Editor's Note: This article was originally published in Martin Pring's Market Roundup on Wednesday, April 24th at 7:03pm ET.

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Yesterday’s all-time new high in the S&P was well documented by the media, but what did not receive any attention was the fact that the SPY also reached a new high-water mark relative to the MSCI Europe Australia Far East ETF, a.k.a. the rest of the world. You can see that from Chart 1, where the ratio has broken out from a consolidation reverse head-and-shoulders. The RSI looks a little overstretched, but that does not necessarily translate into weakness, as you can see from the two green arrows following the 2018 breakout. In any event, the daily KST has just gone bullish and is by no means overbought.

Chart 1

Chart 2 shows that the short-term KST, calculated from weekly data, has just started to turn up again. However, it is not officially bullish, as it has yet to cross above its EMA. The slower-moving intermediate series, though, has experienced a marginal buy signal. The obvious investment implication from this breakout is for a continued superior performance by the US and a general downplaying of international exposure.

Chart 2

Good luck and good charting,
Martin J. Pring

The views expressed in this article are those of the author and do not necessarily reflect the position or opinion of Pring Turner Capital Group of Walnut Creek or its affiliates.

My process is built around simplicity. I am of the firm belief that investors, as well as the financial industry as a whole, tend to unnecessarily complicate things. As a result, we are led to believe that we need to track an endless number of data points to have a proper situational awareness for the markets. In reality, we need to work smarter, not harder. A small number of selectively prioritized and appropriately meaningful data points are all a savvy investor needs to get a fairly accurate read on what’s happening out there.

When a chart is in an uptrend, it’s easy to overthink all the different scenarios that could occur. Perhaps the stock could accelerate, decelerate, rise rapidly, fall rapidly, stagnate or anything in between!

As Charles Dow first posited, an uptrend is a series of higher highs and higher lows. It’s that simple. As long as the uptrend is intact, with the highs and the lows both getting higher, why spend any further time troubling over future paths? The trend is your friend.

With that in mind, here are six trend lines that you should be watching. If you track these lines, you should have a good read on where things are headed. More importantly, you’ll see when the uptrends are no longer in place.

1) Nasdaq 100 index

Technology has remained leadership through most of 2019, with the tech-heavy Nasdaq 100 index outperforming the S&P 500 since mid-November 2018. Connecting the Christmas Eve low with the early March low gives you a trend line that lines up quite well with subsequent lows in March and April.

The NDX recently became extremely overbought, with an RSI above 80. This suggests to me that we'll see a short-term pullback but still further upside. Of course, with this trend line intact, the trend still remains ever upward.

2) Semiconductors

With semiconductors, similar to the NDX chart, we have another recognition of the outperformance of technology through this bullish market phase. However, semiconductors deserve their own spot on the list because when they are doing well, the market as a whole tends to be doing well.

3) Microsoft

To put it quite simply, when the largest company in the world (by market cap) is gapping higher above an established trend line, it’s hard to be anything but constructive on the markets. To put it a different way, it would be difficult for the market to be substantially weaker with MSFT in a consistent uptrend.

4) Amazon

Along with the largest technology name, we now see the largest consumer name in a consistent uptrend, making higher highs and higher lows. Until these two stocks start breaking trend lines, the market as a whole is likely in fine shape.

5) Offense vs. Defense

Are investors favoring more of the offense (Discretionary) or defense (Staples) within the consumer space? This ratio actually bottomed in November 2018 and hit another high this week. As long as this uptrend persists, investors are still tilted to more of a risk-on posture within consumer.

6) Bond prices

Finally, we have bond prices, here in the form of the iShares Core US Aggregate Bond ETF. Stock and bond prices have been rising in tandem in 2019; while a breakdown in this chart wouldn’t necessarily have a direct correlation to a breakdown in stocks, it would represent a change in the overall market environment with higher interest rates in store. Definitely worth watching.

As an aside, the world is not just filled with perfectly bullish charts at the moment. A stock like Intel would have made this list a week ago.

Remember, trend lines are not drawn to last forever. They are meant to acknowledge a certain trend in place for a certain price. More importantly, they are designed to recognize when that trend is no longer in place. Watching the trend lines on these six charts should provide you with a clear set of signals for when these long-term uptrends are beginning to end.

RR#6,
Dave

David Keller, CMT
President, Sierra Alpha Research LLC

Disclaimer: This blog is for educational purposes only and should not be construed as financial advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional.

The author does not have a position in mentioned securities at the time of publication. Any opinions expressed herein are solely those of the author and do not in any way represent the views or opinions of any other person or entity.

Okay, let's start with the short-term reason. Throughout much of this bull market, the month of May has been kind to semiconductors ($DJUSSC). In fact, the DJUSSC has advanced in each of the last 7 years during May. Check out this seasonal pattern:

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Not only have semiconductors moved higher during May, but they have scorched higher! Their average May return of 7.1% over these past 7 years more than doubles any other calendar month. Go away in May? I think not!

Next, consider what drives the stock market higher. I'd be hard-pressed to find another area of the market more positively correlated with the S&P 500 than semiconductors. If the DJUSSC is advancing, there's a pretty decent chance the S&P 500 is moving right along with it:

During the past decade, the above chart illustrates how closely tied the S&P 500 is to the DJUSSC. The correlation coefficient has been almost exclusively between +.50 and +1.00. Drops below that zone have not lasted long at all.

Finally, let's consider the technical pattern of semiconductors over the long-term. Take a look at the 10 year weekly chart:

There have been two prior instances when the DJUSSC has consolidated sideways for at least one year - from 2011 to 2013 and from late-2014 to 2016. In both cases, once price resistance was cleared, the DJUSSC soared higher. The DJUSSC formed a double top in the first half of 2018 and, after consolidating for more than a year, it just broke out again. This bodes well for semiconductors and also for the S&P 500.

We're going higher.

Two semiconductor stocks are among my favorites to trade currently and are amongst a handful of solid trading candidates overall. If you trade individual stocks and you'd like to see these annotated charts, send me an email at tomb@stockcharts.com. I'll send them to you over the weekend. You won't need to be a StockCharts member to view these charts, but you will need to be a member in order to download and save the charts into a StockCharts ChartList.

Happy trading!

Tom

In my ChartWatchers article from two weeks ago, I provided insights into signals that your stock may be poised to report earnings above Wall Street estimates. Given that the markets are currently rewarding positively reporting companies with an average 2.1%+ boost in price* (and in many cases, much more), you may want to review my article here.

That said, there’ve been enough major earnings-related blowups this week that could easily temper your appetite for buying stocks right before earnings. These include Irobot Corp (IRBT) which has plummeted over 23% since reporting, as well as Xilinx Inc. (XLNX) which is down 15% since its earnings release on Wednesday.

With this possible downside risk in mind, today we’re going to review you how to successfully trade stocks after they’ve reported earnings. And it’s going to have everything to do with interpreting the chart of the stock. And it’s going to have everything to do with interpreting the chart of the stock.

My focus on earnings is simple - studies have proven that the primary driver of big, winning stocks is strong earnings.

These studies were conducted by William O’Neil who I worked with for 15 years and they involved reviewing the charts of thousands of top performing stocks going back over 100 years. Again and a gain, those stocks that consistently posted strong earnings went on to great gains. There were other common traits among these winners as well, but far and away strong earnings was the main reason for outperformance. I’ll review the other commonalities in future articles.

The good news for investors is that you don’t have to buy the stock before the company reports. You can wait for the good news to be released and still enjoy substantial gains.

The reason for more upside potential after the release of positive earnings is twofold. First, oftentimes analysts will subsequently raise their guidance for the stock which will in turn bring more buyers. And secondly, Institutions who may have missed the chance to get in before the earnings are now interested. These Institutions take time to build their positions and the net result will be a stock in an uptrend while accumulation takes place.

After uncovering a company that’s reported solid earnings, you’ll need examine the charts to determine if the stock is in a position to trade higher. In other words, is the stock technically sound?

Below are two examples of winning stocks from the Q4 earnings season earlier this year.

In the first example, the stock gapped up following strong results. This is not uncommon and can be the start of much bigger gains. Rather than chase the stock, you can oftentimes wait for a pullback to its 10-day moving average as the stock takes a pause or consolidates before taking off again.

You’ll also need to see a positive RSI and MACD to confirm a continuation of the uptrend coupled with the price remaining above its upward trending 10-day simple moving average.

 

DAILY CHART OF XILINX INC. (XLNX)

In this next example, the company reported very strong earnings in late February and then pulled back in a move that was in line with the broader markets. This is another common occurrence as a sharp advance can be met with a pullback or sideways actions as a way of consolidating the big gain.

In this case, the stocks breakout of a 2-week base on volume was an ideal entry point as it occurred on volume. This volume pointed to Institutional participation which helped support a continuation of the stock’s uptrend. Again, you want to use the RSI and MACD to confirm that the stock is technically sound as its continuing to find support at its upward trending 10-day moving average.

 

DAILY CHART OF APPFOLIO INC. (APPF)

Overall, earnings season can be an ideal time to be on the lookout for stocks poised to outperform the markets. In addition to looking for a substantial price move on the day of the report, you’ll want to see the move occur on volume. Oftentimes, sorting the Market Movers List on StockCharts.com by most active will quickly put you in front of these candidates- particularly when we’re in the thick of earnings season such as now.

*per Factset Earnings Insight Report

- Mary Ellen McGonagle

Founder, MEM Investment Research

A lot of eyeballs are watching the USD these days. Not surprisingly, as a lot (or most) people pay attention to the chart of the USD index ($USD), which compares the USD to a basket of other currencies. That chart now seems to be breaking out - to the UPside, that is.

The reason for watching the "Dollar Index" is that there is no such thing as the price of "the USD," just like there is no price for the British Pound or the Euro. Currencies are always expressed "in another currency," meaning the price of the USD expressed in Pounds is different than the price of the USD expressed in EUR. To make it even more complicated, both of these USD "prices" are impacted by the relationship (price) of Euro vs. Pound.

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It's Complicated

Another issue with currency prices is that they are often inverted. The street convention for the price of the USD against EUR, for example, is EUR/USD - the amount of USD for one EUR. The way I think about it in my head is "the amount of EUR expressed in USD," which is currently around 1.12 USD for one EUR.

Because of this, you can get comments like "The USD went UP from 1.15 to 1.10 against the EUR," which is super confusing if it's not your daily bread and butter.

What's also very nice is that "the street" over the years came up with different conventions. Before the introduction of the Euro, the price of Deutsch Marks would be expressed as USD/DEM, while French Francs was USD/FRF. After the introduction of the Euro, it became EUR/USD (much like GBP/USD) while Norwegian and Swedish Krone are still USD/NOK and USD/SEK. Meanwhile, the JPY is quoted as USD/JPY and the Australian Dollar is AUD/USD.

All in all, currencies are a pretty complicated bunch.

RRG Can Help You Get A High Level Overview On FX Markets

From a technical point of view, currencies are heaven because they are super-liquid, traded 24 hours per day and almost perfectly represent supply and demand, not to mention that they are all related to each other one way or another.

However, because one currency can have so many "different" prices in various other currencies, it's difficult to keep a high-level overview of general trends in these markets. This is where Relative Rotation Graphs come in handy, as they can help you to get a high-level overview of a lot of securities (in this case currencies) that are related to each other.

As you know, RRGs need a benchmark, a security or an index that serves as the center of the chart - an anchor, so to say. For US stock sectors, for example, we often use the S&P 500 index as this anchor. For currencies, it's a little different.

Currency pairs are already a relative relationship in and of themselves, so the denominator for the pair is its benchmark. To get a proper RRG, we need to create a universe of currency pairs that are all denominated in the same currency. For a US Dollar-based investor, it makes sense to set up a universe of currencies all denominated in USD.

Be careful, however, as this goes against street convention in some cases!

The $ONE Benchmark

But if the "benchmark" for the RRG is already set through the tickers on the list, what are we going to set as the benchmark ticker on the RRG? The answer is simple: something that is always the same! At StockCharts.com there is a ticker symbol, $ONE, which serves that role perfectly. That ticker presents a straight horizontal line, which is always ONE. Using that as the benchmark for the RRG will make sure that the relationships between the currencies remain correct and are not distorted by another comparison of some sort.

The result of such a setup is the RRG at the top of this article. This is a pre-defined group on the RRG page, showing the G10 currencies (or rather, 9 currencies) against the USD, which is now the center of the chart.

This is a daily RRG with a 5-day tail on each currency. As you can see, all these tails are heading in a South-West direction with an RRG-Heading between 90-270 degrees (losing on both axes).

When you open up the live version of the RRG chart and hit the animation button, you will see that it is not always the case that all these currencies move in the same direction against the USD. The fact that this is happening now shows that the US Dollar is improving against all these currencies at the same time, which is pretty significant.

EUR/USD

Taking this knowledge to the EUR/USD weekly chart above puts the current attempt to break below the 1.12 support zone into a bigger perspective and, IMHO, makes it more reliable. We still have a few more hours left before this weekly bar closes, which is an eternity in currency-land. But, if we get a weekly close at 1.11, I'll take that as a good thing for the USD, as well as a sign for further weakening of the Euro and other currencies against the mighty greenback.

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Julius de Kempenaer
Senior Technical Analyst, StockCharts.com
Creator, Relative Rotation Graphs
Founder, RRG Research

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Feedback, comments or questions are welcome at Juliusdk@stockcharts.com. I cannot promise to respond to each and every message, but I will certainly read them and, where reasonably possible, use the feedback and comments or answer questions.

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