7-28-13 Weekly Recap & Outlook

Stock Index Futures:

  

Russell 2000 Chart  --  S&P 500 Chart

I mentioned last week to be on the lookout for distribution on the daily charts because of the symmetry the weekly charts were showing.  However, this time when distribution was spotted we got accumulation bars twice as big as the distribution.  Also printed a buy signal on the weekly charts, though I am not a fan of buying highs.  For day trading purposes breaking above the distribution could be a good trade.  Still though, every time the slow trigger has gotten around 25 this market has needed some type of pause.  We are now at 28 printing distribution, it is only natural to have people rushing to buy at any sign of pullback giving accumulation bars but it really is time to have a pause.  Also a buy signal was printed on the Russell daily charts, but again very extended at the highs.  Though they may work short term, when I am taking signals off of daily and weekly chart I am looking to hold them for a while.  This market isn't looking back, especially the Russell.  I don’t think a significant correction will come until we close below the monthly fast avgs.  So I prefer to wait on a nice size pullback similar to what we have got twice before, take positions in both indices and stock, and let the QE do its job. 

Crude Oil:

Crude Oil Chart

We got the pullback that was much needed in crude oil.  Also got buy signals on weekly and daily.  I see no reason why it wont get bought.  All the retail traders are looking for $100, big red weekly bar confirming to them their bearish outlook, monthly and weekly charts in a solid uptrend.. they might get their heads ripped off.  $103 will be an important level if the buyers don’t start buying immediately into Monday.  To be more conservative would be to wait until price gets back above fast avgs on the daily.  Still though I like this setup above the weekly fast avgs.  If it works as it should, $110 could be the new support instead of $103-104.  That is about all I have to say, you already know everything else I think of crude.

Gold:

Gold Chart

Well, the buy signal from last week really worked out.  Even though a distribution bar was printed on the weekly, I am still expecting a test of the immediate backup (20ema).  That would also be a buy signal above the high of the distribution printed last week.  Daily chart still looks bullish and is also showing the possibility of testing 1390-1400.  That would also be the fast avg on the monthly chart.  So three time frames saying 1390-1400 is very possible.  Now, from there high probability it will be sold but we arent there yet.  In fact, this week is a sell signal below the lows and a buy signal above the highs.  Obviously I like the buy side because there is nothing but air on all time frames up to near 1400.  Sell side there is a bunch of junk in the way, so I wouldn’t take that.  But this is a good time to see if the buyers are buying or the sellers are selling in the big picture. 

However, I said a while ago that it will take a few months to bottom and the only way that can be avoided is with an extremely strong V spike on the monthly reversal.  If that happens, then you really better fasten your seatbelt because $5000 will be here before you know it.  Other than a V spike reversal, it will take a few months to bottom just as Apple has done.  I said the same thing about Apple too, I said it would need a 6 month minimum bottom base.  Also for a V spike reversal here on gold, the August bar is seriously going to have to be a massive green bar engulfing candles back up to 1500.

Treasuries:

10 Year Note Chart

Notes are still looking like trash and until we can break the highs of this past week and the week before, they will continue to look like trash.  This is because the buyers aren’t buying.  When I see buy signals that aren’t being bought that tells me something.  Now we also have a sell signal to watch as well below this past weeks low.  Similar to gold, this is a good time to see who is doing what.  Are the buyers going to push price above 127 10/32 or are sellers going to take it below this past weeks low.  That tells me if the buyers are buying or the sellers are selling in the big picture and that is important to both day and swing trading.  For the record, sell side is preferred here below last weeks low because there is nothing but air.

Market Internals:

   

Percent of Stocks Above 200sma Chart -- McClellan Summation Index Chart -- CBOE VIX Chart

Percent of stocks above 200sma is the best read of the market in my opinion.  It is in the beginning stages of rolling over and still need to see more before coming to any conclusions.  I have made myself very clear about what I think of % stocks and summation index below 50% and 0 lines.  This is building a top territory if they can get below and stay below.  During the housing bubble, both of these indicators were below 50% and 0 line as stocks were making new all time highs.  So it is important to watch these.  They also show underlying strength of the market.  If this market was as strong as it looks why wouldn’t 75 or 85% of stocks be above 200 day moving average instead of 50 or 60%?  Why would advancing to declining issues be near 2500 instead of 500?  I suppose things are still bullish so long as they stay above 50% and 0.  But these are things to watch, both the direction of these indicators and the levels at which they are at.

News Releases:

Economic Releases -- Econoday Website

Looks to me like a good week of trading is coming.  We have lots and lots of data being released, and two MAJOR ones being FOMC meeting announcement and Employment situation.  Lately with FOMC, it will cause a stagnant market all day then a knee jerk reaction when it comes out then the market tries to fit in a days worth of trading into the last two hours.  It does this by either having huge swings or a fast trend.  Although this time we have a few important releases before FOMC so it may just be a jam packed Wednesday.  Employment situation just has a massive spike in most markets the second it comes out and tends to give good trading the rest of the day.  ISM Manufacturing also gives great trading, no specific type though.  I mean wow, I really just took a good look at this weeks news and there is a ton of important releases back to back.  So get ready.
Also, I meant to have my next education piece out on the key support and resistance levels but I have been pretty busy.  I will get it out when I can sometime soon.
Take it easy and happy trading everyone,
-Michael

7-21-13 Weekly Recap & Outlook

Stock Index Futures:

          Link for large Russell chart                  Link for large S&P chart
First I would like to say, this has been a hell of a bull market.  Secondly,  the last rally that resembled this type of straight up action was April-May and it lasted 4 weeks.  We just closed on the 4th week on Friday, so that is just something to be aware of if we start seeing distribution signals this week on the daily.  The weekly divergence on the Russell turned into a failed divergence but the S&P just gave a whole new divergence to start looking at, both on the daily and weekly.  Both daily and weekly divergences need to turn magenta for them to be confirmed but it’s a high probability they will.  The daily divergence is on the slow trigger and weekly is on the fast trigger, which makes sense because the triggers are looking at multiple time frames and the slow trigger of one time frame is the fast trigger of the next higher up time frame.  With all that being said, there is still no sign of slow down on even the daily chart and if we go another week like this, we could very well be having a blow off month or be in the making of a bubble in small caps though that is a long shot, but anything is possible.  I don’t know how else to explain it, the economy is stagnant and the only thing keeping the market going is the fed.  I’d love to see the fed explain a small cap bubble they caused.  So, what I am watching this week on stock indices is normal for these bull moves – distribution for sell pressure & fast averages (daily initial price momentum) for continuation.

Crude oil:

Link for large Crude Oil chart

Well crude is definitely holding up its end of the bargain.  Another week in the green with some strong indications.  My only problem is the magenta that showed up on Friday’s bar, confirmation of a correction will come when we get under the fast averages.  If that doesn’t happen then I’m looking to test and maybe even break $110.  On a weekly and monthly basis it couldn’t look better, which is why I don’t mind a daily pullback to get some new buyers interested.  Something I look at in emerging trends is the slow trigger on the weekly and daily.  Both of them are in top shape, especially that weekly.  It went from a slow start to a steep slope, and that is perfect.  When crude gets going like this it really likes to go fast unlike stock index futures.  Bottom line:  everything is perfect from a trend perspective across all timeframes.

Gold:

Link for large Gold chart

Gold starting to feel like some buying pressure is emerging at these low levels.  There is a classic sell signal on the weekly chart so we will see this week if the sellers are still selling, and if they aren't it might be time to buy.  I still believe it is going to take a multi month base down here before any real traction can get going to the upside kind of like Apple has been doing.  But another classic trade here aside from the stochastic sell signal is in a downtrend once price gets above initial price momentum it tends to want to test the immediate backup (20ema).  So that could possibly happen over the next week or two, and the backup is at $1400.  These are usually fairly quick moves too.  The sell signal triggers under last week’s low or under the initial price momentum depending on your level of aggressiveness.  The buy signal triggers above last weeks high but be conscious of all the resistance levels in the way on the daily.  Higher time frames are suppose to override lower but this trend is strong for the time being, we are just in the earliest stages of buy pressure.  

Treasuries:

Link for large 10 year note chart

The treasuries did a good job holding above the 125 support level, which is also right around the long term trend support on the monthly chart.  That candle pattern on the weekly is a common pattern you see near bottoms though one more accumulation bar would have been better.  Same as gold there is a classic weekly stochastic sell signal which would trigger either below the low of last week or below initial price momentum depending on your aggressiveness level.  The long signal to test the long term trend support from below / immediate backup would be above last weeks high.  So we will see if the sellers are still selling or if the fed has got that under control.  Same as gold there is plenty of resistance to the upside on the daily chart which may alter the results of the weekly buy signal above last weeks high.

Euro currency:

Link for large Euro currency chart

I wanted to add the euro this week to the weekly recap because of the weekly chart.  Those that read what I have completed so far in the Education series see exactly what I see.  The weekly long term trend support are all in order suppressing price below 1.34 and acting as strong resistance and the weight of the market on the monthly chart is trending lower.  This makes for a high probability sell off after breaking below 1.2750.  Realistically it could fall all the way down to 1.2100-1.2000 before finding any support.  The reason I give it the 1.2750 threshold is because it has been finding support there several times (skipping rock theory = after hitting a support so many times it will eventually stop holding) and because the moving averages I do have enough data for on the monthly are somewhat upward sloping.  But the cleaner picture between the monthly and weekly is definitely the weekly chart, so 1.2750 is a good medium giving credit to both time frames.

Economic Releases for the Week:

Link for larger display

Link to Econoday website

Nothing too heavy lined up for this week, but since last week was such a quiet one for OPEX I would expect some activity to come back into the market this week.  I expect people will be anxious to see what the crude oil inventories are, though I will put more importance on the trend.  It could be an excuse to sell even if there are bullish numbers, which would be good for throwing off junior traders and giving bears a chest pounding only to stick it to them after realizing it was only a retracement in an uptrend.

Stock Index Market Internals:

Link for Percent of Stocks Above 200 sma  --  Link for McClellan Summation Index  --  Link for CBOE VIX Index  --  Link for charting source of internals

Market internals are still looking pretty bullish overall as percent of stocks above 200sma is grinding higher along with McClellan summation index turned up and VIX with a massive plunge.  However, with the way the broad market index like the Russell 2000 is rallying I would expect to see the percent of stocks above 200sma at a much steeper angle to the upside given that is including about 4000-5000 stocks.  What that is telling me is that the 2000 stocks in the Russell are way outperforming the other 3000 stocks that are traded on the main exchanges.  Also the divergence both %>200 and summation index will put in once the market goes into another correction will be massive.  These are things to pay attention to.  If you are going to start following these internals, I highly suggest using the link provided above.  Worden calculates these in a way that they lead the market and really give a much better picture of what is going on compared to most software online.  It is also free, so there is no reason not to follow them.

Take it easy and happy trading to everyone,

-Michael

Using Multiple Time Frames for Day and Swing Trading

Using multiple time frames in trading is a topic very near to my heart as is trend analysis.  There is a lot of junk information our charts give us purposely.  If all the information on the chart was useful, everyone would be using the same strategy and everyone would be profitable.  Using multiple time frames in conjunction with trend analysis really lets you know what you need to be focusing on and just ignore everything else.  This is what separates professional analysis from novice, knowing what to filter out, when and why.  It also leads to more conviction when you are taking a trade.  The Components of a Trend is really an important read before you read this one.  I put it out first for a reason.  As far as technical analysis goes, analyzing trends using multiple time frames is the foundation of what I do and what many successful traders have been doing.

7-14-2013 Weekly Recap and Outlook

Stock Index Futures:
  
Russell Chart  --  S&P 500 Chart
Quick note on these chart links, if you click the magnifying glass in the lower right hand corner, it will get bigger.  Then if you click it again, it will show the original image size.
     Stock indices are clearly ripping again off of that monthly buy signal at the close of the month on the Russell.  The S&P though is still lagging and hasn’t broken through the highs like I have been looking for.  Obviously from the trends there is no choice but to be bullish as even the immediate backup is still doing it job.  S&P fast trigger did fire off so that is a good sign we will be breaking the highs.  Russell right now is sitting at yearly R3 and that really tells me there is not a whole lot of more room this market is going to run this year.  People are going to want to book these profits at some point, bulls make money, bears make money, pigs get slaughtered.  What could be bad is if everyone is getting so greedy that it takes over their mind until there is some obvious reason that people need to be booking profits and all of a sudden everyone hits the exit at once.  But for now I am just going to be watching the fast moving averages to hold and continue to push the trend upwards.  Simple as that.
Crude Oil:

Crude Oil Chart
     Crude oil doing a very good job of keeping its promise to me that it is in a bullish trend.  Fast moving averages would ideally be snug behind price but these bars are such a wide range that it is lagging behind a bit.  I’ve been looking for a small pause and still am but that doesn’t mean it won’t keep moving higher.  I think at the first sign of a buying opportunity people are going to be taking it.  It is going to be a buy the dip market for a while if everything goes to plan.  $110 is the last resistance mark before there is nothing but air above and there is no real resistance holding it back.  Also look at how strong the triggers are specifically the weeklies.  A huge spike in the triggers like that doesn’t tend to just fade away, that is a sign of the beginning of a strong trend as I have been anticipating.  It is basically the same strategy here as is the stock index futures, continue to look for the fast moving averages to hold price in an uptrend.

Gold:

Gold Chart
     Gold still in a strong downtrend.  However, it looks like it is trying to get above the fast moving averages for the first time since March.  This could really provide for a great rally back to the immediate backup at $1410.  Fast trigger has also gone green and that could precede the slow trigger going green, at that point something could really get going to the upside.  The weekly chart has some serious curling down on the long-term trend support but the monthly is still strongly up.  So similar to the monthly crude chart in 2008, the monthly chart takes priority as do all higher time frames.  For now, this week all I am looking for is those fast moving averages to hold price above them.  Then after that we could look for a move back to immediate backup.

10 year note:

10 Year Note Chart
     I have been keeping up with the 10 year in these weekly recaps because it is in a very interesting spot here with rates being in the headlines and the massive sell-off after the Bernanke scare.  There are one of two things that can happen here.  Both are discussed in detail here in The 4 Components Of a Trend.  One is that the monthly long-term trend support holds and pushes the price back above the weight of the market to continue an uptrend at which point interest rates would be below 0 (bit of sarcasm).  The other scenario is the bouncing effect could take place on the weekly charts as media and the fed are getting very nervous about things, which I feel is a more likely scenario unless the brave Bernanke comes out with more QE before he decides to leave office.  As far as this week goes, looking for the fast moving averages to contain price and act as a resistance on the weekly is probably a good idea.  Maybe even look for a breakdown below the lows being that monthly and weekly triggers (aside from monthly slow) are all negative and red.  Also weekly price is below 200sma so getting above that would put price above the fast moving averages and we can look for a test of the immediate backup which would also be a long-term trend support area and then we could see if the bouncing effect is being put in motion.

News for the week:

Picture of this week's news events
Link to Econoday website
See you next week,
-Michael

The Components of a Trend

In this post I will be talking about the most important kind of analysis I do which would be trend analysis.  I have previously written a piece of the components of a trend but I did so while I was an intraday trader and I really think that it should be updated.  The reason I decided to rewrite it is because there are swing trading principles that are very important that I left out.  The last one focused a lot on the moving average part of trends and I will go over that as it is a critical part of trend analysis.  Nothing I am going to be talking about here is complicated in the slightest, in fact it is extremely simple.  Understanding it is not the hard part for most traders, the hard part is focusing on it.  So here are the four components of a trend we will be looking into:

1. Short & long term trend
2. Swing highs and lows
3. Moving average direction
4. Relative performance

7-7-2013 Weekly recap and outlook

Russell 2000 weekly and monthly charts

S&P 500 weekly and monthly charts

     I did some analysis on the daily charts that I posted on stocktwits and those charts are very much valid.  But here are the larger term charts and I posted the S&P as well because I think that chart is more important for the time being.  Even though the index with 1500 more stocks that even tend to be more risky than S&P stocks is outperforming, the S&P still needs to be in tandem with the Russell.  The Dow as well but the Dow chart looks exactly like the S&P.  The Russell has actually fired back off blue on both of the triggers while S&P is still magenta.  Along with everything I posted in the daily charts on stocktwits, the triggers need to fire back off blue on the S&P on the weekly chart and need to stay blue on the daily.  The divergence is still on the Russell weekly chart too, it can be broken or it can be a third hump in the divergence.  You can eyeball the trend-line that needs to be broken for it to be a failed divergence so that will take a few weeks to play out.  Including the daily analysis posted on stocktwits that is about all that needs to be said on that.  Also you can click on any of these charts and blow them up larger in case you didnt know.

Crude oil weekly and monthly charts

Well here it is, the week Ive been waiting on for months.  So what now?  A pullback to the $100 mark to confirm the breakout would be great, or at least in the $100 area give or take $1.  I dont think its a coincidence it did this in the first week of a new month.  I think that happened so it can have time to consolidate the breakout and still close at the highs of the month.  The triggers are firing on all cylinders with huge spikes.  Everything is playing out exactly right so far especially with people being in denial and going short.  I posted a really interesting blog including a crude-S&P ratio chart and I think you should take a look at that after this if you havent already.  Even one red bar or two on the weekly chart would be good enough consolidation to confirm the breakout.  Thats about all there is to say here, everything is looking good so far.

Gold weekly and monthly charts

Gold is still looking pretty bearish.  Nothing has changed as far as any of the indicators or any changes in price action.  1170-1160 is still an important support level to hold and I still think this is going to take months of consolidation to fix if it is going to be fixed so any bottom callers out there are just dreaming.  This is going to take 6 months or more for a sustainable rally unless a V shape bottom gets put in but I dont think that is likely.  On the stochastic there is a W shape pattern which is usually a buy signal but it needs an uptrend for that be to a buy so it could just be signaling a pullback or a consolidation.  But it needs to get above the fast moving averages before any slow down is likely, even on the daily chart a sell signal just fired off perfectly but has already played out.  That still means the sellers are selling though.  So the bear market continues for now.

10 year note weekly and monthly chart

I just wanted to post this chart because I think it is interesting how the bonds are tanking with gold.  Two solid safe havens that have been rising for quite a while. The bonds are sitting at a support line and you can see looking at the monthly chart where the next support is if this one breaks.  It is looking very similar to the gold chart in terms of the triggers.  Monthly slow trigger is rounding off and fast has gone negative.  Weekly slow trigger is negative and falling along with the fast.  I think this is why the dollar is spiking because its the only safe haven left and if the central banks can cause the dollar to rally that will decrease the inflation everyone knows exists and put less pressure on the fed to taper.  That is the last thing the fed wants to do because they know the consequences of taking the drugs away from drug addicts.  I just wanted to throw this chart in here and if it keeps being an interesting one I will keep it in the weekly recaps.

A look into crude, bonds, & gold with ratio charts

            

Crude oil daily chart

Crude Oil monthly chart