"Everyone has a plan 'till they get punched in the mouth" - Mike Tyson

August 31, 2015

Oil's fun is done

Well, maybe...

Oil continues to rip today on a nice red to green move, but the market has reached some meaningful target zones.  

On the weekly chart we see WTI Oil ETF USO has reached the falling 10 week moving average.  


This coming while the daily upper bollinger band has been reached.


It's been a wild ride, but plenty of folks are getting off the train here.  Does it mean it can't move higher here?  No, but if you're forcing a long up here it's chasing and pushing your luck.

Trade 'em well!

August 28, 2015

Macro Market Outlook: Just Like That

No doubt Monday's open marked important lows across the globe.  Maybe we won't see them for awhile.  Downside momentum has been strong and we haven't even broken meaningful breakdown pivot levels yet.  Let's not get ahead of ourselves with 'but nobody is expecting a V bottom' talk.

There is a lot of overhead supply out there.  The markets are linked globally for now and price action is loose.  That tells us all we need to know about market conditions.  Over the last few weeks we've shifted from late stage bull market conditions to bear market conditions.  We need time to recover.  Particularly with the now down sloping averages on nearly every time frame in the S&P 500.


Dana Lyons points out that the interest in inverse ETF volume is near a record.  Some of that can be attributed to the shifting long term tectonics of the market.  That said, the last peak this high was last October's low.
The biggest theme of note is the commodity rally.  A strong El Nino is coming and it can cause some weather disruptions across the globe.  They tend to affect mostly agriculture commodities but it's uncertainty and risk for shorts.  At the same time, commodity dependent countries formed key reversal weeks at major support zones.  There might be some legs to this move.


Measuring the Market

The Smoothed S&P 500 ETF shows the strength of the recent downtrend.


The NASDAQ to Bonds ratio continues to megaphone.


I was shocked to see the smoothed Arms Index is still not really breaking out of the recent four year range.


The NYSE stock only McClellan Oscillator is already nearing a toppy level after the massive drop early in the week.


Vol Term structure is still screaming fear.  It's absolutely not an 'all clear' signal for a V shaped rally.



Commodities

This week we saw an important changing of the guard.  The major laggard commodity group led the rally.  It was a major inflection week in the space.

Not only did we see massive rallies, but the news and deal flow has been off the hook.  Icahn stepping into more Freeport McMoran shares.  Schlumberger buying Cameron International.  Goldcorp merging a major project with Teck Resources.  Smart managements are stepping up to the plate here.

All of a sudden Oil has recovered the Spring lows.


Commodities relative to the Emerging Markets has broken a year long head and shoulders bottom pattern.  This can provide a tailwind to the emerging market space moving forward, particularly the oil producing nations.


Gold continues to chop around in this major pivot zone.  The next week or so will tell us a lot.  I highlighted some of the most interesting gold miner long plays mid-week.


Silver pushed to fresh multi year lows.  This divergence from gold could be considered non-confirmation.  I don't know.  It just seems to me the gold move is a safe-haven play.  In the dogma of QE infinity and infinite inflation, silver led gold in the later stages of the rally.  Is it a requirement that Silver participates in any gold rally?  No, but logically you'd think it'd find some support soon.



Global Markets

Chris Kimble notes the bounces at key levels taking place all across the globe.  The recent lows may be much stronger than most give credit.


Note this key bounce area in the STOXX Europe 50.  It could end up being a major bottom.


Hello Russia!  Look right where it's bouncing.  Is this a larger bottom in play?  It's way too soon to tell, but this is a major support zone and the news out of Russia really can't get much worse, can it?


Emerging Markets relative to Emerged Markets broke a sharp downtrend.  Make no mistake the trend is still lower, but this ratio can move higher short term.


Emerging Markets bounced sharply off the 2011 low.  It's an air pocket up to 35-36.


Brazil with a key reversal week at 2008 lows.  Can we bounce more in the coming weeks?


Is this a false breakdown in Greece?  I'm looking long into next week.


Germany is still below the broken support line.  It'll be interesting to see how this acts in the coming weeks.



Bonds

Emerging Market Bonds are re-testing the major pivot area recently lost.


TLT formed a nasty reversal week as it now loiters in this pivot zone.  All is not lost.  120-121 looks like a sturdy support area.


TIP is set for a major move this fall.  Horizontal support is still hanging in there, but if that goes look out below.



Market Musings

Some of these market pundits are just....  Oop the Dow dropped 1000 points, it's time for QE 4.  Oop GDP came in strong, tightening is on.  It's funny to listen to, but a complete waste of time.  Yellen has held a strong yet steady hand in laying out the slow path to tightening.

The FED continually has to send mixed signals for those trying to game the bond markets etc.  It has worked miraculously creating an tidal wave of noise and confusion for those who won't take a step back and breathe.  The noise is absolutely out of hand at this point.  Bravo, Ms. Yellen.

THE funny thing about the markets is you can take so much time to prepare for a week.  Then, all of a sudden, the dow opens down 1000 and half your research seems worthless.  But it's only 'worthless' in the moment.  That work gives us a strong framework for what we're dealing with to take advantage of opportunities.

You don't know how quality your brokerage is until you need it the most.  It was a disastrous week for numerous brokers.  If you find yourself in this position, it's a tough choice to either take the time to transfer your funds to a better service or sticking with the status quo during the market volatility.  Opportunity cost is pretty expensive here and now.

Trade 'em well!

August 26, 2015

Junk gold miners, quality setups

We've seen some massive potential false breakdowns in various gold miners.  These are junk names, but set up very high quality reward-risk trades.  Will they work?  Who knows, but I think it's worth a shot.  Here are a few i'm looking at.

I've mentioned SA before.



AU

If this pivot level doesn't hold, there's another worth noting in the 6.80's



IAG with a false break of the 2014 lows, re-visiting again.



Same goes for SAND


And we see the definition of panic in LODE last month.  


Trade 'em well!

August 24, 2015

What a day

I've only traded since the summer of 2009, but this open was unlike anything i've ever seen.  The lack of liquidity and quality stocks down 17-25% jumping dollars at a time.  Of course, as you try to place orders, the systems are so jammed up you don't get your confirmations for a few minutes (depending on your brokerage).  It was just an unforgettable open.

In this week's Rotation Report I mentioned this:

"We don't have a single clear, in-your-face reason for investors to sell (think about when we had Greece to blame).  If we can attribute a cause to the sell-off, it's easier psychologically for trapped longs to sell.  Instead, it seems we have confusion with a confluence of factors (china, oil, the fed) and confusion tends to lead to more hope and less action."

Well, the Dow dropping 1000 points is an adequate 'in-your-face' substitute.  Monday's low in the indexes has a chance to be durable.  We'll see how this week plays out, but that was a TON of forced selling this morning.  My view for the short term has pivoted, but the market is still badly broken in the intermediate term.

Trade 'em well!  

August 23, 2015

Back to School, gone to shit

Apparel Retailers had a decent base forming at the 200 day moving average.  It tried to break out early last week and, of course, failed in spectacular fashion.  


Looking longer term we see a five year trend breaking.


This breakdown is coming right in the heart of back to school season.  I think we should respect it unless last week's highs are recaptured.  Support areas to watch: 795(level), 770-750 area. 725, 690.

Trade 'em well!

August 22, 2015

Rotation Report: Hit the Fan

To end the week we saw some carnage not seen since the last bear market.  Friday, sectors and groups across the board crashed into and through key supports.  Given the excessive downside breadth and panic reads sentiment measures, it's an interesting bounce setup short term.  However, the market is just breaking down from a 5 month top.


I suggest reading JC Parets piece on the major fibonacci extension ratio in play in the S&P 500.  This extension is a level where bear markets can begin.  It pays to be protective.  

We don't have a single clear, in-your-face reason for investors to sell (think about when we had Greece to blame).  If we can attribute a cause to the sell-off, it's easier psychologically for trapped longs to sell.  Instead, it seems we have confusion with a confluence of factors (china, oil, the fed) and confusion tends to lead to more hope and less action.

The main attraction to buyers here seems to be the hope that this is just a big panic out of the recent range.  This decline is too violent for that and the big picture suggests a continuously deteriorating environment.

So why am I even talking about buyers?  As you know, the downside momentum in emerging markets and commodities has been RELENTLESS.  The U.S. markets are just now getting a big whiff of that selling pressure.  It's times like these are when 'trader bros' become 'I used to trade bros'.  We have to be careful.

I made a few important points on stocktwits Friday Morning.  Remember to read from the bottom up.


After many years of the same conditions, we become wired to react to them.  Then, markets change and that completely blows up in our face.  Guess what, all sorts of algorithms are programmed the same way.  It's another reason to be fearful of further STRONG selling.  The key is to just know when the environment has changed.

After the mega bull run and the massive trading gains seen it's easy to get cocky.  We tend to think we can trade accurately trade short term bounces, but that will not be the case!


The whole point is things have just NOW broken down from long term formations.  Early is wrong and it can be painfully wrong.  If everybody is looking for a bottom or to play a bounce, you're not going to find it...

Thoughts aside let's stay agnostic for the chart/group analysis

Say you think the market is near a low and you want to buy an index.  Which do you buy?  The Small Caps may be the way to go.  Looking at IWM, we see a test of the 100 week moving average.  This average has been an excellent area to buy over the last four years.  Plus, we've already seen a double digit correction.


Equal Weight S&P 500 has ripped during this collapse.  It seems like a massive positive divergence, but we can't act on this alone.


Small caps relative to the Dow keep making higher lows and highs.  Another sign we want to stick with the US?


The NASDAQ to Long Term Treasuries ratio continues to megaphone out and test key support.



Groups

Interestingly Energy is starting to outperform Consumer Discretionary.  It's not really that surprising when you consider gas prices.  I'd be real wary of the consumer discretionary group here though.  More on that later.


The home building space is showing strength across the board.  Continued strength may be a sign the market rotation cycle is starting all over again.  That'd be bullish in my book


Oil Services are reaching key support zones.


Alternative Energy is near a major support zone.  Is this a double top?  It's not like any of these businesses are really producing positive cash flow.  Of course they could get dumped hard on a further correction, but maybe it can bounce here.


Apparel Retail saw a nasty outside week while snapping long term channel support.  Note shorter term support hasn't given way yet to confirm the breakdown.


Financials have broken the trend from the 2009 low.


Regional Banks are improving relative to Financials at an important pivot level.  Is more US exposure better?


Biotech via XBI was GREEN Friday after testing the rising 200 day MA.


Trade 'em well!  Thanks for reading!

August 15, 2015

Rotation Report: Time to change

For years now, I've written the Rotation Report weekly.  It's time for a change.  I've decided to split the Rotation Report into two segments running bi-weekly.  The Rotation Report will be trimmed down to only market rotation and group action.  Then everything else will be fit into the Macro Market Outlook.  Why?  To make it easier to digest.  Plus, things just don't change enough week to week to warrant discussion.  This week we'll start off with the Macro Market Outlook.  Cheers!


Market Internals

The NASDAQ Summation Index is reaching that of other key lows.  


Breadth has improved in the last couple of weeks in the S&P 500 after the climactic drop.  It hasn't quite broken the downtrend yet though (top subgraph).


The stock/bond ratio broke a smaller top.  The larger picture still appears to be a larger congestion that eventually goes higher.


The Stock only advance-decline line is firming up as the lower bollinger band is now pointing higher.  This is an interesting development.


Mid-week I wrote this post 'Something's got to give' on market sentiment.  It's real tough to get a handle on right now.


Bonds

Long Term Treasuries are testing a thick resistance zone.


Preferred stocks are coiled tightly relative to the S&P 500



Commodities

Cotton bounced strongly at major multi year support.


 Gold has turned the corner in the short term.  How does it hold next week?


 The falling 200 day moving average has just about caught up to price in Nat Gas.  Watch the rising support line.  If this can break higher, there is a tremendous seasonality tailwind.




S&P 500

Amazingly, the S&P 500 held the 40 week moving average again.


Arthur Hill notes signs of accumulation in the S&P 500 as the accumulation - distribution line reaches two month highs



International Markets

The Edge

One of the cleanest edges I see this week is short emerging markets after EEM gave up the key 36 area.  I'm short via EDZ.


Shanghai has some room to brick wall resistance around 4150.


Germany is testing the 200 day MA again.  Is the summer long base on verge of breaking down?  Not yet, but the symmetry of the base is wrecked near term.


A clear downtrend has been established in the World Index.  Note higher lows forming.



A few thoughts

The Fed

There is a TON of noise building RE: the September Fed meeting.  The conversation around it appears to believe the long bond has a bearing on the FED's actions.  The Fed controls the short end, and short end rates have been rising rapidly for the last month.  So this whole point of view is twisted and an odd dogma.  Check out the 3 month treasury yield.


Then of course, we have Fed Fund Futures.  We can all agree Fed Fund Futures are likely a better tell of potential rate hikes than economists.  However, the Futures also tend to be constantly slow to predict rate hikes.  Let's not act like they're gospel.

China & the Yuan

China's Yuan devaluation told us nothing we didn't already know about the Chinese economy.  The media and general noise is making a big deal about this, which piques interest on the other side of some of these commodity trades.  At the same time, it has a large effect on global trade (we're already seeing repercussions in emerging markets and Europe and we've got to let price action guide us. 

Valuations

Warren Buffett made his biggest purchase ever last week in Precision Castparts.  He's hinted that he's looking to do more.  Are you kidding me?  Isn't this market 'extremely over-priced'?  A lot of stocks have been hammered 20-40% off the highs and are still executing.  The value is out there, but it certainly isn't as easy to find as it was in 2012.

Trade 'em well!

Reminder:

All ideas shown on this blog represent the authors opinion based on the data available.