Don't Ignore This Chart

New Highs Surge on the S&P 500

The surge in the S&P 500 over the last six days was accompanied by a surge in new highs the last few days. Notice that Net New Highs exceeded 40 the last three days and new highs exceeded 45 the last three days. There were only two new lows: Amazon (AMZN) and Southwest Enegy (SWN). 

Click this image for a live chart. 

P&F Chart Nails it for the S&P 500

The chart below shows a long-term Point & Figure chart for the S&P 500. Each box is 10 points and a 30+ point move is needed for a reversal (3 boxes). This chart starts with the rally off the November 2012 low. The blue bullish support line was drawn as soon as the X-Column surged above the red bearish resistance line (in November 2012). Rising at a 45 degree angle, this line defines the uptrend until broken. There was had a triple bottom sell signal with the break below 1930, but this occurred above the line and was countered with an immediate surge back above 1930. Support in the 1820-1830 has been affirmed with the October surge and this is the area to watch going forward. 

Click this image for a live chart. 

The Hang Seng Gears Up for a Move

Protests and weakness in global markets weighed on the Hang Seng Composite ($HSI) in September as the index fell to its prior resistance zone. The index stabilized in October and got a nice bounce on Wednesday. This is an interesting area because it also represents a 50-62% retracement of the prior advance. If the Hang Seng is going to reverse, this is as good a place as any. The Percentage Price Oscillator (PPO) is turning up from oversold levels and a break above the early October high would be quite bullish.  

Click this image for a live chart. 

L Brands (LB) Gets A Lift

L Brands (LB)  has been trying to break through previous highs over the last month. After chopping around it finally broke out conclusively yesterday and continued the acceleration today. There are just so many comments to make for a company with brands of La Senza and Victoria Secret. We'll let you laugh about those on your own.

Continue reading "L Brands (LB) Gets A Lift" »

Homebuilder and Retail ETFs Make Big Relative Moves

The table below shows the StockCharts Technical Rank (SCTR) for our ETF universe. This table is sorted by "change" with the biggest gainers at the top. In particular, the SCTR for the Home Construction iShares (ITB) surged 23.5 points and moved above 75 and the SCTR for the Retail SPDR (XRT) surged 15.1 points and moved above 60. These two are suddenly showing relative strength and this is a positive sign for the consumer discretionary sector. You can read more about the SCTR calcuations in our ChartSchool article

Click this image for a live chart. 

Microsoft Bounces off Key Retracement

The chart below shows Microsoft (MSFT) falling to broken resistance, firming for two days and bouncing over the last two days. Also notice that this bounce occurred at the 62% retracement. Even though the decline looks steep, support held where it should and the stock is above the rising 200-day moving average (long-term uptrend). The indicator window shows 10-period RSI becoming oversold for the first time this year and moving above 30 on Friday. 

Click this image for a live chart. 

Alibaba (BABA) Stops Resting And Steps Above The Trend Line

Alibaba (BABA) has been sliding sideways since the IPO. The $SPX made its high on Alibaba (BABA) initial public offering day which was September 19, 2014. Most stocks have been pulling back since the quadruple witching day of September 19, 2014. The stock has gently pulled back while other sectors fell faster than stones on a mountainside. Today, Alibaba gapped up and broke above the horizontal resistance. It also gapped above the Volume Weighted Average Price (VWAP) which I have circled in the full quote panel above. At the time of writing it has pulled back below the VWAP level. However, investors looking for Alibaba to become the next great growth stock might have got a clue today. After a month of pulling back, Alibaba was able to gap above the trend line resistance on the first strong day for the broader markets.

Coming out of a low is always volatile, but maybe a glimmer of hope has shown up on the NYSE's largest IPO. Now that the IPO baby is awake, will it walk or run?

Good trading,
Greg Schnell, CMT

Hammers, Hollow Reds and Dragonflies Hit the Predefined Scans

With weakness in early trading and a strong close, a number of bullish candlestick patterns formed on Wednesday. These include hammers and dragonfly doji. There were also hundreds of hollow red candlesticks. These form when the close is above the open, but the close is still below the prior close. This candlestick reflects a bounce after a weak open. One day does not a trend change make and this is why one and two day candlestick patterns require follow-through to confirmat a reversal. Also keep in mind that candlesticks are short-term in nature and these patterns will not affect the medium or long-term trends.  

EOG hits Big Volume-by-price Bar

Most energy stocks have been in a free fall this month and EOG resources is no exception. The stock plunged over 25% from its summer highs and retraced 50-62% of the prior advance (Apr-2013 to July-2014). The stock shows signs of capitulation as downside volume surged for three days and the stock advanced on the fourth day with even higher volume. Also notice that the longest volume-by-price bar resides in the 82-86 area. Combined with the Fibonacci retracements, this area could offer support and lead to at least an oversold bounce. 

Click this image for a live chart. 

USO Prepares to Test 2011 Lows

United States Oil Fund (USO) is one of the "big four" that I analyze on a daily basis in the DecisionPoint Daily Update which you can find in the "DP Reports" blog. The other three of the "big four" are UUP (Dollar), Gold and TLT (20-yr Bonds). 

USO has been in a very long basing pattern since 2009 following the parabolic price move and subsequent crash. Right now price is preparing to test long-term support along the 2011/2012 lows. Next stop would be the all-time low in 2009. The weekly Price Momentum Oscillator (PMO) has a clear range of +5 to -5. Unfortunately for USO, the weekly PMO hasn't even reached the lower end of that range which makes it vulnerable to further decline. Reaching the 2011/2012 lows looks likely, but now it seems plausible that the 2009 all-time low could be taken out as well.

Happy Charting!

Energy-related ETFs Hit Historical Extremes

By most metrics, the energy related ETFs have hit oversold extremes with big declines over the last 31 days. The Oil & Gas Equip & Services SPDR (XES) is down around 25%, the Oil & Gas E&P SPDR (XOP) is down almost 30% and the FirstTrust Natural Gas ETF (FCG) is down around 34%. Note that 14-day RSI for FCG and XES is below 10, while 14-day RSI for XOP is below 15. These RSI readings are the lowest since the ETFs began trading, which was in 2006 and 2007. 

Click this image for a live chart. 

The HomeBuilders ETF (XHB) Breaks Down to 52 Week Lows

The Homebuilders ETF (XHB) is usually considered a broad indicator of the housing market. The housing market is usually associated with being an indicator of overall economic strength in the USA. We can see all of the major pullbacks in the $SPX have also shown up on the XHB. The XHB was a new ETF in 2006. It immediately started a downward slide leading into the the sub prime fallout in the USA and the global financial crisis. This was a significant precursor to the overall pullback the market ($SPX) suffered later in 2007. In 2010 and 2011, the top of the XHB coincided with the top in the $SPX. Now this chart has been making lower highs and lower lows since the Market run up into the February 2014 high. More importantly, it failed to get above the 40 WMA on the last rally. 

Investors in this space should be aware of the trend of lower highs and lower lows. This is the primary condition for a down trend. We are also making 52 week lows for the first time this week.

Good trading,
Greg Schnell, CMT

Consumer Staples Stocks Lead the Market

The Consumer Staples SPDR (XLP) shows more "chart" strength than the S&P 500 SPDR (SPY) because it broke out to new highs this week. SPY, on the other hand, remains well below its September high. The CandleGlance chart below shows six leading consumer staples stocks. Five surged above their September highs and show chart strength. Procter & Gamble, the sixth, is less than 2% from its September high. Relative strength in the consumer staples sector shows a penchant for defense in the stock market. 

Click this image for a live chart. 

Twitter Starts To Outperform

Twitter (TWTR)  has been an interesting IPO. It showed great promise coming to the market and the stock behaved much better technically in the first few months than Facebook. After that, the two appeared to be the same pain for buyers. Twitter lost 60% from its highs. Now we are almost a year into the Twitter trade and it has resumed the upside momentum much like Facebook did. Facebook built more of a base, but nonetheless both are now trading above the first day of trading close. We can see that TWTR now has an SCTRT ranking better than 97% of the stocks in the large cap universe. It has been outperforming the $SPX since June based on the purple area chart.

With the RSI pointed higher and the stock continuing to climb while the overall market looks weaker, Twitter is not one to be ignored here. Investors are tweeting their admiration for it one daily character at a time. Higher highs and higher lows have the character of an uptrend.

Good trading,
Greg Schnell, CMT

The Noose Tightens on Apple

After a big advance from April to August, Apple (AAPL) turned dull as a tight consolidation takes shape. Notice that the Bollinger Bands are narrowing and a triangle is taking shape. The indicator window shows BandWidth below 5% for the first time since early July. This volatility contraction suggests that traders should prepare for a volatility expansion. Watch 103 for an upside breakout and 97 for a downside break. 

Click this image for a live chart. 

Brazil Launches Higher

With all the red on the board today, I couldn't help but notice the strength of the Brazil based stocks as a follow on from their election.

The only stock in the most active list that was not based in Brazil was Twitter..Who knew 140 characters could make you one of the most active stocks on the stock market today? Back to Brazil.

Petrobras (PBR), Vale (VALE), and Itau UniBanco (ITUB) really bounced yesterday and continued to add today. This looks very election result oriented and could quickly swing the other way as there is going to be another election on October 26th. Investors looking for foreign stocks to allocate into their portfolios may find some big gains or losses before month end. However, it is clear that there is a lot of interest in these stocks as they have rallied in the face of a weak day on Monday and a big down day Tuesday for the US markets. It might be a good group to bookmark for the days following the October 26th election.

This chart of the Brazilian Stock Index ($BVSP) highlights the size of the Monday jump. It will update Tuesday's action later today, after the close.

Good trading,
Greg Schnell, CMT

Healthcare is the Healthiest Sector

It has been a rough ride for stocks since September began. The market carpet below shows performance for the sectors as a whole. The average healthcare stock is up 1.17% since 29-Aug and the average consumer staples stock is flat. The average stock for the other seven sectors is down. Notice that the average energy stock is down 13.63% in less than five weeks. 

Click this image for a live chart. Charting notes: click the arrow at the top left to move up or down a level, double click on any sector to see the whole market carpet, double click again to drill down in that sector, and right click to see more options.   

And the Winner for Most Oversold Is.....

The CandleGlance chart below shows six broad-market ETFs with 14-day RSI. Notice that RSI is below 30 for the Russell 2000 iShares, the Russell MicroCap iShares and the S&P MidCap SPDR. With an RSI below 26, the S&P MidCap SPDR is the most oversold of the six. In fact, 14-day RSI is the lowest it has been since May 2012. How's that for oversold? The Nasdaq 100 ETF and Dow Diamonds are holding up the best because their RSI values are above 37. As the image below shows, chartists can chart 12 symbols in CandleGlance format and add different indicators to these charts. 

Click this image for a live chart

Oversold Readings On The TRIN

The TRIN or Short-Term TRading INdex, better known as the Arms Index, is a breadth indicator that was developed by Richard Arms in 1967. The index is calculated by dividing the Advance-Decline Ratio by the Advance-Decline Volume Ratio. Because it is an oscillator, we can use it to identify short-term overbought and oversold conditions. Looking at the TRIN chart below, I've identified areas of oversold readings (red bars) and then annotated the corresponding oversold readings with price using the blue bars. I used a reverse scale on the TRIN so it is more intuitive.

I was mostly interested in times when the 10-DMA of the index hit extremely oversold territory and then looked at the corresponding readings in the index and its 4-DMA. The 10-DMA is hitting extremes that we don't see that often, in one year there have only been three extremely oversold readings. Note that the corresponding readings are also in oversold territory. I would've liked to have seen a lower reading in the index itself, but it is still oversold. This chart suggests the market may be ready for a price bottom.

Happy Charting!

JO Leads the Commodity ETFs

Commodities have been slammed over the last few weeks, but the Coffee ETF (JO) is holding up quite well. JO is up over 20% from its July low and showing relative strength again today. The image below comes from the Market Summary (ETF version), which is a great place to get an overview of the entire market. Notice that JO is up over 2% and leading the other commodity ETFs. 

Click this image for a live chart

The $VIX Still Says Business As Usual

The $VIX chart says its business as usual out there. I have a lot of signals that say the interim top is in. The main signals would be the breadth charts but the $VIX is always considered the fear index. I don't trust the $VIX as much as it is traded as an investment vehicle and it affects the price of options. However, the fear index is suggesting you continue on. Nothing new to see here. I would suggest it is in a zone of interest more than an actual signal one way or the other currently. Let's review the chart.

Because the actual data is so spiky, it is great for short term but no so good for long term analysis. There is one way I like to use the $VIX for longer term analysis. Looking at the weekly MACD, if it moves and holds above the zero line, it is a time to be more cautious. Sometimes it just rolls back over like in 2013. However, sustained periods above the zero line mark periods of major pullbacks in the $SPX. 

So I have circled the values for the MACD in the red circle. The first number shown in black is the actual MACD value. It is now positive so it is above the zero line. The second value is the signal line and it is below the zero line, which is indicated by the negative value. The third number shown in green is the difference between the MACD value and the signal line. It is positive meaning that the MACD has crossed above the signal line. If all three get above zero, it should heighten our awareness. More importantly, it should allow us to buy options before the big moves take place. We can see in 2007, a series of higher lows marked a change in trend. But waiting for the October 9th market top would have been hard. Most of your portfolio would have had big drawdowns already. The MACD was positive from March 2007 onward. 

So today the MACD is above zero. It is in a zone of interest and investors should be aware if this starts to live above the zero line.

I will be doing a webinar Thursday October 2 at 4:30 EDT and 1:30 PDT. My plan is to cover off the breadth indicators that have triggered signals based on my analysis. I will post the webinar link on Thursday.

Good trading,
Greg Schnell, CMT



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