Rotation Report: Thesis Refuting

The first thing that stands out this weekend is daily charts and weekly charts are conflicting in many cases, at least from a momentum standpoint.  Last week staged a key reversal on weekly charts.  What's more impressive, is how many groups and various country ETFs have held up well.  

There just aren't a lot of bear markets out there, which is interesting considering news flow.  Instinctively, that seems very bullish.  I'm still a fan of sticking to MACRO trading and patience as we've not yet seen signs of improved breadth.  Let's dig in..

Looking at the S&P 500 we see the notable bounce off the 40 week moving average area.

And on the daily chart we see falling 20 and 50 day moving averages.  The 50/100 DMA around SPX 2095 will be a very interesting area this week.

MACRO

As I've documented time and again, the recent high area remains the strongest, most obvious level for a potential correction since the bull market began.  With that in mind, I try to continually search for evidence that's refutes that thesis as we move along.   

Jason Goepfert points out smart money is continuously removing hedges in 2015, and now at an accelerated pace.

Dana Lyons notes the extreme rush to protection of late.  It's another bullish piece of evidence.

One thing i'm watching is the Smoothed Arms Index to see if there is a true change in market posture.  For the past several years it's been stuck in this range, while bear markets tend to push this reading even higher.

More MACRO

Tuesday Night I noted a couple of go to indicators flashed buy signals..  

The put call ratio reached an extreme that has led to meaningful bottoms.  Note that the 100 day moving average 2095 on the S&P 500 is key.

The Stock Only Advance-Decline line has flashed numerous signals of late.  Too much for my liking, but we're still seeing bounces when things move too far and too fast.

  
Yeah stocks jumped Friday, but breadth worsened and hit new recent lows.  This is still a 'buy the big boys' kind of market.

Group Action

Biotech is compressing.  Note it didn't make new lows with the market last week.  Bulls want to see this lead again and it just might be able to.

Into earnings season the Consumer Discretionary stocks are standouts.  Plus, they've seen the biggest cuts to earning expectations in the last quarter per FactSet.

Other Markets

Brent Crude continues to work it's way lower out of the falling channel.  If this market is the next leg of the bear and as weak as it was late in 2014, you probably won't get a chance to short up at the falling 50 DMA.

Treasuries couldn't hold a bid last week.  That will happen when you have a touch of the falling 50 DMA.  Daily momentum indicators appear to be working off major oversold conditions.  

Soybeans have had a nice run of the lows like most ag commodities, but seasonal strength drops off a cliff for the next quarter.  It'll be interesting to see how that powerful looking chart reacts.

Trade 'em well!

Post Recap

After taking some 'me' time and a month of toned down blogging, I came back spitting fire last week.  Thanks for all the support of late!  You learn who really enjoys you're work and has your back when you have an inconsistent posting schedule!  Here's all the posts from the week in case you missed them.

The Rotation Report: Waiting

Weekly Linkfest: Vol Season

Energy is not trading well

Why Sharing Economy companies aren't going public 

China's visible hand

The Grexit Contagion scenario - (yeah, i'm adding to noise, but I tried to lay out what Greece news matters to me as an investor.)

Also, I'm pleased to announce the Public Chart list of some great growth stories and interesting businesses is now available on stockcharts,com.  Check it out here

Top Trading Links

It’s Volatility season. All of a sudden the Dow Jones Industrials are below the 200 day moving average. Instability and uncertainty is emerging across the globe. More and more charts are breaking down and this seems like early stage correction stuff.

On the flip side, hopefully you’re having a wonderful long weekend! Happy Birthday America!

Here’s this week’s Top Trading Links.

MARKET INSIGHTS

@RyanDetrick shows us that for whatever reason, volatility tends to spike in July.

@michaelbatnick notes volatility spikes tend to occur when the Dow Industrials are below the 200 day moving average.

@VIXandMore shares what to expect after Monday’s monstrous VIX spike.

As you can see, we currently have a ‘perfect storm’ for increased market volatility that extends beyond Greece or other news events.

@Snyder_Karl notes S&P 500 support levels.

@andrewnyquist analyzes the China correction.

The high yield bond market has shown relative weakness for about a year now. Does it finally matter? @KimbleCharting takes a look.

@IPOtweet’s quarterly review of the IPO market:

“Fueled by a continued wave of biotechs, the health care sector has accounted for over one in three IPOs for four quarters in a row”

The key, under-appreciated driver of the stock buyback trend via @michaellebowitz

@TMFHousel on innovation:

“Some of the most meaningful inventions took decades for people to notice”  

MARKET OPERATOR INSIGHTS

“To succeed as traders we have to accept losses on individual trades as well as drawdown periods but also must have a way of controlling and minimizing them.” – @NoanetTrader

@harmongreg on support and resistance:

“The key distinction between how the professional uses support and resistance is this concept of a brick wall. Pro’s see support and resistance more like a state border. It is a line demarcating a border, but it does not stop you from walking right through it.”

Warren Buffet’s greatest advice compliments of @SirMarket:

NEWS & HAPPENINGS

• “with less than 5% of the world’s population, the United States holds roughly a quarter of its prisoners” – The Economist

• Guggenheim boots China’s Hanergy from its funds.

• China is allowing its pension fund to buy stocks.

• …and brokers are now allowed to accept real estate as collateral for investors to leverage bets on stocks.

• Another reason why water is becoming more scarce all the time.

• The wildest view of the future of wearable tech.

• The currency hedged ETF trend is getting long in the tooth.

Thanks for reading!  Be sure to check out our Top Trading Links archives for a goldmine of investing research and trading education.

The Energy group is not acting well

The energy sector is struggling and it’s pretty clear the whole industry needs more time to recover from and (more importantly?) adjust to last year’s massive price shock. And this shows up on the chart for the Energy Sector ETF (XLE)

Looking at the chart below, there are a few takeaways that are important to note.

• Underlying breadth leads price to new lows.
• Momentum divergences failed to lead to a rally.
• The Energy Sector ETF (XLE) has consistently traded lower while the market remains range bound.
• 73 looks to be a major support area for XLE.

Now let’s look at a major component of the Energy Sector – Crude Oil itself. Since rallying into May, Crude has gone sideways.

Here are a few important things to note about Crude Oil right now:

• The falling 200 Day Moving Average has caught up to price.
• Price may be forming a two month rounding top between 56-62.
• Price has now fallen below the 50 day moving average.
• The 50 day moving average is flattening out.

In my view, there is not much to be positive about in the Oil and the Energy Sector right now. What would change the look? Some massive upside thrust. That said, it seems like the space still needs time to recover and digest last year’s massive price shock.

Thanks for reading.

Note: I originally published this post over at See It Market

Rotation Report: Waiting

Greece and China are driving the risk-off nature globally.  Naturally, we want to look to take advantage of the opportunities the market gives us.  Looking around at my favorite investment ideas, some are reaching buy areas like the 10 week moving average.  Overall, it just seems like the market is just starting to unwind and needs time after large breakdowns across various groups.  We'll get into that later.

At the same time, MACRO trades are starting to work well and that seems to be an emerging theme for Q3.  The economically sensitive groups continue to trade very poorly.  This is a big concern regardless of Greece, China, Puerto Rico or whatever.

Be sure to check out my latest link-fest over at See It Market

Market Backdrop

The VIX broke a key pivot area and held above it at the end of the week.

The Stock Only Advance-Decline line is starting to bounce off a level that has led to bottoms before.  That said, the bounce has been weak.

Looking at the NYSE Dashboard we see volume continuing to deteriorate meaningfully.

U.S. Group Action

Is this a head and shoulders top in the bank index?

Note the trend from 2009 has just broken down in the Financials ETF 

Consumer Staples is an area that could be great for shorting.  Particularly the beverages space.  Brewers gave up critical support last week.

Industrials have broken a 7-8 month wedge lower while losing the 40 week moving average.  Note there is still thick horizontal support down to about 53.

Since the M&A climax top in May. it's been a trend of weakness in Semiconductors.  That continues with a weak bounce off the 200 day moving average.  

Materials broke down out of it's symmetrical triangle.  Normally, we'd bet on a trend continuation(higher).  Clearly that's not the case and worth noting.  The group has a ways to meet the measure move in the 46s.

Other Markets:

Gold relative to the S&P 500 has traded in a tight range for some time.  Is a big move coming soon?

Brent Oil continues work lower after falling out of the rising channel.  

Now WTI has joined it breaking down out of a double top.  I touched on that and the energy group mid-week.  Basically, it's not looking good at all.

The Shanghai Composite is now 30% off the highs and testing a key pivot level into next week.

Brazil's momentum is improving.  Are positive things brewing in South America?

Thanks for reading!  Hopefully you're having a great Fourth of July Weekend!  God Bless the U.S.A!