10.31.14 – Take A Memo


“In the next day or two either yields should continue higher or equities turn lower”

That’s what I wrote yesterday and even a stopped clock is right twice a day: Yields rose as equities caught fire yesterday and fanned the flames today.  The Dow Industrials raced up another 195 points to close at a new high of 17,390.52.  The S&P 500 Index made a new closing high by gaining 1.17% while the tech-heavy Nasdaq Composite was up 1.41%.  Biotech, which has been moving almost straight up the past few weeks, cooled off today.  Gold and silver were crushed.

EWJ, the Japan Index ETF, gapped open hugely higher and closed with a 4.96% gain as an unexpected boost in stimulus from the Bank of Japan spurred optimism in the global economy.  JDST, the 3x leveraged junior gold miners Bear ETF, soared another 20.57%.  XSD, the semiconductor SPDR, rose 4.73%.  ZSL, the leveraged short silver ETF, was up 3.83% but closed just above its low, indicating its run may be coming to an end for now.  Please click on the symbol for details.

GLD, the gold ETF, looks to have given up the ghost.  For ten months it held above a 50% retracement of the rise from the 2005 low to the 2011 high.  There was also a double bottom around 114.50 and a long-term rising support line just above there.  All of that went the way of the nickle beer and the Burma Shave today:

GLD monthly1

At this point it looks likely that GLD will pull back to its 61.8% Fibonnaci retracement level, around 96.35.

Even though the stock market has been on a huge run I’m not seeing any technical signs calling for an imminent end to it.  The VIX (the CBOE Options Volatility Index) closed today at 14.03, well above the 12.11 it set in mid- September a day after the market topped out.  The VIX is also well above its -2 Standard Deviation Bollinger Band.  Typically there isn’t a market pullback until after the -2SD Band is reached, as happened twice in June of this year.  The market can pull back substantially without falling to this Band, of course; e.g., the VIX never touched the -2SD Band on September 19:


Point in fact, I’m seeing technical signs that this run may be just getting started.  On the SPY the Price Zone Oscillator (PZO) and Volume Zone Oscillator (VZO), developed by my friend Walid Khalil, is nowhere near the levels where you would expect to see the market take a rest other than a few days of light profit taking:


The price is above the 60-day EMA (red line) and the PZO on the left closed today at 26.47 while the VZO closed at 17.23.  While it’s preferable that the VZO have a higher value than PZO, it’s not uncommon in the early stage of an advance for Price to lead Volume.

The present price trend probably is not sustainable although I can see a few more days of today’s kind of action.  Use pullbacks to accumulate new swing trades positions, using the Larry Connors and Dave Landry techniques I’ve written about many times.  If the market action is sideways like it was last Friday/this Monday, use Dave’s Trend Knockout (TKO) technique to buy breakouts.  If you’re unfamiliar with the TKO you can use the search box at the top of the blog to find past entries where I’ve written about them.  Type “TKO” (without the quotation marks) in the search box and click on Search.

I’m taking the next two weeks off although I will update Subscribers Only! each day.  Enjoy your weekend.

About Dave

David Steckler enjoyed 24+ years of experience as an investment counselor and portfolio manager before retiring. A former professor at Lindenwood University in Missouri, he also was a member and past president of the American Association of Professional Technical Analysts (AAPTA), and a member of the Market Technicians Association (MTA).
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