8.19.14 – Marching Higher

Damn low volume, full speed ahead!  An apparent lack of sellers helped push the Dow Industrials up another 80 points to close at 16,919.59.  Reports out today showed inflation pressures remain limited and housing starts jumped. The S&P 500 Index gained .50% while the Nasdaq Composite “lagged,” up only .43%.  Yesterday morning a major investment banking firm came out with a report that they expected the S&P 500 to gain only 1% the rest of the year.  I hope they meant as of year’s end because between yesterday and today the index is up 1.40%

Oops.

ITB, the home construction ETF, gained 2.39%.  It closed back above its 50- and 200-day SMAs on more than 1.5x average daily volume.  UNG, the natural gas ETF, rose 2.16% but for the second time in a week halted at its declining 20-day EMA.  Please click on the symbols for details.

Despite the strong advance the market has made the past week and a half, I’m still not seeing too many signs that the advance is overbought yet.  The composite long index I created back in 2010 is helpful here.  I developed the composite indexes, both long and short, using High Growth Stock Investor software.  The long composite combines the following non-leveraged, index ETF’s:

EFA – Msci Eafe; EEM – MSCI Emerging; IWM – Russell 2000; IJR – Small Cap 600; QQQ – Nasdaq-100; MDY – Midcap 400; and SPY – S&P 500.

I created the short composite by combining the following non-leveraged, short index ETF’s:

EFZ – short Msci Eafe; EUM – short Msci Emerging Markets; RWM – short Russell 2000; SBB – short Smallcap 600; PSQ – Short QQQ; MYY – short Midcap 400; and SH – short S&P 500.

The composite index then has Bollinger Bands applied to it.  The +/-2 standard deviation bands typically applied in a Bollinger Band includes 95% of all the data while +/-3 standard deviation bands includes 98% of all the data.  The price bars in the long composite chart below are flanked by 2 standard deviation (blue solid lines) and 3 standard deviation (red dashed lines) Bollinger Bands.  The green line is a 4-day SMA.  The data in this chart is as of yesterday’s close:

synthetic

Below the composite index and the Bollinger Bands is the SPX.  You can see the S&P tends to pull back after the composite index hits the +2SD Bollinger Band.  We’re not there yet.

The light volume the past couple of weeks is no doubt due to it being August.  Light volume moves can be sharp in either direction, and decreasing volume while prices move higher usually is a trap.  Having said that I received an e-mail last week commenting that volume has been below average almost every month since the market bottomed in March 2009.  Very true.

Unless all hell breaks loose tomorrow I won’t blog again until Thursday.  I will update Subscribers Only! tomorrow, however.  And speaking of Subscribers Only!, today it discusses a Larry Connors swing trade idea in an ETF with a historic success rate of 79% and an average gain of over 1% in a little longer than 6 days. What ETF is this?  For just one-twentieth of a Benjamin, a mere $5, you can find out.  Click on the Subscribers Only! links to subscribe.  New subscribers get the first two weeks of service for free.

See ya’ll on Thursday.

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8.18.14 – Peace In Our Time?

Talk of tensions easing between Russia and Ukraine sparked a stock rally that shot the Dow Jones Industrials up 175 points to close at 16,838.74.  The S&P 500 Index rallied .85% while the Nasdaq Composite Index gained .97%.  Very low volume last week didn’t seem to worry market players today.  Homebuilders rose sharply.

SCIF, the India Smallcap ETF, followed through on last week’s bounce by adding 4.08% on less than half its average daily volume.  Contracting volatility sent SVXY, the inverse VIX  short-term futures ETF, up 3.89%.  UDOW, the leveraged Dow 30 ETF, was up 3.06%.  Please click on the symbols for details.

I’m not a big fan of trying to catch a falling knife but it’s an investing style some are successful with. There’s an old saying on the Street that you want to buy when there’s blood running in the street. Case in point – DBC, the commodity index ETF that’s trading well below all major moving averages.   Please take a look at the daily chart below, which can be made full-screen by clicking on it:

DBC

But consider the following: U.S. railroads reported last week that 8 of 10 of the carload commodity groups posted increases compared with the same week in 2013, including petroleum and petroleum products with 16,804 carloads, up 32.1%; grain with 21,191 carloads, up 26.5%; and nonmetallic minerals with 40,716 carloads, up 9.6%. The only commodities posting a decrease were coal with 114,101 carloads, down 2.6% (a pattern that’s persisted for several years now), and farm products excluding grain and food with 15,567 carloads, down 1.3%.

Here’s a table showing the ten commodity groups and their components, plus intermodal units. The table comes courtesy of the American Association of Railroads:

AAR

For the first 32 weeks of 2014, U.S. railroads reported cumulative volume of 9,221,860 carloads, up 3.7% compared with the same point last year. If commodity traffic on the railroads is increasing that means more commodities are being shipped, which means the producers are selling more. That eventually passes through to the bottom line and ultimately, to EPS. Rising EPS usually turns into rising stock prices which would be reflected in DBC.

All this is fine and dandy and has been good for railroad stocks and IYT, the DJ Transportation Index ETF, but it don’t mean squat unless DBC starts recovering. But if you like buying a falling knife, DBC is worth keeping an eye on.

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8.15.14 – Modem Crash; No Internet

Sending this from my phone.  See you next week.

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8.14.14 – Finding What’s Hot And What’s Not

Tensions easing a bit in Ukraine sent the stock market higher on falling volume, with the Dow Industrials rising 61 points to close at 16,713.58.  The S&P 500 Index rose .43% with the Nasdaq Composite doing the same.  Treasury yields closely slightly lower.

SCO, the leveraged short crude oil ETF, gained 5.16%.  Biotech was up again and BIB, the leveraged Nasdaq Biotech ETF, rose 3.18%.  DUST , the 3x leveraged gold miners Bear ETF, closed 3.10% higher.  SCIF, the India Smallcap ETF has been in a downtrend but added 2.13%.  Please click on the symbols for details.

There are two schools of thought to buying ETFs rising on momentum: 1) Buy strongly trending ETFs that are pulling back within the trend (techniques used by Larry Connors and Dave Landry); and 2) Buy ETFs as momentum accelerates.  I usually discuss the pullback strategies here in the blog but today I’d like to discuss a new way for finding ETFs that are hot and eliminating from consideration those that are not.

EdgeRater Pro performs super-fast backtesting, scanning and trade simulations.  I’ve blogged about it before and you can read the review for more details.  Developer Chris White recently added a Group Rotation template and it’s ideal for finding which ETFs have rotated into favor.  It’s easy to use and only takes a few minutes to run the analysis.

Start by updating the data base (Symbol List).  After that’s complete select the “Liquid ETFs” data group.  Next, select “PRO Tools” from the Excel templates; you have two choices, %Change template and Group Rotation template.  Choose the latter:

EdgeRater

Next, click “Run.”  After a few seconds the analysis is complete.  The template looks at data over the last 22 trading days to (% Change Period”) calculate momentum, both upward and downward.

The tab “RankValues” shows the percent gain or loss over the 22 days ending on the date selected:

EdgeRater2

YINN had gained 24.66% for the 22 days ending  8/13/2014.  It had gained 25.22% for the 22 days ending 8/12/2014, and so forth.  By clicking on the date you can rank the Symbol List of 366 ETFs from high to low or low to high.  The next tab to the left is RankOfValues and it converts the % Gain or Loss into a 1-99 ranking scale:

EdgeRater3

YINN has the highest rank of #1 on August 13 and the previous two days as well, showing strong momentum.  The next tab to the left, FinalRank, is a smoothed average of the rankings over a 5 day period:

EdgeRater4

When smoothed we see the decreasing volatility over the past few days as the market rose resulted in strong upward momentum in UVXY, the leveraged VIX short ETF, which was ranked #1 the past six days as of yesterday.

If you think evaluating the past 22 days is too short or too long based on your trading or investing style, you can easily change that by clicking the “Change Settings” button see in the first screen grab.  Here it is for 100 days:

EdgeRater5

Click OK and then Run to update your analysis:

EdgeRater6

When analyzed over the past 100 trading days we see YINN, the 3x leveraged China Bull ETF, has very strong upward momentum.  Clicking anywhere on the YINN line brings up a chart, which you can customize to show any of the dozens of indicators available in the script library:

EdgeRater7

The second tab on the left is “Dashboard” and it summarizes the Top 10 and Bottom 10 ranked symbols; the biggest rank change to the upside and downside; and the fastest acceleration to the upside and downside:

EdgeRater9EdgeRater9

With EdgeRater Pro you have an easy way to find the ETFs gaining and losing momentum, giving us one more tool to help make money in the markets.

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8.13.14 – Bearish Divergences Are Forming

A slowdown in retail sales spurring hope on the Street that the Fed won’t be too quick to raise rates helped push the S&P 500 Index to a two-week high.  The SP was up .67% while the Dow Industrials gained 91 points to close at 16,551.80.  The Nasdaq Composite rose 1.02%.  Gold closed higher.

Natural gas prices slumped sending DGAZ, the 3x leveraged inverse natural gas ETN, floating up 11%.  Collapsing volatility sent XIV, the daily inverse VIX short-term ETN, up 5.69%.  BIB, the leveraged Nasdaq biotech ETF, gained 3.99%.  GREK, the Greece ETF, has been in a downtrend but rose 3.09% today.  Please click on the symbols for details.

Prices are rising on the indexes but volume is rapidly declining, a big bearish divergence.  Quoting from one of the bibles of TA, “Technical Analysis of Stock Trends,” by Robert Edwards and John Magee: “[I]n a Bull Market, volume increases when prices rise and dwindles as prices decline; in Bear Markets, turnover increases when prices drop and dries up as they recover.”  We are seeing all the hallmarks of a bear market.  To wit:

S&P 500 ETF:

SPY

Dow 30 ETF:

DIARussell 2000 ETF:

IWM

The above charts are daily charts.  The red line in the volume section of the chart is a 50-day simple moving average of volume.  The yellow rectangles show volume on these index ETF’s falling off rapidly as price rises off the bottoms made one or two weeks ago.  Not a good sign for the Bulls, gentle readers.  The rocket is running out of fuel.

Does this mean a downside reversal is imminent?  Nope.  But I’m in no hurry to jump back in with both feet trading the long side when I see clear warning flags flying.

If you’re not a Subscribers Only! reader then you missed out on some great trades lately.  Yesterday we sold FEN, the Energy Income and Growth Fund, for an 8.84% gain before transaction costs.  We bought FEN on May 5 and by comparison the S&P 500 Index gained 2.77% during the same time period.  8.84% vs. 2.77%.  Makes you think about subscribing, doesn’t it?  New subscribers receive the first two weeks for free.

So how much longer can the stock market keep rising before falling over from its own weight?  The answer to that question is something we will know, in the fullness of time.

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8.12.14 – Dental Surgery Today; Blog Will Resume Tomorrow

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8.11.14 – Not What The Bulls Want To See

The stock market rose today – tepidly – with several of the major indexes testing but closing below important short-term resistance levels.  The Dow Industrials gained 16 points and closed at 16,569.98 after trading up as much as 74 points.  The S&P 500 Index rose .28% while the Nasdaq Composite added a stronger .70%.  Emerging markets were higher.

JO, the coffee ETN, percolated 4.90% higher.  Volatility is collapsing and XIV, the daily inverse VIX short-term ETN, rose another 4.02%.  EDC, the 3x leveraged Emerging Markets Bull ETF, gained 3.92%.  AMJ, the Alerian MLP Index ETN which provides investors a way to gain exposure to midstream energy MLPs, was up 3.59%.  Please click on the symbols for details.

Several of the major index and sector ETF’s rose up to their 20-day EMA but couldn’t get through.  This EMA is a valuable “canary on the coal mine” early warning of a trend change or lack thereof.  Other index ETF’s couldn’t get through their 200-day SMA.   Aim your peepers at the charts below and you’ll see what I mean:

IWM SMH SPY

Note how the ETF’s have stalled at either their 38.2% or 50% Fibonacci retracement levels.  To a technical analyst, an ETF that can’t retrace at least 61.8% of a decline is still in a downtrend.

If the indexes can retrace 61.8% or even better, 78.6%, the ETFs may set up  Gatekeeper patterns.  Developed by Dave Landry, the Gatekeeper is a reversal pattern that looks to identify when a market, stock, or ETF has completed a “last gasp” higher or lower, a.k.a., a top or a bottom.  I prefer to use it for the sell side, buying inverse ETF’s.

The Gatekeeper incorporates some of the elements of Fibonacci analysis I’ve described in previous blog entries.  While it can be used for buys/bottoming action, I’ve found it more effective for short sales/topping action.  Please keep in mind that you don’t have to actually sell short when using the Gatekeeper; you can apply the technique to an ETF and buy its inverse when the short signal is triggered, e.g., track QQQ for a short entry and buy PSQ when it’s triggered.

It will take another couple of days or more of the market rising for many ETF’s to rise back to their 61.8% or higher retracement levels off last week’s lows.  I’ll keep an eye on them and let you know should that occur.

Last Thursday Subscribers Only! subscribers bought XLV, the Healthcare SPDR ETF, using Larry Connors RSI 10/6 strategy.  We sold XLV today at $60.50, for a 1.15% gain before transaction costs in two days.  Not bad, not bad at all…but who knows what happens the next time the strategy issues a buy signal?  Past performance does not guarantee futures returns.  For only $5 a month you will receive all the swing trade signals as well as longer-term signals for ETFs, stocks, and dividend-income plays as well as Fidelity mutual funds.  New subscribers receive the first two weeks free of charge.  Check it out!

I’m not sure if I’ll be available tomorrow to post a blog.  I’m having more dental surgery and I don’t know what shape I’ll be in.  The answer to that question is something I will know, in the fullness of time.

 

 

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8.8.14 – Can’t Beat That With A Stick

The market soared today with the S&P 500 Index posting its best gains in five months, as the situation starts to ease in Ukraine.  The Dow Industrials rose 185 points to close at 16,553.93 while the S&P 500 Index gained 1.15%.  For a change the Nasdaq Composite lagged its siblings, adding .83%.  Semiconductors were strong today and the Transportation Index gained back some lost ground.

XIV, the Daily Inverse VIX short-term ETN, gained 4.01% after bouncing off its 200-day SMA.  UPRO, the leveraged S&P 500 Index ETF, was up 3.49%.  XOP, the oil and gas exploration ETF,  added 3.04% on double it’s average daily volume.  TUR, the Turkey Index ETF, rose 2.88%.  Please click on the symbols for details.

While the Dow Industrials pulled back to and are holding its 200-day SMA, the Nasdaq-100 Index ETF QQQ is doing better after pulling back to its 50-day SMA.  A factor that concerns me is that the weekly QQQ chart has formed a rising wedge pattern.  In this pattern the ETF makes higher lows and higher highs, a.k.a, a triangle, but the lows are rising faster than the highs.  Confused?  A picture’s worth a thousand words:

QQQ

While rising wedges usually form in a downtrend, sometimes you see them in an uptrend.  Note that this week’s bar closed right on support after falling below it intra-week.  Should QQQ close below support at the end of next week, calculating a target objective is done like with any triangle: Take the width of the pattern at its widest point (7.41 points) and subtract that from the breakout point of the support line (around 95.40), for a target objective of around 88. (95.40-7.41):

QQQ weekly

Note that the target rests on a former high and the highs of a few weeks of consolidation in April and May.

Although yesterday’s blog expressed concerns that the volatility hadn’t risen high enough to signify a bottom in the markets, the recent pullback has set up a potential buying opportunity.  For the bigger picture of directionality I like to look at the 13-34-week EMA crossover on the SPY.  When the 13-week is higher than the 34-week, you want to be long.  When the 34 is higher than the 13, be short or in cash.  Buy when the 13 crosses over the 34 and exit or go short when the 34 crosses over the 13.  To make the crossover easier to see you want the MACD (Moving Average Convergence-Divergence) line to be above zero for long positions.  When going short, you want it below zero.  Let’s look at the chart:

SPY

Back in August 2011 the 13-week EMA (red line) crossed below the 34-week EMA (blue line).  The EMA’s crossed back over to the upside in the proper order (13>34) in January 2012.  At the end of that week the weekly MACD was above zero.  A long entry would have been taken at the end of the week, at 128.84.  Blue up and down arrows highlight the entry bar.

When the SPY falls below the 13-week EMA, like it did in May 2012, you want to watch for whether the 13-week EMA falls below or stays above the 34-week EMA.  When price falls below the 13-week EMA but the 13 is above the 34 (MACD > zero), you have a pullback within an uptrend.  Use price moves back above the 13-week EMA as an opportunity to pyramid on an existing  position.  Your gain would be 49.8% as of today’s close.  Please take a look at the chart below – red down arrows indicate opportunities to add to an existing long position:

SPY weekly

As of the end of this week the SPY is below the 13-week EMA.  The 13 is above the 34 (MACD is greater than zero) so if next week SPY should close back above the 13-week EMA, you would have an opportunity to climb on board that train.

Well, that wraps up the week.  Enjoy your weekend.

 

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8.7.14- Take Two Weeks Off And All Hell Breaks Loose

Sheesh!  I take a couple of weeks off and the market craps out.  Actually, I’m painting that picture with too broad a brush – it’s the Dow Industrials that have pulled back the most while the S&P 500 Index less so and the Nasdaq Composite has been outperforming the Dow.  Some things haven’t changed since I flew to London to make the VZO/PZO presentation to the local chapter of the Market Technicians Association – the situation in Ukraine is still causing market jitters.  Today the Dow Industrials slipped another 75 points to close at 16,368.27, while the S&P 500 Index fell .56% and the Nasdaq Composite was off .46%.  Both gold and crude oil closed higher.

TAN, the solar ETF, climbed 2.17% today.  It has been below both its 50- and 200-day SMA’s so I’m not too excited about its action.  UVXY, the leveraged short-term VIX Futures ETN, was up 4.34%.  BIS, the leveraged short Nasdaq Biotech ETF, gained 2.90%.  Please click on the symbols for details.

Since making new highs last month the Dow Jones Industrial Average has slipped 4.1% as of this week’s lows.  The January-February pullback earlier this year was almost twice as deep, at 7.5%.  The April-June 2012 pullback retraced 7.7% while the July-October 2011 decline was just over 18%.  Bottom line is there is room to pull back more for this recent decline to match past declines.  Declines in the S&P 500 Index have been similar.  The Nasdaq Composite hasn’t declined as much.

So are the markets getting ready to turn higher?  While there will be thrusts up after down days, I’m not finding technical signs that the markets are near a bottom.  A chart I look at frequently plots the VIX (the CBOE Options Volatility Index) with Bollinger Bands, and SPY, the S&P 500 Index ETF.  Normally I look at a daily chart but the weekly chart helps takes some of the day to day choppiness out of the system.  Please take a look at the chart below, which can be made full-screen by clicking on it:

VIX-SPY weekly

The VIX is plotted at the top of the chart with with Bollinger bands at +2, +3, and +4 standard deviation bands, and a -2 standard deviation band.  The SPY is below.  Note how the SPY starts to pull back when the VIX reaches its +2SD band (April 2013 and January 2014).  An exception was in October 2013 when the market bottomed the week the VIX reached its +2SD band.  But even though the SPY begins to pull back when the VIX reaches the +2SD band on the weekly chart, it doesn’t bottom until volatility increases even higher, usually the +3SD band (February 2014) but sometimes not until reaching the +4SD band (June 2013).  At present the VIX has reached the +2SD band on its weekly chart but not the +3SD band, suggesting more volatility lies ahead and lower market prices.

But what the heck do I know?  I was on working vacation the past two weeks so I may be out of synch with the market action.  Whether or not I’m correct is something I will know, in the fullness of time.

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7.25.14 – Blog Will Resume On August 7

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