Market Observations - as of Sep 7, 2018 By Carl Jorgensen - For Objective Traders - For educational purposes only. Not Financial Advice. Last week we saw a strong and broad rally to new all time highs that peaked on Wednesday (S&P and Dow), Thursday (Nasdaq) or Friday (Russell) depending upon the index. This week was a short four day week since Monday was a Holiday. Tuesday opened with a pause in most markets, with the Nasdaq, S&P and Dow all remaining relatively quiet while the Semiconductor sector made its move higher. That rally reversed on Wednesday as most sectors turned downward and dropped for two days. Friday began to find some support after a gap down at the open followed by a bounce. Friday formed mostly consolidation patterns as the day oscillated after finding a lower level of support. Rallies do not move in a straight line, so it was no surprise to see a correction this week, after so many new highs were delivered the prior week. This correction may be done, or it may not. Next week we will watch so see if the support found on Friday (Sep 7 th ) holds or not. There could be more selling, and price breaking below Friday s lows would confirm that. Or the markets may bounce and rally towards a retest of the highs from late Aug. Or the market may pause and chop sideways in consolidation for a little while. Anything is possible, so we identify our own key decision points that if price crosses those levels, we take that fact as a form of confirmation of one of our (bull, bear, neutral) possible scenarios that we prepare for. The weakest sectors this week included Tech (XLK -2.7%), Semiconductors (SOXX -2.7%), Energy (XLE - 2.3%), Metals and Mining (XME -1.9%) and Retail (SRT -1.5%). The strongest were Industrials (XLI +0.6%), Consumer Staples (XLP +1.1%) and Utilities (XLU +1.2%). The US Dollar improved by +0.25% as the Yield Curve flattened a little more. Energy worries increased as Tropical Storms headed for various facilities. The VIX increased by 2 points over the prior week, as options volatility expanded only a little this week. The prior week s (Aug 31) SPX weekly options suggested an expected move this week of +/- $32. The close on Friday (Sep 7) was down $29.84 from the prior week s close and just $2 off of the expected move for the SPX. The SPX Options market as of the end of this week implies an expected move of +/- $38 for next week. The expected move is based on one standard deviation, and therefore price should be within this range 68% of the time. Now, let s look at the charts, to see what they are telling us this week.
S&P 500 weekly chart as of Sep 7, 2018 We can see the S&P exceed its Jan highs (Blue line) last week, then pull back this week to close near that same level (Jan Highs). The overall bullish trend remains in play. S&P 500 daily chart as of Sep 7, 2018 On the daily chart we can see the S&P peak last Wednesday (Aug 29 th ) then we saw a pull back a little each day since until it found support near its 20 day SMA (Yellow) the end of this week. The close on Friday was very near the Jan Highs of 2872.87 (within $1.19). The Trend Line (Orange line) support remains untested this month.
DJIA weekly chart as of Sep 7, 2018 The Dow peaked last week, below its Jan highs, and this week remained within a narrow range. DJIA daily chart as of Sep 7, 2018 On the daily chart we can see the Dow rallied a little 3 days this week then pulled back some on Friday. All 4 days this week the Dow remained above its Feb 27 th Highs (Grey line) with tests of that support on both Tuesday and Friday and remained well above its 20 day SMA (Yellow). Unlike the 5 to 6 days in a row of decreases in the S&P, the Dow was mostly horizontal this week.
NASDAQ weekly chart as of Sep 7, 2018 The Nasdaq gave back all of its gains from last week, plus some this week. NASDAQ daily chart as of Sep 7, 2018 Here we see that this week started out quiet on Tuesday, and then sold off strong on Wednesday and Thursday to break below both its July highs (Blue line) and its 20 day SMA (Yellow). Friday saw a test of support at the Trend Line (Green) that was respected (see 15min chart below). The week closed below both the July highs and the 20 day SMA.
NASDAQ 15 min. chart as of Sep 7, 2018 - Here we can see the test of the Trend Line Support at the open on Friday (Purple arrow) that held.
Russell 2000 weekly chart as of Sep 7, 2018 The Russell delivered new record highs last week, just to give back all of those gains plus half of the prior week s gains (Aug 20-24). Russell 2000 daily chart as of Sep 7, 2018 We saw four days of selling in the Russell this week, to find support at the 20 day SMA and the June highs (Green Line). The Trend Line Support (Yellow line) has not been tested this month.
NYSE Advance/Decline Line daily chart as of Sep 7, 2018 Like the Russell, the Advance/Decline line mostly decreased this week to close jus under the 20 day SMA. McClellan Summation Index daily chart as of Sep 7, 2018 Here in the McClellan Summation Index, we see a week of decreasing breadth to close the week below the 50 day SMA and on the 20 day SMA.
VIX daily chart as of Sep 7, 2018 The VIX increased a little each day this week, remaining above its 50 day SMA (Blue) most of this week and crossing above its 200 day SMA (Purple) late this week. The peak in the VIX on Friday barely pierced the Trend Line Resistance (Orange line). This is a slow increase in options volatility, and does not show any signs of panic or fear. OIL daily chart as of Sep 7, 2018 Oil prices dropped each day this week to end the week near its 20 day SMA. Prices remained inside the range defined over the past 2 months (Grey box).
GOLD daily chart as of Sep 7, 2018 Gold remained mostly flat this week, hovering near its 20 day SMA. US Dollar Index daily chart as of Sep 7, 2018 The US Dollar Index remained mostly flat this week, closing up just 0.25% from last week. The 20 day SMA acted like Resistance and the 50 day SMA like Support this week. Next, let s look at the US Treasuries Yield Curve data.
US Treasury Yield Curve Data as of Sep 7, 2018 Note the increase in the short term (2-year) rates on Friday, further flattening the Yield Curve as 2 10 and 30 year rates are all within a narrow range. The above data is available at the US Treasury Dept web site: https://www.treasury.gov/resource-center/data-chart-center/interestrates/pages/textview.aspx?data=yield The Spread between the 10 year and the 2 year rates is a common way to view changes in the yield curve. This spread is now at 0.23 basis points [ 2.94 2.71 = 0.23 ]. 10-yr minus 2-yr Spread chart as of Sep 6, 2018 Note how over the past 19+ years that dips in this spread below 0 preceded economic recessions by a year or two. There is no need to worry right now. However, it is worth keeping an eye on this spread every so often. Here is the link to this 10s minus 2s chart at the St Louis Federal Reserve Bank site: https://fred.stlouisfed.org/series/t10y2y Next we will look at a few key sector charts for this week.
Dow Transports daily chart as of Sep 7, 2018 The Dow Transports were mostly horizontal again this week, after making new 2018 highs on Aug 21 st. The 20 day SMA offered support on Wednesday this week. XLE daily chart as of Sep 7, 2018 Energy was hit hard this week ending the week down -2.3%. Note the 50 day SMA (Blue) Resistance last week, the break below the 20 day SMA (Yellow) on Wednesday, and then the break below the 200 day SMA (Purple) and the Trend Line (Orange) on Friday of this week. Hurricane season is back and Gulf platforms were shut down to reduce risks.
XLF daily chart as of Sep 7, 2018 The Financial sector was quiet this week, remaining mostly horizontal just above its 20 day SMA and nearly exactly at the middle of its 2018 range (@ $28.32). QQQ daily chart as of Sep 7, 2018 Tech stocks were hit hard this week, the QQQ was down -2.9% and the XLK was down -2.7% this week. The QQQ broke below its July highs (Green line), its 20 day SMA (Yellow) and its Trend Line (Orange) support this week, but managed to remain above its 50 day SMA (Blue).
SOXX daily chart as of Sep 7, 2018 The Semiconductor sector rallied on Tuesday, then held up well on Wednesday, but then sold off strong on Thursday to find support near its 20 day SMA. Friday saw more selling to test the 50 day SMA as support. The SOXX ended the week down -2.7% giving back all its gains since Aug 24 th. XLY daily chart as of Sep 7, 2018 The XLY sold off on Wednesday and Thursday this week. Remember that AMZN is over 25% of this ETF, so it has a very big influence. The next largest holding is HD at 7.5%. Compare this XLY chart this week to AMZN, and you will see a lot of similarities.
XRT daily chart as of Sep 7, 2018 The Retail sector was mostly horizontal this week as it hovered above and below its 20 day SMA. XME daily chart as of Sep 7, 2018 The Metals and Mining sector has broken down last week and continued this week, remaining below its 20 day SMA and descending Trend Line Resistance (Green line).
XLI daily chart as of Sep 7, 2018 The Industrial sector rallied a little on Wednesday, while tech was breaking down this week. The XLI continued with higher highs on Thursday this week, then pulled back a little on Friday. Overall the XLI was up 0.6% for the week. XLU daily chart as of Sep 7, 2018 Utilities rallied mostly on Wednesday, and followed thru on Thursday, similar to XLI and opposite to XLK on those same days. Thursday saw higher highs in the XLU. Friday saw a pull back to end the week up 1.2%. Next, we will look at a few key stocks this week.
AAPL daily chart as of Sep 7, 2018 Apple had a huge rally last week, and looked like it would hold onto those gains on Tuesday of this week. However, Wednesday and Thursday saw selling as fears of more trade tariffs returned to the news rotation. Friday closed above the 20 day SMA after giving back a little more than half of the prior week s gains. AMZN daily chart as of Sep 7, 2018 As we have seen in most of tech, and in related sectors, Wednesday and Thursday of this week saw strong selling. AMZN delivered a new All Time High on Tuesday of this week, before selling off on Wednesday and Thursday to find support at the 20 day SMA. Friday bounced only a little while respecting support at the 20 day SMA. Below we will see part of the story why Tuesday may have been a rally day this week in AMZN.
AMZN 15 min. chart as of Sep 7, 2018 Last week we shared a Fibonacci study on AMZN based on its Sept 26 2017 to March 13 2018 rally, with the 1.618 fib ratio target posted at $2041.36. Note how AMZN acted on Tuesday of this week (Sept 4) at that level was tested, exceeded, retraced, and acted as a magnet the later half of that day. Also note how the 150% level acted like a magnet during the later half of the day on both Thursday and Friday of this week. If a stock appears to respect its Fibonacci ratios in the past, then it may be more likely to respect them again in the future. We do not really care why Fibonacci Ratios appear to provide areas of Support or Resistance behavior. If it seems to occur more often than random, then we will use that advantage.
NFLX daily chart as of Sep 7, 2018 NFLX hovered near its 50 day SMA last week, and Tuesday of this week. Wednesday saw strong selling to break and close below the 20 day SMA. Thursday and Friday saw oscillations around the 20 day SMA and below the Aug 7 th highs (Orange line) Resistance. FB daily chart as of Sep 7, 2018 FaceBook broke below its Trend Line Support (Orange line) at the open and away from its 20 day SMA on Tuesday, and the selling continued each day this week, breaking below the July lows (Yellow line) on Thursday, and below the long term Trend Line Support (Red line) on Friday. The small bounce on Friday barely closed the week back above its long term Trend Line Support (Red line).
GOOGL daily chart as of Sep 7, 2018 GOOGL broke below its 20 day SMA on last Friday (Aug 31 st ) and continued down each day this week, breaking below its 50 day SMA. Thursday found support and a small bounce followed on Friday, but could not recover half of Thursday s losses. We now see a month and a half of lower highs and lower lows. NVDA daily chart as of Sep 7, 2018 The Semiconductor rally from last week continued this week on Tuesday, before reversing on Wednesday. NVDA delivered new all time highs on Tuesday, and then was followed by a drop the remainder of the week. NVDA remained above its 20 day SMA after giving back all of the prior week s gains.
AMD daily chart as of Sep 7, 2018 Here we see that AMD really felt the love on Tuesday and Wednesday this week, delivering higher highs each day. The following selling the rest of this week was mild as we see that AMD kept more than half of this week s gains and ALL the gains from the prior weeks. The relatively small pull back the later half of this week shows that AMD is an outlier when compared to the overall Semiconductor sector. Strength tends to continue as strength. AMAT daily chart as of Sep 7, 2018 While AMD was a positive outlier; AMAT has been a negative outlier. On Tuesday, AMAT broke below it support from the prior two weeks, and then was followed with strong selling with volume on Thursday and a bit of follow thru on Friday. The Bearish Trend from the prior 5-6 months, continued to lower lows this week.
V daily chart as of Sep 7, 2018 Visa has been one of the strong outliers in the Financial sector, and delivered higher highs on Tuesday, then pulled back hard on Wednesday to find support at its 20 day SMA. The rest of this week V hovered just above its 20 day SMA. SQ daily chart as of Sep 7, 2018 SQ has been a very strong stock, and held onto most all of its prior week s gains this week, after delivering another new All Time High on Tuesday.
CVNA daily chart as of Sep 7, 2018 CVNA is the largest holding within the XRT (@ 1.94%) and has been in a strong trend the past 4 months. This week began strong with new All Time Highs on both Tuesday and Wednesday, then reversing to sell down to the 20 day SMA on Thursday. Friday saw a small bounce to close the week down 5% from the prior week. LMT daily chart as of Sep 7, 2018 Lockheed was near its 20 day SMA last week and the beginning of this week before it broke above its 200 day SMA resistance on Thursday of this week. LMT remained above this level on Friday. With all the SMAs being horizontal here, it is telling us that it has been a while since we have seen a trend in LMT.
BA daily chart as of Sep 7, 2018 BA continues to be inside a symmetrical triangle consolidation pattern most of this year. The rally on Thursday did move BA above its 50 day SMA, but not outside of its consolidation pattern. X daily chart as of Sep 7, 2018 US Steel was mostly horizontal this week, and just under its 20 day SMA for the past two weeks. With price below all three SMAs, we are still mostly bearish on X.
SCCO daily chart as of Sep 7, 2018 SCCO sold off every day this week, after breaking below its prior support (Yellow line) from July lows at the gap down open on Tuesday. Aug lows support (Grey line) broke on Thursday, and the next day broke Support at prior Resistance (Green line) from a year ago. TSLA daily chart as of Sep 7, 2018 TSLA continued to sell off after its failed High (lower high) near the 50 day and 200 day SMAs two weeks ago. The Trend Line Support (Yellow line) was broken on Tuesday, July lows (Grey line) Support was broken on Wednesday, and May lows (dark Blue line) Support and the long term Trend Line (Orange) Support were broken on Friday of this week. It s been an ugly month for TSLA since Elon tweeted those two infamous words Funding secured.
As we see each week in the chart, most anything can happen. We also see that price behavior tends to continue, until we see evidence that it has changed. Understanding the probabilities, and keeping discipline in objective decision making, one cannot know it each trade will make money, but one can know that over time, and many trades, that the odds do pay off and show their advantages overall. This makes it very important to manage risks, and stick to your plan. We hope that the observations we share will help you develop your own skills at reading the messages in the charts. Trade Smart. CJ