Market Observations as of Oct 13, 2017 By Carl Jorgensen - For Objective Traders - For educational purposes only. Not Financial Advice. This week we saw the overall bullish trend continue upwards but with a bit less momentum in most markets. The participation in this bull trend remains very broad as Volatility remains very low. Overall Volume has not been very impressive as there continues to be few places to go to look for growth. News events this week seemed to show little to no impact on these overly complacent markets. Long term S&P 500 Historic Volatility (price swings) remain at historic lows. The US Dollar dipped as Gold and Oil rallied this week, continuing this inverse relationship we have seen most of this year. In addition to reviewing the overall markets and some key sectors, we will also look for evidence of a rather strange event we saw earlier this week and learn something from the process. Now let s look at some charts to see what they are telling us.
S&P 500 Quarterly chart as of Oct 13, 2017 Note the number of positive quarters in a row for the current rally since late 2015, and how it appears similar in duration as the 2013-2015 rally. We are also reminded of the pause in middle of 2015 right at the point where the S&P reached its 1.618 Fib extension level (based upon the 2007 high to 2009 low range).
S&P 500 weekly chart as of Oct 13, 2017 The S&P rallied again this week, but with less velocity. SPY weekly Historic Volatility Note the extremely low volatility for the S&P over the past 6 months.
S&P 500 daily chart as of Oct 13, 2017 The daily chart shows us that the rally continues, but with a little less velocity this week as compared to the prior week.
DJIA daily chart as of Oct 13, 2017 We see a similar story with the Dow as we saw in the S&P. This week saw the bull trend continue, but with a little less velocity. The Dow delivered new all time highs every day this week.
NASDAQ daily chart as of Oct 13, 2017 Similar to the Dow and the S&P, the Nasdaq also continued its bull trend this week but at a little slower pace than the prior week. The Nasdaq composite delivered new all time highs 4 days this week.
IWM daily chart as of Oct 13, 2017 Unlike the major indexes, the Russell 2000 pulled back a little this week, as most other sectors rallied. This looks like a pause in a bullish trend.
DJ Transports daily chart as of Oct 13, 2017 The Transports remained above their 2017 range after breaking out two and a half weeks ago. This week was mostly horizontal after pulling back Friday from the new highs made Thursday and Friday of this week. Increasing oil prices this week could be part of that story.
XLF daily chart as of Oct 13, 2017 The Financial sector also remains above its 2017 range after breaking out two and a half weeks ago. It was a mixed week for this sector. We saw a pullback Thursday and then a bounce on Friday as earnings news came out for some of the big banks.
NYSE Advance/Decline Line daily chart as of Oct 13, 2017 The Breadth of this rally remains impressive as it again increased a little more this week.
McClellan Summation Index daily chart as of Oct 13, 2017 The momentum of the increasing breadth has stalled, as seen in the McClellan Summation index above. This acts like an Accelerometer to help indicate changes in market breadth.
VIX daily chart as of Oct 13, 2017 Options Volatility continues to remain very low this week. News events this week seemed to not have any impact in the markets.
US Dollar Index daily chart as of Oct 13, 2017 The Dollar weakened some this week. Note how the week ended on the 20 day (Yellow) and 50 day (Blue) SMAs as these two converged.
Oil daily chart as of Oct 13, 2017 Oil prices rallied a little this week, as the dollar fell. Oil found support at the end of last week and the beginning of this week at its 50 day SMA (Blue). Increasing oil prices could help the Energy sector while it may hurt Transportation. What is more significant is if Demand is growing, since that would indicate growing economic activity. We will keep an eye open for any such correlations.
GLD daily chart as of Oct 13, 2017 Gold prices bounced this week to end just above its 50 day SMA. Much of this could be related to the drop in the Dollar this week.
XLE daily chart as of Oct 13, 2017 The Energy sector was horizontal this week, not showing much growth as oil prices rose this week. The 200 day SMA (Purple) continues to act like a magnet here. Not the past two and a half weeks have been flat in this sector while many other sectors rallied during this same time period.
QQQ daily chart as of Oct 13, 2017 The Tech heavy Qs continued their rally this week, after breaking resistance (White line) last week. The rally this week was at a bit slower rate than the prior week.
SOXX daily chart as of Oct 13, 2017 The Semiconductor sector broke out about a month ago and has remained strong again this week. Note how this sector remained at a similar pace as the prior week. This is a sign of relative strength, when most sectors were running at a slower pace this week than the prior week, the Semiconductor sector has kept up its pace for two and a half weeks now. When you recognize differences in behavior, see if you can use that as a clue to dig deeper for finding some of the better opportunities. We will look at a few of the stronger stocks in this sector below (AMAT, NVDA).
XHB daily chart as of Oct 13, 2017 The Homebuilders were mixed this week as most of them seemed to take a brief horizontal pause in their trend, or even pull back a little bit this week.
AAPL daily chart as of Oct 13, 2017 Like most tech stocks, Apple drifted slowly upwards this week. On first glance, it appears that Apple may have tested its 50 day SMA as Resistance on Tuesday (Oct 10 th ) this week, but this was not a legitimate test. When we looked into this on Tuesday we found some very interesting evidence.
AAPL 15min chart as of Oct 13 2017 Note the huge price spike on Tuesday morning (Green arrow). We see a bit more detail on this 15 min. chart, but let s look even closer.
AAPL 1min chart on Oct 10 2017 We can see the big spike about 5 minutes after the open. Upon closer inspection, this spike ran up and back down in just a few seconds. This speed is what an Algo computer trading anomaly looks like. It happens so fast that it s over by the time you recognize it. Afterwards, we dug deeper to find evidence of what happened. What we found was a fake news story that hit the Dow News Wire service at about 5 min after the open. It seems that the Algo computers saw it too and reacted to it in under a second. Below you can see both the fake wire message and the following text from the Dow instructing people to disregard it.
Any half intelligent human would immediately recognize this as a fake news wire for several reasons, the wording sounds very unofficial, Steve Job s Will would have been privately read in 2011 shortly after his death, a deal this big does not and could not close tomorrow for many reasons, etc. etc. etc. But computers are not that smart. They were programmed to quickly react to key words they scan in the news wires. This is a small example of what can happen in these days with so much automated trading being done by computers which are programmed by humans and can do dumb things, very fast. This error was very quickly reversed, but the lesson from this example does remind us of what CAN happen. Was this a sick joke by someone at the Dow news wire service? Was it a hack? Was it a test to expose the Algos? We will likely never know, and it does not matter. What is important is to realize what can happen, and how fast it can happen.
AMZN daily chart as of Oct 13, 2017 Last week we noted how Amazon broke above the Trend Line Resistance (Dark Blue Line) on Thursday and Friday of last week. That rally paused just under the $1,000 level (round number Resistance) for the first three days of this week, to then retest and break above this level about 50 minutes into the session on Thursday (Oct 12 th ). Amazon remained above the $1,000 level for the balance of this week. It has yet to break above the Orange line (prior Resistance) or the all time highs from this past summer, but it has moved positive this week. The Other FANG stocks (FB and NFLX) moved mildly positive this week with GOOGL showing more momentum this week. Both GOOGL and NFLX delivered new all time highs this week. The FANG group has showed increasing strength late last week and this week, to again make them popular places to attract more money. Tesla was mostly horizontal this week.
BA daily chart as of Oct 13, 2017 Boeing continues its bullish trend this week.
LMT daily chart as of Oct 13, 2017 Lockheed Martin continued its bullish trend this week, with some profit taking seen on Friday.
CAT daily chart as of Oct 13, 2017 Caterpillar not only continued its trend this week, but also accelerated. Note a similar behavior (shape) in the chart from the gap up in late July to early Sept. that seems to repeat after the gap in mid Sept. Anything can happen, so we manage our trades with trailing stops. DE was mostly horizontal this week.
X daily chart as of Oct 13, 2017 US Steel has been oscillating mostly horizontal the past 4 months, while showing higher lows AND higher highs. On Friday of this week, US Steel gapped up on news from Japan regarding falsified metal specifications and the breadth of their impact.
AA daily chart as of Oct 13, 2017 Alcoa has seen support at its 20 day SMA (Yellow) several times over the past months. We see this again this week when AA tested its 20 day SMA for support on Wednesday.
HD daily chart as of Oct 13, 2017 HD bulled back a little this week, giving back about half of the prior week s gains while it remains well above its 20 day SMA. The devastating Fires in California this week could create even more demand in the coming months to replace homes and business that were destroyed.
DHI daily chart as of Oct 13, 2017 DHI slowed to a pause this week, after making significant gains the prior two weeks. We see a similar behavior in most of this sector this week.
AMAT daily chart as of Oct 13, 2017 AMAT continued its rally this week as Semiconductors and Semiconductor equipment manufacturers saw signs of continued growth for this year.
NVDA daily chart as of Oct 13, 2017 Nvidia rallied to new highs this week, after testing its 20 day SMA (Yellow) for support two and a half weeks ago.
V daily chart as of Oct 13, 2017 Visa recovered from its dip three weeks ago rather quickly, to return to the $105 area above its 20 day SMA (Yellow). Visa saw a strong week this week making new all time highs four days this week. Within the Financial sector, Consumer credit remains strong (V, BA, AXP) while the Banks (WFC, C, BAC) and Jumbos (JPM, GS) are mixed and seemed generally weaker this week. OSIS paused this week as it remained horizontal just under its 2015 highs. As we see in the charts nearly every week, market behavior can be observed by the patterns they form using only price, time and volume. When we learn to use these observations in an objective way, we can realize a statistical edge over time. All patterns can and do fail and being prepared for ANY outcome helps us make systematic decisions without hesitation. Above all, always manage risk (both position size and stop location) so that losses are kept small. Protecting both your mental and financial capital will ensure you survive, and in time, as you learn to let your winners run, you can realize an overall positive expectancy. Trade Smart, CJ