Monthly Archives: August 2012

Individual Stocks – Update 2012-08-28

Posted on August 29, 2012 | Leave a comment

Today I decided to introduce a new segment where I will talk a little bit about individual stocks. This is born out of necessity, since watching the S&P 500 has become rather boring recently. Let me know if you would like me to look at any particular stocks, otherwise I will just dish out updates as I see fit.

Please keep in mind that I do not provide investment advice and that I post these charts for fun. Read the disclaimer.

Intel Corporation

Intel bounced of support today

Intel’s chart was my favorite today. It bounced of a strong support again, allowing  investors to enter a trade with a small stop loss a few cents below the support line drawn above. As long as this line holds, we can see this as a re-test or shakeout. The dividend yield is about 3.6% at the current price.

Cliffs Natural Resources

CLF coming into strong support, needs to bounce soon

CLF has been hammered down from above 100 to 36 within the course of one year. In July we have seen a selling climax / panic bottom and a short rally. We are now re-testing the lows on decreased volume. If the lows hold, and if the stock bounces again, it should be a fantastic buy. The dividend yield is about 6.7% at the current price.

CLF (iron ore provider) is still facing strong headwinds due to the slowdown in China and the recently announced reduction in PMI. It is a contrarian play for long term investors.

China Mobile Ltd.

CHL oversold bounce?

CHL got hit hard due to a miss in earnings expectations. Earnings still grow nicely, the dividend yield is good and the growing China middle class should boost this stock on a long time frame. This could thus be a good buying opportunity. My stock screener spit this out a week ago on the dip and subsequent holding action. I still like this stock, but I would watch the reaction on the 10 SMA and 20 EMA. As long as we can hold above the recent lows, a pullback could be a good opportunity.
The dividend yield is about 4% at the current price.

Considering the volatility on this stock, it takes diligence and discipline to make money. However, volatility also brings the greatest opportunities.

See you in my next market update.

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More volatility ahead – Tactical View 2012-08-25

Posted on August 25, 2012 | Leave a comment

S&P 500 hourly chart

In last weeks tactical update I warned of a correction. After one final push, we started the correction as expected. With Fridays strong bounce, the question is if this correction is over already and if we continue to melt up slowly.

I believe not.

Reviewing the charts, I think this correction is not over yet. Even though the daily chart looks bullish, the weekly chart is showing a bearish candle pattern and thus indicates that we have to expect more volatility within the next couple of weeks.

SPY ETF weekly chart

This doesn’t necessarily mean that we go straight down from here. We could still bounce a little higher first, but we should expect to burn off some of the overbought conditions first before heading higher. The preferred scenario would be a pullback to the 1365 area, but a prolonged choppy sideways move above this level would be another scenario that sounds logical.

SPY ETF daily chart

To be clear, my long term proprietary indicator (see above) is still in bullish mode, but it is showing some signs of flattening. Until this indicator flips to red, we cannot confirm a change in long term trend. As with all indicators, it lags a bit and thus we must use our head to observe price and volume performance. A good warning sign will be the wave volume indicator.

SPY ETF hourly chart

The hourly chart also looks rather bearish to me, as we hit heavy selling during the last moments on Friday. Monday will set the tone, considering that the selling happened during the last minutes of the week, which may be distorted somewhat.

Emini backtesting breakout?

We can draw a channel on the E-mini futures that looks bearish. After a quick fakeout top, we declined and appear to be backtesting the channel now. In case of a decline, the first area of support will be the most recent high, which also coincides with the start of the channel (about 1388 on E-mini).

SPY vs TLT rejected again

In last weeks post, I speculated about the strong possibility that the SPY/TLT indicator will be rejected at its first attempt to break the downtrend. This rejection happened even before we reached the trendline, which is a sign of weakness. Nevertheless, considering the oversold condition of bonds last week, this does not yet endager the uptrend. A pullback was expected after all.

Defensives oversold, should bounce

The sell-off in defensive sectors is healthy for the overall markets. It is indicative of sector rotation into more aggressive sectors like technology (see below), which I attribute to increased risk appetite.

Technology relative performance, now overbought

The technology sector relative performance has been phenomenal during the past couple of weeks. It has reached an overbought condition, which should correct or work itself out over time through a slowing rate of ascend.

US vs. World at critical support showing positive divergence

The US markets have slightly underperformed the world markets, but have now reached the support line. The momentum indicator shows positive divergence, similar to March last year. Maybe the euphoria in Europe is a bout to subside?

Silver to Gold ratio finally bounced

The Silver / Gold ratio, a risk-on indicator has finally bounced. Lets hope we can make a higher low next !

Semiconductor sector

Semiconductors are thus far on track with the prediction from last week. The support at 390 is important to sustain the uptrend.

 

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Reversal bar -Update 08-21-2012

Posted on August 21, 2012 | 2 Comments

SPY daily

Today we got a pullbackk, as predicted in my weekend tactical update. The engulfing bar is usually a bad sign, but volume wasn’t supportive of a larger move down, which is why I still believe we just get a pullback. If you look closely, you can spot where I have the next buy order on the chart above ;-) .

I am on vacation, so updates my be sporadic this week. Anyways, I think we should get another down day. Watch the support and resistance lines.

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Posted in Finance, Stock Market, Tactical Portfolio, Technical Analysis

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Pullback ahead – Tactical View 2012-08-19

Posted on August 19, 2012 | Leave a comment

S&P 500 hourly chart

After reviewing the charts, I believe we should at least expect a pullback next week. Most indicators have become quite overextended while the market is slowly trying to push higher. Last week I warned that we should see a move soon, just before the market decided to grind higher. Considering that the move since June still has corrective character, I remain convinced that we should see a larger move to the downside. However, I believe that the character of market allows us to move higher yet into the election before we get our decline.

Dropping sooner rather than later is actually the more bullish scenario, as it would allow us to reset and go higher later.

From an Elliott Wave perspective, we could still be in a B wave, which is allowed to exceed the start of wave A (it already has in my count). Unfortunately this implies an expanded flat correction, which almost ensures the 1266 lows to be taken out. As you can see, getting a correction earlier can actually be better.

However, EW theory has too many alternative possibilities, which is one of its biggest flaws. So lets take things one step at a time. Currently the market still looks o.k. and I recommend to wait for confirmation before acting in anticipation.

S&P 500 daily chart

One of the best EW counts has us in the final stages of a ZigZag correction of the 2009 lows (see above), which unfortunately has extremely negative implications. In the near term however, this count allows us to take out the 1422 high, and since I do not see any impending signs of reversal yet, I am still bullish near term.

SPY daily chart -wave volume 2012-08-19

This is also supported by the wave volume chart above. You can clearly see that we got the most agressive bear volume on the trough before we made the actual low in June. Since it showed lower volume it qualified as the actual shakeout after the low was already in place. A shakeout can take out the previous low, which is exactly what happened. You will notice that the wave volume on this final move was low, but the daily volume was also climactic.

The most recent meltup shows good wave volume, although very little participation (low daily volume). Normally this is an indication of lacking professional participation and would be a bearish sign. Since we are approaching double top resistance, we must stay alert. However, it is too soon to become outright bearish.

SPY vs. TLT, strong move

The SPY/TLT indicator recently had a good breakout. This is due to the treasury bond decline that I predicted two weeks ago. This is a good sign for the markets. It supports the notion of higher prices still.

However, the indicator is overbought and approaching overhead resistance (see chart above), which is another reason I would expect a pullback to occur soon. I expect the pullback to be milder than most bears would expect.

SOXX cleared resistance, now overbought

Semicondoctor performance has been phenomenal. I can count 5 waves of the lows, and would thus expect a correction. This correction should not take out the level drawn above (corresponding to about 390 on the SOX). Volume is very bullish. We can see accumulation in the background, which is also a good indication for a continuation. The pullback might be a good opportunity.

Technology bounce still ongoing, but oversold

The entire technology sector has been on a tear recently. It bounced of my blue terndline as I had expected for weeks, and headed straight up. We are getting into overbought territory and should expect a slowing of the trend, but overall this also looks good.

US vs. World, watch trendline

Comparing the US to the rest of the world:

We are still resetting the overperformance, but the US could soon hit support and start outperforming again. A break of the blue trendline would however warn us of a longer term underpformance. It is thus important to watch how we react once we approach the trendline. If we crack it, I would still expect a backtest, due to the election year cycle. This would be a good opportunity to shift some assets to international funds. But we aren’t there yet.

Small caps at critical inflection point

The small caps have been a bit of a worry recently. Usually they start underperforming when bull markets mature and that seems to be exactly what we can observe now. We haven’t managed to take out the 7/4 high. Last friday we traded right up to this level. Monday will thus be critical to judge if we can make new highs, and thus if the broader market will start to support the performance of the large caps or not. A broader participation would be  healthy sign, but the small caps are a long way from outperforming.

Small caps still underperforming

Currently small caps are still underperforming the large caps. Lets hope the bounce that started late last week has legs.

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The paint is dry – Update 2012-08-15

Posted on August 16, 2012 | Leave a comment

SPY daily view

During the past days the market has almost completely ground to a halt. The ADX indicator is extremely low, which means the market has no direction. This usually occurs before a larger directional move. The volume during the last 8 sessions was remarkably low as well, but the accumulated volume is still looking good. The latter seems to indicate the markets desire to continue moving upwards, while consolidating in this strange melt up pattern to reset the overbought conditions.

However, approaching the zone of strong resistance (anything below 1422 from here) at such low volume is a serious warning sign. The market is in a holding pattern awaiting a big bang. The drying up of the volume has created a vacuum above and below, that will create very little support or resistance for any directional move to occur form here.

A false break is not unreasonable to expect, so I would give myself a little bit of room to maneuver and avoid too tight stops and limits, to keep the sinister machines from cleaning out my account.

SPY hourly view

Stay alert. This is an odd situation. The RSI is still diverging on the hourly chart, but that is essentially what is necessary to start a new move up, so I wouldn’t pay too much attention to this kind of action right now.

The bond yields in Spain and Italy have eased and the bond yields in Germany, US and Japan have increased during these past sessions. Unless there are more bad news to digest, the market will resist being pulled down hard. The absence of buyers and sellers alike will tend to amplify some of the moves though.

VIX shows an extreme level of complacency, especially during options expiration week. We need to see what happens going into Friday and Monday.

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Make or Break – Tactical View 2012-08-12

Posted on August 12, 2012 | 3 Comments

S&P 500 hourly chart

Today’s tactical view will be short. Yesterday, I posted a long term perspective in my strategic view, showing where we stand on a very long timeframe. Most of the things i showed in last weeks technical view are still valid, with some exceptions that made the whole view tip a litte bit more toward the bullish short term side.

Should the markets continue to be this resilient, I will need to change the medium term count in my strategic view to an ending diagonal. This does not change the long term view at all.

Last week we managed to stage a backtest to the Head and Shoulders neckline that we broke in May (see above, light thick line). We made somewhat of a pseudo Head and Shoulders topping formation that is visible on the hourly chart, that could serve to take the markets down.

SPY daily chart

However, the daily view is much more bullish. Early morning down and up the rest of the day has the earmarks of mini-shakeouts that are meant to keep the bears out of the race. The bullish wave volume is increasing and we seem to be starting something of a slow meltup pattern similar to last December.

Technology, strong bounce of our support line

Technology bounced of the blue trendline as I had hoped in last weeks post. I have been tracking this trendline for months, and if it holds it is a bullish sign for the markets (review the SOX chart from last week and notice how we broke out there as well).

Small Cap non confirmation

One big warning sign is the divergence in the small caps (yellow curve) from the large caps. It warns us that the bull market that started in 2009 is becoming mature and that the very long term upside should be limited.

The Euro has started to roll over in what looks like an impulsive decline and the Dollar seems to be building a base. Treasuries also bounced off support. These are bearish signs.

In conclusion: We have bullish and bearish signs. I expect clarification shortly. I believe the markets are held up by false hope of stimulus and by frustrated yield chasers, who are disillusioned by interest rates in CD’s and treasuries, thus pouring money into dividend stocks that still outperform and keep the whole markets afloat.

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Strategic View of the US Markets – 2012-08-11

Posted on August 12, 2012 | Leave a comment

This is my long term view of the US stock market, mostly through the lens of Elliott Wave forecasting.

Long Term Elliott Wave Count of the Dow Jones Industrial Average

The picture above shows the current position of the US markets. The Elliott Wave count is inspired from the wave count of the late Zoran Gayer shown in the picture below. Zoran had a brilliant unique way to apply Elliott Wave (the study of the price created by recurring pattern in human psychology) that seems much more practicable than other counts. The most striking is the forecast he made in 2004, that is still playing out today.

According to Zoran and other brilliant Elliott Wave gurus, we are currently in a Wave 4 of SuperCycle degree, within a Wave 5 of a Grand Supercycle degree. I have labeled the wave counts down to the cycle degree in the picture above.

If we assume that 2007 was the top of wave 5 (according to Zoran), wave A low of cycle degree happened in 2009, after the real estate bubble burst. If these assumptions are correct, the bull market that started in 2009 is merely a Wave B of cycle degree. This is supported by the deceleration we can observe (described below) and by the wave overlap, as well as the massive monetary easing it requires to keep this market artificially afloat.

In the long term picture above, I also highlighted the fractal nature of each secular bear market occurring within over 100 years (red numbers). These fractal numbers (f1-f5) simply compare location and shape of peak and trough to those of similar secular bears. Please note that secular bear markets often appear as sideways price action, but factoring inflation into this very long term picture will give a different view (see picture at the end of this post).

The fractal position of the current correction suggest that we are not done and that we should get at least one more volatile downswing.

I also noticed the curious recurrence of a fractal (3 waves up, dip and sideways chop, then takeoff) between f3 and f5 in all secular bear periods that is still absent from this period.

Zoran’s long term view (created in 2004) – I added the two big red yearly labels

Just as Zoran foresaw so many years ago, I believe we will continue in this volatile sideways period for a longer time than most people would anticipate. This is also supported by a look at the P/E ratios, which still haven’t fallen to levels from which prior decade long bull markets kicked off.

Long Term Count, Yearly Candles

The picture above is the same as the first picture, except that I switched to a yearly candle view. This helps us to visualize the divergence in the Momentum Indicator (RSI) in the current period and compare it to the prior secular bear market. If we really saw the top of Supercycle Wave 3 in 2007 (Cycle 3 of SC 3 in 2000), the overshooting of the blue Super Cycle EW channel toward the red Grand SC channel is expected. It appears that we are just about finishing a backtest of the upper channel line and that we could be on our way to the lower blue channel line within the next years.

Medium Term Count – showing deceleration and overlap

A potential medium term wave count allows for further upside (after a pullback to complete wave b of Y). I believe we are currently in wave B of b of Y (the B is what I have shown in most prior tactical views). I added the green bubble to show the deceleration that is taking place since this bull market started in 2009. It is further indication that the liquidity fueled rally seems to be coming to an end.

Small Cap non confirmation

Further sign of the maturity of the bull market is the glaring non-confirmation we are getting from the small caps (Russell 2000 bottom chart) when compared to the large caps (S&P 500). As you can see, the S&P made new highs in 2012, whereas the Russel did not. Another divergence seems to be playing out right now, where the Russel appears to be backtesting a channel or wedge break, while the S&P is still much stronger.

Long term view of the S&P 500 adjusted for inflation ( (c) BofA, Merrill Lynch )

According to this evidence, I believe it is important to stay nimble and pay attention to the signs the market shows us. Eventually this sideways period will break out into a massive bull market. The longer it takes, the greater the bull will be. Many analysts believe this has already stated, but I doubt that.

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Resillient markets – Update 2012-08-09

Posted on August 9, 2012 | Leave a comment

Still in uptrend

We are still in an uptrend, and despite the decreasing volume, the last two days have neutralized the topping candles of the prior two days. The market is slowly eating away at the overhead resistance. Unless we get confirmation, a reversal is not certain.

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Topping Candle – Update 2012-08-06

Posted on August 6, 2012 | 2 Comments

Topping Candle

If you compare today’s candle to the previous two tops, you can clearly see that we are in a similar situation. The volume is low, indicating that the markets are once more waiting for Ben Bernanke to push it into a direction. However, forming such a candle while closing below both strong trendlines is not very bullish.

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Knocking on resistance again – Tactical View 2012-08-04

Posted on August 4, 2012 | Leave a comment

S&P 500 below critical resistance

In my last weekend update I warned of a possible reversal, but the index was more resilient than I anticipated, which is the reason I issued a warning on Tuesday. After the ECB meeting disappointed, the index finally did reverse. It dropped quickly, but it found support and managed to stage a choppy reversal rally. The sinister market even painted a bear flag onto the chart, before gapping up on Friday to end up just about where we started the week. It was nearly the perfect mirror of the bull flag, gap lower scenario that played out earlier during the week.

Agressive traders have noticed the narrow body candle on Thursday with high volume (see the red volume bar on the chart below). This was one of the few indications of reversal. The choppy up move almost made me give up the long positions I picked at the bottom.

Friday the market showed the strength I noticed before. It took many bears by surprise, locking them into poor positions by gapping open. Failing to touch the lower trendline is also a sign of strength, and despite all the negatives I marked on my chart, this strength could also result in a breakout and acceleration of the bullish momentum.

We are pounding the resistance from below again (like a submarine coming through the ice). Since we are still below the resistance, it is prudent to wait for the result of this approach. The ultimate test and the invalidation point for my wave count is the previous high of 1415.32 on the S&P 500.

SPY daily chart – narrowing

Although we can see some momentum deceleration in the daily chart, we have to realize that a sharp break will easily erase these minor divergences.

SPY hourly showing divergences

The hourly chart also warns us to be careful. Although the uptrend is still intact, we need to see some acceleration. The wave volume of the drop far exceeds the wave volume of Friday’s pop, even though the latter was higher in price. This could be an indication of a bull trap facilitated by computer traders (here is a great site that shows what is possible in today’s algorithmic trading world).

In essence, ramping a market up like this on a Friday (usually has lower volume) didn’t take much effort. The gap locked traders into their position leaving little resistance for the machines to get up here, turing people bullish before the final drop.

Whether this “paranoia” scenario will play out depends on the market’s reaction on Monday. If we can consolidate the gains before moving higher, we are in a good shape. We need to see real wave volume increase on this bullish wave and we need to take the resistance.

SPY vs TLT still in range, but ready to snap

The relative performance of the market vs. the bond market is still in its trading range, showing potential weakness. One has to be wrong, my bet is that it will soon be time for the Bond Market to take a nosedive.

30 year treasury bond, a multi decade top forming !?

The treasury bond market seems to have topped already at the buying climax. Then we got a false break two weeks ago. False breaks often precede a reversel in the opposite direction.

So far I can only count 3 waves of the top, so we need to remain careful. The actual top shows the typical divergence in the momentum indicators that is typical to a 5th wave, the final high in Elliott Wave analysis.

Bullish wave volume is decreasing, while bearish volume is increasing. A further sign of a reversal.

It remains to be seen if this is the final top of the 30 year bond market, but I remain of the opinion that we are heading for a multi decade bond market top.

Semiconductors looking good, ready to snap resistance

The Semiconductor sector supports the bullish view. It appears to have bottomed already and could lead the stock market higher. We are also sitting at a critical resistance level. Next week should bring clarity if it wants to go through. All indicators say it is ready to do just that.

Euro on its way to the target box  with positive divergence in momentum

The Euro is still on the way to our target (grey box) for a wave 4 bounce. For a longer term view read last weeks post.

Technology hit the blue trendline – will it hold?

The relative performance of the technology sector has finally hit the blue trendline I have been tracking for several months. If it holds, it will mark a cyclical low in the tech sector. Technology should lead the recovery.

Look for other indices to lead and confirm

It is time to observe other markets (DOW and NASDAQ are shown, Russel and SOX are not), since we are at a critical junction in the markets. During the last recovery the DOW lead the pack, breaking resistance first and making new highs ahead of the other indices.

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