Market Observations as of Nov 17, 2017 By Carl Jorgensen - For Objective Traders - For educational purposes only. Not Financial Advice. This week we saw a variety of market moves. The daily charts for the major indexes looked a bit schizo this week, but the weekly charts seemed mostly horizontal. The week ended down a little for the S&P and Dow, while the Nasdaq and Russell ended the week up. The downward movement started last week mostly on Thursday (Nov 9 th ). This small correction continued to drift downward Most of the following four days, until this Thursday (Nov 16 th ) when we saw a large positive move with the widest range day of this week. Similar but reversed as what we saw last week. The week ended with a quieter Friday as Options Expiration often tends to create a brief pause in trends. Much of the move this Thursday may be attributed to Wal-Mart s earnings reactions, since their size does significantly impact indexes WMT is a part of. Another interesting observation about Wal-Mart is that it did a $90 to $100. This is a well known old Wall Street adage, Stocks that go to $90 almost always go to $100. People that actually studied this price behavior found it to occur 78.8% of the time, for the period they studied. That s a relatively strong statistic. Wal-Mart first traded at $90 back in January of 2015. At first, this week, I thought WMT did its 90 to 100 move in two days. But once I did my homework, I was wrong; it took 34 months from first trading at $90. Still, they did complete their $90 to $100 move. Now, let s look at the charts for the major Indexes, Market Internals, key Sectors and Stocks to see what this week has told us.
S&P 500 weekly chart as of Nov 17, 2017 The S&P was again rather quiet this week, showing four weeks in a row of a quiet and horizontal market. The Overall bullish trend remains, as the trend takes a brief pause.
S&P 500 daily chart as of Nov 17, 2017 On the daily chart we see the first three days of this week continue a slow march downward as intraday seemed to move up only a little during the day. On Thursday we saw the widest range day of the week as the markets reversed and move upwards nearly erasing the entire prior week of corrections. Friday saw a quiet inside day as Options expiration occurred for the monthly contracts. This week ended with the S&P nearly on its 20 day SMA.
DJIA daily chart as of Nov 17, 2017 The Dow saw a small decrease for the week, but mostly was horizontal as it oscillated around its 20 day SMA. The overall bull trend is not done, but it is taking a pause.
NASDAQ daily chart as of Nov 17, 2017 The Nasdaq reacted as the strongest of the indexes on Thursday delivering new all time highs after closing on its 20 day SMA the prior day. Friday was quiet as options expiration tends to briefly pause most trends.
IWM daily chart as of Nov 17, 2017 The Russell 2000 saw a nice bounce the last two days this week, as it remains within its new range since late September. After two weeks under its 20 day SMA, it ended this week above. Note the convergence of the 20 day and 50 day SMAs, as the 20 day pulls back.
NYSE Advance/Decline Line daily chart as of Nov 17, 2017 Note how the Advance Decline line has been mostly horizontal for nearly two months, long enough for the 20 day SMA to go horizontal a month ago. No real change in breadth seen here.
McClellan Summation Index daily chart as of Nov 17, 2017 The Acceleration of breadth continues downward again this week, as fewer and fewer stocks are actually moving the indexes to new highs. This Divergence continues.
VIX daily chart as of Nov 17, 2017 Options volatility increased a little as the bearish moves that started last week (Nov 9 th ) continued the first 3 days of this week. Then Thursday s rally dropped the VIC back down to below 12%.
GLD daily chart as of Nov 17, 2017 Gold continues within its range, with a small positive move on Friday. Oil daily chart as of Nov 17, 2017 Oil dipped Tuesday, and then rebounded Friday, to end the week nearly flat.
QQQ daily chart as of Nov 17, 2017 The Tech heavy QQQ saw a big move Thursday to deliver new all time highs. Friday was quiet as Options Expiration occurred. SOXX daily chart as of Nov 17, 2017 The Semiconductor sector was mostly horizontal this week.
XLE daily chart as of Nov 17, 2017 The Energy sector dropped under Support (Yellow line) on Tuesday, as oil dropped, but did not recover much on Friday when Oil rallied. This sector closed under its 20 day SMA four days this week, and under its 50 day SMA three days. This is not a bullish looking chart to me.
XLF daily chart as of Nov 17, 2017 The Financial sector remained horizontal this week, as it hugged its 50 day SMA as support.
DJ Transports daily chart as of Nov 17, 2017 The Transports returned to their 2017 range last week, giving us concerns about real economic growth this year. This week saw this sector under both its 20 day and 50 day SMAs, and just a little above its 200 day SMA and (16+ month) Trend Line (Green).
XLV daily chart as of Nov 17, 2017 The Health Care sector continues to be horizontal with converging trend line and Support & Resistance studies. This sector continues to show it has no clear trend, and reacts to random political noise about proposed changes. Therefore, I choose to not look further for trading opportunities. I must be selective, and try to only trade the best chart for stocks in stronger sectors. Move along.
XME daily chart as of Nov 17, 2017 This sector has been bearish for a month now, since breaking its Trend Line (Red line & arrow) Support. Last week it broke its 200 day SMA (Purple) and this week it appears to have bounced off of Support from the August 11 th lows (Orange line & arrow) by 2 cents. If you are looking for bearish positions, this sector has been a good place to start.
XHB daily chart as of Nov 17, 2017 We have been following the Home Builders sector since late August / early September. This week saw a strong rally and trend resume, as well as new highs that briefly broke above the Prior Highs (Green line and arrow) from late October. Note the stack and slope of the three SMAs, and price above them all. Seems Resistance (green line) could soon be broken. Strong sectors give us clues of where to look for strong stocks in that sector. (Hint)
Now let s look at some Stock charts that we have been following. AAPL daily chart as of Nov 17, 2017 Note now Apple pulled back this week as well as how small it s Thursday bounce was relative to the overall Nasdaq s Thursday bounce. Also note how Apple nearly was Pinned at Options Expiration at the close this Friday at $170 which is also about the middle of the range it traded within, since the end of October ($165 - $175).
AMZN daily chart as of Nov 17, 2017 Amazon remained within a narrow horizontal range this week, very close to its all time highs. We do NOT see much if any reaction Thursday to the market s pop (that we saw in the Nasdaq). The rest of the FANG stocks (FB, NFLX and GOOGL) all traded sideways this week, with little reaction seen on Thursday this week.
NVDA daily chart as of Nov 17, 2017 Like the FANG stocks, NVDA was quiet and horizontal this week as well.
AMAT daily chart as of Nov 17, 2017 AMAT s prior all time high was $57.50 (Orange line) from 17 years ago (in 2000). We placed an alert there early this year, and forgot about it. Thursday morning (Nov 16 th ) that alert went off as AMAT traded above that level to deliver new all time highs. See the 15 min. chart below. AMAT reported earnings after the close on Thursday, and Gapped up nearly $3 at the open on Friday. Immediately AMAT sold off to fill that gap in under 30 minutes. This is a classic example of a Gap-n-Fill pattern. Note how AMAT close on Friday nearly on its 20 day SMA. AMAT 15 min. chart 3 hours after the open on Nov 16, 2017 Alert was triggered about 70 min. after the open on Thursday.
AMAT 2 min. chart after the first hour of trading on Nov 17, 2017 Note how the opening gap was filled within the first 30 min. of trading on Friday. If you were long, you had to get out fast.
INTC daily chart as of Nov 17, 2017 Our positions in Intel were not stopped out this week, but it was looking close. Since we were holding November Options that expire Friday, we were looking for a good opportunity to get out this week and saw it on Thursday as a small rally did not hold, and looked to drop back down. Unlike DHI, INTC did not look strong enough (nor its sector) for us to roll these positions into December contracts, so we simply exited both our positions. In the above chart, these Options positions were entered at Green arrows, one position was rolled from October to November contracts at the Yellow arrow (just before expiration) and both were exited at the Red arrow. The drop Friday confirmed the weakness we saw Thursday, and we may have been wise to not roll these long positions into December contracts, as the trend might be over. You never know when a trend begins or ends, at the time it occurs. You can only know after the fact. So for a trader, you don t waste time with low odds attempts to catch tops or bottoms, but use discipline to stick to your objectives of riding the high-odds Middle of a trend. Only a post trade analysis (well after the trade is over) can we see how well we did at riding the Middle of the trend. For me, I will stick with a strategy where the odds favor my objectives.
WMT daily chart as of Nov 17, 2017 We noted the earnings release before the open on Thursday this week, and you can clearly see the reaction in the chart above. The close on Friday gave back only about half of Thursday s range. WMT 5 min chart for Nov 16 & 17 Here we can see an example of a Gap-n-Go chart. The Opening gap attracted more and more buyers (with different response times) that kept driving up the price all day.
DE daily chart as of Nov 17, 2017 Deere had a strong rally Thursday and Friday this week, off of its 20 day SMA support. DE came within 18 cents of retesting the prior Highs (Orange line and arrow) from Nov. 7 th. This is a strong looking chart to me, which suggests higher odds of breaking that Resistance soon. Anything can happen. Note the clues from the stack and slope of the 3 SMAs and price.
HD daily chart as of Nov 17, 2017 Home Depot reported earnings before the open on Tuesday (Nov 14 th ) of this week. Note the bounce off of the 50 day SMA (Blue) Support on Tuesday, as well as the high of the day was near the prior Resistance we saw on Oct 26 th. This Resistance seemed to hold all week, as it was tested nearly every day this week, except on Monday. This persistence by the bulls suggests to me that the odds favor the bulls consuming the Supply at that Resistance level very soon. Chart School is in session: Note how the Cup and Handle Resistance (Grey line) that we have watched the past few months, was prior Resistance that then became Support along with the 50 day SMA on Nov 2 nd. When multiple studies seem to both suggest the same or similar level of Support, then that Support seems to be more significant. Also note how the 50 day SMA support was tested at least three times earlier this month, and it held up each time. That suggests strong support is found there. Also note the angle of the slope of the 50 day SMA, yet another trending clue. Note how the three Simple Moving Averages (20 day Yellow, 50 day Blue, 200 day Purple) are all in a bullish Sequence stacked smaller above the larger, and price is above them all. Note how all three SMAs are also sloping upwards to the right, and have been since early to mid September. When most or all the clues seem to favor the bulls, then that is worth noting.
DHI daily chart as of Nov 17, 2017 We have been watching the Home Builders since early September, after hurricane Harvey did so much damage in Texas. As an options trader, if I do catch a trend that lasts longer than my Options contracts, that is never a problem. I simply roll them from October to November contracts (Yellow arrow) and collect partial profits in the process. We again rolled our positions from November to December contracts on Friday Nov 17 th and collected partial profits as we did so. There is no way to know how long a trend may persist, so if it continues to show strength, we continue to ride it, until it doesn t. DHI continues to look strong.
OC daily chart as of Nov 17, 2017 Another way to play the home builders sector, is with building materials stocks. Here we are looking at Owens Corning, who supplies roofing and insulation materials. They reported earning back on Oct 25 th, and that dip quickly bounced back above the 20 day SMA. OC was flat the prior weeks, and broke out Thursday of this week. I hope you learn something useful each week as we study the charts and point out behaviors that can lead to trading ideas or become the basis for defining your own trading edge. Remember: Anything can happen. Trade Smart, CJ