Rotation Report: Cross Currents

The market is getting awesome for market junkies as it's filled with cross currents and mixed signals.  The bullish earnings reactions in all of our favorite mega cap tech plays Apple, Netflix, Amazon, Google sure seem to send a positive message.  At the same time, the warning signs continue to pile up and leading groups continue to thin out.  No matter how big the companies, the message from hundreds of stocks outweighs that of four stocks every day of the week.

The end of week news is the false breakdown in crude and the subsequent monster rally Friday.  There are some interesting signs of a bottom in the space.  Just Wednesday I posted on the numerous downside continuation setups in the energy group.  Some breakdowns like MRO and WLL were attempted and reversed.  That's what bottoms are made of!  At the same time other breakdowns like HES have held.  Next week is big time.

The Thursday morning low in oil stands out big time after the false breakdown of the prior low and subsequent breakout of the falling wedge pattern.  It sure seems headed higher in the next few weeks, but it's only a few days worth of price action in a half year trend.

Digging into the rest of the market....

The VIX has formed a wedge over the last month in a half.  A break higher sure seems absurd, but it's possible it does.  I mean really, how often does the VIX move over 30?

This version of the stock to bond ratio broke down from it's year long broadening top.  This chart has me wanting to buy treasuries, buy a couple of short NASDAQ and S&P 500 ETFs and go on vacation for a month.  Money managers can dis-like treasuries or love stocks, but it's clearly the wrong play to do both.  

During the week, I wrote this post at See It Market about the relative strength picture in many meaningful groups.  I'm watching a couple of risk on groups at key levels.

Transports relative strength is testing long time trend support

Industrials relative strength is slowly drifting into an underside test of this lost support line from the 2009 lows.  Is it heading sharply lower from here?

There are head and shoulders top setups popping up all over the place these days...

We've tracked the cloud computing ETF closely of late.  It appears to be building a head and shoulders top with the shoulders peaking at a key resistance.

@andrewnyquist pointed out this potential head and shoulders top in Consumer Discretionary.

Yet another potential head and shoulders is forming in the home builders

There aren't many groups that are holding a clear intermediate uptrend these days.  Here's a quick list that of those groups holding strong.

 Gold relative to the S&P 500 has broken it's nearly one year down trend.

Gold miners relative to the S&P 500 are consolidating in a wedge.  It looks headed higher.

Let's talk about high yield bonds for a moment.  There's this line of thought floating around that because high yield bond ETFs like JNK and HYG are off the December lows, that it's a great sign for equities.  There's a simple explanation behind the high yield bid and it's so simple it's easy to dismiss.

We're living in a yield desperate world.  Nearly every investable bond, yield or not, in the developed world is getting bought relentlessly.  That absolutely includes junk bonds as they have some of the most attractive yields.  

Using inter-market analysis, we can get the real story behind the happenings in the bond market.  The picture isn't so rosy.

The bond market risk ratios are hitting the lows.  The new lows are bearish.  These haven't mattered to the markets yet, but this is a doesn't matter until it does type of deal.  

Moving overseas...

Hong Kong really struggled after attempting a wedge breakout.  

 The Philippines continues to be one of the best markets on the planet.  Other than China, the Philippines ETF EPHE is the only international ETF with a significantly rising 50 day moving average.

Make no mistake, European markets are on fire, but it's a result of the gutting of the euro and U.S. dollar based ETF's just aren't responding.

 Thanks for reading and have a great week!

Rotation Report: twisted markets

The market continues to chop around, with the indices testing some resistance late in the week.  The thing about this potential rally is the defensive groups are still in such strong position.

We can view it as wholly negative, but look at the news flow across the world.  Countries are cutting rates to negative yields and when that's not enough, they cut 'em again.  Invest-able yield is becoming more scarce by the week.  No doubt this is influencing asset flows, but we don't know how much.

 What we do know is, for the most part, the action across the markets is a mixed bag.  The bad is really bad, and it's created a loud class of bear that is now there voicing concern at every intraday dip.  Sounds familiar doesn't it?

Commodities are just a bottomless pit.

Crude had every chance to follow through on a bounce instead, it's still lifeless.  King dollar is K.I.N.G.   

The only commodities trading well are the precious metals.  Gold and it's stank radar is going off hard!

Some of the best indice charts in the world come from Europe, but the various euro area ETFs are showing us a whole bunch of nothing.  The euro area ETF with euro exposure HEDJ is pretty interesting, but it's nowhere near a buy point with 8 up days in a row.

The bullish divergence in the Nasdaq 100 parlayed into a rip into resistance.  It's a bullish price structure.

The consumer ratio spent the week retracing to the underside of the year multi-year support line.  

Here's a look at the growth to value ratios.  The Russell growth to value ratio is testing a huge level.  A breakout here would really signify more risk taking.

It's a big week on tap in tech with Google, Apple and Yahoo earnings.  Here are some charts to watch in the group this week.

The internet index is attempting to break out of this year long wedge.  A move higher would be a HUGE catalyst for tech.

Semi's have shaped a highly constructive base for a couple months now.

The cloud computing ETF is back at it's major pivot area.

Some groups trading well: restaurants, real estate/property management, payments, home improvement stores.

Thanks for reading!  Trade 'em well!

Rotation Report: Straight Line Market

First, I've got to apologize for the incompleteness of this week's letter.  I caught the flu this weekend and i'm all scatter brained.

This week, news is coming at us from every angle with the market expecting a mega QE from the ECB and earnings from every group.  There's plenty of evidence to slant a market bias both bullish and bearish, so let's dig in.

It was an interesting finish to the week as we saw a false breakdown with a bullish divergence in the Nasdaq 100.

However, that doesn't jive at all with the recent relative strength developments.

Financials relative strength broke below it's corrective half year rally.

The consumer ratio broke trend support from 2011, but is still within a horizontal pivot area.  A further breakdown would be pretty worrisome.

Various commodity groups look very interesting here.

The Nat Gas Index reversed once again after testing trend support from 2010.

Brent Oil staged a doji week.  Finally, a sign the bleeding is slowing.  I'm looking to play a snap back rally in oil this week.  

Gold's monster bottom breakout was a top story of the week.  We've got a clear upside target area to roughly 1350.

Looking further out on Gold relative to the S&P 500, we see a year long downtrend test in the making.  

Overseas, emerging Asia is still doing it's own thing...

The Philippines broke out of a two year base.

Hong Kong continues to consolidate within a half year wedge.

Emerging Markets relative strength is testing a key boundary after breaking another boundary last week.

Germany closed at new highs as it powered out of a year long base.  

Thanks for reading!

The short energy, long consumer trade is over

For half a year now the Consumer Discretionary relative to Energy trade has worked well.  The consistent trend lower quickly became a sharp drop in November before the December climax low.

Now we've seen a false break of that climax low with a clear momentum divergence.

Looking at the relative strength of XLE and XLY we see further divergences playing out.

We can expect some pretty substantial mean reversion in this trade.  Maybe it will be more than that, but we've no way of knowing.

The biggest takeaway here is the long consumer trade was A lynchpin of the fourth quarter rally.  Now that it's ending, we're relying solely on biotech to carry the market higher.  That's tough for this sickly acting market.  

Thanks for reading!

Rotation Report: Upside Crash

Over the last few months we've seen some unprecedented action as the market rips higher with ease.  The instability is unanimous across the world in currency, commodity and bond markets.  Odds are there are credit market issues underneath the surface.  Naturally, troubled nations and businesses want to hide their problems as long as they possibly can, so we may be stuck in this environment for awhile.

The market rotation story is still largely the same.  Defensive, bond-like groups show continued leadership and biotechs are still the leading group. The biggest changes are the emergence of the home-building group and the precious metal space.  Let's take a look.

Last week I mentioned this potential breakout in REIT relative strength.  There's no doubting this one!

The yield chase is on as in a big way as long term treasuries TLT and muni bonds PZA have broken out of 3 month cup with handle bases.

Gold and the precious metals group are really starting to shape up and trade well.  It leads me to think the dollar could be near a reversal.  I shared some thoughts on gold at See It Market.

Just when you think they're dead homebuilders bust loose with price and relative strength breakouts.

We're seeing the same action in the Building Materials.  There are some real nice larger bottom bases in this whole home-building space in things like TOL,USG,MHO,OC and CSTE.  Even if you're the grizzliest bear, I don't know how you don't have some sort of exposure to this group if we see continued upside from these levels.

Biotech relative strength hit new highs as soon as the market revered.  That was a huge clue mid-week before some of the great rips in the group.

Indicators on watch

The NYSE Advance Decline line remains very strong, but now the stock only breadth and volume are really tailing off.

The stock to bond ratios are slipping, but holding on to support for now.

Quickly and quietly the consumer ratio has fallen to key support.  Is it another caution sign in the making?

Moving Overseas...

Asia is in the spotlight this week

China ETF FXI relative to SPY is at a key dual resistance level.

The Shanghai Composite printed a shooting star.  It's been a straight line rally and rest is welcomed.

The Philippines Composite is really standing out versus other emerging markets.  It's attempting to leave a beautiful four month consolidation.  EPHE is the Philippines ETF.

Noteworthy Nuggets

The Australian Dollar ETF FXA staged a strong reversal week.  Is this an early sign for the commodity complex?

In the ag commodity space Sugar (SGG) and (JO) had a strong reversal weeks at key supports.

Financials relative strength is tanking, further confirming the action in falling bond yields.

The Gambling Index BJK continues to find buyers at the 200 week moving average

The Travel and Tourism Index is trading horribly.  It's made up of things like Priceline, Expedia etc.  If the weakness persists it could affect other groups like airlines and hotels.

Thanks for reading!