Market Observations - as of May 11, 2018 By Carl Jorgensen - For Objective Traders - For educational purposes only. Not Financial Advice. After about four weeks of very little net change in the major indexes from week to week, this week we did see a change. The bullish rally that started at the end of last week, continue this week, slowly Monday and Tuesday, than picked up on Wednesday and Thursday. Friday we saw a pause in most indexes. Lots of stocks, sectors and even indexes broke above their 50 day moving averages or above their Descending Trend Line Resistance (consolidation pattern) this week. The Russell 2000 was the big star this week, as it has recovered most all of its 2018 correction as it ended this week near its all time high from January 24 th 2918. The Nasdaq (composite) currently has recovered about 75% of its 2018 range. The S&P has recovered about 57% and the Dow about 45% of their respective 2018 ranges. Oil made new multi-year highs again this week, and the US Dollar Index made a new 2018 high while the VIX is making new lows not seen since Jan 26 th 2018. The VIX took only 2 to 3 days to spike up to multi-year highs in early Feb. this year, and then it took 3 months to return to its prior levels. This is normal non-symmetrical behavior for the VIX since it s similar to human emotions that can very quickly become panicked or surprised, but take some time to calm back down and become comfortable again. We can see this behavior in the charts. As more earnings were reported this week (mostly beating top line and bottom line expectations) we saw a change, unlike the prior few weeks where nearly all positive news was reacted to with selling, we saw less of that this week as the market seemed to become a bit more comfortable with bullish news. Maybe AAPL s earnings followed by the Buffett news last week were the beginning of this change in mood? The why is not important, and it is impossible to prove either way. What is important is the market behavior that we can learn to recognize within the charts. Let s look at the charts to see what they are telling us this week.
S&P 500 weekly chart as of May 11, 2018 Here we see the S&P has remained above its 50 week SMA the past two years, even during the consolidation of the past 3 months. Note this week the S&P broke and closed above its Trend Line Resistance (Orange) and its 20 week SMA. S&P 500 daily chart as of May 11, 2018 Here we can see the S&P break above its 50 day SMA (Blue) this week on Wednesday (May 9 th ) and above its Trend Line Resistance (Orange) the following day.
DJIA weekly chart as of May 11, 2018 We see a similar pattern in the Dow as in the S&P, with Price remaining above the 50 week SMA (Blue) for about two years. This week we see the Dow break above the Trend Line Resistance (Orange) to close near its 20 week SMA (Yellow). Remember, odds favor that price breaks out of Consolidation more often in the same direction as was the trend just prior to that Consolidation period. DJIA daily chart as of May 11, 2018 Here we see the Dow breaks above its 20 day (Yellow) and 50 day SMAs (Blue) as well as above its Trend Line Resistance (Orange) on Wednesday of this week.
NASDAQ weekly chart as of May 11, 2018 The Nasdaq has been above its 50 week SMA since July 2016, and broke above its Trend Line Resistance (Orange) and 20 week SMA late last week. NASDAQ daily chart as of May 11, 2018 The Nasdaq closed nearly on its 50 day SMA last week after breaking above its 20 day SMA and its Trend Line Resistance (Orange) last Friday (May 4 th ) providing a wide range day. This week the Nasdaq gapped up at the open on Monday and continued up each day.
Russell 2000 daily chart as of May 11, 2018 The Russell continued up every day this week to break above its Trend Line Resistance on Thursday and Friday this week, coming close to its all time highs from Jan 24 th this year. Note how both the 20 day and 50 day SMAs have recently hooked upwards, reacting to the bullish momentum. Next we will look at a few market Internals.
NYSE Advance/Decline Line daily chart as of May 11, 2018 We see breadth gap up Monday to hold horizontal at that level through Tuesday, then move up on Wednesday and Thursday to then again rest on Friday of this week. We see new highs in this ratio for 2018 the last two days of this week, telling us this rally included broad market participation. McClellan Summation Index daily chart as of May 11, 2018 We see confirmation in the McClellan Summation Index that each day this week saw increasing momentum, not euphoria, just a steady and moderate pace.
VIX weekly chart as of May 11, 2018 Over 2016 and 2017 we saw a steady fall of Options Volatility as the markets became more and more comfortable with the bullish trend. That changed at the end of Jan. 2018 were we see a very fast spike up in the VIX to a multi-year high. The past 3 months we have seen a slow return to the comfortable levels as the VIX has returned to below the 200 week and 50 week SMAs this past week. VIX daily chart as of May 11, 2018 Here we can see the VIX return to the last Jan 2018 levels this week as it slowly descended to below its 200 day SMA (Purple) this week.
Next let s look at a few key commodities that are often important indicators of economic growth or other changes in world markets. OIL daily chart as of May 11, 2018 Oil continued to rally this week to again make multi-year new highs on Monday, Wednesday and Thursday this week. Political fears are likely impacting price as events in Syria, Iran and Russia (and other locations) can affect the supply side.
Gold daily chart as of May 11, 2018 Gold bounced a little bit this week off of its 200 day SMA (Purple) support to find resistance Friday at its 20 day SMA (Yellow). Gold remains range bounce all this year. US Dollar Index daily chart as of May 11, 2018 The US dollar continued to strengthen this week to peak on Wednesday with a new 2018 high, and then pull back a little on Thursday and Friday. Next we will look at the charts for a few key Market Sectors.
DJ Transports daily chart as of May 11, 2018 The Transports were quiet Monday, but then rallied every day the remainder of this week to break above both its 20 day and 50 day SMAs on Wednesday and above its Trend Line Resistance (Orange) on Friday. This action provides a strong economic indicator, especially when oil (fuel) prices are increasing at the same time. XLF daily chart as of May 11, 2018 The Financial sector rallied this week to break above its 20 day SMA, Trend Line, and 50 day SMA. If we look deeper, we see this is mostly being driven by consumer credit (V, MA, AXP, and SQ) and less by banks of financial services sectors.
XLE daily chart as of May 11, 2018 XLE broke above its Trend Line Resistance this week gapped up and rallied mostly on Wednesday of this week. Similar to Oil s price moves this week. QQQ daily chart as of May 11, 2018 Tech moved above its 50 day SMA & Trend Line Resistance last Friday (May 4 th ) and continued ups this week. Most of the advances came with the gap up at Monday s open, and the rally on Wednesday and Thursday. Friday saw a pause in the momentum. (XLK has a similar chart, but is weighted a little differently for this sector than the QQQ. Both tell the same story.)
SOXX daily chart as of May 11, 2018 Semiconductors were beaten down the prior several weeks, but finally rallied off of their 200 day SMA (Purple) Support last Friday (May 4 th ). That rally continued this week starting with a gap up Monday to break above the Trend Line Resistance (Orange) and then above its 50 day SMA (Blue) on Wednesday. Note the resistance on Thursday and Friday this week is near the highs from April 17 th and near the 61.8% Retracement of the 2018 range (Purple). XLV daily chart as of May 11, 2018 The Healthcare sector has been one of the weakest the past few months, and finally saw a rally late this week to break above its 20d, 50d and TL resistance on Friday.
IBB daily chart as of May 11, 2018 Like the XLV, the Biotech sector has also been one of the weakest the past several weeks. The IBB rallied on Friday back above its 20 day SMA to find resistance at its 50 day SMA. This may likely be a reaction to the president s speech regarding drug pricing on Friday. XME daily chart as of May 11, 2018 The XME broke above its 20 day and 50 day SMAs last Friday, and remained above both SMAs this week to eventually cross above its Trend Line Resistance (Orange) on Thursday and Friday this week.
XLU daily chart as of May 11, 2018 The Utilities were in a very slow uptrend the past two months until breaking below its 20 day SMA, 50 day SMA and Trend Line Support on Tuesday of this week. The week ended with the XLU near its 50 day SMA and prior Trend Line. Next we will look at a few key stocks that we have been following to see what these charts can tell us.
AAPL daily chart as of May 11, 2018 The Prior week AAPL reported earnings and then a few days later the Warren Buffett news came out that propelled AAPL to new highs. This week we saw a much slower continuation of that rally continue to again deliver more new all time highs on decreasing volume. AMZN daily chart as of May 11, 2018 Amazon was again rather quiet this week, with narrow range days on light volume as it remains near its all time highs.
NFLX daily chart as of May 11, 2018 NFLX also had a relatively quiet week, rallied a little the first half of the week to come close to its prior highs as it remains above all of its SMAs and just below its all time highs. This chart forms and Ascending Triangle, a variation of a consolidation pattern. FB daily chart as of May 11, 2018 FaceBook ended last week above both its 200 day SMA (Purple) and its Trend Line Resistance (Orange). This week saw a continuation rally each day to bring FB back to and above its pre-scandal levels (from Mid March) for a full recovery.
GOOGL daily chart as of May 11, 2018 GOOGL loitered near its Trend Line Resistance on Monday and Tuesday of this week then rallied on Wednesday from its 50 day SMA. Thursday added a bit more while Friday was a pause in the momentum to end the week above its prior Resistance from Apr 19 th highs.
NVDA daily chart as of May 11, 2018 - NVDA ended last week above its Trend Line Resistance and above its 50 day SMA (Apr 4 th ). NVDA gapped up at the open on Monday this week, and rallied every day to deliver new all time highs on Wednesday and Thursday. Lots of eyes were watching NVDA as earnings were released after the close on Thursday of this week. Friday saw NVDA gap down $7.45 at the open. With several options positions in play, we watched the behavior of price to see if it may: [1] gap down and continue to go down more, [2] gap down and then remain sideways for most of the day, or [3] gap down and then rally up to fill the gap. We watched the first 30 minutes of trading on Friday to see a range get defined during this period. We then determined where in this range price is at the end of that 30 min. period. Depending upon where price is at the end of this period gives us a clue. If price is near the bottom 1/3 of this range we have higher odds of a continued selloff [1]. If price is near the middle 1/3 of this range, then we may see more chop within this range [2]. If price is near the top or in the upper 1/3 of this range then we have better odds that price may rally to fill some or all of the gap [3]. Below is a 5 min chart to see what NVDA looked like after the first 30 min of trading on Friday (May 11 th ).
NVDA 5min. chart as of May 11, 2018 at 10:00am ET Note the range formed in the first 30 min. of trading (Yellow bracket). At the end of this period, price was just below $255 (Green arrow). This then suggested that the odds were better for the gap to be partially or fully filled. NVDA 5min. chart as of May 11, 2018 at 11:20am ET An hour later (11:00am ET) we saw nearly the entire gap was filled. By 11:10 to 11:20am we see the rally may be done with the Trend Line Break, then both lower lows and lower highs in the 5 min. candles following, suggesting the rally is done. This is one example of how Gap behaviors can be used to help make entry or exit decisions. Carefully test it for yourself before deciding to use any ideas in your trading.
MU daily chart as of May 11, 2018 MU gapped up a little on Monday, and then broke above both its Trend Line Resistance and its 20 day SMA on Wednesday. It again gapped up Thursday to cross above its 50 day SMA. MA daily chart as of May 11, 2018 MA has been a calm and steady rally since gapping up after earning last week. MA continues to deliver new all time highs almost daily since.
GS daily chart as of May 11, 2018 GS really was a bear the last few weeks, but finally found support last week, and continued its bounce this week to find resistance at its 200 day SMA (Purple) and ended the week nearly on its 20 day SMA (Yellow). Most of the Financial sector looks similar, with the exception of consumer credit. CAT daily chart as of May 11, 2018 CAT had a good week after testing support the prior week. Monday and Tuesday were above its 20 day SMA and loitered near its 50 day SMA (near $150 area). Wednesday thru Friday saw a rally to fully recover to and above its pre-earnings level.
LMT daily chart as of May 11, 2018 Like CAT, LMT had an ugly reaction to earnings, but unlike CAT, LMT was even uglier. We saw support last week, and a bounce began Thursday and Friday of last week. That bounce continued this week to cross above the 200 day SMA and above Prior Support (Red line). Thursday and Friday this week saw a small pull back, but remained above the 200 day SMA. We hope that by reading this weekly Market Observations and by practicing reading charts on your own, you may improve your chart reading skills over time, and eventually it becomes intuitive or automatic. It is a little like learning a new language. First you need to learn the meaning of words (and symbols), their variations, and then how to combine words to form sentences. With practice, you can learn to speak and listen (communicate). Practicing speaking and listening to what others are saying, improves with practice to a level where you can communicate feelings, moods or concepts with each other. With practice, we can get to a place where the charts speak to use, and we no longer think about the individual patterns or symbols, but the feeling and convictions of the market participants behind the data we are viewing. Trade Smart, CJ