Market Observations as of Sept 22, 2017 By Carl Jorgensen - For Objective Traders - For educational purposes only. Not Financial Advice. We saw a mixed market this week, similar to the prior few weeks, where the DOW and S&P showed more strength than the Nasdaq. Tech seems to continue to be in less favor, as industrials show bullish trends continuing. The breadth of the bullish market continues to impress with very high Advance/Decline ratios again this week, stronger Transportation and Financial sectors, and even the Russell was seen about to retest its prior all time highs. The Dow closed the week up 81 points and the S&P was nearly flat at up 2 points on the week. Both the Dow and the S&P delivered new all time highs briefly at the middle of this week. The Nasdaq closed the week down about 22 points after briefly making a new all time high on Monday this week. The FOMC announcement the middle of this week was mostly a non-event with no surprises. The Yield curve continues to flatten out as signs of economic growth continue at a slow pace. Apple continued to show weakness this week and the FANG stocks were mixed. Most of the new highs came from Industrials. As usual, we will look at charts for the major Indexes, a few market internals, some market sectors and some key stocks we have been following. This is not a complete study by stretch, but it is an example of a top-down market analysis process. Doing this analysis on a regular basis helps me to stay Objective, view the context of the markets and better recognize changes in their behavior. Some of these observations can then lead me to stocks to consider trading when my trading criteria are met. I encourage readers to learn objective chart reading skills. This takes lots of practice. I hope my brief market study gives people some ideas and acts as one example of a process. Learning the process and skills can then equip one to go on to develop their own process. The goals are: learning to find high probability trading opportunities on your own. There are several important advantages to developing your own process: [1] If you follow some experts trade advice for what to trade and when, then you become dependent upon them for the next trade. Being Independent is very powerful and you will not be shut down if something ever happened to that expert. [2] You are not subject to being front-run, which is what can happen if you follow a widely published service. Doing your own thing helps you to avoid a crowd of other followers all trying to do the same thing at the same time, dramatically reducing your opportunity. [3] Taking full ownership of each of your decisions: What to trade, When to get in, When to get out, How much size to trade empowers you to improve each of your decision over time, and not blame anyone else. Now, let s look at some charts for this week to see what the markets are telling us.
S&P 500 weekly chart as of Sep 22, 2017 - It should be rather clear that the bullish trend remains in place, and that new highs have been make the past two weeks. Also, the doji candle for this week s shows a slowing pause this week as compared to the prior week. A study of candle sticks can help one to learn different looking shapes and the clues that they can give. A Doji looks like a plus sign with no visible body on the candle stick, a small trading range with an opening and closing price that are nearly the same.
S&P 500 daily chart as of Sep 22, 2017 On the daily chart we can see small upward movement in the S&P the first half of the week, with a pull back on Thursday and a small bounce from the lows of the week on Friday. We see very little net change on the week as the $2500 round number seems to be like a magnet at the end of this week and the prior week. We see no signs that the bull trend is over, since we continue to see both higher highs and higher lows. We do see that the bull trend may be pausing a little this week.
DJIA daily chart as of Sep 22, 2017 Similar to the S&P, the Dow move up the first three days of this week, then pulled back a little on Thursday and found support Friday with a small bounce. Unlike the S&P, the Dow made relatively greater advances each up day this week and closed the week up 81 points. Also, no signs of the bull trend ending here as we only see a pause the last two days of this week.
NASDAQ daily chart as of Sep 22, 2017 - Unlike the S&P or the Dow, the Nasdaq struggled to advance this week. The first three days of this week were mostly narrow range and flat with only a brief rally to new high during the first half of Monday. Support was found this week on Friday within 2 points of the 20 day SMA. This is consistent with what we have seen over the past few weeks, where the Dow and S&P have advance while the Nasdaq and Tech seem to be stalled.
IWM daily chart as of Sep 22, 2017 The Russell had a strong showing this week with advances four of the five days. The Russell came very close to retesting its highs from late July.
DJ Transports daily chart as of Sep 22, 2017 The Transports saw a rather strong move the last three days and are approaching the prior highs of mid July. Since closing above the 50 day SMA on Sept 8 th, the rally has been significant and accelerating. Breaking above the July 14 th prior highs would be another significant confirmation. Time will tell.
US Dollar Index daily chart as of Sep 22, 2017 The US Dollar Index was mostly flat this week, with just a brief pop on Wednesday. It continues to show the same weakness as it has had most of this month.
Oil daily chart as of Sep 22, 2017 Oil remained in a narrow range this week, with $51.11 as Resistance mid week. It is slightly above the end of July highs. We do now see both higher lows and higher highs since the lows of late June.
VIX daily chart as of Sep 22, 2017 - Options Pricing remained relatively cheap this week as the VIX remained under 11% all this week, and under 10% for a large portion of this week. Cheap options suggest a calm bullish bias, and no wild expectations.
NYSE Adv/Decl daily chart as of Sep 22, 2017 One of the Market Internals that I like to look at is the NYSE Advance/Decline Line. This represents the ratio of advancing to declining prices on all stocks listed on the NY Stock Exchange. As you can see, it continues to remain at extreme highs all this week, suggesting a very broad group of stocks are advancing, verse those declining. Now let s look as some sectors.
XLE daily chart as of Sep 22, 2017 The Energy sector had another strong rally this week, after breaking both Trend Line (Orange line) Resistance and bouncing off of the 50 day SMA (Blue) about two weeks ago. Also note how the late July highs were exceeded this week.
XLF daily chart as of Sep 22, 2017 The Financial sector had a strong week this week as it launched off of its 50 day SMA (Blue) support on Monday. $25.59 Aug 8 th Resistance was nearly tested this week, but has not been broken, yet.
XLV daily chart as of Sep 22, 2017 The Rally in HealthCare from the prior week was mostly given back this week, as the political rollercoaster and proposed legislation likely had an influence. Note how Prior Resistance (Red line) from the June and July highs acted like new Support on Friday. Time will tell.
XME daily chart as of Sep 22, 2017 Mining and Materials had a failed rally this week, with Lower highs (Yellow arrow) on Wednesday. The Lows on Friday briefly pierced the 50 day SMA (Blue) and were slightly lower than the prior week s Lows (Red Arrows). Do you see four clues to the bearish control over the past two weeks? [1]Price breaks below the 20 day SMA (Yellow). [2] Price makes a lower high on Wednesday (Yellow arrow). [3] Price pierced the 50 day SMA on Friday. [4] Friday s low is lower than the week prior s low. All of these clues add to bearish probabilities.
QQQ daily chart as of Sep 22, 2017 The Tech heavy QQQ failed to move above the prior two week s Resistance (While line) this week, and broke down with lower lows the last three days of this week. On Friday, the QQQ only briefly broke below the 50 day SMA (Blue) and the Prior Resistance (Orange line) from June highs. Note three sources of potential support for the QQQs here: the Prior Resistance as new Support (Orange line), the 50 day SMA (Blue), and the Trend line (Red) Support from post 2016 Election. Breaking all three of these could encourage more bears to sell. Only time will tell, so we keep watching.
XLI daily chart as of Sep 22, 2017 XLI is an ETF of Industrial companies (GE, BA, MMM, etc). Note the past two weeks after this etf crossed above its 50 day SMA (Blue). Before trading any ETF, I look at its Holdings. Here is a link for this ETF s holding https://us.spdrs.com/en/etf/industrial-select-sector-spdr-fund-xli Each stock with its relative percentage weighting is listed, as is required for any ETF. Looking at this ETF really helps to see where the bulls are most active, and what rotations may be going on. Note the volume spike the first week of this month for a hint.
XLU daily chart as of Sep 22, 2017 This Utilities sector chart is like the mirror image chart of the Industrials. The past two weeks are clearly showing the rotation from Utilities to Industrials, and with volume. Once you complete your sector analysis, you then use your observations to direct your choices to look for either the stronger stocks in the stronger sectors, or the weaker stocks in the weaker sectors. This can be a very useful process to identify opportunities for both the long side and the short side. Let s look at some stocks. This is a short list of a few examples we have been following.
The FANG stocks are mixed this week, so let s look at each of them to see what is going on. FB daily chart as of Sep 22, 2017 - Facebook has remained relatively flat over the past month and a half. While it remains near its prior all time highs, it also has seen mostly trendless narrow trading range days.
daily chart as of Sep 22, 2017 Amazon briefly made new all time highs in late July, after breaking above the $1,000 round number level. It fell back and has been Under this $1,000 level since early August. This round number has remained a psychological Resistance level for at least seven weeks. This week gave back all of the small gains it saw in the prior week. Amazon closed this week about 12% down from its all time highs. This chart could be forming a Head-and-Shoulders pattern, so we will watch to see if the Aug 29 th lows provide support or not at that neck line.
NFLX daily chart as of Sep 22, 2017 Netflix had another bullish week as it has nearly returned to its July 21 st all time highs. Since crossing above its 50 day SMA on Aug 29 th, NFLX has been on a rally to retest its prior resistance.
GOOGL daily chart as of Sep 22, 2017 - Alphabet, like Amazon, has given back some of its gains over the past few months, and seems stalled out as it has not recovered those gains (like NFLX has). This is a horizontal chart stuck in a narrow range and just over 9% down from its all time highs from early June. Note how each of the four FANG stocks have a different chart and story. This suggests that they are no longer stuck together as the Tech Favorites they had been over the prior two years.
AAPL daily chart as of Sep 22, 2017 Apple stock dropped this week, after being pinned to the $160 level at options expiration the end of last week. Note that four of the five days this week were down, and the one up day (Tuesday) was narrow and had little gains to impress anyone. An Hourly chart shows more clearly the bearish trend that started about Sept 1 st, but was not recognizable until after the New Product Event on the 12 th. Depending upon your time frame, Apple has provided plenty of bearish clues over the past week.
BA daily chart as of Sep 22, 2017 - Boeing continues to fly, as it broke above Resistance (White line) late last week and continued to deliver new all time highs every day this week. Note the Volume on Sept 15 th as the prior resistance was broken (Yellow arrows). One of the most important keys to successful trading is learning to Ride your Winners. This means, when on occasion you catch a big trend, then you want to keep riding it as long as it continues.
CAT daily chart as of Sep 22, 2017 Caterpillar is another example of Ride your winners. CAT gapped up at the open Monday, and has kept on moving up. No clues so far of any change. Riding your Winners can be implemented by using trailing stops. The challenge is to try to keep most of your gains, while not moving the stop too close or too quickly that you are shaken out by the typical noise. A trend does not move in a straight line. Price can oscillate above and below the trend each day. But when you have sufficient evidence that the trend has changed, it s time to cash out. Your job is to clearly define what is enough evidence for you. There is no perfect place to locate your trailing stop. It does depend upon your time frame. It also is related to the volatility of the instrument you are trading. Ultimately, it is a compromise you need to be comfortable with, so lots of testing is required and understanding both the pros and cons is important. This is an area of trading that justifies some of the most testing and study, but few dedicate the time to do so. Dr. Van Tharp, Mark Douglas, Chuck LeBeau and others (who have done far more study than I) suggest you should put more efforts into testing your trailing stop and exit methods, than your selection or entry methods. This is confirmed by many studies comparing long term trading performance of every combination of: random entry, random exit, systematic entry and systematic exit. Random Entry with Systematic Exits consistently made money! I did not believe this at first, until I did my own study. I was wrong. Exits are indeed more important. A smart exit strategy can consistently make money over time even with random Entries. I do not suggest using random entries, but it is good to know if your system is better than random, so I test to confirm it. If it s not better, than why use it. Since it has been proven mathematically, and I confirmed it, I had to change my beliefs.
Confirm your beliefs for yourself. It s a win-win. Either you will confirm your beliefs and will build confidence in it, or, you find that you may need to change your beliefs and will know why. Either way you are better off for the effort. V daily chart as of Sep 22, 2017 Visa took a pause this week, but did not give up much of its all time new highs from last week. Ride your winners.
HD daily chart as of Sep 22, 2017 - Home Depot rocketed up two weeks ago to retest prior Resistance (White line). The small dip early this week that bounced back up towards Resistance the last three days could began to form a cup and handle pattern. Time will tell.
TSLA daily chart as of Sep 22, 2017 After making new highs Monday of this week, Tesla fell hard as sellers got busy. My trailing stop was hit early on Thursday. I stuck to my plan and kept a small gain. Tesla tends to move quickly, with 2 to 4 day impulses. We will see if the 50 day SMA (Blue) offers support next week, or not. A rally from the 50 day SMA would be delivering another higher low. A failure at the 50 day, suggests more selling and the next support could be found at the Trend Line (Orange line). Time will tell. There are always opportunities out there in the markets. The challenge is to find them promptly on your own, while a high probability opportunity still exists. Waiting too long for more confirmation means you will have higher odds of being correct but with less reward remaining. Moving too early means there could be more reward, but the odds of being correct are much lower. The challenge is to find a compromise that you are comfortable with, that has enough reward remaining to justify the risk, and the odds are better than random. Hope this helps. Trade Smart, CJ