10.2.14 – Blog Will Resume October 20

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10.1.14 – When When Becomes Now

Stocks had their worst showing in weeks as the Fed remains on pace to end bond-buying this month.  The Dow Industrials tumbled 238 points to close at 16,804.71 while the S&P 500 Index dropped 1.32%.  The Nasdaq Composite was off 1.59%.  Transportation stocks took it on the chin today with the Ebola scare and the  Transport Index lost 2.51%.

Volatility exploded as seen in TVIZ, the leveraged VIX medium-term ETN, jumping 5.20%.  SQQQ, the leveraged short QQQ ETF, ran up 4.82%.  DUG, the leveraged short oil & gas ETF, rose 3.87% while BIS, the leveraged short Nasdaq Biotech ETF, was up 2.91%.  Please click on the symbols for details.

For several months now market pundits have been predicting a significant pullback and in the the case of small-caps, at least, when is now.  IWM, the Russell 2000 Index ETF, experienced a Death Cross last week as its 50-day SMA fell below the 200-day SMA; the index has now fallen more than 10% since its July high.  Dave Landry’s bow-tie strategy established a proper downside crossover in its moving averages for IWM almost two weeks ago.

Ominously enough, after exploding out of a Squeeze last month the Bollinger Bands have widened so rapidly on VXN, the CBOE Nasdaq-100 volatility index, that on only one day in the past week – September 25 – has VXN even touched the +3 Standard Deviation Band.  Typically the market doesn’t bottom until several days of the VXN touching the +3SD Band or higher; look at mid-July and early August.  You can see this on the chart below, which can be made full-screen by clicking on it:

VXN-QQQ1

Whether Big Brother QQQ follows in the footsteps of little brother IWM remains to be seen but right now things don’t look good for the Bulls.  The weekly Qube chart shows that in July and August the ETF made three highs very close to each other, around 97.30 – 97.60.  QQQ traded at 96.90 today, closing the upside gap made week ending August 2:

QQQ weekly

While there’s still two days left in the week for a recovery, a close below the July/August highs could set up a test of the July/August lows just below 94, which correspond with the 38.2% Fibonacci retracement level:

QQQ weekly1

Such a pullback is about 3% lower than this week’s low.

What I’ll be watching for is how the market behaves on a throwback attempt higher, if any.  Does the market open higher and sell into the open, closing lower?  That’s classic bear market behavior.  Or does it open lower and close higher on solid volume?  That could be accumulation.  What happens over the next two days is definitely something we will know, in the fullness of time.

I’ll be out of pocket the next two and a half weeks so the blog will resume on October 20.  I will be updating Subscribers Only! each day.  Lots can and will happen between now and then so keep your money safe and your powder dry.

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9.30.14 – End Of Quarter Fun And Games

The usual back-and-forth at end of quarter was very evident today as the stock market was here, there, and everywhere.  At the close the Dow Industrials had fallen 28 points to close at 17,042.93.  Both the Nasdaq Composite and the S&P 500 Index slipped .28%.

JDST, the 3x leveraged junior gold miner ETF, jumped 7.87%.  SCO, the leveraged short crude oil ETF, rose 6.28% on huge volume.  Small-caps continue to get pounded as reflected in SRTY, the leveraged inverse Russell 2000 ETF, which gained 3.36%.  Please click on the symbols for details.

I’m expecting to see some bottoming action in the next few days.  VIX, the CBOE Volatility Index, jumped high enough last week to touch the +4 Standard Deviation Bollinger Band.  The +/-2 standard deviation bands typically applied in a Bollinger Band includes 95% of all the data while +/-3 standard deviation bands includes 99.7% of all the data.  You can see this in the chart below, which can be made full-screen by clicking on it:

VIX-SPY

Multiple touches of the +3SD Band usually but not always are followed by a bounce or rally, as seen in August after the SPY pulled back sharply and the VIX spiked to the +3 SD band for two days.

 

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9.29.14 – Same Old, Same Old

The same concerns that dogged the stock market earlier this month are still around – geopolitical concerns and a cipher as to when the Fed will raise rates.  A nasty sell-off on the open was met with slow buying during the day, with the Dow Industrials losing just under 42 points to close at 17,071.22.  At its nadir the Dow fell as low as 16,934.43.  The S&P 500 Index slipped .25% and the Nasdaq Composite was off .14%.  Treasury yields continue to fall.

UVXY, the leveraged VIX short-term future ETF, shot up 9.80%.  FXP, the leveraged short China 25 ETF, gained 4.59%.  BOIL, the leveraged natural gas ETF, broke out on more than double its 50-day average daily volume and rose 4.54%.  Please click on the symbols for details.

GLD, the gold ETF, is at a critical juncture.  It has pulled back to a long-term rising support line and isn’t far above a double low (114.50-114.75).  Please take a look at the chart below, which can be made full screen by clicking on it:

GLD monthly elliott2

If my Elliott Wave count is correct – and I repeat, I am not an Elliottician – GLD is hammering out a Wave 4.  Undercutting the June 2013/December 2013 lows not only sends GLD below the rising support line but could send it back to test the March 2008 high (end of Wave 1), just over 100.  Bad news for gold bulls if the 2013 lows are taken out, that’s for sure.

I’m not bold enough to say GLD’s low is already in for the rest of the year, although some gold permabulls are screaming to buy.  Are they correct and I’m being too cautious?  The answer to that question is something we will know, in the fullness of time.

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9.22.14 – Blog Will Resume September 29

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9.19.14 – Time For A Rest?

After a few strong up days the equity markets took a break from the action, with the Dow Industrials inching up 14 points to a new closing high of 17,280.38.  The S&P 500 Index was down fractionally (.05%) while the Nasdaq Composite fell .30%.  Bond yields fell sharply.

In a fun-house mirror image of yesterday, SRTY, the leveraged short Russell 2000 ETF, gained 3.55%.  GREK, the Greek 20 ETF, rose 2.30% but on slightly over half its average daily volume.  Please click on the symbols for details.

GLD has pulled back to a major support level.  Last Friday I opined that it was in Wave 4 of an Elliott Wave structure and was close to retracing 61.8% of Wave 3:

GLD monthly

GLD is just a few ticks above the rising trend line (black) and above both the double bottom lows (blue line) and the 61.8% retracement level.  I won’t be a buyer, however, until I start seeing some bottoming action.

I’m taking off next week so I’ll see you when I see you.  I will be updating Subscribers Only! Enjoy your weekend.

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9.18.14 – Hitting On All Cylinders

The market indexes hit new highs as fewer people filed unemployment claims and the Fed made it clear yesterday it intends on keeping interest rates low…for now.  The Dow Industrials shot up 109 points to close at 17,265.99.  The S&P 500 Index gained .49% while the tech-heavy Nasdaq Composite rose .68%.  Now more than ever the old chestnut “don’t fight the Fed” is oh so correct.

SCIF, the India Smallcap ETF, rose 5.02% but on very low volume.  TQQQ, the leveraged QQQ ETF, gained 2.15%.  Please click on the symbols for details.

The action the past few days shows how powerful a move following a Bollinger Band Squeeze can be after the VIX has run up to the +3 Standard Deviation line for a few consecutive days.  Does it work out this well every time?  No, but it does often enough:

VIX-SPY

The Dow 30 ETF (DIA) finally broke through its 138.2% Fibonacci extension level:

DIA monthly

Next target is the resistance line of the ascending trend channel.  Where exactly that is depends upon how long it takes DIA to get there, assuming it keeps moving higher.  The 168.2% extension level isn’t shown on the chart but it’s around 189.40 (18,940 on the DJIA).  That’s about 9.7% from today’s close.

Wanted to show you something visually very striking.  There’s an axiom in technical analysis that a resistance line once broken frequently acts as support when tested, and vice versa with support lines.  Please take a different look at the monthly DIA chart below, specifically, the yellow rectangle:

DIA monthly1

In December 2013 for the first time, DIA closed above its long-term resistance line (black down arrow).  The next month it closed below (red down arrow), December being a false breakout and showing that the axiom isn’t an iron-clad sure thing.  But come February of this year DIA closed back above the trend line (first blue down arrow).  In March, April, May and August (the other blue down arrows), DIA pulled back to the former resistance now support trend line, and held support.  This week we broke out to new highs.

So does this mean everything is clear sailing to 18,940?  Durned if I know; my crystal ball is at the cleaners this week.  Or as some wise guy was once heard muttering, “the answer to that question is something we will know, in the fullness of time….”

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9.17.14 – Blog Will Resume Thursday

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9.16.14 – The Squeeze Has Squozen!

I know I said I wouldn’t post today but the action was too good not to dish about.  News reports that China’s central bank is boosting stimulus measures helped give the stock market a kick in the pants that reversed losses made earlier this month.  The Dow Industrials gained 100 points to close at 17,131.97 while both the S&P 500 Index and Nasdaq Composite rose .75%.

UCO, the leveraged crude oil ETF, shot up 4.11%.  Crude oil futures have been trending lower since late June.  BIB, the leveraged Nasdaq Biotech ETF, rose 3.99%.  BOIL, the leveraged natural gas ETF, gained another 3.36% and closed back above its 50-day SMA.  EWZ, the Brazil Index ETF, was up 2.98% on heavy volume.  Please click on the symbols for details.

The past few days I’ve been blogging about how the Bollinger Bands on the VIX had narrowed enough that it was likely volatility would resume soon.  That happened today in spades and yesterday in the Nasdaq.  The recent decline in equities was also due in part to the sharp, recent rise in interest rates as the Street anticipates the Fed starting to raise rates.

For the first time since January, TLT, the 20+ year Treasury Bond ETF, signaled an exit to its long trade.  TLT rises as rates fall and drops as rates rise.  Purchased on a buy signal using Dave Landry’s Bow-Tie strategy, the Bow-Tie is constructed using three moving averages: the 10-bar SMA, the 20-bar EMA, and the 30-bar EMA.  When the 10-bar is above the 20-bar; and the 20-bar is above the 30-bar; the moving averages are said to be in the proper upside order.  When the 10 is below the 20 and the 20 is below the 30, they are said to be in the proper downside order.  The bars moved into the proper upside order in January and TLT has made a heckuva run since then, climbing from 105 to as high as 115 last month before topping off.

The moving averages have have now moved into the proper downside order, with the 10 < 20 and 20 < 30.  You can see this in the chart below, which can be made full-screen by clicking on it.  The January entry is marked by the light blue ellipse and today’s exit with the yellow ellipse:

TLT

The moving averages transitioning to the proper downside order will have us sell TLT and buy TBF, the short 20+ year Treasury Bond ETF.  There are specific rules for entry so you’ll need to be a Subscribers Only! to read what they are.  You’re not a member?  Land sakes, child, what’s wrong with you?  It only costs $5 a month and new subscribers get the first two weeks free.

Okay, I’m going to try to take tomorrow off to run some errands although I hope Mr. Market has another strong day and “forces”” me to write a blog entry anyway!

 

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9.15.14 – The Bigger They Are, The Harder They Fall

The Nasdaq has been outperforming the other indexes but internet stocks being trashed today pulled down the Naz to a one-month low.  In contrast, the Dow Industrials climbed 43 points to close at 17,031.14.  The S&P 500 Index was essentially unchanged, down .07%.  Both gold and silver closed higher.

With the kerfuffle in the Naz today, volatility kicked higher and sent TVIX, the leveraged VIX short-term futures ETN up 5.32%.  SQQQ, the leveraged short QQQ ETF, gained 2.94%.  BOIL, the leveraged natural gas ETF, was up 4.17% on 1.5x its average daily volume.  Please click on the symbols for details.

DBC, the commodity index ETF discussed last week in the blog, closed Friday below important support levels.  It was up slightly today so a test of the former support level wouldn’t be a surprise.  Technical analysts know that former support levels once breached frequently act as resistance when tested, so you may want to keep an eye on DBC for a potential short play:

DBC weekly

Further updating a discussion from last week’s blogs, twice in the past few days the VIX has reached up to its +3 Standard Deviation Bollinger Band.  When last discussed it had only touched its +2 SD band and I commented it usually took a thrust up to the +3 or +4 SD band before the market bottomed.  The VIX measures the volatility of options on the S&P 500 Index; the VXN does the same for the Nasadq-100 Index.  The charts look similar only today the VXN punched through the +3SD band whereas the VIX did that last Friday.  Also note that the Bands have started spreading more so in the VXN (BandWidth = .2977) than the VIX (BandWidth = .2179) as volatility reverts to its mean:

VIX-SPY:

VIX-SPY

VXN-QQQ:

VXN-QQQ

It’s likely the market will attempt to put in a bottom within the next few days.  The Dow may have done that last Friday.  For trading ideas, mosey on over to Subscribers Only! and for $5/month you can find out some high-percentage of winners trading ideas.

Readers know I’m a huge fan of EdgeRater Pro, a powerful desktop PC application that can run any EdgeXcel™ Trading Template to produce trading signals, backtest trading strategies and create unique market reports to keep you on the right side of the market.  Developer Chris White updates the program regularly and the latest update features multiple charts in an arrangement of your own design; new chart types; updated group rotation templates that show the full list of Rank Change and Rank Acceleration of ETFs and stocks; and an updated MACD Divergence trading template.  Visit edgerater.com for a full description of EdgeRater.

I will be unavailable tomorrow afternoon so I’ll see you Wednesday.  I’ll update Subscribers Only! tomorrow evening.

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