ChartWatchers Newsletter

Where is Everybody? Low Volume Continues to Plague the Markets

Hello Fellow ChartWatchers!

Where is everybody?  Things look pretty darn good on the weekly index charts:

  • Stocks are at or near new all-time highs.
  • The Tech sector is showing signs of life.
  • Energy stocks are roaring up the SCTR rankings
  • The "New Highs-New Lows Line" is moving higher (and still has room to grow)
  • Lots of well-known stocks are in well-established uptrends
  • Etc., etc., etc.

So why is weekly volume so, so, so... anemic?  New Highs are usually greeted with volume spikes.  Last week it was like all the stock traders have been kidnapped!  So what's it gonna take for people to get interested in stocks again?  Well...  Maybe all it takes is to get out of August.  To see why I say that, let's use our Seasonality Tool with volume data and dig deeper into this mystery.

Our Seasonality Tool shows you - for each month of the year - how a given ticker symbol's values have changed during that month for the previous "n" years (where "n" is a number you control via an interactive slider under the chart).  So, for example, if a stock does well every November (probably in preparation for Christmas buying), the November bar on the Seasonality tool would be taller than the other months.

There's an old investing adage that you've probably heard before: "Sell in May and then go away."  (Presumably until September/October.)  The idea is to avoid the months where stocks typically move lower and focus on the period of time (October thru April) when stocks often do well.  The adage raises two questions:

  1. Do stocks really underperform during the spring and summer months?
  2. Do investors really avoid the stock market during those months?

Our Seasonality tool can help answer both of those questions easily.  First, let's look at the month-by-month performance of the S&P 500 Large-Cap Index ($SPX):

This charts says that during the 20 years from 1996 to 2015, 75% of the time the S&P 500 closed the month of April (for example) higher than it started with an average gain of 2.1% (the number at the bottom of April's histogram bar).

So, clearly, the months of April, October, November and December are historically great months for the S&P.  During those months the market rises 70+ percent of the time.  And the average amounts for those rises is also nice: 2.1%, 2.1%, 1.7% and 1.3%.

But when it comes to the summer months, this chart paints a mixed picture.  Clearly, July is the weakest month rising only 45% of the time.  But notice that July still averages a 0.3% gain.  So does May.  The other months are not great and, yes, August is by far the worst month of the year for stocks averaging a 1.2% loss historically even though it manages to rise more than half the time.

OK, so stocks can be considered to be weaker during the summer months.  Now, let's focus on the second question: Do investors really avoid the stock market during those months?  Here's the month-by-month seasonality chart for the NYSE Total Volume ($NYTV) index:

Hmmm... This chart shows that volume on the last day of the month is (on average) 10.5% less than it was on the first day of the month for both July and August and that volume decreases during those two months 75% and 65% of the time.  Only November has a bigger drop (13.7%) - probably due to the holiday week at the end of that month.

So my conclusion is that investors typically do "stay away" in August regardless of what the market is doing.  I guess it is something that is programmed into their DNA.  The good news is that - as technicians - we are able to take advantage of this situation.  We are able to recognize a rally regardless of when or why it is happening and use strong technical signals (coupled with strong risk management skills) to take advantage of these opportunities.

Bottom Line: Now is NOT the time to be ignoring the market, even if everyone else is.  While I'd love to see strong volume back up these new highs, they are still new highs nonetheless and that's a wonderful thing.

- Chip

Rising Crude Oil Prices May Start Putting Upward Pressure on Bond Yields

In more normal times, the direction of commodity prices, and oil in particular, had an impact of the direction of bond yields. That because oil is viewed as an early barometer of inflationary trends. A falling oil price (along with other commodities) was disinflationary which boosted bond prices and lowered bond yields. Rising oil had the opposite effect -- falling bond prices and rising yields. Rising oil prices often prompted the Fed to raise rates to combat the threat of inflation. That's not necessarily the case now, but some semblance of those old relationships may still hold. Chart 1 shows the 10-Year Treasury yield (green line) and the price of crude oil (black line) falling together between 2014 and the start of 2016. That makes sense since falling commodities presented a deflation threat which encouraged global central banks to lower interest rates. One of the factors holding the Fed back at this point is dangerously low inflation. Rising oil prices may start to change that thinking. The boxed area to the bottom right shows the price of crude bottoming in February and trading nearly 80% higher since then (while bond yields continued to drop). A big divergence now exists between the two markets. In my view, that increases the odds that rising oil prices (and higher commodity inflation) may start to boost bond yields.

Yesterday's message showed the Energy SPDR (XLE) rising to the highest level in a year in anticipation of higher energy prices. Those higher prices are already in the inflation pipeline. The black bars in Chart 2 show Light Crude Oil (WTIC) (through Thursday) moving closer to the "neckline" drawn over its October/June highs. A move above that resistance line would complete a "head and shoulders" bottoming formation that started forming last August. [A H&S forms three bottoms with the middle "head" (in February) lower than the two surrounding "shoulders" (last August and this August). That's a very bullish pattern. The shaded area plots the CRB Index (of 19 commodities) to show that most commodities are also rising. That's potentially inflationary. If bond bulls aren't worried yet, they will be if crude oil achieves a bullish breakout. That would also catch the attention of the Fed.

With Earnings Season Over, What's Next?

The latest earnings season has come and gone. Now what?

It's a good question, especially with the market in stall mode, with the S&P barely budging in over a month. This stagnation comes after investors seemed to have applauded the majority of earnings reports telling me that the strong numbers had already been anticipated.

The good news for the bulls in this month long consolidation, which included a new record high on all of the major indexes, also included a few tests of the 20 day moving average on the S&P which held twice. On the other hand, the bears will argue that the market has simply run too fast, with the S&P up 10% and the NASDAQ up almost 15% since the late June bottom, and that a decent correction is needed to get the market moving again.

Let's not forget that the rally of late has come at an historically bearish time of the year and September can be rough as well. But many traders and analysts will tell you that this year is different as investors across the globe search for yield which can't be found at banks or in government bonds. So instead investors are piling into stocks.

All of this might be fine and good and makes some sense with rates so low and with Central Bankers around the world in easing mode and with the Fed continuing to be reluctant to raise rates at the current time. And traders seem to be buying into it, with the VIX not that far away from all time lows and the equity only put/call ratio consistently hanging out in the .5 to .6 range; there's no fear out there!

When looking at it all I come to the conclusion that it is time to err on the side of caution. The S&P is only a dozen or so points from its all time high but is almost 200 points off of the late June bottom. So it comes down to reward to risk which to me is decidedly to the downside. And we might actually have to wait until the next earnings season in October to see what kinds of numbers companies are able to produce before the market can move appreciably higher.

Speaking of earnings, one of the ways to navigate an iffy market is to focus on those companies that beat their forecasts and have strong charts since traders seem to gravitate to those stocks that hold up well when the market weakens. At EarningsBeats we scan the market for companies that fit that profile and then provide these stocks to our members. If you want to see a sample of our exclusive Candidate Tracker just click here.

At your service,

John Hopkins

Rebound In Crude Oil Prices Trigger Big Gains In Energy

The bottoming formation in crude oil ($WTIC) continues to take shape and the beneficiary clearly has been the energy ETF (XLE).  Since dipping below $40 per barrel to begin August, the WTIC has rallied more than 20% in the past three weeks and is now nearing $50 per barrel.  A break above $50-$52 per barrel would be technically significant as it would confirm a bottoming (and quite symmetrical) reverse head & shoulder pattern with a measurement above $70 per barrel.  Check out the pattern:

Continue reading "Rebound In Crude Oil Prices Trigger Big Gains In Energy" »

Three Natural Gas Plays Flaring Up

Long considered the ugly end of the energy business, the Natural Gas business is slowly starting to return. For those following the Commodities Countdown and Canadian Technician webinars, this will not be new. Three charts this week have really started to break away and look like a solid area for the 4th quarter.

Encana (ECA) has really been moving and looks set to continue. This is as nice as it gets technically.

Here is Devon Energy (DVN). This is a beautiful move so far. The SCTR continues to be a good clue.

Lastly, here is Cheniere Energy (LNG). This is just starting to break out. 

There are a number of Oil and Gas stocks that are setting up technically for a great end of the year run. Perhaps you can join me on Commodities Countdown webinars Thursday at 5 PM EDT. Click here to register for next week.

But wait, there's more! Martin Pring and I will record a live webinar from Martin's office at Pring Studios on Tuesday, August 23rd @ 5 EDT ! Martin Pring and Greg Schnell 2016-08-23 Back From The Precipice Webinar! Every now and then, the charts line up for a major decision. Currently, we have one of those moments in history. From Commodities, Equities, Bonds, and Currencies, there appears to be a global theme setting up. You need to click on the link to register! Yes, don't forget to click! Martin Pring and Greg Schnell 2016-08-23 Back From The Precipice Webinar!

But wait, there's even more! We have a new link to some of my favorite charts. It is a location you can bookmark to just browse the charts I think are currently important. You may disagree, but that's ok! Commodities Countdown Chartlist. Currently, I have some Bullish Percent Index (BPI) Charts posted with other commodity charts. Someone commented it was nice to see me back away from the edge after I was so bearish last summer when they were plummeting! The bottom line is they are still extremely strong and bear markets don't usually start with big, high, broad Bullish Percent Index readings. 

I hope you agree that watching my webinars live is always so much fun. Yeah, whatever! Sometimes your calendar does not fit with mine. When it doesn't fit, you can check the webinar archives found here to see if you missed any. StockCharts Webinar archives. You can also follow me on twitter @Schnellinvestor and LinkedIn

Good trading,
Greg Schnell, CMT, MFTA.


The Squeeze Play is on for the Gold and T-Bond ETFs

The Gold SPDR (GLD) and the 20+ YR T-Bond ETF (TLT) are two of the best performing asset class ETFs this year and both remain in clear uptrends. GLD is up over 26% year-to-date and TLT is up around 16%. One would not expect bonds and gold to be leading at the same time. The indicator window shows the 65-day Correlation Coefficient (GLD,TLT) to confirm the positive relationship. Notice that gold and bonds have been positively correlated for most of the last ten months (since mid October). A positive correlation means they have tended to move in the same direction. It is strange to see this positive correlation, but it is what it is and this is a good time for the prayer of serenity. 

Continue reading "The Squeeze Play is on for the Gold and T-Bond ETFs" »

Nasdaq Nears Record - Microsoft is Already There

The Nasdaq Composite Index is on the verge of joining the Dow and S&P 500 in record territory. The first chart below shows the $COMPQ trading at the highest level in a year, and on the verge of clearing last July intra-day peak at 5232. The Nasdaq 100 (which includes the 100 largest non-financial stocks in the Nasdaq market) has already hit a new record, as has Technology SPDR (XLK). The Nasdaq and the technology sector are being led higher by big tech stocks that include, Alphabet (GOOGL), Cisco (CSCO), Facebook (FB) and Intel (INTC). The Nasdaq's biggest stock -- Apple (AAPL) -- has gained 13% since the start of July, has cleared its 200-day average, and is trading at a four-month high. The Nasdaq's second biggest stock is doing even better. The second chart show Microsoft (MSFT) hitting a new record high today to reaffirm its bullish breakout that took place during July. Its relative strength ratio (top of chart) is climbing as well. It's hard not to be positive on the stock market with big technology stocks like that leading it higher. Along with the financials.

Be sure to register for our upcoming ChartCon 2016 conference in September where I will talk more about Intermarket relationships and where I think the markets are headed next.  Click here for details.

- John


Earnings Power Market Higher

The market has seen both the Dow and S&P hit record highs recently and now the NASDAQ wants to join the party. In fact the NASDAQ got to within just a few points of its all time high Friday, fueled by a very positive response to earnings in the tech sector, going to show that when everything is said and done the one things investors really care about is the bottom line.

It hasn't hurt that Central banks across the globe have moved into economic stimulus mode, the latest being Japan and this past week the BOE which lowered rates and signaled further help could be coming down the road. At the same time, Friday's non-farm payroll report showed a much stronger jobs report than expected, exciting investors who are hoping the US economic picture is better than most have thought.

Interestingly, until recently the NASDAQ was lagging both the Dow and S&P. But that started to change when Apple reported better than expected earnings just when it was showing signs of completely breaking down in late July. And you can see in the chart below that since they reported, AAPL has continued its ascent higher, taking the NASDAQ along for the ride.

But it wasn't just AAPL's numbers that caught the attention of investors. Facebook, Google and Amazon all beat expectations as well. So it's the collection of better than expected earnings that has powered the market higher.

The renewed interest in stocks has come at a time that historically favors the bears. And some analysts and market observers are asking if equities are over priced, a fair question indeed. So the next few weeks could be important, especially with earnings season nearing an end and as traders look for fresh reasons to stay long.

At EarningsBeats we continuously track earnings and search for those companies that beat expectations, especially since traders gravitate to those stocks that show strong results. If you would like to see a sample of some of our most recent trade alerts to members just click here.

We're now in an historically tough time of the year. Earnings season is winding down. We've got an election coming up in just a few months. Some think the market is nearing a top. These are all important things to take into consideration when trading, making it even more critical than ever to zero in on those stocks that have shown strong earnings results.

- John

Some Retail Stocks Stand Out

Some of the retail stocks are performing well, but it is a mixed bag. TJX (TJX) continues to hit new highs, but last year's big winner L Brands (LB) is one of the worst. So from the church of what is working lately, we turn to the SCTR's to help rank the Consumer Cyclicals group. In general, the whole retail industry is still lagging. Very few are leading in terms of price performance, but some are working ok.

TJX Co. (TJX) is one of the best retailers right now. We can see the price is breaking to new highs. The SCTR shows the stock price appreciation is stronger than 63% of large cap stocks. While that is not bad, there are a lot of stocks performing better. The price chart shows the stock breaking above three-month highs and looks to be building on the breakout.

Continue reading "Some Retail Stocks Stand Out" »