WEEKEND VIDEO JOURNAL NOTES Saturday December 19, 2015

Posted on Saturday December 19, 2015

WEEKEND VIDEO JOURNAL NOTES
Saturday December 19, 2015

 

This was the tale of two weeks with strong price action into and immediately after the fed. However instead of the typical fed follow through on Thursday morning, markets quickly reversed course and all four major indexes finished the week lower as you can see below.

 

Starting with the S&P, let’s begin our weekend review. (watch show to see charts)

 

1) For the 2nd consecutive week the market closed below the very critical 2020 level. We have been here twice before, and each of the last two times buyers immediately emerged for the kick save. Will they do it again? Or will the third time be the charm? Follow through below this level and in particular below Monday’s lows, would officially kill off the double bottom cup and handle we have been watching develop since it’s mid October breakout. That would put the market on very shaky footing as we would have no bullish technicals, so at best we would be setting up for a very volatile choppy trading range like we saw early in 2015.

 

2) Under the surface it is very clear to us that the strength is being sold. When patterns develop and fail quickly, understanding this, is just as useful to us as traders as when they complete their price targets. Early in the week we saw 3 bullish patterns develop and trigger. Then a 4th intraday pattern triggered and completed. However that was immediately followed by a reversal pattern to the down side killing off the bullish patterns we are watching under the surface.

 

3) This Could Still Be Bearish Right shoulder Construction. We are seeing clear signs of significant weakness with the failure of bullish patterns last week. This needs to be noted. The next real support below 2020 is the 61.8 Fib retrace at 1965. Below there, we talking about a test of  August/Sept lows.

4) We have seen these choppy triangle patterns several times this year. This has the looks of the one we saw in August with the China breakdown. That is why I believe we need to watch for follow through or not next week. If Santa doesn’t come like everyone so expects, I believe that will be another important thing to note.

Long Term Investors:
 

I like to keep an eye on 2 things.

a. The 12 Month moving Avg : This has basically flat since the end of July. We have chopped and closed above and below it and it is pointing slighly south. I recommend longer term focused people keep a close eye on it. Although it is a slight lagging indicator you can see from the chart the way that it can keep long term investors on the right side of the trade.

b. The 10/20 Month Moving Average Crossover : The 10 remains above the 20, but note how a change in that may be signalling a larger correction. I continue to remind you that this has occured on the NYSE Composite. Price has retested and is rolling back over. In my mind this is showing how bad the breadth really is, and that the major indexes like the S&P have been held up by very few names. (both the 10/20 for NYSE and SPX are shown below)

10/20 Month MA Crossover Watch: 


10/20 Month MA on NYSE:

 

The Other Indexes:

As for the other indexes Nasdaq, Russell and Dow they too are showing significant signs of weakness. The strongest in breed per-se the Nasdaq appears to be seeing a potential lower high on both the longer and shorter time frames.

 

The Russell which has been the relative laggard all year, is also attempting to make a lower low after a small oversold bounce below it’s bearish wedge. And on the larger time frame, it too is looking like a right shoulder construction.

 

The Dow, was the worst of all indexes this week actually made the lower low we are anticipating in the other 4. If you remember earlier in the summer, the Dow led the way lower as it did not show the relative strength of the S&P and NASDAQ.

 

The Bottom Line:
After a pre fed rally into the first rate hike since 2006, sellers quickly emerged killing off nearly all bullish technicals. For the 2nd week in a row, we closed below 2020 which is really the line in the sand for the bulls. 
If we encompass everything we know, failed bullish patterns, triggered and completed bearish patterns, and the removal of oversold conditions with the bounce early in the week, the market remains vulnerable, leaving us at best in a very choppy trading range with wild swings in both directions.  Follow through below Friday’s low will kill off any hope of the last bullish pattern taking us to all time highs putting us in a position to test the August and September lows.

 

This Week’s Chart’s in Focus:
Let’s consider a few charts I think are worthy of your attention:

Transports (IYT): Down 2.3% last week and -19.3% YTD, still looks like further downside could be ahead. Last week it triggered a bearish H&S top targeting 104.66.

Financials (XLF): Down -.64% last week and -5.78% YTD. With all of the talk of how higher rates should help these guys, the price action suggests otherwise. I love the rejection at the 61. Fib retrace
from the 2007 top to the 2009 bottom.

Apple (AAPL) Down 6.3% this week and 3.94% YTD. Stock continues to be a laggard. Friday, it triggered it’s H&S top pattern by closing below the neckline. Love watching this one as it is the ultimate fight between fundamentals and technicals. You guys know where I stand on this one. I won’t short it, but I sure am not long.

Looking Ahead:
Next week is a holiday week and we can expect low volume trading. However there are a few notable economic  events. (Courtesy of Econoday.com)

My portfolio :
I remain in a net short posture as I am playing for follow through Monday. I will remain that way until I see improved price action that will tell me to cover ( a red dog reversal inverse H&S gap and go to the upside etc). In particular reversal patterns that can take us get back above 2020. This is not a long only investor’s tape, it is volatile and requires one be nimble. Shorting requires extream discipline as the rallies can have been and will be brutal. Watching and reading the daily reviews will hopefully help keep you aligned with the day to day changes occuring in the price action right now. Good Luck out there!

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