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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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*******Article in Systems and Forecasts February  16, 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 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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*******Article in Systems and Forecasts February 3, 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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Many stocks finished October down for the month.  The weakness extended early in November where the S&P 500 index was down 9 consecutive days with concerns about the outcome of the presidential election.  A two day bounce followed, alleviating the oversold condition that was created.  As the votes were gathered investors were nervous and the overnight futures were down sharply suggesting a lower opening on Wednesday.  During the night, Donald Trump was named president.  The panic was gone by the time the market opened.

Many market averages rallied strongly off their lows. There was a split market. Sectors such as Health and Finance moved higher, and other sectors were under pressure such as Utilities, Emerging Markets, Consumer Staples and Real Estate.   Many investors, institutions and hedge funds were surprised by the outcome and had to change their investments quickly, or decide they wanted to be invested now that the election was complete.  It’s still early to forecast what is ahead.  Our trading models are in a neutral positive condition entering the most favorable seasonal period of the year, suggesting downside risk is limited.

You can expect more wide intraday trading swings in the market until the dust settles. This could take some time.   A test of the lows over the next 3-6 weeks would be a safer buying opportunity if investors shift from buyers to seller.

What to Monitor Now for a Safer Entry

  • Monitor overseas markets to see if they move higher than 11/09/16 close.  Watch the following international ETF’s, Ishares China (FXI), Emerging Markets (EEM) and Mexico (EWW).
  • Look for intraday trading swings to be less than 1% in the S&P 500 (SPY) and Russell 2000 Small Cap Index (IWM).
  • Long term interest rates stop rising.  Watch TLT iShares Barclays 20+ Yr. Treasury Bond (ETF).
  • High Yield Bond Mutual Funds turn up and take out their recent highs. Use (HYG) or (JNK) as a benchmark.
  • Momentum in intermediate and long term charts to turn more favorable, strengthening instead of weakening.
  • An improvement in market breadth daily and on a weekly basis.
  • Watch to see if the technology sector becomes a leader over the S&P 500. Watch the Nasdaq 100 (QQQ) and the Semiconductors HOLDR (SMH).  Also keep an eye on Apple, which has been under some selling pressure the past few weeks.
  • When the market declines notice the movement in VIX (an index that measures fear).  Look if VIX accelerates quickly or it moves up quietly.  When the market falls it would be a bullish sign if VIX moves lower.

The SPDR S&P 500 (SPY) Weekly Price And Channel

110916-weekly-newsletter

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. The S&P 500 (SPY) broke below its trading channel breaking the uptrend (green line). The SPY looked like it would go lower however; there was no follow through to the downside and after the election reversed sharply higher.

What a difference a few days can make. An explosive rally developed after making a low during the night of the presidential election, the S&P 500 (SPY) closed at 216.50 on 11/9/16. The SPY is in the process of testing resistance between 217.00 and 220.00 from July 2016 highs (blue circle).  If the S&P 500 (SPY) can get through resistance, it could potentially go to the upper channel at 228.00.  If the market turns down, support is at 214.00 followed by 212.00 and 197.00.

The lower portion of the chart is the 12-26-9 MACD, a measure of momentum. It was a good sign MACD confirmed the high in July before generating a sell suggesting another attempt at the high would be made.  Momentum has stopped accelerating downwards, and has started to flatten, both good signs. Notice however that MACD is not in an oversold condition where major bottoms take place.  If the S&P 500 (SPY) does rise and break out to a new yearly high and touch the upper channel, there is a good chance MACD will not confirm and form a negative divergence.

Summing Up:

Investors’ perception changed quickly from bearish to bullish after the election upset by our new President Donald Trump.  The S&P 500 (SPY) rose sharply and is again challenging resistance at 217-220 area.  The upside target for the S&P 500 (SPY) is 228.00. Intermediate momentum indicators are not in position for a major bottom and not likely to confirm the recent strength, therefore upside potential could be limited once the dust settles. Stock selection is very important now, as the market is split. Investors are moving out of defensive sectors, market breadth is weak and new lows are increasing. More wide intraday swings are expected to continue. I recommend reviewing your holdings and not being overweight in one particular sector. Don’t rush into buying stocks; look for a safer entry in 3-6 weeks to add to your investments.

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 in Systems and Forecasts November 10, 2016

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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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No drama has occurred in the stock market as October comes to a close.  Investors continue rotating assets among different sectors as the major averages remain within a fairly tight trading range. For the short term the market is oversold and has favorable momentum patterns suggesting another attempt toward the highs is possible.  Supporting the market is strength in the Technology (QQQ) sector, trading near their highs for the year.   A big concern I have is the weakening momentum oscillators on the intermediate and long term charts on many stocks and several market indices.

As long as the support levels remain in-tact, the bulls remain in control.  Each time the market trades near the top or bottom of their range, prices stall and move in the opposite direction.  On 10/13/16, there was a small scare when the S&P 500 (SPY) slightly violated support at 212.00 intraday, tripping stops by investors. The S&P 500 (SPY) fell to a low of 211.21, however no heavy selling followed.  On the same day the S&P broke below support, the Russell 2000 Index (IWM) held above its key support at 117.00. These are very important levels that need to hold.

Stock selection now is more important since market breadth has weakened considerably since the blast off from the February lows. There has been a lot of selling pressure in October by investors in health care (XLV), utilities (XLU) and real estate (IYR).  Recently there were 104 stocks on the New York Stock Exchange Index making new 52 week highs, diverging from their peak reading earlier this year in July when there were 414 new highs. This is not a sign of a healthy broad market.  The good news is 9/22/16, the New York Stock Exchange Cumulative Advance Decline Line made a new high.  It’s very rare a market top occurs without at least another rally attempt toward new highs.   As long as support levels hold, look for another attempt for the stock market to break out to the upside.

What Charts You Want To Watch Now:

 

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

 102516-spy-daily-use

The chart on the top is a daily SPDR S&P 500 (SPY) ETF that is comprised of 500 stocks of the largest companies in the U.S.   The S&P 500 (SPY) is 1% from its lower channel and near its recent low.  On 10/13/16, the S&P 500 (SPY) fell below support at 212.00, and made an intraday low of 211.21. Since then, there has been an unconvincing rally staying within a tight range. There is resistance above at 217.00. If the S&P 500 goes above 217.00 this will get the bulls excited.  Under 212.00 the odds are likely the bears will rule and if the S&P 500 falls below 211.00 then expect heavy selling.

The bottom half of the chart shows MACD, a measure of momentum.   One of my favorite technical patterns has formed a positive divergence suggesting the S&P 500 will go higher.   A positive divergence is when you make a low in price (top chart) and the oscillator doesn’t make a lower low, instead the oscillator reading is higher showing positive momentum.   This is exactly what is happening now in MACD.   An added bonus, there is not only a positive divergence but there is also a slight penetration of the down trend. Until the uptrend is broken, give the benefit of the doubt to the bulls.

 The SPDR S&P 500 (SPY) Weekly Price And Channel

102416-spy-weekly

The chart above shows that the S&P 500 (SPY) has broken out of its trading channel, penetrating resistance in July 2016 (red circle).   The S&P 500 moved higher at first and then pulled back retracing its breakout and now is moving sideways.  Notice on the recent sell off, the S&P 500 fell slightly below the channel making a low of 211.21 holding just the above up-trend line.  For now, the intermediate trend is intact (the green line) and the trend is up.   If violated it would not be a good sign for the final week of October or the start of November.  Next support is the middle channel at 197.00, 9.35% lower from today’s close at 214.12.

iShares Russell 2000 ETF (IWM) Weekly Price With Channel

102416-iwm-weekly

The chart above 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 Russell 2000 (IWM) rose sharply from its February bottom. The IWM failed on 9/19/16 at 125.88 to penetrate its high made on 06/22/15 at 129.10.  The IWM turned down but is holding above the middle channel and above the uptrend line (blue line).   Both the middle channel and the uptrend line are in the same area acting as support. As is the case with the S&P 500 (SPY) the intermediate trend remains up for the IWM. The upside channel objective is 138.00.    As long as the IWM is above 117.00, higher prices are likely, however if the IWM falls below for two days on a closing basis, the intermediate trend would turn negative and the odds of a potential decline rise dramatically.

Summing Up:

The tug of war between the bulls and bears has not been decided.  The S&P 500 (SPY) and the Russell 2000 (IWM) remain in their trading range.   The market is short term oversold, and there is a positive divergence on the daily S&P 500 (SPY), bullish.   As long as the support level remains in-tact, I recommend giving the benefit of the doubt to the bulls.    If the S&P 500 (SPY) closes below 211.00 for two days expect the bears to come out of hiding and wider market intraday swings.   Another point of reference is watching the Russell 2000, (IWM) to hold above its key support at 117.00.  For now, the tug of war between the bulls and bears remain.

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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*******Article in Systems and Forecasts October 26, 2016

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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.

Remember to share:

The stock market has quietly advanced during the first half of August. The daily price movements over the past 25 days in the S&P 500, Russell 2000, and the Nasdaq 100 have been extremely small, ranging from 0.28% – 0.43% as prices have moved higher. As long as this phenomenon continues of low day to day volatility, downside risk will be contained.

Tape action remains encouraging, many major indices have broken through resistance levels that were in place for over a year and have made new all-time highs. Market breadth has supported the advance with The New York Stock Exchange (NYSE) advance-decline line also making a new high. A market top rarely happens at a final price high that is confirmed by the (NYSE) Advance-Decline Line.
The August through October period historically is not an ideal low risk environment to be invested in the stock market. During the third quarter of an election year, like now, the negative bias is not true.
Instead, it’s positive for the market.

Our models continue to suggest favorable market conditions, although not at the level where risk is
at its lowest. There are no blatant warning signs of a potential serious decline ahead; however there are a few small non-confirmations. I would like to see the transportation average confirm the Dow’s recent high and for the Russell 2000 Small-Cap Index to outperform the S&P 500 (SPY) and make a new all-time high.

All in all, the tape remains favorable, the bulls remain in control and I believe the advance will continue.

What Are The Charts Saying?

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

081716 SPY WEEKLY

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 08/16/16 its top 4 holdings in the S&P 500 were Apple Inc. (AAPL) 3.12%, Microsoft Corporation (MSFT) 2.40%, Exxon Mobil Corporation (XOM), 1.92% and Johnson & Johnson (JNJ) 1.79%. Investing in the S&P 500 (SPY) gives you a broad representation of the overall large-cap U.S. stock market.

The S&P 500 (SPY) finally broke out of its trading channel beginning December 2014 after penetrating the 212-214.00 resistance on 07/11/16. Old resistance is now key support if a pullback would arise. It would be bullish if the S&P 500 (SPY) remains above this level, increasing the odds of the SPY reaching the upside target of 228.00, 5% higher. Another point of reference to watch is if the uptrend remains intact from the February lows. The green trendline in the chart shows that this uptrend remains intact. As long as 204.00 is not violated, the intermediate trend is up. Remember the trend is your friend.

On the other hand, if SPY breaks below 212.00 this would be an early warning that the intermediate trend is in process of changing, and risk increasing. If the uptrend is broken, the middle channel at 197.00 would act as the next support level.

The bottom half of the chart shows MACD, a measure of momentum. MACD is on a buy, rising, above 0, and has confirmed the price high made in the S&P 500 (SPY). MACD needs to be monitored to see if and when it turns down.

This would be an advanced warning that momentum is weakening and that a potential change of trend could occur.

MACD is now somewhat extended, but no negative divergences exist and the uptrend remains in effect.

Therefore, no need to worry yet, continue to enjoy the ride.

Summing Up:

The stock market advance quietly continues. Our models remain favorable. Market breadth and price action is positive. The advance decline line has confirmed new highs in the S&P 500 (SPY) suggesting a final top most likely hasn’t been made.

Major market averages have broken through resistance to the upside after many attempts earlier in the year.

The uptrend from the February lows remains in-tact. The trend is our friend.

In the near term, unless the S&P 500 (SPY) closes below 212.00 for two days, the benefit of the doubt goes to the bulls for the S&P 500 (SPY) to continue higher toward the upside objective of 228.00.

I would love to hear from you. Please feel free to share your thoughts, comments or ask any question you might have. Call me at 1-516-829-6444 or send an email to bgortler@signalert.com.

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 August 18, 2016

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Free chapter
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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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For the first five months of 2015 the S&P 500 (SPY) traded within a tight trading range that resolved to the downside in May, not amounting to much, and short lived. No real follow-through to the upside occurred, and then a 13.4% decline occurred in August. Healthy pullbacks along the way occurred as the market consolidated its gains.

The wall of worry remains. Sharp, quick trading swings up and down would keep one up at night, leaving one on pins and needles wondering if and when a major correction would occur.

So far none has happened and all is well.

Since the last newsletter on 11/12/15, the S&P 500 (SPY) left some clues indicating a further rally, showing its best week since October 2014, gaining over 3%. The odds favor the bulls over the next several weeks, with favorable seasonality upon us now, but the tape action needs to improve for the rally to be sustained into the New Year.

It’s been a challenge to be profitable. Few stocks are making new highs, and many stocks are down more than 10% for the year. There is room to the upside for the S&P 500 (SPY) along with other major averages if the rally could broaden in scope and penetrate the overhead resistance. With favorable seasonality here, I am optimistic that resistance will be broken soon.

Let’s Review the Tape Action of the 10 Clues for Further Guidance
New 52-week lows on the New York Stock Exchange were mostly above 100 in recent trading sessions. On 11/24/15 the reading was 67, the lowest since 11/05/15. I would like to see new 52-week lows under 50. It would be even better if the new 52-week lows could fall and stay below 25.

An optimistic sign is that the 10 Day Ratio of NH / (NH+NL) on the NYSE has turned up from an oversold condition, with a bullish double bottom formation in place.

Market breadth on the New York Stock Exchange continues to be disturbing even with last week’s advance. A consistent reading of more than 500 advances is still needed and would be a good sign of further gains ahead for a broader sustainable rally.The CBOE Volatility Index (VIX) (a measurement of fear) has gone below 19.00. The VIX as of 11/25/15 intraday is at 15.40. This is a good sign.

During the recent advance there was not a trading session when there was 9 to 1 more upside than downside volume on the New York Stock Exchange. On 11/16/15 the reading was close with 8.66:1.

Overseas markets appear stable but are not gaining in relative strength compared to the U.S.equity’s. Emerging Markets (EEM) as a benchmark remain above 33, but so far has not gone through the key level above 36.00. (On 11/25/15 intraday the EEM is at 34.67)

The Value Line Geometric Composite, an unweighted average of roughly 1700 U.S. stocks, remains below 473.00, the level that would imply another rally attempt will occur. (On 11/25/15 intraday the Value Line Geometric Composite was at 467.06).

More risky areas of the market are acting reasonably well. Healthcare (XLV), Biotechnology (XBI), Technology (QQQ), and Semiconductor stocks (SMH), are holding their ground well and look like they will move higher. No selling pressure in these areas is a plus for the overall market. Continue to observe if these sectors are stronger than the S&P 500 (SPY).

High yield funds and high yield ETF’s have been falling while U.S. equities were rising. The good news is December and January are historically good months for high yield bonds. I’m looking for more interest in this area from bond investors who are looking for yield. Continue to watch how the hi yield ETF’s (HYG) and (JNK) are doing intraday. They closed at 82.87 and 35.26 on 11/24/15.

A bullish signal of further advance ahead, is if the Russell 2000 (IWM) is stronger than the S&P 500 (SPY). In addition if the Russell 2000 (IWM) could get through resistance at 120.00, an upside objective to 130.00 is given. The intraday reading on 11/25/15 is 118.79.

What Do The Charts Say?

Daily (IWM)/ (SPY) Ratio (Top) MACD of IWM/SPY Ratio (Bottom)112515 iwmspy ratio daily

The top part of the chart on the right 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.

As of 11/24/15 the ratio is rising. I am updating again because I feel it’s very significant for the small caps to participate for the rally to be sustainable. The Russell 2000 (IWM/SPY) ratio downtrend line was broken (orange line) to the upside.

Daily charts tend to give advanced notice of a potential trend change, however sometimes they are too early which was the case when a turn-up took place at the end of October. Once again, the ratio has turned up, but this time a bullish double bottom has developed. Another positive sign is the confirmation of the weekly ratio that has also turned up. (The chart is not shown).

The lower chart shows the MACD of the IWM/SPY ratio. A bullish rising double bottom is in place. The downtrend from June of 2015 (pink line) is close to being broken and could occur in a few days. The Weekly IWM/S&P ratio has also turned up, confirming the short term change in strength. As of 11/24/15 the IWM/SPY ratio is rising.

SPDR S&P 500 (SPY) Weekly with Operating Channels and MACD (Bottom)

112015 spy week channel
The top part of the chart above is the weekly SPDR S&P 500 (SPY) showing the operating channels that are acting as support and resistance areas. A break through the resistance area, above 211.50 and 213.78 would give further upside of the S&P 500 (SPY), to the channel objective of 229-230 (the green line). If the market were to decline now instead of going up, the next support area is 197.00. If this support area doesn’t hold, a more serious decline toward the old lows would occur near the lower channel at 180.00 (pink line).

The lower portion of the chart is the technical indicator MACD, (a momentum indicator). MACD is below 0, in oversold territory and now on a buy. The downtrend (green line) remains in effect for now and potentially could take 3-4 weeks of strength in the S&P 500 to be violated to the upside.

Summing Up:

The market has stabilized, as it rides along a wall of worry. U.S. equities are still digesting last week’s gains while investors position their portfolios for the final weeks of the 2015.

The market is not out of the woods yet, with market risk higher than I would like. Our equity models remain overall neutral, but if stocks continue to rise, the models would uptick to neutral-positive.

I am optimistic since we are in a time of the year that is historically very favorable for stocks. Tape action is starting to improve. Small caps are showing some signs of leadership over the S&P 500.

Many market indices are still below their overhead resistance, but could change soon. Follow the tape action that will give you clues to the strength of the advance. Watch the price levels of the S&P 500 (SPY) and the Russell 2000 (IWM) to see if investors are more interested in buying for a potential year-end rally. A break through 211.50 and 213.78 on the S&P 500 (SPY) would give further upside to the channel objective of 229-230 and if the Russell 2000 (IWM) could get through resistance at 120.00, an upside objective to 130.00 is given.

I wish you and your family a very happy Thanksgiving and a healthy wealthy happy holiday season.

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 25, 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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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.

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The fourth quarter rally remains intact, with October a very strong month for the U.S. and international markets.

The strongest sectors (as of intraday on 10/27/15) are:

The Nasdaq 100(QQQ) +10.89%,
Korea (EWY) +11.30%, and
China (FXI) +10.12%.

The S&P 500 SPDR (SPY) is also is having a solid month, up 7.53%. The S&P500 (SPY) has penetrated short term resistance of 204.00, but has struggled to get through more resistance at 207.50 mentioned in the 10/02/15 newsletter.

The market rally has been broad, however small caps continue to underperform. The Russell 2000 Index (IWM) has gained only +3.86%, unable to penetrate resistance at 120.00, or generate any bullish thrust signals so far. If the IWM could get above 120.00 an upside objective to 130.00 would be given.

With the large advance this month, the market remains overbought and ripe for a pullback. It’s possible that the market could go straight up from here without a pullback, if the small caps get stronger sooner rather than later. November is one of the best performing months of the year. Also kicking in is favorable small-cap seasonality that historically begins late November which will support the market.

Where Do The Troublesome Patterns from the 10/25/15 Newsletter Stand Now?

  • The Financials (XLF) have stabilized, showing signs of life: up 5.32% this month even with interest rates not expected to rise until 2016. Watch financials (XLF) to see if they get stronger than the S&P 500 by following the (XLF/SPY) relative strength ratio for a turn-up, signifying that financials will lead.
  • Healthcare (XLV) is acting much better after the recent sell-off. This month XLV is up 6.86% through 10/27/15 intraday, helped by stocks with favorable earnings reports. Healthcare (XLV) is now stronger than the S&P 500 (SPY) with the XLV/SPY relative strength ratio turning up on both the daily and weekly charts. Also, MACD has given evidence that downside momentum has subsided, as it has broken the downside trendline from July’s peak, a positive development for the short term in this sector.
  • Biotechnology (XBI) is no longer declining after selling off sharply, showing gains of 8.16% for the month.The XBI/SPY relative strength ratio has turned up on the daily and weekly charts. Biotechnology (XBI) is now stronger than the S&P 500 (SPY) for the short and intermediate terms, a good sign. However price remains below 70.28, the area at which XBI broke down, still trading below key support. If you are invested in biotechnology don’t overstay your welcome, because it’s a volatile index that has high risk and needs to be monitored.

Even with the gains from October, the long term trend remains unfavorable since so many indices broke their up-trends from 2009. With the recent rally, a potential bearish double top pattern could be forming if new highs are not made and the rally fails.

Our models have improved, but further confirmation is still needed to show that risk is constrained to produce a lower risk environment.

What Do The Charts Say?

SPDR S&P 500 (SPY) Weekly ETF (Top) and MACD (Bottom)

102615 spy weekly

The top portion of the chart shows the weekly S&P 500 (SPY). I have drawn the key lines and areas that I am watching now for further direction of the market:

1. 50-day Simple Moving Average (green)
2. Key Uptrend Line (red)
3. Resistance
4. Bullish Trend Break (pink)
5. MACD Turn-up

The S&P 500 has rallied towards the 50 Day Simple Moving Average (green line), 206.15 (at the time of this writing) after successfully testing the August lows. If the S&P 500 (SPY) could get through resistance at 207.50 first, then 210.00 this would be a sign of strength and a move to 220 would be a real possibility.

If the market stalls now, a potential decline to 190.00 could occur in which the signifi cant up trendline (red line) and the bullish trend line break (pink line) are acting as key support.

A break below 184.00 would break the uptrend and the odds would increase that a serious decline would follow and potentially the 08/25/15 lows would be violated.

The lower portion of the chart is the technical indicator MACD, (a momentum indicator). MACD is below 0, oversold, and has turned up since the last newsletter advocating that this is a safe buy. The expectation is that the S&P 500 will continue to rise, and not go back down to test the lows again.

I still believe the bottom is in, and the fourth quarter rally has begun and is here to stay. I am expecting the S&P 500 to get through resistance at 210.00 and a broader market rally to develop.

Just to Sum Up:

  • The overall market has changed its character, with the expectation of no Fed rate hike likely and more support from the European Central Bank. This helped the global markets stabilize, to show strong gains in October.
  • With the market advance in October, investors were enticed to move capital into sectors that have more risk, with technology, biotechnology and international stocks improving and acting better.
  • Money appears to be moving away from defensive areas such as Utilities (XLU) and Consumer staples (XLP) since the test of the lows on 09/29/15.
  • Small Caps have lagged the S&P 500 (SPY) instead of being stronger, with investors not willing to take on the risk of investing in large caps. I am expecting this to change, as favorable seasonality for the small caps is around the corner.
  • Late November historically is when favorable seasonality begins, but could start sooner than expected. Watch to see if the IWM could get above 120.00 giving an upside objective to 130.00. This could provide evidence that the rally will broaden even further, with more stocks participating in the fourth quarter rally that has begun.

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

*******Article in Systems and Forecasts October 29, 2015

Grab Your Free Trial of the Systems and Forecasts newsletter where I am the Guest Editor

Click Here http://bit.ly/1fM79hp

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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September was a very challenging month, completing the worst quarter since 2011. A broad decline in many sectors generated large losses, as the retest of the August 25 lows was and is still in process. There has been an increase in daily swings, and higher volatility than first six months of the year, when the S&P 500 (SPY) showed sideways action.

Those of you who chose to protect your money by reducing exposure and raising cash fared better than those that were bottom-fishing, buying too soon. Investing in internationals, financials, industrials, health care, energy or materials has been more stressful for investors. Biotechnology, (XBI) a sector that has been strong for years, fell over 24.5% in seven days. Defensive areas such as utilities and consumer staples were more stable, but these defensive areas might not remain stable if the broad market moves lower. Some indices have held above their August lows, while other averages lows have been violated.

On the last day of September the S&P 500 (SPY) rallied almost 2%, giving the appearance that a bottom has been made. It’s been five weeks since the August 25th low. The time constraint has been met for a potential bottom to occur. Since the long-term trend is down, I remain skeptical, and believe more base building is necessary, and more positive signs need to occur for a safe re-entry, making the risk is worth the reward.

Market Internals To Watch Now For Evidence Of A Market Bottom
Watch if there are more advances than declines for both the New York Stock Exchange (NYSE) and the Nasdaq Index on up days. In addition, if advancing volume is increasing on up days this would be a positive sign.

Look for one day’s trading where there is 9 to 1 more upside than downside trading volume on the New York Stock Exchange. If so, a rally could occur sooner rather than later.

Observe if the new lows shrink on the New York Stock Exchange to below 50. At the August low there were 1336, and September 29th there was 507 new lows, improving but still too high and dangerous.

Watch for favorable momentum patterns on your favorite sectors in indicators such as MACD. Even better would be if a positive divergence forms where there is a new low in price, with MACD making a higher high.

On the next rally if the financials are stronger than the S&P 500, watch the (XLF/SPY) relative strength ratio for when it starts to rise.

Overseas markets are weak. Look for overseas markets to firm and stop falling.

If the market were to have a big day down, look for a possible selling climax. This is where very heavy selling takes place and some investors give up, unable to stand the pain of the decline. Sometimes a few selling climaxes will take place before the ultimate bottom.

See if the CBOE Volatility Index (VIX) continues to shrink not rise, presently at 24.55. A rise above 29 would mean more intraday volatility and potentially more selling.

High yield mutual funds are acting poorly, some losing over 5% since 05/30/15. If high yields can turn up and stabilize, this would be a positive sign for the overall market. Exchange traded funds such as HYG and JNK could be monitored to see when and if they stop falling and start to rise. Also some high yield closed end funds remain under pressure with larger than normal discounts, but they have not stopped falling yet.

Small caps, Russell 2000, (IWM) need to hold above 105.00.

The Value Line Geometric Composite is an unweighted average of roughly 1700 U.S. stocks. It has clearly broken the monthly uptrendline from the lows of 2009, joining the other major averages, and MACD has generated a sell. The ability to stop falling, stabilize and penetrate 452.00 would make me more optimistic.

The S&P 500 (SPY) holds above the 08/25/2015 lows of 182.40, best case would be holding above 184.00.

What Do The Charts Say?

092815 spy weely channels

SPDR S&P 500 (SPY) Weekly ETF (Top) and MACD (Bottom)

The big question is will the August 25th low hold or if another leg down will take place?

More Evidence Needed For A Market Bottom

The top portion of the chart shows the weekly S&P 500 (SPY). I have drawn the operating channels that I am watching now to see where the market support and resistance lies.

After the low was made, the S&P 500 (SPY) had a short term rally for a few weeks that failed. A normal retest of the lows is 3-6 weeks. This has been satisfied. It’s been 5 weeks since the low of

182.40 with the S&P 500 (SPY) retracing to 186.93 on 09/29/15, holding above the 08/25/15 low. If indeed this has satisfied the re-test, the SPY would rise from here breaking the down trendline (see pink line) going through 200.00 followed by 207.50 where the next resistance area is.

If the market stalls, moves lower, and breaks below 184.00, the odds would increase that the 08/25/15 lows will be taken out. A more significant decline would follow to the first channel (blue line), of 172.00 followed by the complete channel objective of 162.00.

The lower portion of the chart is the technical indicator MACD, (a momentum indicator). MACD is oversold, below 0, in an area where significant rallies can develop. At this time there are no positive divergences or any turn up in MACD yet to suggest this is a safe buy now.

When a turn up materializes this would be favorable and suggest the worst could be over. For now new buying could be dangerous and caution is still recommended.

Just To Sum Up

Clearly the momentum in equities is down in both U.S. and globally. Remember prices fall faster than they rise. The evidence is not strong enough to say the re-test has been successful because there are too many pieces still missing for a real bottom in the market.

Short, intermediate and long term trends are down in too many averages to feel like a low risk market environment is in effect. I am recommending watching the Russell 2000 (IWM), to see if it holds above 105.00 and if the S&P can hold above 184.00. This, along with more confirmation from an improvement of market internals mentioned above, would be an incentive to think about buying.

The trend implies caution, have protective stops in place, and be patient for a safer opportunity to enter later this year.

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 October 01, 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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