Remember to share:
Share

The Nasdaq Composite, Dow Jones Industrial Average, S&P 500 and the NYSE Composite Index all had a favorable start in 2017, breaking out to new record closing highs after 6 weeks spent consolidating within a tight trading range. The Dow made it through the psychological 20,000 milestone and the Transportation average confirmed the Dow Jones Industrials’ new high. International indices, which have struggled, came to life and have improving technical patterns.

However, in the past week the averages couldn’t hold onto all of their gains even though support levels remain intact. Our trading models remain neutral positive. Some signs of concern showed up the last few days in January. Investors’ selling was spurred by investors’ uncertainty about world events, interest rates rising, and potential disappointment in earnings by major companies including Apple (AAPL), Facebook (FB), and Amazon (AMZN). Apple’s earnings were well received by investors. Apple’s stock rose sharply, now less than 5% from its all-time high with a very favorable long term monthly chart. Facebook rose on their earnings announcement lifting its stock to new highs, followed by some profit taking.

The concern is some profit taking after the S&P 500 stalled just below its key level at 2300. In addition small caps (Russell 2000 Index) and the financial sector (XLF and KRE) which had led the market higher since the election have now started to weaken.

What ETF to Track to Signal Further Gains or Trouble Ahead?

SPDR S&P Regional Banking ETF Weekly Price and Trend Channels (Top), and RSI 14 (Bottom)

 

The top part of the chart shows the weekly Regional Banking Index (KRE), an exchange traded fund (ETF) that began in 2006. KRE tracks an equally weighted index of common stocks of leading regional banks or thrifts (savings and loan associations). As of 01/31/17 the top holdings of KRE are: M&T Bank Corporation (3.64%), PNC Financial Services Group I, (PNC) (3.64), Citizens Financial Group, Inc. (CFG) 3.60, Fifth Third Bancorp FITB 3.59 %, SunTrust Banks, Inc. (STI) 3.58%, BB&T Corporation (BBT) 3.57%, and Zions Bancorporation (ZION) 3.57% totaling 25.19%.

Notice the clear trading channel in the top chart (the three green lines). KRE is not for the faint of heart. It’s a volatile index that I monitor intraday for the trend of the market and potential trend changes. Another financial sector ETF to follow is the Financial Select Sector SPDR (XLF), which is quieter than KRE. After the election, investors very quickly moved assets into the financial sector fueling the rally that rocketed KRE from 43.59 to 49.87 in one week, a 14.41% gain. Four weeks later KRE rose further to 56.29 a 12.87% gain, breaking through its trading channel surpassing the high made in November 2015.

However, KRE has stalled, consolidating for 9 weeks. It looks like KRE is at a critical juncture now.

A break above 57.00 would suggest KRE will challenge the upper channel at 59 over the next few weeks. If KRE can get through the upper channel a higher objective would be given and this would also have bullish implication for the overall market.

However, a break below its consolidation, 53.40 (red rectangle) would imply a potential test of 49.00

A break below 49.00 would suggest a serious decline is imminent.

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. RSI reached 82.43 its highest weekly reading since the ETF began in 2006. RSI readings of 70 or higher show strength and are most times considered bullish. Generally as long as RSI stays above 40, the trend is up.

When you have a powerful thrust as KRE did on its most recent breakout, this is normally not a sign of a top. Most times you would get a relatively contained pullback or sideways consolidation before another rally attempt would occur. It’s also a bullish sign the uptrend in RSI from 1/16/16 remains intact. RSI has lost some momentum, however its normal that momentum temporarily weakens after a huge rally before the next leg higher. As long as the uptrend is in effect the odds favor the bulls. If the downtrend is broken (black line) a warning sign would be given.

Summing Up:
The stock market is off to a good start in 2017 as many major averages have made new all-time highs. Our models remain neutral-positive. However, uncertainty about world events, interest rates rising, and company earnings remain in investor’s minds. The momentum of the rally since the election has slowed and the market is consolidating it gains. I recommend keeping an eye on the SPDR S&P Regional Banking ETF (KRE) for a sign of further strength or weakness that would give the clue of a potential change. For now the bulls remain in control.

If you have questions or comments on this article, please feel free to contact me at bgortler@signalert.com; phone: 1-516-829-6444. I would love to hear from you.

If you like this article, then you will love this! 

Click here for a free report: Top 10 investing Tips to More Wealth

*******Article in Systems and Forecasts February 3, 2017

Discover the right wealth building attitude…

Download a Free chapter of my book Journey To Wealth

 

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.

Remember to share:
Share

0317 S&P 500 Key PointsInvestors’ fears disappeared quickly when an appetite for bargain prices outweighed worrying about a potentially possible serious decline forthcoming. The stock market proceeded to rally broadly, very strong tape action with extraordinary breadth that has accompanied the rise which has not been seen for many years. If market breadth remains favorable (more net advances than declines consistently), then higher gains are likely. The S&P 500 (SPY) has gained 11% from its lows on 02/11/16.

The global markets also participated in the
advance. In particular, emerging markets are performing better. There has been an uptick in relative strength compared to the S&P 500, (EEM/SPY) after peaking 5 years ago. It’s still early to tell if this will be the time that another failure in strength takes place, which has been the case in the last few rally attempts, or if the emerging markets keep going, and potentially even lead the US market higher.

Investors have purchased securities that were very weak during the decline. Materials, financials, gold, silver, energy and international stocks have come alive, encouraging signs for further rise. Brazil (EWZ) is up 16%, (had been up 26%) Spain (EWP) Italy (EWI) and India (EWI) are all up over 9% in March. China (FXI), Emerging Markets (EEM), Russia (RSX), Germany (EWG) and Korea (EWY) are all up over 7% month to date (through 03/15/16).

Our models have steadily been improving, now positive (bullish), meaning most favorable, above-average profit potential with risk well below average.

The odds favor the U.S. market moving higher. However the advance might be ahead of itself and need more base building before they work their way higher. Also expect further sector rotation to be the focus in the next few weeks, with investors and institutions’ rebalancing their portfolios as the quarter comes to a close. The best type of market advance is the one that price makes higher highs and higher lows and price doesn’t give up much ground on declines, 1 or 2%, only minor pullbacks. A larger decline wouldn’t be encouraging. If overhead resistance is penetrated then a breakout to the upside would occur.

More time is needed to tell what the outcome will be.

The biggest concern to me is the technical damage that was done during the decline earlier in the year. Longer term monthly charts still remains front and center to my eyes with all the upside trend lines that were broken.

For example, Biotech, the Valueline Composite Geometric Average, and the weakening momentum warning of the S&P 500 QQQ/SPY ratio (see my article in the 02/18/16 newsletter) of the MACD of the RSI, all had disturbing trendline breaks.

Another question I keep asking now that the Dow and the S&P 500 (SPY) have had a slight penetration above their 200-day moving average is, will the bulls stay in control like they have the last few weeks, and the market break out to the upside, or will the bears will come out of hibernation and the rally will fail? Another important question “Was the latest rise from the February low a relief rally or something more?” Even with the all clear message from our models and the global markets participating in the advance, I am not totally convinced that the market is out of the woods yet. I would like to see the S&P 500 (SPY) fall no more than 2%, turn up and penetrate the overhead resistance for the charts to confirm the potential bullish outcome (see below) that could arise. If the market does fall further the S&P (SPY) needs to hold above 195.00.

What Are The Charts Saying?

The SPDR S&P 500 (SPY) Weekly With Channel (Top) and 12-26 Week MACD (Bottom)

spyweekly macd 031616

The top chart is the weekly SPDR S&P 500 (SPY) ETF that is comprised of 500 stocks of the largest companies in the U.S. As of 01/05/16 its top 4 holdings in the S&P 500 were Apple Inc. (AAPL) 3.21%, Microsoft Corporation (MSFT) 2.39%, Exxon Mobil Corporation (XOM), 1.93% and General Electric (GE) 1.66%.

SPY was near its lower channel five weeks ago, successfully testing the August 24 and January 19th lows. The S&P 500 (SPY) recovered 11% moving through the middle channel with ease, and now could be ready to challenge the top of the channel. For the very short term, a break above 204.00 will get the bulls interested again and a break below 200.00 may bring out the sellers. A breakout would occur if the S&P 500 could get through the critical point of resistance between 212.00 and 214.00 giving a higher objective to 228.00. If the market stalls and turns down from here, then goes below the middle channel, this would not be a good sign. The fear is the pattern on the S&P 500 (SPY) might be a significant top formation spread over time that could have serious implications going forward. Potentially the lows would be tested and this time the decline could be worse, projecting down to 165.00. For now, the decline has been contained and I give the benefit of the doubt to the bulls. I will be watching closely the action of the S&P 500 (SPY) in case the bear comes out of hiding and once again takes charge.

The bottom half of the chart shows MACD, a measure of momentum. MACD, although on a buy, the downtrend from May 2015 remains in effect (orange line). A bullish sign would be if MACD keeps rising and the down trend is broken sooner rather than later, and goes above the November MACD highs. This would indicate that the SPY is gaining momentum and higher prices lie ahead.

In our 01/08/16 Systems and Forecasts newsletter when the market started to fall fast I raised the question, “Will the decline continue, or will the market turn up from here? “ I gave the following positive signs that could indicate the end of the decline.

  • Overseas markets start to rise. Keep an eye on Emerging Markets (EEM), China (FXI) and Europe (IEV) as benchmarks.
  • The Value Line Geometric Composite, an unweighted average of roughly 1700 U.S. stocks gains strength showing more broad participation than only a few stocks rising.
  • Firming action in Biotechnology (XBI) and the Financial Sector (XLF, KRE)
  • Apple starts to rise again (APPL).
  • High Yield Bonds stabilize. Use HYG or JNK as a benchmark.
  • Less intraday volatility. Watch to see if VIX moves lower and can get below 18.00.
  • Oil stabilizes and stops falling. Watch oil (USO) and the energy sector (XLE).
  • Small caps (IWM) stabilize, turn up and then gain in relative strength compared to the S&P 500 (SPY).
  • S&P 500 (SPY) moves above 195.00 and stays above.

All of the above criteria occurred and the stock market rose sharply. The S&P 500 (SPY) is overbought in the short term, not necessarily bearish. Now once again is another critical time for the market. The principles above are all viable guidelines to give further clues if the S&P 500 (SPY) will breakout to the upside or if a market top is forming.

Summing Up:

Our models are bullish, giving the all clear signal with above-average profit potential with risk well below average.

For the very short term, a break above 204.00 on the S&P 500 (SPY) will get the bulls interested again and a break below 200.00 may bring out the sellers. I recommend having an exit plan in case the bears come out of hiding and the S&P falls below 195.00. Watch to see if the S&P 500 (SPY) goes through resistance between 212.00 and 214.00, giving a higher objective to 228.00. The odds favor the bulls!

I welcome you to call to share your comments, feedback or questions at 516.829.6444 or email bgortler@signalert.com.

*******Article in Systems and Forecasts March 17, 2016

 

Remember to share:
Share

The four most dangerous words in investing are ‘This time it’s different” ~John Templeton

 

101714 newsletter.inddThe stock market had a broad sell-off during the first half of October, the worst since 2011. There have been warning signals of a potential decline for months,but it is only now that the decline has become a reality. Seven of the past ten trading sessions through October 15, 2014 have seen moves greater than 1%. Along with this increase in actual volatility, the CBOE Volatility Index (VIX) showed increased fear by more than doubling, going from 11.52, its lowest reading this on September 19, 2014, to a high of 24.64 on October 13, 2014. If investors and traders get more nervous, the odds favor even more wide daily swings to continue, probably through the balance of year. Stock market internals are getting worse, numerous divergences have formed, market breadth is poor, and new lows have increased sharply into the decline on heavier volume traded on the Nasdaq and New York Stock Exchange. Momentum patterns in many sectors are rolling over from extreme levels on intermediate and longer term charts. Key support levels that I have mentioned in the newsletter have all been violated, 190.00 on the S&P 500 ETF (SPY), 107.50 on the iShares Russell 2000 ETF (IWM) and 94.90 on the PowerShares QQQ Trust. The S&P 500 (SPY) and the Nasdaq Composite is now trading below its 200 day MA for the first time since 2012. With the recent sell-off, the market is now oversold, and a reflex rally could occur at any time. The most likely scenario is a rally back to resistance, or slightly higher. However, the appearance of intermediate and longer term charts suggests to me that the decline is not complete. Normally after the first thrust to the downside of a sharp decline, another test of the lows takes place over the next several weeks which is a safer entry.

Where Do the Charts Stand Now?

The Energy Select Sector SPDR ETF (XLE) had been a very strong sector, leading the stock market higher during the first half of 2014, but reversed sharply to the downside. On the way down, energy has been one the weakest sectors. XLE is a great example of why it is sometimes important to wait until the market actually finds a bottom and then turns up before bottom fishing. XLE tried to rally in July but failed to generate any real upside momentum and reversed down, making a new low each week. With this type of reversal, waiting to buy is better than getting stuck in a nasty decline.

Prices rose steadily from June 2013 with normal pullbacks along the way, a low of 54.26 peaking at 101.52 on June 23, 2014. From the peak, prices have fallen over 20% with  not much of a bounce taking place. The uptrend was broken to the downside in September 2014. Price stopped rising for a few weeks had a quick rally but then a failure took place, forming a double top. A more serious decline followed. On the lower portion of the chart notice MACD rolled over in July and went accelerated down. The MACD oscillator, the lower chart is not quite in position for a safe entry. There are no double bottom formations or turn ups in place, but MACD has fallen below 0 which is a plus. More time and patience is required for a safer buy to occur. If the XLE could hold the channel objective 75 level this could support the US Equity market from continuing its decline.

Chart 1: Weekly Energy Select Sector SPDR ETF (XLE) and its MACD

Chart 1: Weekly Energy Select Sector SPDR ETF (XLE) and its MACD

With the market selling off, is this a safe buying opportunity? Is the recent decline going to stop or will price continue lower? It looks to me like the S&P decline has further to go to the downside. The weekly price uptrend has been violated, now suggesting that the intermediate trend is down joining the long term trend. The channel downside objective is 178.00. Price could rally to where the market broke down from. If this is the case the SPY will have trouble getting through 195. Notice how the MACD oscillator is accelerating lower, weakening momentum with a negative divergence. There is no double bottom or turn up in place to suggest that now is a safe entry for a major bottom.

Chart 2: Weekly S&P 500 SPDR (SPY) and its MACD

 

Chart 2: Weekly S&P 500 SPDR (SPY) and its MACD

 The Nasdaq 100 Index ETF  (QQQ) has also been under selling pressure, breaking down through support levels and with MACD accelerating lower. QQQ traded near 100 but stalled after several times to make a further high in price. Price didn’t hold 94.00 where a bounce should have occurred. As of this writing the QQQ is now at 91.34 below where they traded in June 2014. If the decline continues from here the next support is 90, followed by 87.

Chart 3: Daily The Power Shares QQQ Trust Daily (QQQ)

               Chart 3: Daily The PowerShares QQQ Trust Daily (QQQ)

 The decline that has occurred has been with Apple (AAPL) holding firm. If further selling were to take place in Apple (AAPL) this would put additional pressure on the Nasdaq 100 (QQQ) which has a 13.00% holding. A break below 92.50 on Apple would suggest further weakness for the Nasdaq 100 (QQQ) and would give a further warning signal that this decline could be more serious.

Just To Sum Up: The stock market has been under heavy selling pressure in October with wild intraday swings that have increased volatility and risk. The bulls and bears are in battle. It’s a bearish sign when, during the last hour of trading, prices stop rising; the traders are selling their investments into the close. Market breadth has deteriorated, numerous divergences can be seen on charts and many stocks are at new lows. The intermediate and longer term charts are rolling over from a topping formation, not in favorable buying position at this time and need some time before a safer buy could occur. Prices have had a sharp decline generating an oversold condition from where a reflex rally can occur at any time but it could also be a trap with more selling to take place. A safer buying opportunity is more likely to occur later on in the year. Favorable bullish months of November through January are just around the corner. Review your portfolio and reduce your holding with incremental changes that make you comfortable and allow you to sleep at night. I recommend that you focus on preservation of your capital. More short-term volatility and risk is expected.

If you would like to review your investments I invite you to call me at 844-829-6444 or E mail me at bgortler@signalert.com.  

Sign up for a Free 3 Issue Trial of the Systems and Forecasts newsletter where I am the Guest Editor http://bit.ly/1fM79hp