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Renewed talk of U.S. tax reform and the good start to earning seasons have pushed the Dow Jones Industrial Average to a new record high on October 24.  However, the Nasdaq, S&P 500, and Russell 2000 were unable to do the same. The market has been in a steady uptrend since late August.  As the rally continues higher, so does investor optimism.  Short term price uptrends and support levels remain intact for the major averages.

Our equity timing model will shift from hold to bullish on November 1. Also unfavorable seasonality is out and favorable seasonality is in.

What to expect now?  The bulls to remain in control:

  • The daily tape action suggests there are no signs of a market top.
  • Overseas markets are in uptrends supporting the U.S. Market.
  • Although the Nasdaq is no longer leading in relative strength compared to the S&P 500, the top holdings Apple (APPL), Microsoft (MSFT), Amazon (AMZN), Alphabet Inc. Class A (GOOGL), and Facebook all remain above support. These stocks have quickly rebounded after a pullback.
  • High Yield Bonds are at or near their highs.
  • Volatility remains low.
  • Market breadth indicators are positive. The advance/decline line has made new highs.
  • The Russell 2000 (IWM) has been in a very narrow range since the highs made on October 4, not giving up much ground while digesting its gains after breaking out of its weekly channel.

Higher Intermediate Term Upside Objectives Remain For the S&P 500 (SPY)

Figure: S&P 500 SPDR ETF Weekly Price Channel (SPY, top) and 12-26-9 MACD (bottom)

The chart above is the weekly SPDR S&P 500 (SPY) ETF that is comprised of 500 stocks of the largest companies in the U.S. When you invest in the S&P 500 (SPY), you will get a broad representation of the overall large-cap U.S. stock market.

As of 10/25/17 its top 5 holdings in the S&P 500 were Apple Inc. (AAPL) 3.67%, Microsoft Corporation (MSFT) 2.74%, Facebook (FB) 1.84%, Amazon (AMZN) 1.76%, and Johnson & Johnson (JNJ) 1.72% totaling   11.73%.  The top part of the chart is the SPDR S&P 500 (SPY) ETF and its active weekly (intermediate) trading channel. The SPY continues its slow and steady rise this year. The SPY remains clearly in an uptrend that began in February 2016 (green line).  Declines have been minor and brief. Until this trendline is broken, no serious threat of a major decline should occur.

The upside channel objective is 276.00 (orange line).  In the unlikely event the SPY falls below 245.00, the area where the SPY broke out of its range, this would turn the intermediate trend negative and imply potential weakness towards the middle channel at 210.00

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 peaked at 76.04 confirmed the SPY price high.  RSI readings of 70 or higher show strength and are most times considered bullish, not a sign of a top. Generally, as long as RSI stays above 40, the trend is up.  The bullish uptrend in RSI from 1/16/16 remains intact.

On the other hand, RSI has lost some momentum.  It’s normal for momentum to weaken (red circle) after a large rally. Short-term weakness is perfectly normal after a large run-up in prices.  We should expect to see either a minor pullback or sideways consolidation before another rally attempt can occur.  If the SPY penetrates 258.00, just above the recent highs, the buyers will step in.

 In Sum

As long as the S&P 500 (SPY) uptrend remains in effect, SPY should work its way higher toward the upper weekly channel at 276.00.  If the downtrend is broken (green lines) on either price or RSI a warning sign would be given and caution would be recommended.  With our trading model likely to change from hold to the most bullish condition on November 1, and November and December historically a very favorable time for investment gains in equities, I recommend buying dips in the S&P 500 (SPY) as long as the SPY remains above 245.00.

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 October  26, 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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New record highs in price on the major averages such as the S&P 500 Index, Nasdaq Composite Index and Russell 2000 occurred in late July. The Dow Jones Industrial Average (DJIA) penetrated another round number, the 22,000 level. However, what is disturbing are technical indicators measuring momentum, such as MACD didn’t surpass its momentum highs from June. Fear has been on the rise as the CBOE Volatility Index (VIX), the stock market’s fear measure, spiked on the recent short term decline in August after many days of low volatility.

Our models remain overall neutral-positive, suggesting further gains are expected with downside risk remaining modest. Investors remain focused on many items including economic data for a possible December rate hike, a potential decrease in taxes, new health reform, and world events.  Some investors remain on the sidelines waiting for more clarity, or on vacation taking some time off like me.  The market was very quiet for over two weeks while I was gone and then last week, the tone of the market seemed to have changed.  The market no longer was in a consolidation pattern. The S&P 500 index fell 1.4%, its worst week since March, while the Nasdaq lost 1.5%.  The leader of the decline was small-cap stocks.  The Russell 2000 index (IWM) fell last week 2.7%, its biggest one week decline since February 2016.  It’s not a healthy sign when small caps are weaker than the overall market.

Watch the Movement Now of Small Caps Closely- iShares Russell 2000 ETF (IWM) Weekly Price (Top), and 12-26-9 Week MACD (Bottom)

The top portion of the chart shows the weekly iShares Russell 2000 Index ETF (IWM) which is made up of companies with a market capitalization of between $300 million and $2 billion. The IWM made a high of 138.82 on 12/08/16 stopping at its upper channel.  The IWM went sideways for about 8 weeks, not giving up much ground.  The pattern of slightly higher highs continued followed by small pullbacks (purple circles).  None of the pullbacks that occurred penetrated the uptrend that was in effect.  This latest peak in July (red circle) failed again to penetrate the channel, and the uptrend is in jeopardy of being broken.

The lower portion of the chart is MACD, a technical indicator that measures momentum. MACD has an ugly looking pattern. Initially, MACD confirmed the price high in December 2016. On the following advances to new highs, MACD failed to confirm. Now momentum is clearly weakening and the formation is spread over 29 weeks. Usually, a divergence spread over time is a sign that the price may be reversing. Weakness in the Russell 2000 (IWM) below the low made on 08/07/17 at 135.77, would suggest last week’s decline may continue. If violated on a closing basis expect the IWM to fall to the next support level at 132.40 the 03/27/17 low and potentially to the weekly channel objective at 124.00.


Summing Up:

The market remains very resilient in 2017 with major averages continuing to make new all-time highs. Small caps have been unable to break out through its upper channel and on the latest decline, they led the market lower, not a healthy sign for the market. Pullbacks have been rare this year, turning into buying opportunities. With the IWM intermediate momentum pattern clearly weakening, forming a negative divergence spread over 29 weeks, now is not the time to take on additional risk in small caps bottom fishing on any pullback.

 

*******Article published by Bonnie Gortler in Systems and Forecasts August 17, 2017

 

 

 

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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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Equity market overview – The bulls remain in control for now

The stock market continues its winning ways.  In 2017, any decline that has occurred has been contained to only a few percent because the bulls quickly stepped in to buy and the market rebounded.   Major averages are at or near their all-time highs.  The New York Stock Exchange Index cumulative advance decline line has likewise made a new all-time high.  Overseas markets are rising, especially emerging markets.  The transportation average recently confirmed the Dow Jones high.  (However, the Transports have pulled back this week.  The significance of this divergence from the Industrials is unclear at this early stage.)  VIX, a measure of fear, is at 9.79 on 07/18/17, historically a very low level.   All of these factors are supporting our market.   At this time only a few warning signs exist, such as unfavorable seasonality and some weakening momentum patterns appearing on some of the intermediate and long term charts.

The positives far outweigh the few warning signs that don’t seem to be deterring the bulls from moving the market higher. There is no evidence of a change in the prevailing uptrend.  Our U.S. equity models remain overall neutral-bullish suggesting higher prices are likely over the next several months.  Any pullback, if it were to occur is likely to be contained, rather than a larger decline of more than 20%.

ETF Corner

Let’s turn now away from US equities to review the position of Gold (GLD) since my article in the June 8, 2017 Systems and Forecasts newsletter “Gold Appears Ready to Shine”.   As a reminder, you can trade gold bullion with the SPDR Gold Shares ETF (GLD).  Purchasing the ETF (GLD) is an easy way to participate without holding the physical commodity.   GLD tends to be trendy, once it establishes its direction.

The top portion of the GLD chart above shows the weekly active trend channel in effect (blue lines).

Gold (GLD) bottomed at 107.00 on 12/15/16.  GLD penetrated the high on 04/17/17 at 123.07, slightly breaking the downtrend from its peak (orange line) on 07/05/16 , which appeared to be a breakout at the time. Instead, the breakout was false as GLD stalled at the middle channel, not powering through.    GLD fell for five weeks to a low of 114.80 then turned up, holding well above the lower channel at 111.00 and above the low at 114.80.  If GLD closes above the high at 123.07 (green circle) this time, GLD would likely be a true breakout. The potential upside target is 139.00.   A close below the lower channel support at 111.00 would negate my bullish outlook.

The lower portion of the chart is the 12-26-9 MACD, a momentum indicator.  MACD gave a buy from an extreme oversold condition as GLD rose.  On the latest pullback MACD penetrated 0 and has now turned slightly below 0.    Any short term rise in price now would turn MACD up and form a positive double bottom formation.  This would imply further gains over the intermediate term (weeks-months).

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

The top portion of the GLD chart above is the daily price with a 200-Day Simple Moving Average (blue line).  The 200-day moving average is a common technical indicator which investors use to evaluate the price trend. Very simply put, it’s the average of GLD closing price over the last 200 days.  If the price of the security is above the moving average it’s bullish (green circles).  If the price is below the moving average, it’s bearish (red circles).  Notice how on 07/18/17 GLD is above its 200-day moving average. In addition, Gold (GLD) has penetrated the down trend (black line) suggesting further gains are likely in the near term.

The lower portion of the chart is the 12-26-9 MACD, a momentum indicator.  MACD has generated a fresh buy together with a downside trend line break. This is a favorable development for GLD.

In Sum: 

U.S. equities continue their winning ways with the bulls remaining in control until proven otherwise. Our U.S. equity models remain overall neutral-bullish suggesting higher prices are likely over the next several months.  Another buying opportunity for the gold bullion ETF (GLD) is here.  Gold (GLD) is above its 200-day simple moving average and has successfully tested it weekly low.  As long as Gold (GLD) is above 111.00, look for Gold (GLD) to trend higher.

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

*******Article published by Bonnie Gortler in Systems and Forecasts July 20, 2017

 

 

 

 

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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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The Dow, S&P 500, and Nasdaq have completed one of the best January through June periods since 2009. The Nasdaq Composite was the strongest of the three averages.  However, during the last few weeks, technology was under more selling pressure than the other major averages. Intermittent rallies have been suspect.

Up until now, most price uptrends remain intact as declines have been contained.  When a decline has occurred, buyers have stepped in to stabilize the market. Key support levels have held. In the past, when the first half of the year was positive, the odds favored further gains for the remainder of the year. However, this may not be the case this year.  The second half of this year could be a bumpier ride, along with increased volatility and sector rotation.

Other sectors in addition to the Nasdaq have clear negative momentum patterns for the short, intermediate, and long term.  Clear negative divergences are showing up in MACD.  So far price trends remain up on most the major averages. However if more uptrends are broken, a more serious decline could begin. I am recommending review your portfolio, have an exit strategy ready to put into action in case further short term selling continues.  Caution is warranted until the tape action improves.

 

Intermediate-term charts suggest caution: Momentum is undoubtedly weakening.

SPDR S&P 500 (SPY) Weekly ETF (Top) and 12-26-29 MACD (Bottom)

The top portion of the chart is the weekly SPDR S&P 500 ETF (SPY) that is comprised of 500 stocks of the largest companies in the U.S.   The S&P 500 (SPY) has been in a weekly uptrend since 2016. The SPY stalled early in late February at 240.32, failing to reach the upside channel. The SPY then pulled back to 3.62% to 231.61 before proceeding to make another higher high on June 5, 2017.  Once again the SPY failed to reach the upper channel.  When the top of a trading channel is not reached on the second attempt, it’s normally not a good sign. A break below 234.50 on closing basis would break the uptrend.

More time is needed before another rally attempt or a decline begins. The encouraging sign is the uptrend remains in effect (black line) from January 2016. If the SPY turns higher and can get through the old highs, then a rally attempt towards the upper channel objective 256.00 would be possible.

The lower portion of the chart is the 12-26-9 MACD, a measure of momentum.  MACD confirmed the price high of the S&P 500 (SPY) in March, suggesting another rally attempt would occur. After a short pullback the SPY did indeed rally to make a new high. However, MACD was unable to confirm the high (red circles), and MACD has also broken its uptrend from January 2016 (black line).  This is a clear warning sign risk is increasing.

ETF Corner: Negative Divergences Have Formed on Weekly Charts

Weekly Price – Utilities SPDR (XLU), SPDR S&P MidCap 400 (MDY), iShares Russell 2000 Index (IWM), Consumer Staples Select Sector SPDR (XLP), (top of charts) and MACD 12-26-9  (bottom of charts).

 

Similar to the Nasdaq and the S&P 500 (SPY), prices have made a higher high (green circles) during the latest rally in the broad market. Notice the top chart of iShares Russell 2000 (IWM) and SPDR S&P Mid Cap 400 (MDY) above.  Price has also made a higher high in the following defensive sectors. See the top chart of the Utilities SPDR (XLU), and Consumer Staples Select Sector SPDR (XLP) above (green circles).

However, notice the weakening momentum patterns forming. MACD in all four ETF’s have failed to confirm their price highs (red circles).   A clear negative divergence has formed. Weekly MACD suggests further price gains could be limited and these sectors could continue to struggle as investors rotate into other areas of the market.

The Consumer Staples (XLP) and Utilities (XLU) weekly price uptrend have also been broken (black line).   The weekly/intermediate trend is now down, increasing the odds of a more serious decline.

The Russell 2000 (IWM) and S&P Mid Cap 400 (MDY) remain in price uptrends, positive for now.  However, I recommend watching carefully if they also break their intermediate price uptrend. If this happens, expect more selling pressure to occur on the overall market.  Key support on IWM is 137.00. A break below on a closing basis would mean potential trouble ahead.  New buying is not advised at this time.

The SPDR S&P 500 (SPY) Daily Price And Key Uptrend Line

The S&P 500 (SPY) has been in a very strong daily uptrend since December 2016 and has been up for 8 months in a row.  Yet, the SPY is now very close to breaking the daily uptrend. Key support is at 239.00. Any daily close below 239.00 for two days would suggest the decline could accelerate further.

MACD has worked off its overbought condition without the SPY giving up much ground. It will still take a few days of sideways action, or a decline in the SPY for the MACD to be oversold and move into favorable position to support a rally.

Summing Up:

Technology has been the leader of the major averages this year. However, during the last few weeks technology has been under more selling pressure than the other major averages. Now other sectors of the market such as SPY, XLU, XLP, IWM and MDY ETFs are also looking suspect, because of bearish negative divergences in MACD that have formed. The Consumer Staples (XLP) and Utilities (XLU) weekly price uptrends have been broken.  The Russell 2000 (IWM) and S&P Mid Cap 400 (MDY) remain in price uptrends, positive for now.  A break below key support at 137.00 on the Russell 2000 (IWM) on the close would mean trouble ahead.  In addition any daily close below 239.00 on the SPY for two days would suggest the decline could accelerate further.  New buying is not advised at this time.  Caution is recommended until the tape improves.

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.

*******Article published by Bonnie Gortler in Systems and Forecasts July 7, 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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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.

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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

 

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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.  

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