Stocks actually showed some selling pressure last week, but it was relatively mild and only for a few days. The S&P 500 moved above 2119 on Tuesday afternoon and then worked its way lower the rest of the week. With a close below 2105, the index fell around 14 points in two and a half days. This looks like controlled selling and part of a normal pullback within a bigger uptrend right now. February was quite the month with nice gains all around. QQQ was up almost 7%, IWM gained over 3% and SPY was up almost 4%. The Technology SPDR (+7.48%) and the Consumer Discretionary SPDR (+7.41%) led, while the Utilities SPDR lagged (-8.03%). This is a nice combination. The two big offensive sectors led, and the defensive sector lagged. Elsewhere, the Home Construction iShares (ITB) was up over 9% and the Networking iShares (IGN) gained over 10%.
**This chart analysis is for educational purposes only, and should not
be construed as a recommendation to buy, sell or sell-short said securities**
Short-term Overview (Monday, 2-March-2015):
- Breadth has been quite flat the last two weeks, but the 10-day Average still supports a short-term uptrend.
- The risk indicators are net positive for stocks.
- SPY, QQQ and IWM are in short-term uptrends, but overbought after big moves in February.
- TLT reversed its downtrend with a breakout on 25-Feb and tested the breakout zone last week.
- UUP surged off the lower trend line of a triangle and broke above the upper trend line.
- USO is in a short-term downtrend and needs to clear 19 for a breakout.
- GLD bounced last week, but the bounce could be a rising flag and resistance is set at 118.
The E-mini is flat over the last six sessions. After a surge above 2100 on 20-Feb, the E-mini oscillated above/below 2110 the last five days. Flat trading reflects a standoff between buying pressure and selling pressure. Overall, the triangle breakout on the daily chart remains and the breakout zone around 2050 turns first support.
Breadth remains short-term bullish overall, but S&P 1500 AD Percent ($SUPADP) hit -30% on Friday for its deepest down tick since February 9th. Even so, this is relatively mild selling pressure. Note that AD Percent never dipped below -50% in February. Talk about a strong month for breadth. The 10-day SMA for AD Percent fell to +5% to reflect waning positive breadth over the last two week. The indicator, however, has yet to turn bearish, which would require a move below -2%.
The risk indicators remain net positive for stocks and I am watching two quite closely. First, the RSP:SPY ratio is negative because it broke below its mid February lows and moved lower the last two weeks. I am watching the 5-year Treasury Yield ($FVX) and the HYG:LQD ratio closely because these two peaked on February 18th and edged lower the last two weeks. Both remain above support for now. A break down in the 5-year Treasury Yield ($FVX) would show money moving into short-term Treasuries, which are risk-averse assets. A break down in the HYG:LQD ratio would show risk aversion in the corporate bond market (junk underperforming investment-grade bonds).
There is not much change in the short-term situation for stocks. QQQ, SPY and IWM advanced throughout February and became overbought along the way. Overbought, is not always bearish because it takes strong buying pressure to produce overbought readings. Breadth remains bullish, but the daily readings have been quite flat the last two weeks. The risk indicators are net positive for stocks, but two are close to turning. At this point, it is time to simply manage the uptrend. In other words, trend reversal signaled early February and the uptrend remains in force until proven other wise.
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Key Reports and Events (all times Eastern):
Mon - Mar 02 - 08:30 - Personal Income & Spending
Mon - Mar 02 - 08:30 - PCE Prices
Mon - Mar 02 - 10:00 - ISM Manufacturing Index
Mon - Mar 02 - 10:00 - Construction Spending
Tue - Mar 03 - 14:00 - Auto-Truck Sales
Wed - Mar 04 - 07:00 - MBA Mortgage Index
Wed - Mar 04 - 08:15 - ADP Employment Report
Wed - Mar 04 - 10:00 - ISM Services Index
Wed - Mar 04 - 10:30 - Crude Oil Inventories
Wed - Mar 04 - 14:00 - Fed Beige Book
Thu - Mar 05 - 07:30 - Challenger Job Report
Thu - Mar 05 - 08:30 - Initial Jobless Claims
Thu - Mar 05 - 10:00 - Factory Orders
Thu - Mar 05 - 10:30 - Natural Gas Inventories
Fri - Mar 06 - 08:30 - Employment Report
Fri - Mar 06 - 15:00 - Consumer Credit
Tue - Mar 10 - 10:00 - JOLTS
Tue - Mar 10 - 10:00 - Wholesale Inventories
Wed - Mar 11 - 07:00 - MBA Mortgage Index
Wed - Mar 11 - 10:30 - Crude Oil Inventories
Thu - Mar 12 - 08:30 - Initial Jobless Claims
Thu - Mar 12 - 08:30 - Retail Sales
Thu - Mar 12 - 10:00 - Business Inventories
Thu - Mar 12 - 10:30 - Natural Gas Inventories
Fri - Mar 13 - 08:30 - Producer Price Index (PPI)
Fri - Mar 13 - 10:00 - Michigan Sentiment
Mon - Mar 16 - 08:30 - Empire State Manufacturing
Mon - Mar 16 - 09:15 - Industrial Production
Mon - Mar 16 - 10:00 - NAHB Housing Market Index
Tue - Mar 17 - 08:30 - Building Permits-Housing Starts
Wed - Mar 18 - 07:00 - MBA Mortgage Index
Wed - Mar 18 - 10:30 - Crude Oil Inventories
Wed - Mar 18 - 14:00 - FOMC Rate Decision
Thu - Mar 19 - 08:30 - Initial Jobless Claims
Thu - Mar 19 - 10:00 - Philadelphia Fed
Thu - Mar 19 - 10:00 - Leading Economic Indicators
Thu - Mar 19 - 10:30 - Natural Gas Inventories
Mon - Mar 23 - 10:00 - Existing Home Sales
Tue - Mar 24 - 08:30 - Consumer Price Index (CPI)
Tue - Mar 24 - 09:00 - FHFA Housing Price Index
Tue - Mar 24 - 10:00 - New Home Sales
Wed - Mar 25 - 07:00 - MBA Mortgage Index
Wed - Mar 25 - 08:30 - Durable Orders
Wed - Mar 25 - 10:30 - Crude Oil Inventories
Thu - Mar 26 - 08:30 - Initial Jobless Claims
Thu - Mar 26 - 10:30 - Natural Gas Inventories
Fri - Mar 27 - 08:30 - GDP
Fri - Mar 27 - 10:00 - Michigan Sentiment
This commentary is designed to stimulate thinking. This analysis is not a recommendation to buy, sell, hold or sell short any security (stock ETF or otherwise). We all need to think for ourselves when it comes to trading our own accounts. First, it is the only way to really learn. Second, we are the only ones responsible for our decisions. Think of these charts as food for further analysis. Before making a trade, it is important to have a plan. Plan the trade and trade the plan. Among other things, this includes setting a trigger level, a target area and a stop-loss level. It is also important to plan for three possible price movements: advance, decline or sideways. Have a plan for all three scenarios BEFORE making the trade. Consider possible holding times. And finally, look at overall market conditions and sector/industry performance.
