Commodities Countdown

Is The Market Ready To Spawn Or Yawn? Webinar Skim 2017-01-26

Greg Schnell

Greg Schnell

Chief Technical Analyst, Osprey Strategic

My conversations about the markets with friends this week had echos of market love everywhere, and that's a good thing! Broadly, almost every index broke out to new all time highs. The $RUT has a little more work to do to put up the New High banner. Net New Highs soared massively. These big bullish moves don't need arguing. The important thing to notice in my mind is the lack of ballast in the market. No one is cautious here. Long and strong is the theme, but the commentary team at StockCharts.com are watching for changes to help us keep the profits. So this is not a bearish article, but it does show some charts of a euphoric market that is moderating support. This article aims to help keep a ballast. This should not create analysis paralysis, it should emphasize the tools we have to help us allocate new money using the sector summary tool described below.


Here is an example of a moderating chart. I'll use an indicator almost exclusive to StockCharts.com as it is one of the few places on the web hosting Pring Diffusion indicators. This uses the 30 components of the Dow ($INDU) which hit the 20000 level this week. The indicator is Martin Pring's Dow Diffusion Indicator (!PRDIFDOW). Follow this link to learn more about Diffusion Indicators by Martin Pring. Notice the indicator is still above the 15 level, but that is a pretty good place for inflection. In 2014, there were two false incidents, but other than that, pretty consistent place to capture profits for short term swing traders.


Here is a snapshot of the $RUT on a weekly chart. The candle for this week is bullish as an outside week reversal. Looks like a flag pattern so far. The relative strength in purple is a little worrying. The two previous breaks of these blue rising trend lines (marked by Green verticals) have led to larger selloffs. So far that has not happened here. This is the second test of the highs so we'll watch to see how that works out.

The Gold chart is at a critical level. Trapped under the 200 DMA and above the 50 DMA, Gold is at a potential reversal point. Comparing that to a year ago, we had the same situation. If Gold fails to hold the 50 DMA in blue, this looks more like a repeat of the bear market. If Gold can push above the 200 DMA, let the bull market roar. The Gold stocks were some of the biggest performers last year. In the first six months of 2016 the GDX ETF (an average of sorts) in the lower panel was up 150%! You can have a good year pretty quickly! The 50 DMA is a pretty simple looking line for direction on the GDX chart in the lower panel. Stay tuned, as this chart could be the Gold Superbowl Kickoff or it could be kicked out of bounds over the next few weeks.

I keep watching the currencies for clues. The $USD narrative of going firmly higher is starting to be eroded. However, there are still plenty of $USD bulls in the audience. Watching the Yen, The Euro, The British Pound and the Commodity Currencies are all in play here. Yes the whole Dollar Index ($USD) basket is at critical levels. The tension on the currency charts is building in a big, big way. 

Check out the 108 level on the Euro ($XEU). After breaking long term support, the world was full on bullish $USD, Bearish the Euro. Now, we are back above support, above the 65 DMA and now we are testing the horizontal resistance at 108 and the down trend of 5 months. A breakout here looks like a move back to the top of the channel could be in play at 115. While I don't expect a straight line, the "false" breakdown of support at 105 suggests an above average move the other way.

Staring at the Japanese Yen ($XJY), this looks like an important level around 89. A long term major horizontal resistance level at 89 compliments the 65 DMA. A break through both of those would be very important. Japanese traders focus on the 65 DMA (3 months).

Next is the British Pound ($XBP). We can see the downtrend break corresponded with the 65 DMA cross. Now a break above the 127.5 level would mark a double bottom. 

Here is the Canadian Dollar ($CDW). Breaking above 77 looks pretty important as a breakout to 4 month highs.

I think I've made my point but there is a lot more information on the webinar. It runs for an hour, and I think you'll find lots of charts worth watching over the coming weeks.

Commodities Countdown LIVE! with Greg Schnell - 2017-01-26 17:00 from StockCharts.com on Vimeo.


I have a big webinar tomorrow at 9 AM ET. Chart Summit 2017. Register for free here!

I also have Martin Pring on the Market Roundup Live 2017-01-31 next week and my own Commodities Countdown on Thursday. Check the Webinar listings on the home page to register for other webinars by Greg Schnell, Tom Bowley and Erin Heim.

The Quick Education Segment:

For many Stockcharts.com users, understanding the market rythyms comes with experience. For new technical investors or grizzled veterans of big market moves against them, understanding areas of market strength is very important for profitability.

The Sector Summary tool on StockCharts.com is a massive weapon to understand areas of market strength.

First of all, here is where to find the link from the Home Page.

Clicking on that link will start breaking the market down into areas to profit from. This lists the sectors in order, based on the intraday chart (selected at left under the blue arrow). The big green arrows show 7 different ways for an investor to quickly find what they are looking for. This will pull up pre-formatted charts for you by clicking on the different chart icons. If you open another browser tab on your computer, you can follow along this example by trying to click through each of these various chart styles.

So while that is important, this is where the real gold is in the sector summary. Click on the SCTR tab, and it will show the strongest sectors in order to the weakest sectors.

This knowledge is very powerful. In one quick picture, you can see the themes of the market from strongest to weakest. On January 23rd, 2017, the defensive areas of the market are very weak. That can be interpreted that we are in a bull market based on this information. If these defensive sectors start to lead, the market will be telling us a different picture and help us to align ourselves with the best performing areas. A daily visit to this StockCharts.com page is valuable with the SCTR sort.

If you click on the hyperlink names, as an example the Materials sector, it will give you a list of industry groups. Because you can not buy and sell industry groups, the SCTR ranking is not available. But you can use the time selector on the top left to choose something other than intraday. For swing traders, one week, one month or 3 months are also helpful. When I change this to one month, it automatically ranks the industry groups putting the top performers on top of the list.

Clicking through onto one of the industry groups, will show you a list of every stock in the group! This is so powerful and so easy to use. Let's try the Gold Mining industry group. Here are the company listings and the SCTR has returned. It keeps the one month rate of change view, but when I click on the SCTR tab, it puts the strongest first. I have also checked the hide stocks under $1. I have put the blue box to show that you can click on any of the actual charting icons on the left or the company name to see the chart. This is a great list to work through and see which stocks are breaking out and which ones you might like.

That sector summary tool is so powerful and easy to use. Make it a part of your daily or weekly routine to keep tabs on what areas are outperforming.

If you sign up for a 10 day free trial, you can try all these features. There are so many hidden features in StockCharts.com, you really do have to take the free trial to see all the expert analysis tools that are made available to help you make money in the markets be finding strong stocks in strong industry groups. Click here to sign up for a 10 day free trial and use the coupon code BESTCHARTS to get your first month at half price.


I'll leave you with one last chart. Low $VIX has been a signal that the gold market is going lower in each of the last 5 years. On the chart below, I have marked the lowest $VIX level of each year with a vertical line. This week, the $VIX moved to its lowest level since 2014. It's a little early to pick the lowest $VIX in 2017. If we assume a 3-year low is potentially the lowest low for the $VIX in 2017, we should be asking three questions. Is $GOLD in a bear market? Is this the start of wave 3 up in $GOLD? Was last year just a bear market rally? Is the $VIX a coincidence or the next warning? The answers to that will be important for $GOLD traders in the coming months. Obviously I'll be working through that but we also have a lot of member only commentary by Martin Pring, John Murphy and Arthur Hill that will help flesh out the moves in Gold. 

In answer to the question posed in the title, the market has had a big bull run and it looks set to continue. If it starts to pause here, these charts and many other indicators exclusive to StockCharts.com including the Bullish Percent Indexes that I offered to send to members are her to help you evaluate the market strength. You might find the true value in your StockCharts membership pays off big time in the next few weeks! Thanks for your membership and your readership of StockCharts commentary. If you are not a member and would like to become a regular reader of the complete market commentary team, click here and use the coupon code BESTCHARTS.

Good trading,
Greg Schnell, CMT, MFTA

 
 
Greg Schnell
About the author: , CMT, MFTA is Chief Technical Analyst at Osprey Strategic specializing in intermarket and commodities analysis. He is also the co-author of Stock Charts For Dummies (Wiley, 2018). Based in Calgary, Greg is a board member of the Canadian Society of Technical Analysts (CSTA) and the chairman of the CSTA Calgary chapter. He is an active member of both the CMT Association and the International Federation of Technical Analysts (IFTA). Learn More