WEEKEND JOURNAL NOTES
Saturday January 23, 2016
Week 3 2016
Unlike the last two, the market found some Equilibrium litterally mid week and after selling, Monday, Tuesday and into mid-day wednesday buyers arrived building and triggering 2 bullish patterns, suggesting higher prices ahead in the immediate term.
For the week, all major US averages managed a nice return, with the Nasdaq leading the way. All averages are still down significantly YTD however.
Starting with the S&P, let’s begin our weekend review.
1) The S&P 500 triggered and inverse H&S pattern with Friday’s up gap, so immediate term, it is our top priority.
2) In doing so, It broke this long pattern on lower highs and lower lows that has been in place since the start of the year.
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 by only 11 pts, but is clearly moving south for the first time since early 2009. Again, looking historically, there is no need to be invested when the 10 is below the 20. This has been a very clear signal of major market trend change.
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 sings of a short term bounce, but long term downside.
The inverse H&S target is very close to the 50% retrace of this latest move.
Longer Term, H&S top has triggered with sustained follow through. However, it is looking like a neckline retest is in order.
Shorter Term, a bounce has developed with this inverse H&S targeting 1070.52
The Dow continues to lag. It did not trigger it’s inverse H&S pattern.
The Bottom Line:
The market is setup nicely for an oversold bounce, with bullish patterns on the lower time frames. We see below that the % of stocks above 40DMA hit a new low this week at 3.81. That is a lower low, confirming the lower move.
When the bottom is finally in, we should see divergence in the oscillator. That is the market will be making a lower low, but this oscillator will make a higher low. That is not happening here. Combine that with the topping patterns in all of the major indexes and we have to believe lower prices are ahead longer term. It will be interesting to watch to see if these shorter term price patterns can complete their targets. I would love to see that happen as it will offer opportunity to short at much better prices and less oversold conditions.
This Week’s Chart’s in Focus:
Let’s review a few charts that I consider worthy of your attention:
Indonesia (EIDO) – This one is coiled up nicely at previous support (not resistance) See if we can break this bullish flag to the downside like we did in the S&P to start the year.
France (EWQ): Really hard to get bullish on France here don’t you think?
Barrick Gold (ABX): Interesting price action in this gold miner, let’s see if it can take out that prior swing high, above the neckline looks pretty good.
Apple (AAPL) We have talked about the H&S pattern targeting $75 until we are blue in the face. We have earnings this week, so a move is possible. But even if we rally to $110, it will likely be short lived.
I want to add something new to the thought process this week. Look at where the VWAP (Volume weighted moving average) is from that breakaway gap in 2014. It is defining overhead supply pretty nicely. What this tells us is that the Average buyer since the May 2014 Gap is losing money. So when price rises, they are likely to be sellers. The market is in long term trouble using what we know today. Plan accordingly.
(Courtesy of Econoday.com)
My portfolio :
After spending the previous week trimming short exposure almost completely into my initial targets, this week I reverse course. Using oversold conditions (mentioned above) major support levels and bullish patterns as the tailwind, I am net long for a counter trend bounce. I plan to watch closely for a reversal pattern to de-risk and flip back short, but it may be a week or two or more before we can do so. Right now, things look awfully bullish immediate term.