Don't Ignore This 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



The Smaller They are, the Harder They Fall

September is been rather unkind to mid-caps, small-caps and micro-caps, but large-caps and large-cap techs are holding up ok. The PerfChart below shows the Dow Industrials with a small gain this month, the S&P 500 with a 1% loss and the Nasdaq 100 with a .71% loss. The situation then deteriorates as we move down in market-cap. The DJ Wilshire Micro-Cap Index is down the most with a 5.09% loss this month. Note: this PerfChart does not include data for today, 29-Sept. Click the image for a live PerfChart. 

Click this image for a live chart

Consumer Cyclicals (XLY) Moves To An Important Decision Point

The Consumer Cyclicals Sector ETF (XLY) is testing a very important level technically this week. The RSI uptrend line is being tested and has been in place since March 2014. The SCTR ranking is very interesting. The SCTR was in the top quartile almost all of 2013. This year it has spent very little time above the 75% level.  As it slowly climbs up to this 70 level, it is important to watch. If it has enough momentum to become a top quartile stock, we will probably see more buying as it really starts to outperform. Until that point in time, it looks weak to me. The price action in 2013 had excellent momentum with the slope being very steep. In 2014, the advance is a lot slower. We are currently testing the 2014 uptrend line. A breakdown here on the XLY in the primary quarter for consumer cyclicals would have to be considered a big bear stain for the broader market. Staying above this uptrend line is very important.

The MACD looks really weak. At the time of writing, the MACD had crossed below its signal line. We can see the negative value above the white arrow in the MACD panel. We can also see the major divergence between the price trend and the MACD trend. The long term Full Stochastics still suggest lots of support by staying above 80.

The real issue is since December 2013 to today, you would be up less than a dollar on a $66 investment in December of 2013. A break below the white trend line would be a significant long term change for the sector. Watch closely for a bounce off this level. Even in years with a weak third quarter period between July and September, Amazon usually makes a thrust in October towards Christmas. This XLY chart might not move aggressively either way if that is the case, but charts of GM and F are looking weak so the large ticket items are not as strong as we would like to see right now. GM is back to testing its original $32 IPO level and F is sitting on the 200 DMA and a 2 year major trend line. AMZN's chart structure looks very very similar to the XLY, so the Amazon chart could be a big indicator of the entire sector. Key reason for showing this chart: Decision Time!

Good trading,

Greg Schnell, CMT


Highest Priced Dow Stock Weighs with a Breakdown

The Dow Jones Industrial Average is a price-weighted average and this means the stocks with the highest prices carry the most weight. Visa (V) is the highest priced Dow stock and it was down around 1.5% at midday, thus weighing on the Dow today. The chart below shows Visa breaking support and MACD moving below its signal line. Also note that this move comes after the July gap and break down, which means we are seeing a continuation of the summer break down. 

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Perrigo Follows Up on Massive Hammer

Perrigo (PRGO), which is part of the healthcare sector, formed a massive hammer in mid September and followed up on this candlestick reversal with a break above the wedge trend line. Also notice that MACD moved above its signal line and turned positive. 

Click this image for a live chart

Amazon Is The 800 Pound Gorilla But It Needs The Next Vine

Amazon. One of the largest, most used, unprofitable companies in the internet space. Almost every fundamental metric has failed to hold the stock in reality. It has had a P/E for years with a negative denominator. Technically, Amazon has been equally as hard. The uptrends continue, lots of divergences appear, but the long term trend holds. Well, times they are a changin'.

The chart currently looks to be at one of the most important decision points in the last 5 years. Its SCTR ranking is only 15 which is shockingly low between the back to School, Thanksgiving and Christmas season. Some of the major relative strength trend lines go back to 2007. However, 2 of 3 have been broken this year. First of all, the S&P 500 ($SPX) relative strength line from 2007 to 2014 has been broken. Secondly, the relative strength line compared to the Consumer Cyclical Sector has been broken in 2014. Amazon is still outperforming the broad line retailers  in the long runup since 2007 or even the black trend line since 2010. We can see the green area showing under performance all year since January with the small thin line holding a downward slope.  

The last two things to notice are the MACD lines and the price action. Currently the MACD is trying to get back above zero. That would be critical in terms of positive signalling. However, in 2008, Amazon's MACD tried to push back above the zero line going into the fall and failed. Currently the MACD looks similar.

Price is also showing signs of fraying support. Amazon broke out the bottom of a five year uptrend in April. Now it is trying to hold support of a shorter trend line. One of the other major issues is the 40 WMA has rolled over and now has a negative slope. A fail at the downsloping 40 WMA and at the MACD zero line would really be bad news. Amazon has tried twice too get back above the 40 WMA. Once in July and just recently.

This is a zone to launch a new gorilla rally higher or fail in a classic style of trend line support breaking and simultaneously would be completing a year long head/shoulders top breaking down. The July high of $312 in 2013 would be the left shoulder. Investors should be quick to protect or exit positions should further weakness develop. A move back above the 40 WMA would probably be a great signal going into the holiday season.

Good trading,

Greg Schnell, CMT

Finding Some Green in a Sea of Red

Stocks are down pretty much across the board on Monday, but there are some pockets of green and chartists can find these stocks using the Sector Market Carpet. The image below highlights ten stocks that are bucking the selling pressure and showing relative strength in a down market. Notice the pockets of strength in the healthcare and consumer staples sectors, which are defensive sectors. Charting Note: hover over the carpet and right click to see different viewing options and settings. 

Click this image for a live chart

Rite Aid Pharmacy Generates Headaches For Shareholders

Rite Aid Pharmacy (RAD) changed its shareholder medication this week. The pharmacy chain moved up 900% in 18 months delivering happiness to the shareholders. That move up topped out in May. Since then, the pharmacy lost almost 50% of the gain.

This week the headache was confirmed when the stock could not stay near the 40 WMA and lost 18%. Rules based trading can help newer investors. When the trend in the purple relative strength was broken at point #1, it may have encouraged a swing trader to exit at least part of the position.

This stock was just being added to the SCTR rankings when upgraded the number of stocks with SCTR's in March. Rite Aid's SCTR  gave a sell signal (Point #2) roughly when the stock crossed below the $ 6.96 level the first time which was also a plateau of support (point #3).

So this stock offered three different sell signals using a basic weekly chart for longer term position traders. 

1) A break of the relative strength up trend.

2) The SCTR falling out of the top quartile. 

3) A break of support through $ 6.96

The hardest part of trading is selling big winners and big losers. The current price is right in the middle of the September to February consolidation area. There are lots of shareholders who entered at this level and have round tripped the profit only to be back near where  they started. With the huge volume surge this week, it might have washed out a few of the weak hands in the stock. Now the shareholder needs a pain management plan. 

Good trading,

Greg Schnell, CMT

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