Weekly technical analysis chart pack 6 th October 2014 James Brodie Chartered Market Technician There are now increasing concerns facing the long term bull trends in the U.S. equity markets. Three key concerns are; the weakness in the Russell 2000 index which is highly correlated to the S&P Index. The fact that only 37% of NYSE stocks closed last week above their respective 200 day moving average, and the record leverage in the U.S. equity market, now higher than both the 2000 Nasdaq bubble and 2007 financial crisis highs. In fact last week the S&P index broke below a 2 year trend line only to be saved at the end of the week with a spike higher after the payroll data. The Nikkei has stalled at a long term double top and the Hang Seng index is precariously close to a long term support line while the domestic protests escalate. With long term trend lines close at hand, traders will need to be nimble. There are plenty of geopolitical risks, which could derail the long term bull markets, and any unwind in leverage could force a nasty retracement. The most bullish market now looks to be the Shanghai composite index. The last chart; long Shanghai versus short Kospi has recently made an interesting break higher. S&P 500 - Last week the S&P chart started to show signs of weakness breaking through the 2 year support line. With record leverage in the market, only 37% of NYSE shares above their 200 day moving average and the Russell 2000 now trending lower fears are rising. The strong payroll data on Friday brought a sudden spike in support, but the S&P must hold above the key 1905 level and break above the 2019 peak for the bulls to regain control. 1905 is the key support level, below here expect a sharp correction lower as the crowded leverage trade is forced to unwind. Note: the 5 and 20 day moving averages are already trending lower. Dow Jones Industrial Average - The Dow Jones Industrial average continues its trend higher in a converging wedge pattern but with very weak breadth. Only 37% of equities in the NYSE are above their 200 day moving average and this continues to fall. As long as the long term support line holds the bulls can be confident of a retest of the 17,350 all time high. But a wedge pattern usually ends in a sharp correction lower and a break below the red trend line support will see fast liquidation of the record leverage in the U.S. equity market, bulls will take profit and the market will test 16,349 in the short term, and 15,340 in the medium
term. The 5 and 20 day moving averages are now both trending lower, 16,674 is a key support level. NASDAQ - The Nasdaq composite index continues its strong long term trend higher. But like the DJIA it is trending higher within a converging wedge pattern, the weekly MACD oscillator has turned lower and the short term 5 and 20 day moving averages are both trending lower. While the price stays above the long term support line the trend is bullish but a break below the key 4,368 level will likely see swift liquidation of bullish positions with the price initially targeting the 2014 support zone around 4,000. Nikkei Having nearly doubled from 2012 when Shinzo Abe first announced his Abenomics stimulus package the NIKKEI is stuck in a sideways trading range between 16,374 and 14,000. There is a clear double top at 16,374 which must be penetrated for the crowded bull trend to continue. Short term support comes from the 2 year long term trend line at 15,380, but the key long term support is at 14,000, the 2014 support zone. A break of either 16,374 to the top side or 14,000 on the down side will herald the next long term trend. Hang Seng - The Hang Seng index is currently having its strongest 2 day bounce of the year having been extremely oversold (daily Bollinger Bands) on the back of the domestic democracy protests. In reality the Hang Seng index has been in a sideways range for at least 2 years now. The key level on the chart is the long term support line which comes in at 22,000, a break below here would be very damaging to the bulls. For a long term bull trend to begin 25,356 must be successfully penetrated but the price action is not strong. The market has fallen below the 200 day moving average, the 5 and 20 day moving averages are trending lower and both the weekly relative strength index (RSI) and moving average convergence/divergence (MACD) are trending lower. Shanghai Composite Index The Shanghai composite index is in a clear uptrend having recently broken through a 5 year falling resistance line. The weekly relative strength index is now over bought so expect a short term correction lower before the next leg higher in this bull market. Taiwan The long term trend in the Taiwan TAIEX market is higher but as the chart above clearly shows the short term trend is now lower with falling peaks and falling troughs. The long term trend line support, currently at 8,777 is the key level. If this holds the long term trend remains intact, but a close below will herald a medium term trend lower. KOSPI The KOSPI index is now looking very precarious. It has recently broken below a long term rising trend line, and the 200 day moving average. Having effectively traded sideways for over 2 years now the 5 and 20 day moving averages are both trending lower, and both the weekly RSI and MACD are now bearish. A break below the recent 1966 double bottom will confirm weakness and strengthen the short term down trend.
S&P 500 versus Russell 2000 The chart above shows clearly the strong correlation between the S&P 500 and the Russell 2000 Index. However there is now a definite divergence. The Russell Index is clearly in a down trend making lower highs and lower lows, having broken the clear 1082 support level. This is another concerning chart for equity bulls. Percentage of NYSE stocks closing above their 200 day moving average The chart above shows more weakness in the U.S. equity markets with a clear lack of breadth. Only 37% of NYSE stocks are above their respective 200 day moving averages. Clearly the market has been led higher by less and fewer leaders and now an increasing number of stocks are breaking lower.
S&P versus NYSE member firms debit balances in margin accounts The above chart shows the clear correlation between the S&P and the NYSE member firms margin debt balances (a barometer of leverage) for the last 30 years. The concern here is the huge run up in leverage with concerning parallels to the 2000 NASDAQ bubble and the 2008 Global Financial crisis. The recent ascent in the S&P has been on historically low volatility. Markets should not trend in straight lines but in waves, and a pull back of 5-10% in the S&P would actually be healthy for the market as it would likely bring an unwind in the extreme levels of risk being taken.
S&P 500 Index Last week the S&P chart started to show signs of weakness breaking through the 2 year support line. With record leverage in the market, only 37% of NYSE shares above their 200 day moving average and the Russell 2000 now trending lower fears are rising. The strong payroll data on Friday brought a sudden spike in support, but the S&P must hold above the key 1905 level and break above the 2019 peak for the bulls to regain control. 1905 is the key support level, below here expect a sharp correction lower as the crowded leverage trade is forced to unwind. Note: the 5 and 20 day moving averages are already trending lower. 2019 All time high September 2014 1991 July 2014 peak 1955 2 year support line 1904 Previous swing low and 200 day moving average *** KEY LEVEL *** 1843 Previous resistance/support 1813 Weekly lower Bollinger Band 1576 2007 peak and long term support from March 2009 low
Dow Jones Industrial average The Dow Jones Industrial average continues its trend higher in a converging wedge pattern but with very weak breadth. Only 37% of equities in the NYSE are above their 200 day moving average and this continues to fall. As long as the long term support line holds the bulls can be confident of a retest of the 17,350 all time high. But a wedge pattern usually ends in a sharp correction lower and a break below the red trend line support will see fast liquidation of the record leverage in the U.S. equity market, bulls will take profit and the market will test 16,349 in the short term, and 15,340 in the medium term. The 5 and 20 day moving averages are now both trending lower, 16,674 is a key support level. 17,350 All time high, September 2014 16,674 Last week s low and rising long term trend line support (2 year) 16,578 200 day moving average 16,349 Key August 2014 swing low 15,340 2014 low 14,198 2007 peak
NASDAQ Composite Index The Nasdaq composite index continues its strong long term trend higher. But like the DJIA it is trending higher within a converging wedge pattern, the weekly MACD oscillator has turned lower and the short term 5 and 20 day moving averages are both trending lower. While the price stays above the long term support line the trend is bullish but a break below the key 4,368 level will likely see swift liquidation of bullish positions with the price initially targeting the 2014 support zone around 4,000. 5132 2000 Nasdaq bubble peak and all time high 4610 2014 peak 4368 Long term trend line support, March 2014 peak and recent swing low 4292 200 day moving average 4000 2014 support zone 2861 2007 peak
NIKKEI Having nearly doubled from 2012 when Shinzo Abe first announced his Abenomics stimulus package the NIKKEI is stuck in a sideways trading range between 16,374 and 14,000. There is a clear double top at 16,374 which must be penetrated for the crowded bull trend to continue. Short term support comes from the 2 year long term trend line at 15,380, but the key long term support is at 14,000, the 2014 support zone. A break of either 16,374 to the top side or 14,000 on the down side will herald the next long term trend. 18,295 2007 peak 16,374 Double top 15,380 Long term trend line support 15,119 200 day moving average 14,753 August 2014 low 14,000 2014 support zone
Hang Seng Long term chart Short term chart The Hang Seng index is currently having its strongest 2 day bounce of the year having been extremely oversold (daily Bollinger Bands) on the back of the domestic democracy protests. In reality the Hang Seng index has been in a sideways range for at least 2 years now. The key level on the chart is the long term support line which comes in at 22,000, a break below here would be very damaging to the bulls. For a long term bull trend to begin 25,356 must be successfully penetrated but the price action is not strong. The market has fallen below the 200 day moving average, the 5 and 20 day moving averages are trending lower and both the weekly relative strength index (RSI) and moving average convergence/divergence (MACD) are trending lower.
25,356 2014 peak 23,143 200 day moving average 22,000 Long term trend line support ***KEY LEVEL*** 21,137 2014 low 19426 2013 low Shanghai Composite Index The Shanghai composite index is in a clear uptrend having recently broken through a 5 year falling resistance line. The weekly relative strength index is now over bought so expect a short term correction lower before the next leg higher in this bull market. 3478 2009 peak 3067 2011 peak 2443 2013 peak 2243 Long term trend line and previous double top 2045 rising short term trend line 1984 2013 low 1664 Global financial crisis low
Taiwan TAIEX The long term trend in the Taiwan TAIEX market is higher but as the chart above clearly shows the short term trend is now lower with falling peaks and falling troughs. The long term trend line support, currently at 8,777 is the key level. If this holds the long term trend remains intact, but a close below will herald a medium term trend lower. 9859 2008 peak 9593 2014 peak 9532 Sep 2014 peak 8957 200 day moving average 8860 short term low 8777 Rising long term trend line 8453 38.2% Fibonacci retracement level and 5 yerar trend line support 6609 2011 low
KOSPI The KOSPI index is now looking very precarious. It has recently broken below a long term rising trend line, and the 200 day moving average. Having effectively traded sideways for over 2 years now the 5 and 20 day moving averages are both trending lower, and both the weekly RSI and MACD are now bearish. A break below the recent 1966 double bottom will confirm weakness and strengthen the short term down trend. 2229 Post financial crisis high 2093 2014 peak 1992 200 day moving average 1966 recent double bottom 1885 2014 low 1770 2013 low 1718 Long term 38.2% Fibonacci retracement level
Long Shanghai versus short Kospi James Brodie C.M.T. CIO, The Sherpa Funds Board member, Market Technicians Association Email: james.brodie@thesherpafunds.com Twitter: jamesrbrodie The views and opinions expressed in this report reflect the personal observations and views of individual Sherpa Funds traders which may differ from or be inconsistent with proprietary positions of The Sherpa Funds. Traders at The Sherpa Funds may have taken trading positions for The Sherpa Funds in any currencies or securities mentioned herein in advance of disseminating these views and opinions. This report is for information only and is not a specific offer or solicitation to buy or sell. Historic performance is not indicative of future returns. Facts and data provided are from sources the trader believes to be reliable, but neither the trader nor The Sherpa Funds can guarantee they are complete or accurate. The Sherpa Funds will not be liable for any damages or losses in any way related to this report. The Sherpa Funds is regulated by the Monetary Authority of Singapore under Singaporean laws. All charts sourced from Bloomberg.