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The time of maximum pessimism is the best time to buy and the time of maximum
optimism is the best time to sell.
” ~John Templeton

New record closing highs seem to be a normal occurrence during 2017 as the Trump rally continues.  Equity markets have been going up on expectations of increased infrastructure spending, decreased regulation, and lower corporate taxes.  The advance has been broad, although some sectors have clearly been stronger than others.

Some major averages are near the top of their channels as some stocks have had hefty gains.  There are many favorable looking charting patterns, while others are in the process of the beginning stages of a parabolic advance.  This is a chart pattern in which prices rise (or fall) with an increasingly steep slope.   When the advance stops, a large decline follows that you want to avoid.

Our trading models remain neutral positive and the tape remains bullish.  The best kind of advance is the one where pullbacks are very minor and price continues higher, as investors wait for the decline which doesn’t happen.  This appears to be what is happening now.   The trend is your friend.  For now, enjoy the ride.

PowerShares QQQ ETF (Nasdaq 100 Index) Weekly Price and Trend Channels (Top), and MACD 12-26-9 (Bottom)

The top part of the chart shows the weekly Power Shares 100 (QQQ), an exchange-traded fund based on the Nasdaq 100 Index and its active trading channels.  The QQQ includes 100 of the largest domestic and international nonfinancial companies listed on the Nasdaq stock market based on market capitalization.

As of 02/13/17, Apple, (AAPL) is the largest holding comprising 11.83%, Microsoft Corp (MSFT) 8.25%, Amazon.com, Inc. (AMZN) 6.53%, Facebook, Inc. Class A (FB) 5.15%. Alphabet Inc. Class C (GOOG) 4.65% and Alphabet Inc. Class A (GOOGL) 4.09%, totaling 40.50%.   All the top holdings have rebounded this year after being out of favor before the election.   Apple (AAPL), its largest holding has had significant gains already this year, and has higher upside projections that will help the QQQ, and has favorable implications for the technology area over the next several months.

Revisiting the article in the Systems and Forecasts newsletter on 01/13/17 “Breakout in Technology Looms”, QQQ looked poised for a breakout.  This indeed did happen.  The QQQ is getting close to its 130.00 objective, closing at 129.40 on 02/15/17.

It looks like the QQQ could start another leg up, going through 130.00 to potentially reach 139.00 (orange line), the next target.  As long as the QQQ is above the up trendline line, the trend is up.    The trend line is important; it coincides with the break out at 123.00 that is now acting as support.  For another leg up to start, the QQQ needs to close above 130.00 for 2days and declines should be contained between 1-3%.  If the QQQ falls below the up trendline my bullish outlook will be negated.

The bottom half of the chart is MACD (12, 26, 9) a technical indicator that measures momentum.   MACD is overbought, however still rising, and gaining momentum which is positive.   MACD has confirmed the price high suggesting even if the QQQQ would decline another rally attempt would occur.

QQQ Performance Will Be Helped By Apple: Long Term Trend Is Up

AAPL Monthly Price and Up Trend Line (Top), and MACD 12-26-9 (Bottom)

** Apple’s stock underwent a 7-for-1 split, giving 6 additional shares to each shareholder on 06/09/2014.  The stock closed at 645 becoming 92.00/per share.

The top chart is a price chart that shows the high-low-close each month of Apple since 2005.  The Black line is the prevailing key uptrend line.  As long as Apple’s price is above the uptrend line, the trend is up and further profit potential on the long side is likely.   Apple was under selling pressure since its high in April 2015, when it was out of favor by investors.  In September 2016, Apple broke its down trend (orange line), and investors stepped in to buy.   After its quarterly earnings were announced on 01/31/17, Apple gained 11.7% (121.35-135.60 as of 02/15/17 intraday) and then soared ahead breaking its all-time intraday high of $134.54 set in April 2015 on February 14, 2016.

The bottom half of the chart is MACD (12-26-9), a technical indicator that measures momentum.  MACD is on a buy, and has a very favorable pattern turning up from an oversold condition below 0, where good buying opportunities develop.  This certainly has been the case for Apple.

In 2009 MACD was oversold, below 0, and generated a buy.  MACD rose into 2011 while MACD went sideways into 2012 as Apple stock continued to rise from 11.76 to 100.72, +756% gain.   MACD turned down crossing its signal line in 2012, generating a sell in 2013.  Apple fell from 100.72 to 52.55, a 47.8% loss.  MACD then started to flatten out forming a rising double bottom formation (one of the most bullish formations to look for on charts and make money).  Apple rose from 52.55 to 134.54, +156.0% gain. MACD peaked in 2015, turning down, losing momentum and Apple fell from 134.54 to 89.47, a -33.5% loss.

Apple’s latest rise off of the bottom is from 89.47 to 135.50, a gain of 51.5%. The good news is the MACD pattern remains very bullish even with its rise to new highs.  Next objective is 155.00 and support is 127.00.  There has been a definite shift in investor sentiment since the election and belief the company will benefit from potential changes down the road by President Trump. Time will tell.

Summing Up:

Major averages have made new all-time highs, a common theme of 2017.  The advance that is taking place is the best kind of advance, one where pullbacks are very minor and price continues higher as investors wait for the decline.  The Nasdaq 100 (QQQ) did break out in January, and could well be on its way to another 7% gain.  The trend is up.  Apple, its largest component has a very favorable MACD pattern suggesting there is more room to the upside on top of its recent gains.   The trend is your friend. Enjoy the ride.

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.

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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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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For almost 2 months, the market was quiet, moving sideways to higher. The S&P 500 (SPY) daily change was less than 1%, and then September 9th occurred.  Investors’ perception changed from bullish to bearish, spooked by news of potential rising rates in September, sooner than expected and the S&P 500 fell 2.45%.   It’s been months since heavy selling has occurred. Volatility rose sharply. VIX, (an index that measures fear) increased from an intraday low of 11.65 to a high of 20.51 in two days, a gain of 76%.  There was no place to hide.

The next day, stocks reversed quickly to the upside, however the rally couldn’t be sustained.  Heavier selling the next day was broad based.   Few stocks rose and many fell. The tape showed very poor market breadth readings on heavy volume, including new 52 week highs deteriorating. The trading screen was full of red, emotions rekindled, and a feeling of angst by investors was front and center (including me).   Volatility is back.   Risk has increased.   Market breadth is no longer favorable supporting the market, so stock and sector selection will be more important making money going forward.   Our models have moved from positive to neutral and no longer suggest the market is low risk.

For the short term in favor of the bulls, the major averages are only a few percent from their highs. Support levels on the S&P 500, Nasdaq and Russell 2000 have held so far.  The unfavorable seasonal period of September, including expiration will soon be behind us.  Institutions will begin to focus on the end of quarter window dressing, preparing for rising rates and the presidential elections. Also supporting the market is Apple, (AAPL) the stock investors had shied away from, out of favor since the highs made in April 2015. Apple (AAPL) has clearly broken its weekly downtrend to the upside, now up from 102.53 on 091216 to trading at 114.91 as of this writing.  If Apple rises more you can look for the technology sector to continue to be stronger than the S&P 500.   In the long run this is a bullish sign for the market.

As of this writing the latest decline looks more like a short-term pullback within an uptrend that could lead to more gains and another test of the highs.   I am cautiously bullish watching closely to see if the support levels hold, and if the intermediate up trend remains in-tact I will give the market the benefit of the doubt.

Chart To Watch Now:

The SPDR S&P 500 (SPY) Weekly With Channel (Top) and 12-26-9 Week MACD (Bottom)

spy091516

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.  As of 09/14/16 its top 4 holdings in the S&P 500 were Apple Inc. (AAPL) 3.07%, Microsoft Corporation (MSFT) 2.39%, Exxon Mobil Corporation (XOM), 1.93% and Johnson & Johnson (JNJ) 1.74%. Investing in the S&P 500 (SPY) gives you a broad representation of the overall large-cap U.S. stock market.

The top part of the chart shows the S&P 500 (SPY) penetrated its trading channel, getting through resistance at 212-214.00 in July 2016 (red circle).  Notice on the recent sell off, the S&P 500 tested the breakout of the channel making a low of 212.50, holding just above 212.00 acting as key support.   As long as the S&P 500 (SPY) can hold 212.00 and turns up, this would be considered a successful test of the upside breakout in July.  The upside target for the S&P 500 (SPY) remains at 228.00 mentioned in the August 18th newsletter.

On the other hand, if the SPY closes below 212.00 for two days, a warning would be given a further decline is likely.   As long as 204.00 on the S&P 500 (SPY) is not violated, the intermediate trend remains intact (the green line) and up.  If violated, the decline could accelerate fast and possibly be more than a short term correction.   Next support 197.00.

The bottom half of the chart shows MACD, a measure of momentum. MACD is now falling, and has generated a sell. It’s very clear momentum is weakening.   It’s a good sign MACD confirmed the breakout and no negative divergence took place.   Tops many times take a long time to form and the confirmation makes me believe another leg up could occur before there is a more serious decline.   Its positive MACD confirmed the breakout and no negative divergence took place.

Summing Up  

There was a short term change in investors’ perception from bullish to bearish that evoked panic selling and caused stock prices to fall sharply with increased volatility.  It looks like there has been a successful test of the upside breakout in July.  Warning signals are starting to form in intermediate momentum indicators that a potential top is looming and upside potential could be limited.  Stock and sector selection will be more important as the year moves forward.  The upside target for the S&P 500 (SPY) remains at 228.00.  For now the intermediate trend remain up.  Quiet times are over, expect volatility, and more risk. Review your investments now before the bears take charge and the intermediate trend changes from bullish to bearish.  The key number to watch on the S&P 500 (SPY) is 212.00.   A close below 212.00 for two days would be a warning further decline is likely.

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

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Disclaimer: 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 advisers to consider the suitability of investments discussed above for their own particular situations and for determination of their own risk levels.

 

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State of the market: The prospect of a December interest rate hike has increased, with the latest release of the employment numbers on 11/06/15. The unemployment rate fell to 5%, its lowest level since April 2008. This report has sparked some selling pressure in the bond sector. In addition, traders are processing the latest round of earnings and beginning to think about what is needed to rebalance their portfolios at year-end. All of these factors have caused a change in investor psychology as to where to invest and what to look for over the next few weeks.

The likelihood of a rate hike in December led to higher yields and profit-taking in stocks that pay higher dividends than the S&P 500 Index (2%). Investors took profits in stocks that pay higher dividends. Utilities (XLU) Real estate (IYR) and Consumer Staples (XLP) lagged the S&P 500 (SPY). Utilities (XLU) failed to get through their August highs, stopping at weekly resistance and not breaking the downtrend. With interest rates expected to rise sooner rather than later, it’s best not to have a large amount of capital allocated to these sectors until they stabilize. As rates rise, more selling pressure is likely in bonds.

The talk of a rate rise helped the financial sector, especially the banks, and the U.S. dollar, which is now close to highs made in April 2015. The rise in the dollar was bad news for Gold (GDX), Gold Miners (XME), and other commodity related stocks which fell sharply, and again are now near their lows. Emerging Markets (EEM) also has been weak so far in November, having given back some of the October gains. EEM failed to get through resistance at 37.00 as discussed by Marvin Appel in the 10/30/15 newsletter. However, (EEM) is not yet at the ideal bottom-fishing level of 31.50 for swing trading or covered call writing.

U.S. stocks have stalled as the Fed signals the likelihood of a rate hike in December. Time was needed to work off the near-term overbought condition that we have had since the large gains in October. Yet there has been no significant sell-off to speak of. My interpretation is that the pullback that has occurred so far has been healthy, with the market consolidating its recent gains.

I am looking for this consolidation period to end sooner rather than later. Our intermediate-term models remain neutral-positive. No changes have taken place as of yet to give an all-clear signal indicating that risk would be contained if a decline instead of a year-end rally were to occur. If market breadth improves along with small caps gaining strength over the S&P 500, the remainder of the year could signal further gains ahead.

SPDR S&P 500 (SPY) Monthly with Andrews Pitchfork ETF (Top) and MACD (Bottom)

S&P Monthly 111015 Newsletter
The top portion of the above chart is the monthly ETF S&P 500 (SPY) using an Andrew’s Pitchfork to show a low-high-low point configuration that I have connected with an upward trendline.

The pitchfork developed by Alan Andrews is one of my favorite charting tools. I have used it for over 30 years to help identify major trading channels. You can find the Andrews Pitchfork on most charting software packages, and it is easy to use. It requires three points, each marking an important pivot. You can use the Andrews Pitchfork on charts of any time period, adjusting it to your needs to help identify significant channels.

  • The S&P 500 (SPY) bounced off the monthly up trendline when it fell to 182.40 on 08/24/15, with
    investors stepping in to buy.
  • A quick, sharp rally followed.
  • Now, after large gains, the S&P 500 (SPY) has stalled.

There is more room to the upside with the upper channel at 220, but first the S&P 500 (SPY) needs to penetrate resistance at 211.50, the high made on 11/4/15, followed by 213.78, the old high from June 2015.

If investors decide to focus on rising interest rates, or investors decide to lock in some profits for the year before option expiration, a short term pullback or sideways action is possible, and would still be considered healthy after October’s large gains.

Support is at the 2015 October lows of 186.00.

As long as the up-trend line holds, I expect higher prices going forward. Favorable seasonality starts in November, which is historically a strong month, so I am not expecting a severe pullback at this time. The lower portion of the chart  is MACD; a momentum indicator.

MACD is not in the best condition after breaking the uptrend from 2009 and presently trading above 0. MACD will take months before the S&P 500 (SPY) resets and goes below 0 and a low risk buy could develop for the long term. The good news is MACD has no negative divergence in place, with MACD making a high along with the S&P 500 (SPY). Momentum is waning, but after many years of rising, this is normal. Keep an eye out to see if the S&P 500 (SPY) does takes out the high and if MACD doesn’t, forming a double top with a negative divergence. If this happens it would be bearish.

Summing Up

The long term uptrend is intact. S&P 500 has had a big run to the upside from the October lows, and is now trading in an area of overhead resistance.

Some profit-taking has transpired in recent trading sessions, as the S&P 500 (SPY) was short-term overbought after October’s big rally.

More backing and filling could occur, but no serious decline is expected with favorable seasonal tendencies upon us.

As long as the S&P 500 (SPY) remains above the up trendline the bulls will remain in control. Watch to see if the SPY can break through resistance above 211.50, followed by 213.78 with an objective to 220.00.

I would love to hear from you! Please feel free to share your thoughts, ask your questions or share your comments with me. Call 1-844-829-6229 or email me at bgortler@signalert.com.

*******Article in Systems and Forecasts November 12, 2015

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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.

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U.S. equities have stalled, as they are still digesting the gains from the very strong October. Stocks that are sensitive to a rise in interest rates have been under pressure as investors rebalance their portfolios for the final weeks of the 2015. The good news is that historically, November is a favorable time for the stock market. The advance could continue sooner rather than later without a serious pullback. Presently many market indices are below their overhead resistance and if penetrated, the advance could broaden further.

10 Clues to Watch for:

1. Notice if new 52-week lows on the New York Stock Exchange go below 50. Even better would be if new 52 week lows go below 25 and stay there. (On 11/10/15 the reading was 84).

2. Market breadth on the New York Stock Exchange has been lacking. More advances than declines are needed for a broader rally. A consistent reading of more than 500 advances than declines each day the market rises would be a positive sign.

3. The CBOE Volatility Index (VIX) stays below 19.00. The VIX is a measurement of fear. As of 11/12/15 the intraday VIX is at 18.09.

4. Watch for a trading session in which there would be 9 to 1 more upside than downside volume on the New York Stock Exchange.

5. There is more advancing volume on the New York Stock Exchange on days when the market rises.

6. Overseas markets have been falling in recent trading sessions. If global markets could firm and turn up, this could support the U.S. market. Keep an eye on Emerging Markets (EEM) as a benchmark. Some key levels to watch and would be considered bullish are: if EEM stays above 33.00 and then rises above 36.00. (On 11/10/15 intraday the EEM looks to have firmed and is trading at 34.40).

7. The Value Line Geometric Composite, an unweighted average of roughly 1700 U.S. stocks has retraced some of its gains trading at 465.28 on 11/11/15. A rise above 473.00 would be a good sign that the short term pullback has ended and another rally attempt will occur. (On 11/12/15 intraday the Value Line Geometric Composite was at 455.50).

8. Investors may decide they want to invest in more risky areas of the market. Monitor the action in Healthcare (XLV) Biotechnology (XBI) Technology (QQQ) and Semiconductor stocks (SMH). Observe if these sectors are stronger than the S&P 500 (SPY).

9. High yield funds and high yield ETF’s have stopped rising, giving back some of their October gains. If they firm and start rising again it would be bullish for stocks. You can keep an eye on how the hi yield ETF’s (HYG) and (JNK) are doing intraday. They closed at 83.80 and 35.77 respectively on 11/11/15.

10. Watch to see if the Russell 2000 (IWM) shows more strength than the S&P 500 (SPY). If the IWM gets through resistance of 120.00, an upside objective to 130.00 is given. Small caps leading the market are important for further gains.

111215 IWM weekly newsletter

What Do The Charts Say?

Ishares Russell 2000 ETF (IWM) Weekly Price (Top), and MACD (Bottom)

The top portion of the chart shows the weekly Ishares Russell 2000 ETF (IWM) made of companies with a market capitalization of between $300 million and $2 billion.

Small caps have lagged the S&P 500 (SPY) this year. The Russell 2000 (IWM) peaked on 06/22/15 at 129.10 and fell to a low of 108.26 on 08/24/15, and then made a lower low on 09/29/15 at 106.99.

The Russell 2000 (IWM) has stayed within a trading channel for the past 12 weeks, but it looks to me like it could be ready for a breakout to the upside. Notice the weekly downtrend has been broken, (blue line), a good sign. Historically the middle of November is a favorable time of the year for small caps to rally.

The IWM has stalled, unable to get through resistance above 120.00. If strength occurs in the IWM, then investors might be more interested in rotating assets from their existing holdings to small caps.

The longer term trend from the highs in October of 2014 remains in a down trend, (green line) but now the MACD is in a favorable position, oversold, below 0 and MACD is rising, soon to cross its signal line. If the IWM could get above 120.00 the IWM could easily go up towards the channel at 130.00.

Daily (IWM)/ (SPY) Ratio (Top) MACD of IWM/SPY Ratio (Bottom)

111215IWMSPY rlative strength ratio newsletter
The top part of the chart is the daily Russell 2000 /S&P 500 Ratio (IWM/SPY ratio). A rising line means the IWM is stronger, and if falling, the S&P 500 is stronger.

The Russell 2000 (IWM) line had been falling sharply through late October. Now there has been a change, hope for the start of a potential rally for small caps. Notice the break of the down trend (orange line). A turn-up has taken place. Daily ratio charts are very sensitive to changes in market action, unlike weekly charts. In the past few days the market has been down, so the ratio has fallen slightly. If the ratio turns up in the next few days It would be bullish.

The lower chart shows the MACD of the IWM/SPY ratio, also in favorable position, breaking its downtrend from September 2015 (green line) and close to breaking the downtrend from July of 2015 (pink line).

More time is needed for confirmation that the Russell 2000 is ready to move toward its old high of 2015, but chart patterns are improving. Favorable seasonality could kick in at any time. Watch to see if the Russell 2000 (IWM) shows more strength than the S&P 500 (SPY) and can get through resistance of 120.00, giving an upside objective to 130.00.

Summing Up:

• U.S. Equities have stalled near overhead resistance and are working off the overbought condition from October’s large gains.

• With only a few weeks remaining until the end of the year, investors appear to be taking profi ts and rebalancing their portfolios for the final weeks of the 2015.

• Small caps stocks historically perform better in November. The Russell 2000 (IWM) has stayed within a trading channel for the past 12 weeks. Charting patterns are improving, but the all-clear signs are not quite in place yet.

• There could be a breakout to the upside on IWM sooner rather than later, if market internals start showing more improvement and investors become willing to take on more risk.

• In recent trading sessions the market has paused, and has not been able to generate enough strength to get through overhead resistance. However, favorable seasonality is upon us, and recent selling could turn into more buying, quickly.

• If the IWM could get above 120.00, the next upside objective would be 130.00.

• If the IWM turns down below the weekly channel at 105.00, then I would expect the bears to take control and lower prices would lie ahead.

It’s almost the end of the year. Need a second pair of eyes to take a look at your portfolio? Please feel free to call me at 1-844-829-6229 or email me at bgortler@signalert.com. I’d be happy to help.

*******Article in Systems and Forecasts November 12, 2015

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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.