WEEKEND VIDEO JOURNAL NOTES
Saturday January 16, 2016
Week 2 2016
No Video This Week, Busy Weekend (Sorry) 🙁
This was the tale of two weeks with strong price action into and immediately after the fed, but instead of the typical fed follow through on Thursday morning, markets quickly reversed path 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 week in a row to start off 2016, the markets were weak to say the least and although oversold conditions exist across the board, the price action is giving us very little sign of strength. I think most of us that pay attention to this stuff are looking for a bounce, but other than holding support on Friday, there is very little evidence to this point worth risking to the long side.
2) This is very obviously a H&S top now. This is a pattern we have been talking about really since last July as potential, but tops take time.
3) Keeping the oversold conditions in mind and realizing that many of the charts we look at are trading near major support, it looks as though the market is putting in a 5th wave of this move. (I am do not like the wave as it is hindsight bias, but never the less, we can see sort of how it works here.) We don’t have much evidence that a relief bottom is quite in, but we may be close. And when I say bottom, I mean short term. In the longer term, the chart is telling us we have much more downside. At best we are halfway to where things are likely to go.
Long Term Investors:
I like to keep an eye on 2 things and this week we are going to add a 3rd which I grabbed from @marketpreform. The below is the definition of a down trend.
The other 2 as you know are.
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:
The market is a train wreck, but is oversold. Friday we touched the flash crash lows on the SPX as well as the %of Stocks below 40DMA. That level closed at 8%. It is very hard to be aggressively short here due to that, and we don’t have any real solid price action to support being long either. The best thing to do here is wait for the market to give us a better idea of where it wants to go next. I am still a seller of strength, but would like to see these oversold conditions worked off either with a strong squeeze or some consolidation over the next few days to a week.
This Week’s Chart’s in Focus:
Let’s review a few charts that I consider worthy of your attention:
Transports (IYT): Bearish H&S top remains at 104.66. I want to be selling strength on bounces.
Apple (AAPL) Down 6.3% this week and 3.94% YTD. Holding the 50% retrace from the last correction. Seller of strength back into the neckline of 105.
SBIO – > I welcome any bounce back into the neckline. Only want to be short below it, but seller of any bounce up towards it.
United Healthcare Group (UNH) Stock Attempting to break down below this range. Measured move is the flash crash lows. Only want to b short below 110.
Stocks Above 40DMA
Stocks Above 200DMA
My portfolio :
I covered much of my short exposure this week. I very little exposure right now. When the markets are trading near critical support, my strategy is to let that resolve itself. I prefer to have dry powder to re-establish shorts on any bounce. It’s always about risk reward for me. Think about it this way. If you shorted right here today. Where would you be wrong? Even if we break down below the support, it very likely gets tested. We want to identify trend and cover on the way down. Sell on the way up. It is the reverse of the last 6 years. When things look extended, take some off, and wait. That is where I stand right now.