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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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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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042816 Key Points IWMMost stocks have continued to advance in April, another profitable month for investors.  On down days profit taking has been contained as the bulls remain in control. Investors appear fearless moving into higher risk sectors and away from defensive sectors.  An important question remains will the major averages break out to the upside, or is it best to sell and go away in May?

Time will tell if the market continues to rise without a pullback, leaving some investors missing out on further profits.  Our models remaining favorable,with above-average profit potential with risk well below average. I continue to give the benefit of the doubt to the bulls.  The easy money from the February lows appears over.  Stock selection regarding what sector to invest in will be important as we move further on in the year. Normally defensive sectors flourish as investors want quieter sectors as the calendar moves into the more unfavorable months of the year, May through October.  Defensivesectors such as utilities (XLU) and Consumer Staples (XLP) have lost some of their luster. Investors have beenmoving money out of these defensive areas in April. Keep an eye out if this recent trend continues.

The technology sector (QQQ and XLK) has not been a strong. Poor earnings from Microsoft (MSFT) and AlphabetInc. Class A (GOOGL) didn’t help this area. In addition, Apple disappointed investors and fell hard as well.

Technology was losing momentum fast compared to the S&P 500 (SPY) even before all of these earnings reports.

In the long run this is not a positive development and bears watching.

Listen here to the audio version of the article “Small Caps Gaining Momentum: Enjoy The Ride”

These are some of my favorite sectors giving a sign of a healthy market going forward.  The
financial sector (XLF) has penetrated its first level of resistance at 23.00 as mentioned in the 03/13/16 newsletter, 24.50 is next target. In addition Regional Banks (KRE) has joined in on the advance, a very strong performer in 2015.  Also market breadth remains strong; more stocks are participating in the rally, helping the Russell 2000 Small Cap Index (IWM) and the Mid Cap 400 (MDY) sectors of the market. Review the tape action clues to monitor that I discussed in the 04/14/16 newsletter for more of what it is needed for further gains ahead.  The
odds favor higher prices ahead.

What Are the Charts Saying?–iShares Russell 2000 ETF (IWM) Weekly Price (Top), and 12-26 Week

MACD (Bottom)

042716 iwm weekly newsletter use

The top portion of the chart shows the weekly iShares Russell 2000 ETF (IWM) which is made up of companies with a market capitalization of between $300 million and $2 billion. The Russell 2000 (IWM) peaked on 06/22/15 at 129.10 and has been out of favor with investors. In November 2015, normally a seasonally favorable period, the IWM tried to rally but failed. Now a new development has taken place, IWM is showing strength.

Notice the two key weekly significant downtrends that have been broken from June 2015 (blue line) and another from November 2015 (purple line) on this latest rally from the February low. This is bullish.

IWM closed at 114.63 on 04/26/16 clearing its 50 week moving average (line not shown). Resistance is just above at 116.00. If IWM can get through resistance, a move toward the upper channel objective at 134.00 is possible.  If IWM pauses, on the other hand, then support is at 112.00.  A break below 112 would negate my short term bullish outlook and cause me to reevaluate.

The lower portion of the chart is the technical indicator MACD, (a momentum indicator). MACD has generated a buy from an oversold condition and is rising rapidly breaking the short term trend line (pink line). Momentum has been in a long term down trend since December 2013 (green line). If IWM keeps moving higher this downward trend in momentum will change and turn favorable. The best is yet to come!

Summing Up:

Our models remain on a buy and in the most bullish condition.  There is a lot of disbelief in the rally which is bullish. Tape action has been positive with market breadth strong, especially in the small and midcap sectors.

Financials have picked up their performance as well, all signs of a healthy market.  Defensive areas such as XLU and XLP have been losing momentum.  Technology was not acting very well, losing impetus before Apple’s disappointing earnings announcement.  This needs to be monitored to see if it is temporary or a warning sign for the future. Sector selection will be important. I am recommending watching the Russell 2000 (IWM) to see if it can break through resistance at 116.00. If so, 134.00 is possible.   A break below support at 112.00 would negate
my short term bullish outlook and cause me to reevaluate.  The stock market is moving into an unfavorable seasonal period over the next few months.  Review your investment portfolio, enjoy the ride now, however be ready with your exit strategy in case market weakness begins and the bears come out of hiding.

I would love to hear from you.  Please feel free to share your thoughts, comments or ask any question you might have.

Please call me at 1-516-829-6444 or email at bgortler@signalert.com.

*******Article in Systems and Forecasts April 28, 2016

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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 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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After many key market indices made lows in August, daily technical indicators moved into oversold position for the short term. Heavy selling by investors subsided in the first half of September. Investors were optimistic that the Fed would not raise rates this month, so a reflex rally occurred after the lows were made on 082415.

Instead of continued weakness, the market has been quite resilient after its sharp fall. A quick rally for a few days occurred, followed by a pullback that held well above the lows. This has triggered more buying, with many stocks trading near their lows of the year. Investors are still demonstrating a buy the dip mentality.

Even the latest rally doesn’t change the fact that the trend has changed from up to down, which means higher risk and more volatility going into the fourth quarter. It’s a good idea to take quicker profits, lower your profit expectations, and keep your stops close in case the market moves fast and goes against you. There is a good chance there will be a safer entry within a few weeks, a retest of the August 24 lows.

The intermediate and long term trend of the market has changed from positive to negative. The average intraday trading range of the S&P 500 (SPY) in the past 25 days has increased to 1.36%, much higher than 0.68% over the last 253 trading sessions. More volatility is expected to continue with investors unsure of what to expect in the next several months, as short term interest rates are due to move higher.

With the market breaking out of its 6 month range, short term risk has increased and it looks like the quiet low range days appear over. Our timing models remain unfavorable at this time.

What Do The Charts Say?

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

091715 iwm with macd
The top portion of the chart shows the weekly Ishares Russell 2000 ETF (IWM) which is made of companies with a market capitalization of between $300 million and $2 billion. When small caps are not leading the market higher, it’s normally not a good sign for a sustainable broad rally.

IWM peaked on June 22 at 129.10 about a month earlier than the S&P 500 (SPY). The IWM broke its uptrend like other averages after falling below 115.00, not quite reaching its lower channel objective of 102.50 at the 08/24/15 lows.

It appears the decline has stopped for now. IWM has rallied from its lows and is just below an important weekly downtrend line (the blue line), in position to either break the down trend or stall now in this area If the IWM were to rise from here breaking through 120.00, there is a possibility another rally attempt to 130.00, near the old highs could occur. If the market was to stall, and turn down breaking 112.50 a decline to the lower channel is possible.

Next support is at 105.00. A break below would mean a more significant decline is ahead. The jury is out.

The lower portion of the chart is the technical indicator MACD, (a momentum indicator). As the market moved sideways and then lower, momentum weakened. The trend remains down from December 2013
(green line) not in any position to be broken to the upside. Now momentum has stopped accelerating to the downside, which is a good sign. Also MACD has reset, falling below 0, generating an oversold condition from where meaningful rallies occur. A turn up from here would be positive.

Just To Sum Up:

The first half of September is positive, but September historically is a weak month. Daily volatility has increased leading to more opportunities ahead.

News today that the Federal Open Market Committee has delayed the rate hike could calm investors for the short term but will be the topic of discussion the next few months.

Our models are unfavorable along with the intermediate and longer term trend of the market. The jury is
out if there will be a retest of the August 24 lows which will be a safer entry than now.

I am recommending watching the Russell 2000 (IWM), to see if it breaks through 120.00 for the clue if the market will stall now or make another attempt toward the old highs. If the market stalls and turns down breaking 112.50 a decline to the lower channel is possible at 105.00. A break below 105.00 would mean a more significant decline is ahead. It’s not too late to review your portfolio and reduce your exposure.

Continued caution is advised.

I would love to hear from you! Please feel free to share your thoughts, ask your questions or comments.

Please call me at 1-844-829-6229 or email at bgortler@signalert.com.

*******Article in Systems and Forecasts September 18,  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.