Key Market Technicals

By: Gianfranco Carrion

Happy New Year. If I had to describe 2015 in a few words, I’d call it “violently flat.” No can “predict” what 2016 will bring. Thus, let’s focus on the state of the overall market right now and look for 2016 clues on specific charts of interest

$SPX (monthly) closed December and 2015 at 2043.94, below the 10 month moving avg of 2052. Further. The 10mma looks to be rolling over and on its way to undercutting the 20month at 2028. I would consider a bearish cross of the 10/20 month as the official start of a new bear market, similar to 2000 and 2008. A clear top is in place ~2125.

$SPX printed another inverted weekly hammer, closing at weekly lows and below the 10 & 40 (2060). Major concern - The bullish cross of the latter moving avgs is once again negated by the price action last week (12/28 - 12/31)

Zooming in on the daily, $SPY broke its upward trend from $200 and is now under its 5ema and 20 & 50 dmas. Given the trend break, I am waiting for the first green bounce and close under the 5ema to go short via $SPXS.

$SPX triple timeframe summary,

• Monthly - under 10 month (2052). Watch out for a 10/20 bear cross below 2028 for a bear market signal
• Weekly - printed inverted hammer again. More worrisome, 10/40wma bullish cross was negated again at 2060
• Daily - below 5ema on $SPY @ 205.13. I’m looking to short first bounce under the 5 and 20dma at 205.2
• Currently bear. I get bullish again (short timeframe) if $SPY retakes 5ema and 20dma for another run at 2100

So, what charts am I watching to determine market direction for next week and 2016 overall? Here’s the roll call

1. $WTIC – Oil continues attemp at bottom after -68% decline (current low at 34.5). Still believe higher is due
2. $XLE – last time the Energy Sector was this low, $SPX was -37% lower. Sector dropped -58% in 2008 crisis
3. $AAPL – looks weak and of heavy importance due to 11% weighting in the $QQQ
4. $RUT – small caps look vulnerable near a major pivot. If buyers don’t step in I take it as a sign of “risk aversion”
5. $SSEC – remember when China was the chart to watch instead of $WTIC? It needs to stay healthy for bull case
6. $EEM – emergin mkts w/ extremely weak chart influenced by $WTIC. Could trigger fear of weak global growth
7. $JNK – former two-day “hot topic” that brings lots of scary predictions on TV, but is the chart bottoming?

FINAL THOUGHT

Last week, I said my thesis calls for a continuation of commodity bounce, bringing the $SPX and $NDX with it. Crude is holding tough for now; however, $SPX $NDX charts have a bear bias on most timeframes at the moment. A 6-day uptrend was broken on 12/30; hence, $SPXS is on watch for a trade. Monitor the charts below regularly in 2016 to remain ahead of the curve on potential market direction triggers. Here is to a profitable 2016. Thx for reading - Gio

#1 $WTIC

Crude Oil is THE chart to watch going into next week

Crude is 6.8pts from the Dec low (~34.5) but being challenged by a falling 20dma at 37.15.

A breakout above 37.5 w/ force could target the upper bolli at $40 (+8%).

I still believe Oil is bottoming & more likely to “surprise squeeze” here rather than delcine to $20 as most predict

A break below rising trendline under $36 would compromise the bottom thesis and gets me defensive on overall market

#2 $XLE

Last time the Energy Sector was this low, $SPX was -37% lower.

Current downtrend from the July 2014 top to August 2015 low stands at -40%.

For reference, this sector dropped -58% during the 2008 financial crisis.

The $58 mark is a crucial level. A breakdown below could trigger an “implosion” in the chart.

Watch closely. Bear scenario on 12/8 post calls for an “implosion” in the energy sector to trigger the next bear market

#3 $AAPL

Last week I rec’d $AAPL as a buy @ 107.45 given daily RSI of 30. Price surged as high as 109.4 (+2%) before reversing

Last week I also noted that APPL topped on 7/20 and ex-APPL, the $QQQ % gains since would be flat vs -2%.

Above calculation for 2015 -  $QQQ all-in +6.49% / vs / $QQQ ex-APPL +8.31%. Apple held the Q’s 1.8pts behind this yr

Now, $105 level stands as a crucial pivot on longer chart. Losing this level will compromise a major advance in $QQQ

$AAAPL is -21% off its all time high and 12.5pts away from the 8/24/15 panic low

Notice how defined patterns always resolved to upside on the run from $55 to $125. The stock lost mojo in March 2015

#4 $RUT

The 1,100 level is the key pivot that must hold for Small Caps. A roll-over below could also trigger a bear market scenario

#5 $SSEC

China is +23% off the Aug lows and remains on an uptrend. This chart needs to remain healthy above 10wma (3,531)

#6 $EEM

Emerging Mkts -27% from May ’15 highs. A breakdown below uptrend at 31.55 would be negative. No bottom yet

#7 $JNK

High Yield +2.7% off Dec low printing long bottom tails. Hi/Lo decline at -13% vs -8.5% prior 3 yrs. Constructive signs

Gio's Weekly Market Outlook: Santa Rally

Let’s make this week’s post a quick hit – main thoughts on the state of the market and the charts I’m looking at. Last week (Dec 21-25), I listed out my points of concern and the possible positives in the charts. See positives below

#1 and #2 played out to the bulls’ favor and we had a broad advance - mainly due to #3 also playing out

$SPX ignored the inverted hammer printed last week and closed at 2060, right under the 40wma. Further, the 10/40 wma bullish cross was defended. All very positive in short term. A 4% range remains – I get bearish again under 2020. Taking out 2,100 is the next major step needed in the chart. I’m expecting a retest of this level into this week

$NDX continues to hold up the best. Tech took a back seat to energy names and the $SPX due to the broad commodity bounce. I’ve been long $TQQQ since last Friday and will continue to hold over the index 5ema (daily) at 4600. If bull run continues, a retest of 4700 is on deck for this index

Going to last week’s #3 positive – I “called bottom” on Crude ($WTIC) on Tuesday and is +10% 0ff the low at $34.5. My current thesis calls for a continuation upwards for Oil, bringing up all major indexes with it. $SPX should outperfom $NDX in this scenario; however, I rather “tag along” in tech versus being too exposed to crude’s whims in the $SPX

Another key chart on watch is $AAPL.

$AAPL weighting is 11% of $QQQ & topped on Jul20 at $132. It’s dropped -17.5% since while the Q's declined -1.94%. That means ex-$AAPL,  $QQQ is +0.06% YTD. For tech to go higher $AAPL will need advance at least temporarily

I shared this $AAPL daily chart on my stocktwits stream on Tuesday 12/22. Buying $AAPL at RSI=30 has been a succesful trade this year. Set up is to enter once $AAPL regains its 5ema at $108.28 expecting a retest of 20dma at $113

Lastly, the market looks cheap from a breadth perspective compared to 3 weeks ago. Ony 37% of the nasdaq is over its 200dma while 47% is over the 50dma. Contrast that vs 65% over the 50dma  from the $NDX early December highs around 4700. Media outlets will scare you with “bad breadth” headlines. I love seeing the $NAA50R lower – it means I’m buying in cheap

In summary,

• $SPX upheld 10/40 weekly bullish cross at 2060. Need to push higher from here
• $NDX made strides towards regaining it’s uptrend over 10wma – I expect retest of 4700 (long $TQQQ)
• I believe we have found a bottom in Oil ($WTIC) at $34.5 and expect another leg higher. $SPX and energy sector ($XLE) to be favored in this scenario
• Breadth tells us the market is cheap right now compared to 3 weeks ago – that’s a good thing

FINAL THOUGHT

The awesome thing about being a trader versus an investor is that I am trained to change my mind if the charts prove it. Last week, the weekly charts looked horrible. The only way to regain a bullish bias was to completely reverse the move – and it happened. This mini “bottom” on the indexes comes hand in hand with the reversal is crude oil and energy sector. My thesis calls for a continuation of this commodity bounce, bringing the $SPX and $NDX with it. Volumes this entering week will be low which should put a lid on volatility. I remain long and bullish over the indexes 5emas ($SPX 2049 / $NDX 4603). I am watching Apple closely to monitor a broad move in tech space.

As always, thank you for reading. Happy holidays. Trade ‘em well - Gio

My favorite breakout

First off, no my favorite breakout isn't a solar stock.  It probably should be, since every day people are making their quarter off them.

I don't know what the hell is going on here, but it doesn't matter.  The ticker:  CBPO.  It's a Chinese Biotech company.

It sounds like something out of a late summer horror show.  You don't need me to tell you nobody was buying this thing at the low and look at it now.  Amazingly, shares are now over 60% off the September low.

The main thing that stands out, other than the lack of sellers is the volume that came in on the breakout.

Also, Monday's response to Friday's candle was pretty awesome.  The range break measures to 175 and makes for a solid target area, but it's never that easy.  

The tough question is where do you put your stop?  For me, playing purely for a relentless Santa rip, I'd place it under Monday's low of 128.  Given the distance from the stop, the position will be a smaller size.  I'll take a position Tuesday unless we gap up a couple of points.

Also note the spread was about 1 dollar when I checked this thing out at 3:30pm EST.

Here are a few stats via IBD Investors

Trade 'em well

What's working?

There is endless talk about how tough trading this market has been.  As a technical swing trader, I couldn't disagree more.  The opportunity has been immense in commodities, the indices and even individual stocks.  Alas, there are a ton of trading styles and it's worth keeping an eye on what's working and what's not.  

This is a tough market for:

Investors  the pockets of strength have deteriorated throughout the year.

Breakout traders  ideas are much harder to come by this year and the odds are much worse than last year.  That said, the breakouts that are sticking are winning BIG.  

Optimists  Most structural positives including top growth trends like healthcare and mobile computing had been priced very optimistically coming into 2015.  Again, windows of opportunity have shrunk.

It's always a tough market for:

Trend faders  If you've faded the downtrend in commodities, odds are great that you lost a lot of money in 2015.  

This is a good market for:

Hit and run day (futures) and swing traders.  Buy support, sell resistance, rinse and repeat.

Trend traders  Conversely to the trend faders, those riding the downtrends in commodities have made a windfall of profits.  


Odds are strong that 'what works' changes substantially at some point in 2016.  Keep an eye out.


Trade 'em well

The Ultimate Edge

Where do we find an edge in the markets.  As traders, we're all searching for that answer.   More importantly, how do you find a continuous edge in the markets.  After all, edges are always coming and going, right?

Wrong.  You're edge comes from persistence.  Staying on top of the markets in a controlled manner shows us where the edges are emerging and fading alike.  

Persist how you ask?

Always run your setup scans - also scan for top movers and unusual volume

Why top movers?  Objects in motion tend to stay in motion.  Follow on moves are common.

Why Unusual activity?  They help you see all the stocks with big news and sometimes you find very meaningful accumulation in smaller stocks.  I use finviz for such simple scans.

It also pays to keep up with the news headlines.  It's a great way to build an informational edge in the special situations that constantly occur in the markets.  I use Seeking Alpha and Stocktwits to stay on top of things.

Make notes on charts for EVERY trade you take

Write down everything going through you're head.  Finally, do a trade review.  Save the charts for future reference.  Certain patterns appear and re-appear in the various market phases.  The quicker you figure it out, the bigger your edge. 

For example, in August-September, most of the price patterns we would see, wouldn't work.  It paid greatly to ignore the patterns and simply respect price levels.  That saved me from a handful of early exits and gave me an edge of pattern reliant traders.  

For printing charts, I subscribe to StockCharts

Keep a clean list of your favorite ideas 

Update it daily.  You might have some amazing idea that isn't quite to a trigger yet, but have a lesser idea that is ready to go.  What do you do?  That's never an easy question to answer, but being mindful of these ideas when deciding to implement capital is crucial.

I just use a spreadsheet

Track market conditions daily

What does the market backdrop favor in the next few days, what does it favor in the next few weeks?  Track your put call ratios, breadth oscillators, new highs/new lows etc.

Yes, this is an obvious tip.  However, in practice, it is very useful as we fight to stay mindful at all times.  The markets naturally wear us down to the point of where we feel like giving up or giving in.

Again, StockCharts is a tool I use for this.

The common theme:

Stay mindful at all times.  Do what you have to do to avoid feeling worn out by the markets.  When you do feel worn down by the markets, be sure to take advantage of your social tools and ask - are others feeling the same thing?  If the answer is yes, get your ass back on the grind.  That's when opportunity is the greatest.


I'll leave you with my favorite quote on persistance via Calvin Coolidge:

"Nothing in this world can take the place of persistence. Talent will not: nothing is more common than unsuccessful men with talent. Genius will not; unrewarded genius is almost a proverb. Education will not: the world is full of educated derelicts. Persistence and determination alone are omnipotent."

Trade 'em well