Tech-Dominated Nasdaq Leads Market Higher -- The Nasdaq and S&P 500 are Clearing Their November Highs
by John Murphy
Editor's Note: This article was originally published in John Murphy's Market Message on Friday, March 15th at 2:58pm ET.
Just a week after slipping below their 200-day averages, the Nasdaq Composite Index in Chart 1 and the S&P 500 in Chart 2 appear to be ending the week above their November highs. That's the last overhead chart barrier to overcome below last year's highs. And increases the odds that those highs may be tested again. Chart 3 shows the Dow Industrials lagging behind. But that may have a lot to do with this week's heavy selling in Boeing. There seems little doubt that the path of least resistance for stock prices is now higher. Technology shares continue to lead the market higher, with a big boost from semiconductors. One of the driving forces behind the stock rally appears to be falling bond yields which are reflective of more dovish global central bankers. That's also boosting bond prices.
Anyone recognize these two phones? A good old indestructible Nokia candy bar was the first phone for many of us. I had a few Nokia cellphones over the years and they always worked great, back in the day. And, we all remember the Nokia ring tone, which was the most played tune in the world as late as 2009. You can hear it about four and a half minutes into this Ted talk (The 4 Ways Sound Affects Us), which is worth watching (and hearing).
Nokia (NOK) and Ericsson (ERIC) were leading telecom stocks some 20 years ago and both took part in the tech-telecom boom of the late 90s. Ericsson crashed when the bubble burst and went dormant for well over a decade. Nokia also fell on hard times and did not find its footing until 2012.
Both stocks have been moving higher since October 2016 and current charts suggest that things are looking up for these two stocks. They recorded 52-week highs recently and are in clear uptrends.
The chart below shows Ericsson breaking out in April with a massive gap and then continuing higher into October. The advance took a breather from October to December as the stock consolidated with a large triangle into January. Note that ERIC held up well while the S&P 500 broke down in October and December. Relative strength foreshadowed absolute strength as the stock broke out of its triangle in mid February and hit a new high this week.
The second chart shows Nokia moving higher from January to April 2018 and then trading within a range from May to December. The stock moved sharply higher in January and broke out of this range. After recording new highs in early February, the stock fell back and successfully tested support in the 6 area. It looks like the bigger uptrend is resuming with this week's surge off support.
While I do not think the candy bar cellphone is back, something is attracting buyers in these two stocks. Perhaps they are poised to benefit from 5G. At the very least, these are two names I will have on my radar. Note that ERIC and NOK are low-priced stocks with above average risk. Trade accordingly!
As always, next week's Fed meeting will be closely watched, with chartists in particular watching it uniquely. On the chart below, the blue lines represent Federal Reserve meeting dates. Friday marked a test of the 2823 level on the $SPX. The brown line at 2823 was the closing level on the first Fed meeting of Jay Powell's role as head of the Fed. It's déjà vu all over again as we closed at 2822.48!
The green line has marked an important resistance level for the index, with the $SPX having tested and rejected that level multiple times over the past year. Friday's close above that level puts the highs of 2940 in sight.
The Fed has been trying to soothe the equity market ever since the December meeting caused a downdraft over the following week. The January meeting was cheered and the market subsequently roared higher.
The Federal Reserve causes swings in the US Dollar as well. Not all meetings cause a change in direction, but the real question (for now) is whether the Dollar breaks out to new highs. New highs on the Dollar would also be significant as the Dollar has traded between 93.5 and 97.5 for 10 months. Although the new March high on the Dollar only lasted a day, I expect a higher Dollar to be a head wind for the stock market. The Dollar made its low when Jerome Powell started his chairman role. The $SPX sits at the same level as we were on that day, while the Dollar appears to be part of the resistance for US stocks.
The weak trend in the bond market yield curve is weighing on the market as well. Friday saw a little bounce up, but the yield is still near the lowest weekly closing levels in over a year. One encouraging sign is that the 30-year in black at the top looks like it is trying to make a higher low here.
When we compare the 10-year yield (lower panel below) to the Fed meeting dates, it's no surprise that the Fed inflicts changes on the chart. The real question for the bond market is will the Fed meeting start to raise rates? Currently, there is no appetite for that, but the chart seems to be ready for some upside move.
The bottom line is that the equity markets, the currency markets and the bond market are all watching the outcome of the FOMC meeting intently. Will the stock market break out to new highs? Will the Dollar break out to new highs? Will the bond market yields break down to new lows? Stay tuned next week as there will be a lot of implications from this particular Fed meeting. It is not often that all three aforementioned markets are near 52-week extremes heading into the meeting.
Below is some information on other videos produced this week.
Wednesday's Market Buzz talked about the bank stocks. Click on the Market Buzz below to watch.
Here is the the Canadian Market Roundup for mid-March.
If you would like to learn more about the basics of charting, check out Stock Charts for Dummies. The first section of the book walks through all the chart settings you need to help you get the charts you want, the second section explores why you might use charts for investing and the third section is about putting it all together.
Could The S&P 500 Fall 2.6% Every Year For 16 Straight Years?
by Tom Bowley
In a sense, it already has. Well, maybe not 16 straight years, but play along.
I've done a lot of historical stock market research over the years and several patterns really stand out. But one in particular always keeps me on edge as a short-term trader. The week after options expiration generally is not good. Over the past 7 decades, here is the S&P 500 annualized return by calendar day of the week:
Mondays have always been a rough day for U.S. stocks. They rise less than 49% of the time, which compares unfavorably to the 53%+ success rate that the S&P 500 has enjoyed on all trading days since 1950. But let's compare the overall annualized returns by calendar day shown above to the annualized returns by calendar day of the week following options expiration Friday:
If we combine all five calendar days, the week following options expiration Friday has produced annualized returns of -2.61%. Maybe this doesn't seem like a big deal to you, but these five trading days have occurred in every month for 70 years. They represent nearly 4000 trading days, which is roughly 16 years. If I told you that the S&P 500 would decline 2.61% per year from now until the year 2036, how excited would you be to invest? That's the performance equivalent of owning stocks the week following options expiration Friday.
Does the market always lose ground the week following options expiration Friday? Of course not. Next week might be a stellar week, but knowing the stock market's tendencies is one step to becoming a better trader. The S&P 500 managed to close above 2817 for the first time since early October - a technical positive, but there's a negative divergence in play on the daily chart so if this breakout fails to hold, you might consider the long-term tendencies discussed above. Here's the current S&P 500 chart:
I put much more emphasis on technical conditions than I do on historical tendencies, but I do feel that the risk of trading on the long side is much greater the week after options expiration. Building cash ahead of it is typically a good idea.
If you enjoy historical tendencies, make sure you subscribe to my Trading Places with Tom Bowley blog. In addition to much technical analysis, I feature a Historical Tendencies section where I discuss one interesting historical or seasonal fact about the stock market each day. Friday's article, "Transports Going Along For The Ride" highlighted the bullish market tendencies on Fridays. Follow the link provided and then scroll down to the bottom of my article. Enter your email address in the space provided and click the green "Subscribe" button. Once subscribed, my articles will be sent to the email address provided as soon as they're published!
Anytime I hear a successful, well-respected figure mention the importance of routines, my ears perk up. I firmly believe that routines (and the discipline to stick to them) are the secret to success, from investing to sports to business to music – you name it. When I hear that same opinion reflected in the words of another, I listen closely. Last month, a blog post from...
The S&P is pretty much at the same level it was back in October of last year. However, it still remains well below its all-time high of 2939, which was also achieved in October of last year. Yet there are a number of stocks at their all-time highs, reflective of strong earnings and showing how traders remain attracted to the "best of the best."
As an example, take a look at the charts for Trade Desk (TTD) and Stryker (SYK) below. Both easily beat earnings expectations and have hit their respective all-time highs, in spite of the market being below last year's highs.
Of course, there are plenty of stocks that beat earnings expectations and are well below their all time highs, but, even then, they get plenty of attention. Point being, it can pay off to zone in on those companies that report strong numbers, since it shows fundamental strength.
At EarningsBeats.com, we're in the business of finding those stocks that beat or miss earnings expectations and have charts that could be setting up for high reward-to-risk trading opportunities. Not long ago, I began a FREE newsletter that focuses on earnings-related activity. If you would like to get on the list, just click here.
Traders are always searching for stocks that have promise. Consider putting those that beat earnings expectations on the top of your list.
Unofficially a Bull -- PMO BUY Signals Appear on OEX and NDX
by Erin Swenlin
I have a chart at the bottom of this article that will explain my moving out of the bear market camp. Yes, it is delayed, but, as I explained before the December crash, I'd rather miss a bottom and rally than be hanging on for dear life during a quick and painful decline. More BUY signals are appearing on the DecisionPoint Scoreboards. Today, two new PMO BUY signals were triggered when they crossed above their signal lines. Don't get too excited, though, as the VXN and VXO suggest a decline for both next week.
I've annotated the new PMO BUY signal, as well as two areas of overhead resistance that need to be tackled quickly. There is still a negative divergence between OBV tops and price tops that also could suggest a decline soon.
I've inverted my scale on the volatility indexes so that overbought is at the top and oversold is at the bottom. Note that, when the upper Bollinger Band is penetrated, it generally leads to a short-term decline (or longer). This was a nice rally, but it is time for a pullback.
The OEX is facing the same situation, with overhead resistance nearby and a negative divergence with the OBV, based on the February OBV top and current reading that is below it. Both PMO BUY signals are arriving in somewhat overbought territory.
Again, the volatility index for the OEX is showing a penetration of the upper Bollinger Band, which suggests a decline in the coming week.
So why am I now unofficially a bull? The monthly PMO, which has been my guide throughout, is finally starting to decelerate. It hasn't turned up, nor has it had a positive crossover. When it turns up, I'll officially be a bull. For now, though, my stance has moved bullish. There's no point in fighting the charts. My analysis suggests that we won't test the December lows and, until the monthly PMO turns up, I think we are still vulnerable to a sizable correction.
Watch the latest episode of DecisionPoint with Carl & Erin Swenlin LIVE on Fridays 4:30p EST or on the StockCharts TV YouTube channel here!
Technical Analysis is a windsock, not a crystal ball.
Real Estate Now Leading On Asset Class- And Sector RRGs
by Julius de Kempenaer
This Relative Rotation Graph shows the rotation for asset classes over the past 9 weeks. The main observation is that fixed income related asset classes are all inside weakening and heading, rapidly, towards lagging.
SPY (stocks) is close to returning into the leading quadrant. The strongest rotation at the moment, Leading-Weakening-Leading, is now shown by Real Estate.
This is interesting as Real Estate is both an asset class but, since not too long, also a sector in the equity universe.
The asset class RRG shows VNQ rotating at the right-hand side of the graph and returning into the leading quadrant after a short stint through weakening. This makes Real Estate the strongest asset class measured on the JdK RS-Ratio scale.
Together with SPY, VNQ is the only asset class rotating at a strong RRG-Heading (0-90 degrees) at the moment.
On the sector RRG
On the sector RRG, Real Estate (XLRE), is also furthest to the right. Making it the strongest sector within the S&P 500 universe at the moment, based on the JdK RS-ratio scale.
What makes things extra interesting is the fact that XLRE has just started to curl back up again which suggests that XLRE is ready to start its second leg of the existing relative uptrend against SPY.
XLRE and VNQ both cover the Real Estate asset class. The difference between the two is that XLRE only covers stocks (REITs) that are part of the S&P 500 index while VNQ covers a much broader part of the Real Estate universe.
From an investment perspective, they show very similar performance over time with a correlation very close to 1.
Vanguard Real Estate ETF - _VNQ
The chart above shows both the adjusted and unadjusted price series for VNQ. The unadjusted price is shown as the bar-chart (_VNQ) and the adjusted price (VNQ) is shown as the dimmed line chart.
As you can see dividends make up an important part of the performance for this sector/asset class. Based on this adjusted chart VNQ has recently broken to new highs.
On the unadjusted chart, this is not the case.. yet.
The range between $85.50 - $86 is showing up as an important area of resistance. Especially in 2017 this level was tested and rejected multiple times. The high in 2018 fell two dollars short of that level and the high earlier this year was also formed against that resistance area.
At the moment VNQ is trading inside that $85.50 - $ 86 range and seems ready to break. For me, a break on the unadjusted chart is more important as it reflects a break of a level where people actually traded which means that it is more "in their head" than a backward adjusted price to reflect dividends.
Also on the relative chart, VNQ is close to breaking above its previous highs which will reinforce its strong rotation on the Relative Rotation Graph.
All in all, Real Estate is an asset class/sector to keep an eye on in coming weeks as it seems to be re-installing its leading position.
My regular blog is the RRG blog If you would like to receive a notification when a new article is published there, simply "Subscribe" with your email address using the form below.
Julius de Kempenaer | RRG Research
RRG, Relative Rotation Graphs, JdK RS-Ratio, and JdK RS-Momentum are registered TradeMarks ®; of RRG Research
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Anyone recognize these two phones? A good old indestructible Nokia candy bar was the first phone for many of us. I had a few Nokia cellphones over the years and they always worked great, back in the day. And, we all remember the Nokia ring tone, which was the most played tune in the world as late as 2009. You can hear it about four and a half minutes into this Ted talk (
Of course, there are plenty of stocks that beat earnings expectations and are well below their all time highs, but, even then, they get plenty of attention. Point being, it can pay off to zone in on those companies that report strong numbers, since it shows fundamental strength.
This Relative Rotation Graph shows the rotation for asset classes over the past 9 weeks. The main observation is that fixed income related asset classes are all inside weakening and heading, rapidly, towards lagging.
On the sector RRG, Real Estate (XLRE), is also furthest to the right. Making it the strongest sector
