Ace Stock Trader- Near term remains bullish; longer term warnings to be watched!
-0.1ab- Consumer Discretionary Select Sector SPDR/Energy Select Sector SPDR (XLY:XLE)-Weekly Ratio
This is a Ratio Chart. Ratio charts can serve to sniff out changes in the under-lying economy or markets before they become apparent to the trading public. A good ratio chart has predictive powers in advance of a major trend change in the stock markets, since stocks markets often tend to trade on momentum rather than fundamental changes--this is known as a divergence. A divergence signal allows the astute trader to begin to plan to enter or exit a coming change in stock market momentum and direction.
The idea is that during inflationary times, commodities will out-perform and the economy will tend to falter. During disinflationary times (like the past several years), the retail sector will out-perform the commodities.In this ratio chart, the retail sector is represented by the XLY, which is the Consumer Discretionary Sector. For the commodity representation, I chose the XLE (Energy) because a well-known financial newsletter says that Energy investments are the ultimate commodity play to measure against.
When the ratio is rising (represented by OHLC bars and tracking a 10 week moving average line), then it is assumed the economy is expanding at a normal basis and profit margins are rising. When the Ratio is falling, it assumes that possible inflation is entering the picture and eroding profits as represented by a stronger commodities market versus a strong retail market for consumers.
The chart has shown a strong predictive power about 6 to 9 months out over the past several years. Notice the Ratio went into Free-Fall this past few months....in fact, the drop is hard and sudden, and yet the SPX seems to have barely been shaken....if this holds up like the past, then we should see a major change of direction within the next several months. (posted April 19, 2014)
-0.1abcd- NYSE - Tick ($TICK)
TICK is a market pro's tool for monitoring the under-lying strength in the US stock market. $TICK specifically measures the number of up-tick trades against down-tick trades on the NYSE. By itself, the TICK patterns can be difficult to discern due to high volatility from minute to minute during the trading day. I have developed a smoothing mechanism which helps the viewer to see any trading strength patterns more clearly. From time to time, I have to adjust the trigger trip lines due to the amount of volatility in the markets. In May 2014, I had to adjust the lines inward (closer to the center) due to the lack of volatility (this can be compared to the low readings in the CBOE VIX index).
There are actually two lines to watch on this $TICK chart which updates every 5 minutes during the trading day (though the chart is on a 15 minute delay for viewers). The two lines to watch are the purple (thin) line which is the 8 EMA line and the other thicker line is the 21 EMA line (green). The purple 8 EMA line is the FAST LINE, and this line helps the trader to tease out fast movements within the TICK. The 21 EMA line is the SLOW LINE, though that is a relative term as the SLOW LINE is still capturing the fast rhythms of the market for many traders.
When the 8 EMA line touches either of the two thin dashed lines, then this means the market is either short term over-bought or over-sold. Day traders should focus more on the thin 8 EMA line.When the thicker 21 EMA line reaches either of the two solid horizontal lines, that is more broad market based signal of overbought or oversold. Swing traders and Investors looking for the ideal entry and exit points should focus on the thicker 21 EMA line. To learn more about sophisticated (and yet easy to understand) chart tools like this one, be sure to visit www.AceStockTrader.com where the retail trader and investor comes first!
-0.1abcde- iShares iBoxx High Yield Corporate Bond Fund (HYG)
By Mid-July, the market sensitive HYG had fallen out of its up-channel and lost the 50 day support (only the 13 day line is shown in graph). Compared to the S&P 500, a negative divergence has occurred which suggests the stock market may soon correct. Mike (posted 7/21/14)
-0.1ac- Copper Futures - COMEX (EOD)/Gold - Continuous Contract (EOD) ($COPPER:$GOLD)
UPDATE: MARCH 9 , 2014.ON THE 5TH ANNIVERSARY OF THE 666 BOTTOM TO THE S&P, THE COPPER-GOLD RATIO CONTINUES TO PLUMMET SUGGESTING A SLOW DOWN IN THE WORLD ECONOMY IS REAL. It may be more than a simple weather phenomenon? The CU-Au Ratio has proven quite accurate in the past, and this divergence from the rising US equities market suggests that US stock investors may be in for a rude surprise soon.
In general: As the Federal Reserve debates it's planned tapering policy, one should look closely at how the S&P has tracked a much wider divergence from the Copper-Gold ratio since Operation Twist and QE3 got under way. QE3 is where the Fed buys $85 billion in US long bonds and MBS each month while expanding its balance sheet, which means the Fed is simply printing money. The Fed has been trying to convince the markets that tapering is not going to have the same effect as raising short term interest rates would have....I would buy their argument, except this ratio seems to tell us that the Fed is dreaming if they they think that the stock market has not been leveraged by QE3 policy. So, what happens to the S&P once tapering gets under way? And somehow, if stocks do levitate higher as the Fed seems to want, does this lead to a more prominent crash once people realize the stock market has levitated on air? -Ace
-0.1acd- Gold - Continuous Contract (EOD)/Reuters/Jefferies CRB Index (EOD) ($GOLD:$CRB)
Gold can also be compared to all other commodities by using the CRB Index. Using this ratio, we can see that gold is NOT trading as a commodity! NO!!! It's trading mostly as an alternative currency to paper money. If it were trading like most commodities, then this ratio would be under 2.5 where it stood for many, many years. Mike.
Update on 7/7/2014-- From Bloomberg News: 'In the relative calm that is the market for U.S. Treasuries, a sense of unease over a vital cog in the financial system?s plumbing is beginning to rise.
The Federal Reserve's bond purchases combined with demand from banks to meet tightened regulatory requirements is making it harder for traders to easily borrow and lend certain desired securities in the $1.6 trillion-a-day market for repurchase agreements. That?s causing such trades to go uncompleted at some of the highest rates since the financial crisis.'
See the complete story at this link:
-0.1acd- NYSE Summation Index (Ratio Adjusted) (EOD) ($NYSI)
The Summation Index ($NYSI) is an accumulation of McClellan Oscillator readings which helps to smooth out the volatile swings found in the McClellan. The Summation Index is popular with sophisticated traders for spotting significant tops and bottoms in recent trends.
For me, the key graph on the Summation has always been the RSI(14) oscillator...as you can see, the oscillator tends to call tops and bottoms off of significant multi-day trends.
I watch for readings under 30 (oversold) and over 70 (overbought) and the confirmation is usually provided by a break back toward the middle as the RSI line crosses over the 30 or under the 70 mark. Keep in mind that the NYSI can remain overbought (or oversold) for a very long time. This is because major TRENDS can over-ride the cyclicality of the markets, which is what RSI tracks. When trend continues higher (which reflects herd trading), a mistake that some amateur chartists make is to assume a long or short position as soon as the overbought or oversold position is reached on the RSI. The proper time to go long or short is when the RSI begins to climb back toward the middle space (between 30 and 70), at least with the $NYSI chart, imho! That's why I watch for the confirmation signal (again, over 30 or under 70) to confirm the move out of the extremes. Often, the NYSI moves can mark a divergence from the actual movement of price on the New York Stock Exchange (NYSE), thus offering an early warning system.
-0.1b- Biotech iShares (IBB)
IBB topped out near 275 in late March 2014. One theory in spotting topping areas in an over-heated market is to look for Acceleration Zones. The I-Shares Biotech Index (IBB) showed such an Acceleration Zone in the 1st Quarter of 2014. Acceleration Zones (AZ) are thought to be the FINAL STAGES of a Bull Market when Crowds rush in to push prices ever higher as the Smart Money begins selling out shares they accumulated at much lower levels. To spot potential topping areas, the chartist simply projects out a new higher uptrend line with the expectation that the froth of the AZ won't last beyond one or two pinnacles in the AZ. The new uptrend line is drawn by connencting the last previous high point in the old uptrend channel witht the 1st new high point in the new Acceleration Zone. FUture topping points can then be visually calculated with ease. After the 254 high point, the next projected topping area was 275 which proved to be the top for IBB by early April 2014.
-0.1c- XLV - Spyders ETF for HealthCare Sector
The Healthcare Sector ETF (XLV) broke out of a cup-n-handle base on Friday, June 20th. PLEASE CLICK ON PAGE 9 TO VIEW THE OTHER 8 MAJOR SECTOR ETFs IN THE SPYDERS SERIES.
One of the best looking opportunities in this sector are the HMO stocks such as Cigna (NYSE:CI) which also shows a cup-n-handle breakout on the same day. Another decent set up is United Healthcare (NYSE: UNH) which is getting close to a breakout, but not yet confirmed. Traders can also chase after hot runners in this space such as Wellpoint (NYSE: WLP) and Aetna (NYSE: AET), but keep in mind that such momentum stocks can turn on a dime if your timing is not correct. (Updated June 21, 2014)
-0.1d- Nasdaq 100 Index ($NDX)-Dynamic Buy-Sell INVESTOR Signals
This chart is designed for INVESTORS, not traders. Using the popular Nasdaq 100 Index, there are certain buy-sell signals I watch for in terms of LONGER TERM TRADES or INVESTMENTS. This Index should offer good clues as to when to be long in the market....and when to exit or go short the market.
The 13-50 moving average crossovers are one such signal--this crossover serves as the accleration signal on my Mo-celerator charts, but it is also an important buy signal for INVESTORS who don't want to chase every short term signal.
Also, I watch for the 13 day EMA line on the Chaikin Money Flow (CMF) Indicator with the CMF set at a 34 day lag on INDEX charts. I have found over time that when the 13 ema line on this graph crosses above the zero line, that this serves as confirmation of stronger, longer trend. It works especially well to the long (buy) side, and a negative crossover is often 'a final get out' signal if somehow you have not listened to earlier exit signals, which many investors do not do because they don't want to miss the next surge higher....I understand this as part of my portfolio is invested for the long term too.
Also, the Dynamic chart shows the Accumulation-Distribution (A-D) line with a 13 day EMA line...the crossovers on the 13-dma serve as an additional tandem confirmation along with CMF as to whether money is flowing into the momentum stocks of the Naz 100....or flowing out. Often, the 13 ema crossover of the A-D line will occur before action shows in the CMF, because CMF captures heavy money moves, while A-D captures the early trend setters whose cash flows are not easily detectable. The CMF then serves as a confirmation of the early trend-setters' A-D signals.
Finally, my charts always include the ADX graph, which is 'the holy grail' graph for me. For investors, the signal to watch is at least a 5-pt move of the black ADX line in the direction of the new trend...once you have a 5-pt move, the trend is considered solid and firm for investors. 7/14/12
-0.1e-Dow Jones Industrial Average ($INDU)-A look at the Devil's Cross
The 3 most recent Devil's Crosses (20-100 down-cross) led to significant sell-offs....in fact, each of the previous 3 Devil's led the Dow down to the 400 moving average line. The 400 MA line is the long-term bull/bear line, and usually not well known by amateur technicians. You can see how each Devil led to the 400...and how each tag of the 400 zone led to a bounce-back for the Dow. In some cases over the years, the 400 MA line failed to hold support...examples include the 1987 and 2008 crashes. The 20-100 was the final warning to get out before those two crashes occurred. In early February, 2014, the Devil's Cross was narrowly avoided. However, keep an eye on this in case it should change again.