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 Equity market overview—bullish developments remain in place

The stock market has been extremely resilient, filled with enthusiasm since the presidential election.  Major averages have made new all-time highs on a regular basis.  Market breadth has been mixed from day to day, with Nasdaq breadth not yet confirming the highs in the Nasdaq Composite.  Whenever potential warning signals show up (such as weakening momentum or unnerving world news events) and the market looks like it might be ready to fall, instead the bulls step in to buy and the market rebounds.

Technology has been the star performer, continuing to charge ahead, leading the advance outperforming the other major averages.  Overseas markets have joined the party, high yield bonds remain firm, and VIX (a measure of fear) is near its lows.  All of these are signs of a healthy market. Our models remain overall neutral-positive.  The intermediate and long-term trend remains up. There is no evidence of a change in trend until proven otherwise.   Review my last Systems and Forecasts article dated 05/25/17 for 11 clues you want to watch for a potential trend change.  The trend is your friend so why fight it.

Let’s turn now to an area where we haven’t talked about in a long time—Gold.  You can trade gold bullion with the SPDR Gold Shares ETF (GLD).  The charts suggest that gold now appears ready to shine.


It is easy to trade gold bullion using the SPDR Gold Shares ETF (GLD)

GLD has a relatively low expense ratio of 0.40 and, like the physical metal, is 1.43 times more volatile than the S&P 500 (SPY).  Investing in commodities entails significant risk and is not appropriate for all investors.  GLD, for the most part, is not usually whippy; it tends to be trendy, with its price moving steadily in the same direction for extended periods.  After GLD establishes a trend, it could remain in that trend for many months or years at a time.   Gold (GLD) appears now to be at a critical juncture that could represent the early stage of a long term rally.


SPDR GOLD TRUST (GLD) WEEKLY (ETF) and 12-26-9 MACD

 

The top portion of the GLD chart above shows the weekly active trend channel in effect (blue lines).  Purchasing the GLD is an easy way to participate without holding the physical commodity.

Gold (GLD) bottomed on 12/07/15 at 100.23 after years of decline, being out of favor by investors.   A sharp rally followed, before GLD fell again, retracing most of its gains and bottoming at 107.00 on 12/15/16.  Since hitting bottom last December, GLD has traced out a series of higher low and higher highs.  This week GLD penetrated the high on 04/17/17 at 123.07 and has now broken its downtrend from its peak (orange line) from 07/05/16.   There is more room for further price gains, especially if GLD can penetrate the middle channel.  A break above 125.00 would suggest a potential upside target to 138.00.

The lower portion of the chart is the 12-26-9 MACD, a momentum indicator.  MACD had a timely entry from an extreme oversold condition. Only recently has MACD turned positive.  There is plenty of room to the upside before MACD will be in an overbought condition. MACD is still rising, showing no signs of weakness.  The trend of gold has improved.  With equities at new highs, now could be a good time for investors to add some diversification to your portfolio into a sector where the trend has turned favorable, before further interest from other investors and institutions.

SPDR GOLD TRUST (GLD) MONTHLY (ETF) and 12-26-9 MACD

The top portion shows the SPDR Gold Trust (GLD) monthly (ETF) chart. GLD has been out of favor for many years.  GLD peaked in September 2011 (yellow circle). Investors are more optimistic about the precious metal and it’s up 12.5% this year through 06/06/17.   After breaking the shorter term monthly downtrend (pink line), GLD had a brief rally but didn’t have enough strength to break the longer term downtrend from the September 2011 high (blue line).  Most times after weakness prevails for long periods of time, the first rally attempt normally is unsuccessful and not sustainable to continue.  Another test of the low is required.  The second attempt tends to be a safer, profitable and more sustainable.  GLD appears to have made a successful test of the low.   For those of you who are willing to take the risk, I recommend adding GLD to diversify your portfolio, using 107.00 on a close as a stop.

The lower portion of the chart is the 12-26-9 MACD, a momentum indicator. MACD has been oversold since June 2013, below 0, now on a buy and gaining strength.   Gold is looking more appealing and it is also gaining some relative strength against the SPY. There is a good chance if GLD does indeed move higher you can expect additional money to flow into this sector from investors and institutions to fuel a further advance.  It would be bullish if GLD breaks above 125.00, (the same as the weekly chart), which would break the monthly downtrend from 2011 (blue line) and then penetrates 131.15, the July 2016 high.

Summing Up:

Our models remain overall neutral-positive.  The stock market remains resilient and continues to work its way higher with the bulls in control.  There is no evidence of a change in trend until proven otherwise.  An area out of favor with investors appears ready to shine. GLD appears to have made a successful test of the low.  A buying opportunity has developed in GLD on weekly and monthly charts.  I recommend adding GLD to diversify your portfolio, using 107.00 on a close as a stop.

I would love to hear from you. Please call me at 516-829-6444 or email at bgortler@signalert.com to share your thoughts or ask me any questions you might have.

 

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*******Article published by Bonnie Gortler in Systems and Forecasts June 08, 2017

 



Disclaimer
: Although the information is made with a sincere effort for accuracy, it is not guaranteed that the information provided is a statement of fact. Nor can we guarantee the results of following any of the recommendations made herein. Readers are encouraged to meet with their own advisors to consider the suitability of investments for their own particular situations and for determination of their own risk levels. Past performance does not guarantee any future results.

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Do you believe that news reports are a dependable source for investment advice? There are many experts and websites over the internet with different information. At times it can be quite alarming.  Are you feeling confident that your stock market investments will hold up when the market feels as if you were on a roller coaster ride? Think about the review process that you currently have in place for your investment portfolio, if you are managing your own investments. It’s wise to have an investment strategy that is flexible and allows you the ability to exit quickly in order to reduce your exposure if the stock market is not performing well. You can reduce some of your uneasiness by seeking the advice of an investment professional that can answer your specific questions one-on-one when you are feeling unsure.

It’s wise to review your portfolio and lower your Risk by avoiding big losses. You want a portfolio to suit your needs within a certain time frame depending on your goals and objectives. If you are feeling stressed about your investments here are some ideas to follow that will help you in meeting your investment goals.

Simple Tips to Navigate During Stressful Stock Market Times

  • roller coaster stock-market-cartoons-5-300x2021Watch your investments to make sure they are doing what you expect.
  • No matter the strategy you choose, it’s a good idea to measure the returns and risks compared to a benchmark index for comparison.
  • You could be over weighted in a particular sector under pressure.  It’s a good idea not to have too many of your eggs in one basket.
  • Review your investment to see if any individual stock, exchange traded fund, or bond position exceeds 5% of your overall portfolio.
  • Prepare your plan with an exit strategy to allow you to bounce back before something unforeseen occurs.
  • When altering a security keep the whole portfolio in mind.
  • Individual stocks are volatile; you can make money fast or lose money quickly.
  • If you are investing in individual bonds review the credit rating to see they are good quality bonds.

It’s crucial that you set clear goals and objectives for your success.  Keep an eye on your portfolio so that you will know what is or isn’t performing well.  Be ready, flexible, willing, and prepared to make a change when and if you are feeling stressed by about your investments. Your future finances depend on it!

stock market roller coasterYou can feel good today about putting into motion a plan to build wealth without stress as you move even closer to a life of wealth and well-being.  You want to have a clear plan as you embrace change with new eyes and a renewed commitment toward your future.   Take time to do what is necessary in discovering ways to become more at ease with your finances.   Make the decision to live a healthy wealthy lifestyle filled with less frustration so you can enjoy the life you want.  As you continue your journey forward, remember to always place yourself in the best possible situation for success when creating a life full of wealth and well-being.

Let’s talk.  You are invited to set up your Free 30 minute Wealth and Well-Being Discovery session with me by calling 516-778-8714 or by clicking here or send me an email at Bonnie@BonnieGortler.com. I would love to connect with you.

Wishing you health, wealth & happiness,

~Bonnie

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The stock market has started July with a bang. Unable to gather any upside momentum, the S&P 500 (SPY) has broken below the March lows and the Nasdaq 100 (QQQ) fell below its May lows. The S&P 500 (SPY) has fallen outside of its yearly trading range and below its 200 day moving average for the first time since 10/20/14. Emerging markets (EEM) are at their lowest levels since 2012. New lows are increasing reaching 300 for the first time since December 2014. Speculative higher risk areas of the market, such as oil (USO), emerging markets (EEM), and semiconductors (SMH) have fallen sharply from their highs, no longer leading in relative strength and now weaker than the S&P 500. This is not a healthy sign for the overall market. Wild intraday swings of 2% or more are happening more frequenty
and could continue. VIX (an index that measures fear) is increasing and also has had large daily swings of 10% or more. If this continues, daily trading swings will be wider, potentially more opportunity for those who want to bottom fish. There is more risk, so if you are wrong, the market will be less forgiving.

Technical indicators for the intermediate and long term that I follow continue to give warning signals by MACD. Uptrends are being broken, that is not inspiring me to get overly optimistic about the market moving higher this summer. This is normally not the most favorable seasonal time for the stock market to show large gains. One positive that remains is the Nasdaq 100 ETF (QQQ) and the Financial ETF (XLF), mentioned in the 06/26/15 newsletter, reversed on this latest decline right above their key support levels 105.00 and 24.00 respectively. As of this writing these levels have held, but it would be bearish if these levels indeed are broken.

Key Chart To Watch Now:

NYSE Cumulative Advance Decline Line (Top) and NYSE 21 Day Rate of Change Net Advance Decline Line (Bottom) since 12/31/2009 

NY AD Line 7-6-2015 Newsletter

The top portion of the chart is the Cumulative Advance Decline Line of the New York Stock Exchange Index (NYSE) from 12/31/09, a running total of the number of stocks on the NYSE that rose minus the number that fell each day. Each day that you have net advances the line rises and is added to the previous total. Conversely, it falls when you have net declines for the day and is subtracted from the total. This is a stock market tool that I have used since the 1980’s in conjunction with other technical indicators such as MACD and RSI to analyze the internal strength of the stock market. When analyzed, these help see if the market is healthy and will rise further, or if the market might be vulnerable for a potential decline after a significant rise has taken place. Market tops are much harder to recognize or predict than picking a market bottom because market tops take a longer time for a bottom to form. If the stock market makes a high and the cumulative advance decline line confirms the high, many times a final top hasn’t taken place, and prices continue to rise or at least challenge the highs.

Notice that the cumulative AD Line peaked on 4/15/15, an advance warning of a peak in price that occurred two months later, with the S&P 500 making highs on 06/18/15. No new high has taken place in the cumulative advance decline line since then. In addition the uptrend from 12/13/2013 was broken on 06/16/15, not a good sign for the market. The good news is the long term trend is intact from 02/05/10. Until this line is broken, market declines will likely be contained, and the bull market is intact.

The bottom graph of the chart is the 21-day change in the advance-decline line. (NYSE advances minus declines). The 21-day change is an “oscillator” which crosses above and below zero, and which has ranged from roughly -16,000 to +16,000 since 12/21/09. Notice the 21-day change peaked on 11/10/2014, a clear warning sign showing downside momentum weakening. When the market rose early in 2015 the advance decline differential didn’t confirm the advance, meaning that fewer stocks were participating in the advance. This is one of the reasons that the market has gone sideways for most of 2015. The S&P 500 is only 4% from its highs. I will be watching to see if the 21 day rate of change stops making lows and starts to increase, which would be positive, or if it continues to stay negative, suggesting further loss of momentum and a continuation of the decline.

To Sum Up:

Wider trading swings up and down are occurring more frequently, raising anxiety levels for investors including myself. Our stock market timing models have changed to indicate risk is at its highest level of the year but will remain at least neutral-positive into next month. Market breadth indicators show signs that the market might have seen its peak. Risk of a further pullback is increasing with market breadth getting weaker, and more charts are showing momentum weakening. The decline in July so far has made the market oversold and a possible short term bounce could occur. The Nasdaq 100 ETF (QQQ) and the Financial ETF (XLF), mentioned in the 06/26/15 newsletter reversed on this latest decline right above their key support levels 105.00 and 24.00 respectively. As of this writing these levels have held, but it would be bearish if these levels indeed are broken. We are now at a critical juncture with more and more warnings signs being given. If the levels are violated, there is a good chance the trading range the market has been in this year would be resolving itself to the downside with the bears taking control. If you have not done so already, take a good look at your investments, and your potential risk. If the Nasdaq 100 (QQQ) and the Financial ETF (XLF) break below 105.00 and 24.00 respectively, I am recommending reducing your equity holdings by taking some money out of the market, and wait for chart patterns to improve and indicate a safer entry later in the year.

I would love to hear from you! Any thoughts, questions comments, feedback; please call me at 1-844829-6229 or email at bgortler@signalert.com.

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“The market is about money … Money flows in and the market goes up, money flows out and the market goes down.” –Jesse Livermore

Only two weeks ago the S&P 500 was at the top of its trading range, the semiconductors were at their highs (05/29/15 newsletter) and the technology sector was looking like it was ready for an upside breakout. Instead, semiconductors fell, and the Nasdaq 100 (QQQ) was unable to rally and close above the key 112.50 level, and the stock market reversed lower. Tape action started to get worse with energy, emerging markets and internationals weakening. The transportation average (IYT) fell to a new yearly low, market breadth weakened and the market looked like a larger decline would begin. There was heavy selling in the bond market with the 20 Year Treasury Bond ETF (TLT) accelerating its decline to a low of 115.25 on 06/10/15, down almost 17% from its peak on 01/30/15 at 138.50, adding further pressure to US equities. A short term pull back followed, with the overall market becoming oversold.

The financial sector (XLF) held firm though the decline. Also, the Nasdaq 100 (QQQ) held above key support at 107.50 signaling buyers to step in. In two days of trading the S&P 500 and the Nasdaq 100 (QQQ) rallied and are now with only three percent from their highs. With the intermediate and long term chart stock market patterns having shown a loss of momentum for many months, I am reevaluating whether to change my bullish bias. However, I am going to hold my ground for the time being as long as the financial sector continues to be strong and the technology sector holds support.

What Are The Charts Saying?

Weekly SPDR Financial Select Sector SPDR (XLF) and RSI14 (Bottom)

010515 xlf rsi
The top portion of the chart above shows the weekly SPDR Financial Select Sector SPDR (XLF) that looks to mirror the behavior of the financial sector of the S&P 500 Index. The Index includes companies from commercial banks, capital markets, diversified financial services, insurance and real estate. The top five largest holdings as of 06/09/2015 are; Wells Fargo & Co (WFC) 8.73%, Berkshire Hathaway (BRK.b) 8.36%, JP Morgan Chase & Co (JPM) 8.23%, Bank of America Corp (BAC) and Citigroup (C) 5.58%, representing 36.88% of the ETF. All the top holdings are at new yearly highs except Berkshire Hathaway which has been under pressure in recent weeks and is down 6.3% making a new yearly low on 6/9/15.

XLF has been in an uptrend since May 2012 and has now broken its short term trading range on 05/11/15. XLF paused for two weeks not giving up much ground retracing to 24.50, and then on 06/10/15 XLF made a new yearly high. The financial sector is looking strong, appearing to have broken out to the upside with further gains to go. This historically tends to be bullish for the market overall. The upside channel objective is at 26.00. If the XLF can break above then higher projections to 28.00 are possible. If XLF fails and goes below 24.00 there is a good chance the overall market will fall.

The bottom half of the chart shows The Relative Strength Index, a measure of momentum developed by Welles Wilder. RSI is based on the ratio of upward price changes to downward price changes over the last 14 weeks. RSI has broken the down trend (pink line), indicating that XLF is gaining momentum and is likely to continue on the same trend.

Weekly XLF/SPY Ratio (Top) RSI of XLF/SPY Ratio (Bottom)

061015 xlfspy

The top part of the chart is the weekly XLF/SPY ratio. A rising line means the XLF is stronger, and if falling, the S&P 500 is stronger. The line is rising sharply showing the strength in the XLF vs. the S&P. It’s bullish that the weekly ratio is at its high for the year, confirming the XLF price high.

The lower chart shows the RSI of the XLF/SPY ratio, also in favorable position breaking its downtrend from 2014, and rising to a new high for the year. This shows increasing momentum which is bullish and likely to continue.

Just To Sum Up:

The future of the stock and bond market with the potential of higher interest rates ahead continues to spook the market and has caused the S&P 500 to be in a tight trading range so far in 2015. The selling pressure in both the stock and bond market appears to have subsided but the jury is still out if the S&P 500 (SPY) will have enough strength to break out of its trading range. For the advance to broaden and gain momentum look for further strength in the financial sector (XLF) to rise to 26.00, and for the Nasdaq 100 (QQQ) to close above 112.50 for two days. In addition, if the 20 Year Treasury Bond ETF (TLT) stabilizes there will be a buying opportunity for interest rate sensitive stocks which have been under heavy selling pressure this year. A break below 114.00 in TLT would not be a good sign for the bond market and interest sensitive stocks. As long as XLF doesn’t fall below 24.00 and QQQ is above 107.50, look for higher prices in the stock market.

I would love to hear from you! Any thoughts, questions comments, feedback; please call me at 1-844829-6229 or

email at bgortler@signalert.com

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Money is hard to earn and easy to lose. Guard yours with care.” -Brian Tracy

Key points for Intermediate Momentum Patterns Warn of Possible Decline AheadDuring its most recent meeting the Federal Reserve announced that it still plans to most likely raise interest rates in the second half of this year, but investors were hoping they would delay raising rates until even later. Since rate hikes are normally not bullish, investors are more nervous and have been investing in the defensive areas of the market. The S&P 500 (SPY) declined in January but has reversed sharply to the upside to begin February. The S&P 500 (SPY) has been trading within a trading range, testing its lows already four times this year. On February 2, the December 16 low of 197.60 was successfully tested. Now this level is even more of a signifi cant support area that needs to hold going forward.

Big intraday volatility is the theme for 2015. Large swings up and down have occurred during many trading sessions and we are only in the first week of February. This phenomenon is very different than the quiet market that we had for most of 2014 that sometimes lulled you to sleep, and gave a feeling of comfort and safety. Traders appear to be more optimistic and have moved into more aggressive areas with more volatility, commodities such as oil, gold, and silver.

Emerging markets have stabilized helping the foreign markets. The iShares S&P Europe 350 Index (IEV) ETF is acting better, gaining in relative strength, supporting the US market. Europe (IEV) has broken the weekly downtrend mentioned in the January 23 2015 newsletter, bullish for the US market if IEV holds from here and doesn’t turn back down. A possible change in sector leadership could be taking place. Traders don’t seem as high on healthcare, utilities, and staples.

Even with the successful test of the lows that we have had, and the strong recent rally to the upside I remain somewhat concerned with how far the advance will go. The technical patterns on the intermediate and long term charts of the US major averages have had large price gains over the past years, remain extended and momentum is weakening, not a good sign.

What Are The Charts Saying Now?

Power Shares QQQ Weekly price and trend channels (Top), and 12-26-9 week MACD (Bottom)

020415qqqweekly

The top part of the chart is the Power Shares QQQ Trust, an exchange traded fund (ETF) based on the Nasdaq 100 Index. The Index includes 100 of the largest domestic and international nonfinancial companies listed on the Nasdaq Stock Market based on market capitalization. The top holdings as of 02/03/2015 are Apple (AAPL) 14.45%, Microsoft (MSFT) 7.12% Google Inc. (GOOG) 3.73%, Amazon AMZN 3.5% and Facebook Inc. (FB) 3.4%. Apple, the largest holding, has been consistently helping the index trading near its highs, while the other holdings have had wide up and down swings.

The top portion of the chart shows how the QQQ made its high stopping at the top of the channel on 11/26/14, at 106.24. Each subsequent rally attempt has not been able to penetrate this high. Instead, QQQ has a made a series of lower highs to from a down trend, not a good sign. QQQ would have to trade above 105.00 to break the weekly down trend.

The lower portion of the chart is MACD, a momentum oscillator. The oscillator is trading above 0, but falling, which shows weakening momentum. The chart also shows a negative divergence in place, which is potentially bearish. (QQQ made a new high in November, but the November peak in MACD was lower than its late-August peak.) On each pullback, QQQ held its ground near the previous lows before prices rebounded. The uptrend in MACD from January 2013 is threatening to be violated to the downside. If the trend line is violated then I would expect further weakness ahead. So far, we have not seen any violation. If the highs aren’t taken out on this latest rally attempt and prices fall back down and take out the lows of January 2015 at 99.36 then I expect the QQQ to move toward the lower channel 93.

Weekly QQQ/SPY Ratio (Top) RSI of QQQ/SPY Ratio (Bottom)

0204qqq spyweekuse trndlinesNotice in the top chart the ratio peaked in October 2014, followed by another rally attempt which failed to take out the high. In January the
QQQ/SPY ratio once again showed some strength, but didn’t generate enough momentum to make a new high.

When QQQ is stronger than SPY, this normally bodes well for the stock market. This was the case for most of 2014 when the line was rising. Now the QQQ/ SPY ratio has turned down and is also threatening to break the uptrend from April 2014 which would change the trend and not be bullish for the market.

The RSI of the QQQ/SPY Ratio (lower chart) is also looking worrisome. The uptrend from April 2014 has already been violated to the downside in 2014 and momentum continues to weaken, not a good sign. There is a good possibility that the high in QQQ/SPY has been made and that the overall leadership has changed to now favor SPY over QQQ.

Just To Sum Up.

Big intraday volatility is happening every day and expected to continue. The international sector appears more stable with Europe, my favorite sector breaking its weekly downtrend supporting the overall US market for the time being. The US major averages have a stalled near their upper ranges and have made slight lows near the bottom of their range for the past few months. There are conflicting signals with our models bullish, but charts imply increased risk. It would be bullish if the QQQ trades above 105.00 which would break the weekly down trend and bearish suggesting a further decline if the recent low of 99.36 is violated. Review your portfolio and make sure that you are comfortable with your portfolio if the recent lows are violated and a decline was to start sooner rather than later on this year.

I invite you to share your insights by calling me at 1-844-829-6229 or Email me at bgortler@signalert.com with your questions or comments.

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“The investor of today does not profit from yesterday’s growth.”

~Warren Buffett

In the July 18th newsletter I wrote an article “The stock market is more vulnerable now more than any time this year”. Since then the stock market rose for a few days, failing to generate any kind of upside momentum. The market then turned lower but did not break below key support areas. Once again the buyers stepped in and the selling stopped. The pulse of each rally this year has been losing momentum for quite some time now and eventually a larger market correction will occur. The market appears to be in the process of taking a rest like I did. (I recently returned from a 3 week vacation in Aruba.) The market has recovered some, but so far it’s not convincing enough for me to believe this rally will continue for much longer. The position of many of the technical indicators doesn’t appear quite right. It’s still an unfavorable seasonal period for the stock market, caution is warranted and preservation of capital is good to have in the forefront of your mind.

Insights and Chart Observations Where We Are Now

The S&P 500 ETF (SPY) peaked on July 24th, while the weaker Russell 2000 ETF (IWM) peaked on July 1, 2014.

The S&P 500 ETF (SPY) hit the upper channel on the monthly chart in July, not able to make a new milestone.

Chart 1:   SPDR S&P 500 ETF  Trust (SPY) Daily

081217SPYDAILY

On the recent sell off the S&P 500 ETF (SPY) fell to 190.55 breaking the daily uptrend from February 2014, changing the short term trend from up to down. Price bounced up alleviating the oversold condition but I remain suspicious of the recent rally. As of this writing, price has been unable to reach and penetrate the 195-197 area, the old support area is now acting as resistance. (Chart 1). A break below 190.00 would suggest a decline likely to 184.00 (the short term channel objective). MACD, a momentum indicator is below 0 in oversold position but no favorable pattern has developed that suggest prices should rise.

Chart 1 (right): SPDR S&P 500 ETF Trust (SPY) Daily

The S&P 500 ETF (SPY) monthly chart (not shown) remains in an uptrend from 2009 in terms of price but MACD is pointing down and is very close to breaking its up-trendline. The trend in the S&P 500 ETF (SPY) monthly RSI is also very close to being broken to the downside. Depending on how you scale the chart there is a very slight penetration of the up-trend line in RSI from 2009. I will be watching this closely and will post the chart when broken.

The small cap index Russell 2000 ETF (IWM) has not been a profitable area to invest in this year. On several occasions this year I was hoping small caps would lead the market higher, but so far this is not the case. Small caps continue to lag the S&P 500, not a sign of a healthy market. Technical indicators such as MACD and RSI on the daily chart are oversold and in favorable position for a rally (chart not shown). There has been no sign of change of leadership to suggest that small caps will improve in relative strength and lead this market higher.

I believe the weekly chart of the Russell 2000 ETF (IWM) is more significant at this time. Notice how RSI failed to reach 70 or higher to signify strength when price peaked at 120.97. Price fell 9.2% from its high (July 1) to a low of 109.86 on August 1, 2014, breaking below the old support area at 112.50 but prices stabilized and did not drop much further. Instead prices have rebounded finding support at the weekly middle channel, in the 109 area, (Chart 2) now off of its lows trading at 113.25.

Weekly MACD has flattened and RSI has turned up, good signs, but both indicators did  not reached true oversold areas from which the most promising buy signals originate: MACD below 0 and RSI below 30. If last week’s low of 109.86 is violated and prices drop below 107.50, (I’m giving some extra room in case of an overshoot) I would then expect a more serious decline to develop. Prices could fall to the first support between 102-105 and if the decline is more serious this area will not hold and price could go down to the channel objective of 95.00 approximately 15% lower.

Chart 2 : The iShares Russell 2000 Index ETF (IWM) Weekly Chart

081214 IWM USE CHANNEL

Nasdaq 100 (QQQ) forms a negative divergence with its MACD

Another area to be monitored which I haven’t mentioned in months is the Nasdaq 100 Powershares QQQ Trust (Chart 3), a profitable area to be invested in this year that continues to be resilient. The weekly uptrend remains in effect from November 2012. Price continues to make highs but with MACD weakening, failing to confirm the high. This is a huge negative divergence formed over several months, a long enough period to make this seem significant.

081414 QQQ USE

Chart 3: Weekly PowerShares QQQ Trust (top) and the Relative Strength Between SPY and QQQ 

The lower chart is the relative strength ratio SPY/QQQ which I feel is noteworthy at this time. The S&P 500 ETF (SPY) is weaker than the Powershares QQQ.

I believe when this weekly relationship changes to the S&P 500 being stronger than the Nasdaq, a larger market correction will occur. The daily chart (not shown) also has divergences in the MACD and RSI which is disturbing. Be aware of a potential change in trend which could start if the Powershares QQQ breaks below 94.90, followed by 92.50 which correspond to the uptrend line in price on Chart 3.

Chart 3: Weekly PowerShares QQQ Trust (top) and the relative strength between SPY and QQQQ (bottom)

Just to Sum Up:

The market has recovered from its recent lows; selling pressure has subsided with the buy on market weakness mentality continuing. A key change in the market is that the daily trend is no longer in an uptrend which was supporting the market for many months. Technical indicators are not in the most favorable position with price below key moving averages on some market indices, and MACDs on longer term charts still looking problematic.

Small Caps continue to underperform. The market has stabilized for now but beware of the increasing possibility of more weakness ahead. If this latest rally fails and support levels are broken to the downside, especially on high volume, a more significant correction could occur. Key numbers to monitor if broken are 190.00 on The S&P 500 ETF (SPY), 107.50 on the Russell 2000 ETF (IWM) and 94.90 on the PowerShares QQQ Trust, (ETF) QQQ. Be the one who is prepared by having an exit strategy ready for a larger market correction in case the bears take control over the market with buying turning into selling.

If you need some assistance with your investments I invite you to call me at 844-829-6444 or E mail me at bgortler@signalert.com

 

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“Know what you own, and know why you own it.” – Peter Lynch

The stock market health appears to be improving rather than getting worse. The market advance is broadening. In my May 16th article, I wrote about the stock market stabilizing and noted that aggressive sectors could fuel the US market higher. This indeed was the case, with internet, small caps, biotech,and technology having a strong month and now improving in relative strength vs. the S&P 500. The Nasdaq broke a two month downtrend line, fueled by Apple (AAPL). Internet stocks are hot again, with The First Trust DJ Internet Index Fund ETF (FDN), up over 6%, and biotech up over 9% after being a very weak sector.

What Are The Charts Saying Now?
The iShares Russell 2000 Index ETF (IWM) Daily Chart

The top portion of the Russell 2000 small cap (IWM) chart has been one of the weakest areas of the market this year. IWM has fallen 10.9% from its recent peak in March but held just above key support of 107.00 (mentioned in the May 2, 2014 newsletter). I believe this area is even more critical to hold or a big negative warning signal would be given. The IWM short term downtrend has been broken to the upside. The Russell 2000 (IWM) is again trading above its 200-day moving average. IWM fell below the 200-day moving average in April 2014 and again on May 5, 2014. Now IWM closed above which is a positive. Short term support is 111.00 coinciding with the 200-day moving average. The momentum indicator MACD in the bottom portion of the chart has now turned up from its basing formation, very close to breaking the downtrend. Aggressive traders can now buy weakness with the trend shifting from down to up so it will be easier to make money on the long side.

052814 iwm dailyNotice how the IWM has stalled after the recent advance, just below the uptrendline that has formed by connecting the October and February lows. A break above 114.50 could excite traders to believe the recent rally, and buy small caps more aggressively which has been an out of favor area. The fi rst resistance lies at 117.50, if broken; an attempt to challenge the highs above 120.00 is a real possibility.

The iShares Russell 2000 Index ETF (IWM) Weekly Chart

Similar patterns from the daily chart can be seen on the top portion of the weekly IWM chart (below). With the rally this month, the down trend has been broken to the upside. The lower portion of the top chart shows a turn up in momentum based on relative strength index (RSI14).

The second (lower) chart is the weekly IWM/SPY relative strength ratio which is now rising for the first time since April 2013, indicating the IWM is stronger than the S&P 500 (SPY). The bottom portion of the chart shows RSI (14)turning up from an extreme low reading, more oversold than in September 2011 and its lowest level in the last 10 years.

 052814 iwm week relstrengthJust To Sum Up:
The stock market has been acting very well this month with the more aggressive sectors outperforming the S&P 500 and gaining in relative strength. The S&P 500 is trading near its highs, emerging markets are doing well,and the rally is broadening to the more aggressive areas of the market which keep the bulls in control. As of this writing I am a little concerned that the IWM is trading below the up-trend line on the daily chart from October 2013, and trading below the up-trend line that began in November 2012 on the weekly chart. These are key resistance lines and could be a clue that a decline might begin, because this could be a trap and this rally is temporary. Time will tell.

I continue to give the market the benefit of the doubt until the S&P 500 (SPY) falls below 180.00. I would be even more confident that a further advance will take place if we can penetrate the 117.00 area on IWM, the short term objective on the daily chart. This would indicate leadership by the small caps and not a bullish trap as the summer months move closer. An added bonus would be if market breadth continues to improve, with a high ratio of more issues advancing than declining. That would generate a buy signal from our one of our weekly breadth indicators.

Are you expecting higher or lower prices? Please share your insights with me where you think the aggressive market sectors are heading by calling me at 1-800-829-6229 or Email me at bgortler@signalert.com with your comments.

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Originally published in Systems and Forecasts Newsletter Jan 24, 2014

Be Fearful When Others Are Greedy and Greedy When Others Are Fearful” ― Warren Buffett

The stock market had a small amount of profit taking early on in January, but once again the market was resilient, it stabilized and reversed back up with the S&P 500 making a slight new high. In the last newsletter, 12/20/13, I wrote that the long term trend was up but technical indicators were overbought in many market averages which made it possible that profit taking would take place in market-leading ETFs such as SPY, IWM, QQQ and XLF.

For this article I looked for weak and oversold market averages on monthly charts by using one of my favorite technical indicators–RSI (Relative Strength Index)–to identify what appears promising buy areas from where rallies develop and could gain visibility from investors when prices stabilize and reverse. The RSI was developed by J. Welles Wilder Jr. It can be used on individual stocks, ETFs or other stock market vehicles. The oscillator ranges from 0 – 100. The RSI Index is considered overbought at 70 and oversold at 30. Extremely high or low readings are potentially early signs of a pending market tops or market bottoms.

Although it was not an easy task to find market averages that are oversold on a long term basis because the stock market has been trending higher since 2009. I found four ETFs that intrigued me. These ETFs were close to being oversold as measured by RSI but I think they could be good investment opportunities in 2014: Silver, (SLV), Gold (GLD), Brazil (EWZ) and 20+ year Treasury Bonds (TLT). Gold and silver were hit hard in 2013, emerging markets lagged the US market, and the bond market had a negative total return for the first time since 1999.

102414 newsltter 4 way pic

Where do we stand now on the long term monthly charts of some of the key ETFs?

All four charts on December 31, 2013 have growth potential because they have been out of favor from investors. They are not fully oversold by being below 30, but they are below 40 and have intriguing patterns.

Top Left Chart–SLV Monthly: The iShares Silver Trust (ETF) SLV, which tracks silver bullion, peaked in April 2011 at 48.35. A rally attempt from the lows in June 2012 failed in September

2012 and was unable to gather much momentum to the upside until July of 2013. Once again the rally failed, selling pressure occurred and we are now trading near its low of 17.75. SLV

is best for aggressive traders, not for conservative investors, because it is very volatile. RSI is 38.68 as of December 2013 (not quite yet below the oversold level of 30) but has turned up. Aggressive traders could buy now if they want to take a chance that the bottom is in and don’t want to wait until the down trend is broken. I do suggest a tight stop of 5% below your purchase just in case the final bottom is not in.

Bottom Left Chart–GLD Monthly: SPDR Gold Shares ETF (GLD) tracks the price performance of the gold bullion. The monthly RSI reading December 2013 is 35.59, very close to its

lowest monthly reading since the ETF began in 2004 when it reached 33.67 June 2013. With the recent rise in GLD so far in January, RSI has formed a rising double bottom, a bullish charting formation.

Top Right Chart—TLT Monthly:

The iShares Barclays 20 Year Treasury Bond ETF (TLT), is a long term Treasury Bond index with bond maturities of 20 years or more that are denominated in US dollars. When long term

interest rates fall TLT rises. The monthly December 2013 RSI reading is 37.93, the lowest reading since 2003 when the ETF began. Prices have fallen from a peak of 132.21 to the low of 101.17 since July 2012. It appears that a bottom has been made; long term rates have stabilized and could move lower going forward.

Bottom Right Chart—EWZ daily:

The iShares MSCI Brazil Index ETF (EWZ) started in July 2000.

The ETF measures the broad-based equity performance in Brazil. EWZ has been one of the weaker emerging markets. It has been in a down trend since the peak of May 08, although with the momentum of the decline getting smaller. The December 2013 monthly RSI reading is 38.96. In July of 2013 RSI made a low of 33.86 the lowest level since 2004. A potential rising double

bottom will occur if prices hold and turn up. This would be bullish.

Just to sum up:

With the stock market being resilient as it has, the long term trend up and no real decline taking place there are not many areas of the market where prices have been weak. At the time of this writing the market is falling, profit taking by traders and investors is taking place. Traders are a bit jittery knowing the next FOMC meeting is January 28th & 29th, less than a week away. It appears money is moving into long term treasuries, (TLT), Gold (GLD) and Silver (SLV). Brazil (EWZ) is falling sharply with other emerging markets. When investors want to take more risk (EWZ) could potentially be an area that has a large growth potential based on the position of the monthly RSI pattern.

Our models remain favorable and the market internals have been good and support levels remain in-tact so I continue to give the US equity market the benefit of the doubt. I would like to see the S&P 500 (SPY) hold daily support at 170 mentioned in the December 20, 2013 newsletter and the iShares Russell 2000 Index at 107.50.

I invite you to contact me with any comments or insights, and to share your own favorite charts and indicators with me. Email: bgortler@signalert.com; phone: 1-800-829-6229.

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This is a hypothetical result and is not meant to represent the actual performance of any particular investment.  Future results cannot be guaranteed.

Although the information is made with a sincere effort for accuracy, it is not guaranteed either in any form that the above information is a statement of fact, of opinion, or the result of following any of the recommendations made herein. Readers are encouraged to meet with their own advisors to consider the suitability of investments discussed above for their own particular situations and for determination of their own risk levels.