10.23.14 – Bob? Bob Who?

Never heard of him; must be some permabear or the like….LOL!

Proving once again that Mr. Market’s job is to drive you batsh*t crazy, strong earnings reports from 3M and Caterpillar as well as encouraging economic news domestically and in Europe sent the Dow Industrials up 216 points to close at 16,677.90.  The S&P 500 Index gained 1.23% and the tech-heavy Nasdaq Composite rose 1.60%.  Transports were strong with the Dow Transport Index jumping 2.1%.  Treasury yields closed higher, confirming my suspicions from yesterday.

XBI, the S&P Biotech SPDR, rose 3.79% on above-average volume, breaking out through resistance in the 163 zone.  FCG, the natural gas trust ETF, gained 3.10% after dropping sharply yesterday.  Volatility declined as the market rose and XIV, the inverse VIX short-term ETN, jumped up 6.48%.  URTY, the leveraged Russell 200 ETF, climbed 5.33%.  Please click on the symbols for details.

The SPY ran back up to its intermediate-term resistance line, trading through it intraday but closing back at the trend line.  “Former support once broken frequently acts as resistance when tested” and that axiom is really showing itself to be the case.  For the first time, DIA, the Dow 30 ETF, ran up to its former support now resistance line.  You can make the two charts below full-size by clicking on them:

SPY weekly1a

DIA weekly

While I had been concentrating on SPY, tomorrow I’m going to concentrate on DIA.  The 60-minute chart clearly shows where the resistance is; note carefully where the low was on the final 60-minute bar: 166.20. Yesterday’s high was 166.23.  Today’s close was 166.71.

DIA 60-minutes

Should DIA trade below yesterday’s high it’s likely it will make a run lower to try and close today’s gap open higher.  That may be an opportunity to trade the short side using inverse ETFs like DOG or DXD, provided it doesn’t gap open lower tomorrow and completely wipe out the gap.

That wraps it up for me this week as I’ll be unavailable tomorrow afternoon.  Subscribers Only! tomorrow will be updated over the weekend rather than after the close.

Enjoy your weekend.

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10.22.14 – Way To Call It, Bob

Well, it looks like my ol’ buddy Bob was spot on; the Dow Industrials pulled back 153 points to close at 16,461.32.  The S&P 500 Index fell .73% while the Nasdaq Composite slipped .83%.  Surprisingly, Treasury yields were relatively unchanged.

Volatility shot up again as the market declined.  VIXY, the short-term VIX futures ETF, jumped up 7.84%.  JDST, the 3x leveraged junior gold miners Bear ETF, rocketed 15.87% on below average volume.  SCO, the leveraged short crude oil ETF, gained 4.77%.  TWM, the leveraged short Russell 2000 ETF, rose 2.81%.  Please click on the symbols for details.

If you compare yesterday’s weekly SPY to today’s, you can see how my friend Bob was correct yesterday about the market running into trouble getting through the former support (now resistance) line.  The red line is the intermediate-term trend line.

Yesterday, right up against the trend line:

SPY weekly1

Today, pulled back from the trend line:

SPY weekly1

Today’s daily volume was slightly lower than yesterday.

The fact that bonds were relatively unchanged leads me to wonder whether or not today’s pullback was a one-day event.  There has been a strong negative correlation between SPY and TLT, the 20+ year Treasury Bond ETF.  A positive correlation indicates that two assets tend to move in the same direction. A negative correlation indicates a strong tendency for two assets to move in opposite directions. A correlation value of near zero indicates there is very little correlation between the two assets.  The highest positive correlation is 1.0 and the lowest negative (inverse) correlation is -1.0.  The pattern has been when TLT goes up, SPY goes down, and vice versa:

TLT-SPY

The negative correlation has weakened the past few weeks (currently at -.14) but with such a strong stock market pullback today, I expected TLT to be higher.  Perhaps this is telling us something?  The answer to that question is something we will know, in the fullness of time.

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10.21.14 – Good Eye, Bob

No one is going to complain about a 200+ point up day except short players, but….how long will it last?  Right now no one seems to care.  The S&P 500 Index had its biggest day in a year as the Street speculated the European Central Bank will boost economic stimulus.  The Dow Industrials gained 215 points to close at 16,614.81 while the S&P 500 Index climbed 1.96%.  Thanks to Apple forecasting record sales the Nasdaq-100 Index rose 2.40%.  Treasury yields closed higher while both gold and silver posted gains.

GREK, the Greece 20 ETF, shot up 5.20%.  Sounds good but it’s still well below its 50- and 200-day SMAs.  FCG, the natural gas ETF, floated higher by 4.19%.  OIH, the oil services ETF, rose 3.69% and BIB, the leveraged Nasdaq Biotech ETF, gapped open higher again and closed with a 6.40% gain.  If you bought BIB two weeks ago and never checked the price, you never would have known how much it had fallen because, as they say in the horror movies….”it’s baaaaack.”

So who is Bob and why did I give him props for having a good eye?  Bob has been a very good friend of mine for many years and he works as a stockbroker.  He called me today around lunchtime to discuss the market action and he commented that the SPY was about two points away from bumping up against a long-term resistance line, which could mean trouble ahead.  After lunch I looked at my charts and by cracky, Bob was spot on.

There’s a well known axiom in technical analysis that a support line once broken frequently acts as resistance when tested.  Yesterday I posted a weekly chart showing how last week SPY had pulled back to the support line of a long-term rising trend channel.  Here’s the chart again:

SPY weekly

Within any long-term trend you can always draw trend lines of shorter trends.  That’s what Bob was looking at and here it is:

SPY weekly

Look at the red rising trend line.  Let’s zoom in and take a closer look:

SPY weekly1

You can see how the SPY has risen right back to the former support line, broken two weeks ago.  Will it act as resistance this time?  Further resistance is seen in the SPY retracing 61.8% of its decline since making a new high last month:

SPY weekly2

Let’s not forget about volume, which has been declining although today’s volume was higher than yesterdays.  The next few days will be crucial in determining whether or not this V-bottom is The Bottom or a setup for another leg lower.  The indexes are setting up Dave Landry’s Gatekeeper pattern, 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.  It is most effective when the ETF retraces 61.8% or even better, 78.6% of a recent decline.

The Dow 30 ETF DIA hasn’t quite reached back to its shorter-term rising trend line and QQQ already rose through its trend line so the ETF I’m watching for now is SPY.  Keep your powder dry and let the market action tell you what to do, don’t you tell it what it’s going to do.

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10.20.14 – What A Long, Strange Trip It’s Been

The last three weeks have been quite a ride, haven’t they?  And today the market probably would have done much better had it not been for IBM falling off a roof.  The Dow Industrials gained 19 points to close at 16,399.67.  The S&P 500 Index and Nasdaq Composite performed much better, up .91% and 1.35%, respectively.  Treasury yield, which had fallen to the floor the past three weeks, have risen somewhat the past few days but are still much lower than where they were at the beginning of the month.

SVXY, the short VIX short-term futures ETF, jumped 7.76% as volatility retreated.  TQQQ, the leveraged QQQ ETF, gained 4.45%.  TAN, the solar ETF that was last year’s darling, rose 3.48% but is still below its 50- and 200-day SMAs.  BIB, the leveraged Nasdaq Biotech ETF, was up 3.28% and has recovered a little more than 61.8% of its decline since topping last month.  Please click on the symbols for details.

This decline has felt brutal but how bad has it been compared to others?  The website Advisor Perspectives had a chart that I found very helpful for putting this recent decline in perspective:

SPX-snapshot

The recent decline of 7.40% was greater than the January 2014 and June 2013 declines, but less than earlier declines.  Does this mean the current decline is over?  I’m not quite prepared to say yes but I’m feeling better about it than I was last week.

The Dow Industrials substantially pulled back from resistance around 17,100…which happens to be a Fibbonacci extension level:

DIA monthly

The monthly chart above is of DIA, the Dow 30 ETF.  It takes the level of the Dow and divides by 100.  It pulled back earlier this month to the rising support line but didn’t close below it.  That’s a positive but I won’t breathe easier until this resistance is taken out.

The weekly chart below is of the SPY.    It pulled back last week to a rising support line and bounced sharply.  That’s also a positive:

SPY weekly

But volume today on the Nasdaq was below average even though the index managed to close back above its 200-day SMA.

My big concern is that the market rises on steadily decreasing volume, which is an invitation for a resumption of the sell-off.  Earning reports are coming out and it won’t take much for a big name to miss and upset the apple cart.  Whether or not that happens in the next few weeks is something we will know, in the fullness of time.

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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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