke below its 50 day SMA on Friday, but then bounced to close the week above its 50 day and just below its 20 day SMA. The 20 day SMA has become flat, but the 50 day and 200 day still have some positive slope. SQ daily chart as of Mar 2, 2018 SQ reported earning this week, but still could not close outside of its consolidation wedge (Yellow Resistance, Orange Support). The 20 day SMA is flat, but the 50 day and 200 day still have a bit of slope. Odds still favor a positive break out, but that may take more patience.

BA daily chart as of Mar 2, 2018 BA delivered new all time highs again this week, but then saw strong selling on Thursday. Friday saw price remain below its 20 day SMA.

LMT daily chart as of Mar 2, 2018 Lockheed began the week retesting Resistance near its prior Highs (Orange line) then was hit hard on Wednesday and even harder on Thursday with the selling.

21 BA daily chart as of Mar 2, 2018 BA delivered new all time highs again this week, but then saw strong selling on Thursday. Friday saw price remain below its 20 day SMA. We were stopped out on Thursday morning with a small gain. That is what the stops are for. Note how the moving averages still have slope, with the 20 day beginning to go flat. LMT daily chart as of Mar 2, 2018 Lockheed began the week retesting Resistance near its prior Highs (Orange line) then was hit hard on Wednesday and even harder on Thursday with the selling. LMT crossed below its 20 day SMA and dropped all the way down to its 50 day SMA before finding support on Thursday. Friday saw a brief break below then bounce above Support at the 50 day SMA. LMT closed the week near the top of its lower half of its recent range. Note how the 50 day SMA also provided support back in early February.

22 X daily chart as of Mar 2, 2018 X oscillated this week as talk of Tariffs added some volatility to the sector. X held up well, above all three SMAs, a higher high briefly seen on Thursday, and all three SMAs continue to slope upwards. Also, X remains well above its recent range. Check the charts for others in this sector ( AKS, NUE ) to see what you can see about their behavior this week. Practice comparing to see what is similar, different, and think about how you what select the strongest as the better possible trade, if any. Practice reading the charts helps to develop and improve your skills.

AA daily chart as of Mar 2, 2018 Alco should have rallied this week, if the markets were reacting to proposed Steel and Aluminum Tariff talks.

23 SCCO daily chart as of Mar 2, 2018 SCCO delivered new highs early this week, and held onto most of those gains during a mostly ugly week. Price remains well above all three SMAs, and above its recent range. All three SMAs continue to slope upwards on stronger volume. AA daily chart as of Mar 2, 2018 Alco should have rallied this week, if the markets were reacting to proposed Steel and Aluminum Tariff talks. However, AA continued its slow slide down this week, with a small bounce on Friday. Price remains below both its 20 day and 50 day SMAs, near the bottom of its Feb range, and the 20 day SMA has been pointing south for a full month. Price has returned to where it was in mid December when it crossed above its 50 day SMA (Blue arrow). I am not a bottom picker, so I have no interest in this chart. I choose to wait for some real confirmation and much better odds before I consider taking any risk.

CAT daily chart as of Mar 2, 2018 - CAT began this week with a higher high and price above both its 20 day and 50 day SMAs.

DE daily chart as of Mar 2, 2018 DE also broke below both its 20 day and 50 day SMA on Wednesday this week.

24 CAT daily chart as of Mar 2, CAT began this week with a higher high and price above both its 20 day and 50 day SMAs. However, on Wednesday it broke below both its 50 day and 20 day SMAs on increased volume. DE daily chart as of Mar 2, 2018 DE also broke below both its 20 day and 50 day SMA on Wednesday this week. However, unlike CAT, DE began this week with a lower high, and this provided me with the extra confirmation when looking to put on a bearish trade just after the 50 day SMA was broken Wednesday.

25 We saw some increased volatility this week, both when measure with indirectly Options prices (VIX) and when measured with stock prices via True Range. Overall, most of the markets are in a chop zone and a consolidation pattern with a few exceptions we ve pointed out above. Volatility can appear quickly, but it does not vanish quickly, so know that odds are likely volatility will remain in the coming days and weeks as moves in price can be faster and/or larger. Markets like this make it even more important to stick to your plan, since volatility can both make fast money, and cause one to lose fast. Sticking to your risk management rules is always important, but the consequences of failing to do can be much uglier in volatile markets. This might be a good time to sit on your hands, not trade, and use this opportunity to study the behaviors of these markets. Trade Smart, CJ

Market Observations - as of Jul 27, 2018

Market Observations - as of Jul 27, 2018 By Carl Jorgensen - For Objective Traders - For educational purposes only. Not Financial Advice. This week began with most markets continuing their bullish trends