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Technology continues to lead the overall market and outperforms other major averages.  The Nasdaq Composite is stronger than the S&P 500 Index, a condition that has characterized more favorable overall market climates historically.  In May, we saw the first noteworthy selling that generated the most fear and angst seen in many months among investors (including me).  But the decline was short-lived as stocks have rebounded.  Broad market indexes are resilient as price trends remain intact.  Our models remain overall neutral-positive.

But we are not in the clear.  Leadership has been thin.  Stocks making new 52 week highs on the New York Stock Exchange index have been rather lackluster.   The bellwether Financials Sector SPDR (XLF) was a hot sector early in the year.  However, in recent weeks financials are lagging, not a good sign for the bulls.

The momentum of the rally has been diminishing over time and warning signals are starting to appear.  As discussed below small-caps remain in their 16-month old price uptrend that began (on monthly charts) in February, 2016.  However, the relative strength trend of small caps outperforming large caps that also started in February 2016 has now been broken.  In general, when financials and small caps are weak, this is not a sign of a healthy market.

So the question remains: will the major averages will break out to new highs and begin another leg up, or will the major averages stall, turn lower and usher in a more meaningful decline?

11 Clues You Want To Watch For a Potential Trend Change

  1. Whether overseas markets continue to rise or begin to stall and work their way lower. Watch Emerging Markets (EEM), China (FXI) and Europe (IEV) as benchmarks.
  2. Look at the Technology sector if it continues to make new highs or suddenly turn down. Monitor Nasdaq 100 (QQQ) and the Semiconductors HOLDR (SMH).
  3. The Value Line Geometric Composite, an unweighted average of roughly 1700 U.S. stocks regains strength to take out its high at 526.83 on 04/26/17. This would indicate more broad participation rather than only a few stocks rising.
  4. Observe the action in the Biotechnology sector (XBI). Strength would indicate investors are willing to take on more risk.
  5. The Transportation Average (IYT) has been weak, well below its high on 03/01/17 at 173.88. If the IYT continues to decline this would suggest a strong rally from here is unlikely.
  6. The Financial Sector regains relative strength vs. the S&P 500 (SPY). Watch XLF and KRE as benchmarks.
  7. High Yield Bonds remain firm instead of weakening and turning lower. Use HYG or JNK as a benchmark.
  8. Apple continues to be a leader (APPL). Upside objective 175.00.  A break below 150.00 on a closing basis could portray weakness to follow in other technology stocks.
  9. Volatility remains low. Look out if VIX takes out the previous high from 05/18/17 at 16.30.
  10. New 52 week lows on the New York Stock Exchange Index remain low, presently at 33. An increase to over 150 would not be a good sign.
  11. Watch the last hour of trading. If the major indices closed near the highs of their daily range consistently this would be bullish.  If the major average closed near the low end of their daily range consistently this would be bearish.

Warning:  A potential trend change has been given by Russell 2000 (IWM).

Russell 2000 Index (IWM) ETF Weekly Top and (IWM) Russell 2000 Index / (SPY) S&P 500) Ratio (Bottom)

 

The top portion of the chart shows the weekly iShares Russell 2000 Index ETF (IWM) which is made up of companies with a market capitalization of between $300 million and $2 billion.  After the election last November, small caps lead the advance.
Strong gains followed in January and February this year peaking on 04/26/17 at 141.81.  The IWM has been unable to generate enough momentum to break out and regain the strength it had early in the year because investors have favored large-cap growth stocks.

The Russell 2000 (IWM) has been in an uptrend since 02/01/16. The intermediate uptrend will remain intact as long as the IWM is above 130.00.   If the intermediate trend is violated, this would not be a good sign and the likelihood of a potential serious decline would increase.

The bottom part of the chart is the Weekly Russell 2000 /S&P 500 (IWM/SPY ratio).  A rising line means the IWM is stronger, and if falling, the S&P 500 is stronger.  The IWM ratio was steadily rising with a few small turn downs but holding above the uptrend line (purple line).  However, the uptrend from 02/01/16 has been broken.

Summing Up:

A warning of a potential trend change has just been given. I recommend reviewing your portfolio to make sure you are not overly exposed to small caps.  Historically, when IWM is stronger than the S&P 500 (SPY) it has been a bullish condition for the broad market. This condition is no longer supporting the market. Risk has increased.  For those of you who have large holdings, I suggest shifting your assets out of small caps and move into S&P 500 (SPY) or raise cash and wait for a safer buying opportunity later this year.  If the IWM fails to take out its high and turns down below support at 130.00, you can expect further weakness in IWM and could potentially spread into other sectors of the market.

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

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*******Article published by Bonnie Gortler in Systems and Forecasts May 25, 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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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.

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

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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.

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Day-to-day volatility is extremely low, as the summer winds down and the election looms.  Over the past 25 days the daily price movement range is slightly lower than two weeks ago, 0.26% – 0.31% for the S&P 500, Russell 2000, and the Nasdaq 100.  Investors will keep in the back of their minds (including myself), the potential rate hike in order to decide how much risk they want to bear.   The rise could come in September even though it’s unlikely.  December is more of a possibility, or even early in 2017.  

The major averages are trading near their highs.  There has been profit taking in Utilities and Real Estate after their strong performances this year.  During the month of August, Emerging Markets, Financials, Nasdaq, Midcap and Small Cap areas were all more profitable than the S&P 500.  I am expecting downside risk to be contained in the months ahead, as long as no unexpected news of a sharp rise in interest rates.   If a change in investor’s perception from bullish to bearish does take place, volatility will increase quickly and prices will fall quickly.

Over the next several weeks I recommend you to watch the small cap sector very closely for a potential change in the intermediate trend that has been clearly up.  If the IWM lags the S&P 500 a warning sign will be given of a potential change in the intermediate trend.

What Charts You Want To Watch Now:

iShares Russell 2000 ETF (IWM) Weekly Price (Top), and 12-26 Week MACD (Bottom)

083116 IWM WEEKLY

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.  After finding a bottom, the Russell 2000 (IWM) rose sharply breaking the downtrend on 04/18/16 (blue line). The IWM rallied, and then paused for a few weeks retracing some of its gains, testing the downtrend line.  The IWM then broke through resistance at 117.00, the mid channel.  The upper channel objective is 138.00.   If the IWM instead stalls from here, 117.00, the old resistance will act as support.

As long as the IWM is above 117.00 I would expect higher prices.  If the IWM falls, and breaks below 117 for two days on a closing basis, this would not be a good sign and the intermediate trend would be in jeopardy.

The lower portion of the chart is MACD, (a momentum indicator).   MACD generated a great entry from an oversold condition, rose sharply breaking the short term trend line (pink line), and has never looked back.  More good news is the long term down trend since December 2013 (green line) has turned favorable, which supports the bullish case and will support the market.  Favorable seasonality is also only a few months away for small caps.  Investors might be ready to shift their assets and take on more risk by reducing their holdings in large cap and dividend paying stocks that are somewhat extended and overvalued.

Even if the IWM turned down now, I would not expect it to be long lived and become a major decline after the strength of the momentum and the longer term breakout that has occurred.  If there is a 2-3% pullback this would be an ideal area to buy.

Weekly (IWM) Russell 2000 Index / (SPY) S&P 500) Ratio (Top); MACD of IWM/SPY Ratio (Bottom)

0830IWMSPY RATIO

The top part of the chart on the right is the Weekly Russell 2000 /S&P 500 (IWM/SPY ratio).   A rising line means the IWM is stronger, and if falling, the S&P 500 is stronger.   The IWM is clearly leading in relative strength confirming the rise in the IWM.  The downtrend has been broken from June 2015 and could very well break the longer term trend from February 2014 if the small caps continue to be stronger than the S&P 500.  A turn down and break of the uptrend would not be a good sign.

The lower portion of the chart is MACD of the IWM/SPY ratio, still rising, no weakening momentum of at this time.  The IWM/SPY ratio is almost at new highs and there are no negative divergences, bullish.

Summing Up:  

Day-to-day volatility was extremely low in August but this could change fast. The intermediate trend remains up supporting the market and the bulls remain in control for now.   Our models remain favorable.  I believe the advance will continue however I am recommending watching the Russell 2000 (IWM) for direction to see if the IWM rises further to the top of the channel at 136.00. If the IWM falls instead and breaks below support at 117.00 for two days on a closing basis the retracement could be the warning that the intermediate rising trend is over and a decline is ahead. It’s a good time to review your investment portfolio and have your exit strategy ready in case the unexpected occurs, and the bears come out of hiding.

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.

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 Sept 01, 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 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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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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A new quarter, tax selling season is over, and the start of earning season has begun. What remains in investors’ minds is whether the market will move higher. Supporting the market is that historically April is a profitable month. Investors are rotating in and out of different sectors as the major averages have been consolidating near potential resistance areas the past few weeks. Out of favor sectors such as Materials (XLB), Gold (GLD), Silver (SLV), Emerging Markets (EEM) and Oil (USO) have been attracting money. These sectors all have more room to the upside. If the breakout materializes as I suspect, money will move out of the defensive sectors such as utilities (XLU) and Consumer Staples (XLP) next.

During the advance from the February low, down days have been contained. The major averages such as Dow, S&P 500 and the Nasdaq have worked off their overbought condition. Favorable tape action, low volatility, and strong market breadth all are very encouraging signs that the major market averages will move higher and resistance will be broken to the upside.

The bulls remain in control climbing the wall of worry.Key Points 041516 S&F Newsletter

Tape Action Clues To Monitor For Further Gains Ahead:

The financial sector to continue rising. Watch for additional strength in KRE and XLF. The ultimate would be if financials would be stronger than the S&P 500 (SPY). XLF previously paused at resistance at 22.60 (03/3/16 newsletter). As of 04/13/16, XLF is 22.93, looking like it’s ready to bust through resistance and test its next objective at 24.50.

The Nasdaq 100 (QQQ) is close to resistance at 111.00. Further gains lie ahead if penetrated. A good sign will be if the QQQ will lead the advance higher, and be stronger than the S&P 500 (SPY). Watch the QQQ/SPY ratio.

Crude oil and the energy sector stocks are stable. Watch the United States Oil Fund (USO) and the energy sector (XLE). The XLE is showing strength lately after recently breaking the weekly downtrend from September 2014. USO closed on 04/13/16 at 10.53. Support is at 9.00 and resistance at 10.80 followed by 11.42.

The Transportation Average (IYT) takes out 145.85, its 03/2/16 peak, confirming the Dow Jones Industrials high (DIA) on 04/13/16.

Continued strength in midcaps. (MDY) Short-term support is 259.00. Resistance is at 269.00. If the MDY breaks through resistance, upside projections to 280.00 could be a reality. The MDY/SPY weekly ratio broke the down trend confirming an increase in upside momentum. (See my article in the April 1st Systems and Forecasts newsletter).

New 52 week lows on the New York Stock Exchange Index remain low, presently at 2. Risk is minimal as long as the new 52-week lows stay below 25.

Overseas markets rise further supporting the U.S. Keep an eye on Emerging Markets (EEM), China (FXI) and Europe (IEV) as benchmarks. All three ETFs made higher highs on 04/13/16 than the previous high on 03/30/16.

Volume has been unconvincing, remaining light. An increase in trading volume on the New York Stock Exchange would fuel gains.

High yield bonds keep rising. Use ETFs HYG or JNK as a benchmark.

The Value Line Geometric Composite, an unweighted average of roughly 1700 U.S. stocks closed higher than 03/31/16. More stocks are participating in the advance as the rally is gaining steam.

Small caps are generating investors’ attention showing signs of leadership compared to the S&P 500 (SPY). This is bullish! Keep an eye out for more strength in the small caps (IWM).

Watch the last hour of trading. If the major indices close near the highs of their daily range consistently this would be bullish.

What Are The Charts Saying?

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

041216 Newsletter S&P 500

The top chart is the weekly SPDR S&P 500 (SPY) ETF that is comprised of 500 stocks of the largest companies in the U.S. As of 04/12/16 its top 4 holdings in the S&P 500 were Apple Inc. (AAPL) 3.41%, Microsoft Corporation (MSFT) 2.40%, Exxon Mobil

Corporation (XOM), 1.95% and Johnson & Johnson (JNJ) 1.68%.

In the 03/17/16 issue I raised the question of whether a breakout or top was forming. The S&P moved in a tight range the past month, working off its overbought condition staying within the trading channel (pink lines). The S&P 500 (SPY) broke
above 204.00, a shorter term resistance area getting the bulls interested again. The SPY appears ready to break the down trendline from July 2015 and challenge resistance at 212.00 – 214.00 now. If resistance is penetrated, 228.00 is an upside objective.

The bottom half of the chart shows MACD, a measure of momentum, on a buy. Good news, the downtrend from May 2015 (purple line) has been broken, a bullish sign suggesting the SPY will get through overhead resistance sooner rather than later.

Summing Up: 

Sideways action appears to have ended. The stock market is gaining steam. A potential breakout to the upside is developing. Investors were excited when the S&P 500 (SPY) rose above 204.00. Our trading models remain in the most favorable condition. Watch for further clues by the market tape to give further confirmation that the S&P 500 (SPY) breaks out. A move above 208.00 followed by 212.00 and 214.00 will give an upside objective of 228.00. In case something
unforeseen happens, a break below 200.00 on the S&P 500 (SPY) would surprise me and change my optimistic bullish outlook for higher prices ahead.

I welcome you to call me with any comments, feedback or questions at 516.829.6444 or email bgortler@signalert.com.

*******Article in Systems and Forecasts April 14, 2016

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The Fed’s action in December of increasing rates for the first time since June of 2006 added to an already challenging year for stocks in 2015.

The last few days of 2015 disappointed investors. After the stock market started to show some encouraging technical signs, a year-end rally did not materialize. Buyers quickly turned into sellers after major market indices failed to get through overhead resistance, the same pattern that had occurred numerous times during the year.

The Nasdaq Composite finished positive for the year gaining 5.7%, mostly from a few stocks; Amazon (AMZN), Microsoft, (MSFT) Google, (GOOGL) Facebook (FB), and Netflix (NFLX). The S&P 500 index didn’t fare as well, finishing down for the year -0.7% (excluding dividends).

In case you were wondering why it was so difficult to make money in 2015 I will share some research by Glenn Gortler, Director of Research at Signalert. Out of approximately 4100 stocks tracked in our database:

• 57% of stocks were down for the year.
• 44% of stocks were down more than 10% for the year, and
• 32% of stocks were down more than 20%.

Even though some of the major averages showed small losses, only a few stocks led the indexes higher. If this trend continues, it could be even more of a problem going forward.

In my experience, during the first week of January crazy things happen. Large swings up and down occur frequently, and this year is starting off no differently. The first trading session of the New Year started poorly, after China’s Shanghai Composite lost 7%, halting trading overnight. The Dow Jones Industrial Average followed China’s lead, down more than 250 points at the opening bell, falling over 400 points intraday, before recovering some of their losses.

As I am writing this article (on January 7th) the market is down for the fourth day in a row, with double digit losses intraday.

My favorite sectors to watch for the direction of the market are not acting well. Technology (QQQ) Biotechnology (XBI), Semiconductor (SMH), Transportation (IYT), Finance (XLF) and Small Caps (IWM) all remain under selling pressure, and are not showing any strength yet, indicating that the decline is not coming to an end. Investors have moved away from high risk sectors.

On a positive note, research taken back to 1950 (by Joon Choi, Senior Portfolio Manager) shows if the S&P 500 is down more than 1% but less than 2% on the first day of January, the rest of the month is up 1.6% on average. Another hopeful sign is that momentum oscillators on some averages are no longer extended short term, and stocks are displaying potential positive divergences if they could turn up from here. Many stocks are down more than 20% from their peaks, already creating favorable buying opportunities when the market quiets down and selling pressure subsides. Time will tell. It remains to be seen if the market can hold on and turn up from here.

What Are the Charts Saying?

0107 spu weekly use with labels

The SPDR S&P 500 (SPY) Weekly ETF With Channel (Top) and RSI14 (Bottom)

The top chart is the SPDR S&P 500 (SPY) ETF which is comprised of 500 stocks of the largest companies in the U.S. listed on national stock exchanges, including over 25 different industry groups.

As of 01/05/16 its top 4 holdings in the S&P 500 are Apple Inc. (AAPL) 3.24%, Microsoft Corporation (MSFT) 2.49%, Exxon Mobil Corporation (XOM), 1.92% and General Electric (GE) 1.64%.

The SPY was near its top of its channel only 6 weeks ago. Each time the S&P 500 rallied, it was unable to break through resistance between 211.50 and 214.00. Failing to get through resistance, the S&P 500 (SPY) pulled back towards its up trendline from July of 2015 (orange line). The trendline was holding, but with today’s action (on 01/07/16) now it has been violated, and that’s not a good sign. The intermediate trend has changed to down. Also, the channel (the blue line), was penetrated at 195.00 and will act as short term resistance. The downside projection is towards the old lows, the bottom of the channel, at 180.00 (lower blue line).

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. In this case over the last 14 weeks RSI looked like it was going to rise and break through the down trend (pink line). This would have been a sign indicating that the SPY was gaining momentum, however with the decline it has turned down, signifying the S&P 500 (SPY) is losing momentum and potential lower prices lie ahead. The downtrend would have to be broken (pink line) for the bulls to regain control and the trend change from down to up.

The Big Question on all of our minds is: Will the decline continue, or will the market turn up from here? Positive Signs That Could Indicate the End of the Decline:

1. Overseas markets start to rise. Keep an eye on Emerging Markets (EEM), China (FXI) and Europe (IEV) as benchmarks.

2. The Value Line Geometric Composite, an unweighted average of roughly 1700 U.S. stocks gains strength showing more broad participation than only a few stocks rising.

3. Firming action in Biotechnology (XBI) and the Financial Sector (XLF, KRE)

4. Apple starts to rise again (APPL).

5. High Yield Bonds stabilize. Use HYG or JNK as a benchmark.

6. Less intraday volatility. Watch to see if VIX moves lower and can get below 18.00.

7. Oil stabilizes and stops falling. Watch oil (USO) and the energy sector (XLE)

8. Small caps (IWM) stabilize, turn up and then gain in relative strength compared to the S&P500 (SPY).

9. S&P 500 (SPY) moves above 195.00 and stays above.

Watch the last hour of trading if the market rallies or falls. If the market indices close near their highs of the day, it’s a good sign that this decline is short lived and better times are ahead. If the last hour of trading moves lower and prices settle near the lows of the day, then this decline could continue for a longer duration.

Summing Up:

2016 has started with a bang: an onslaught of selling pressure in both U.S. and global stocks that is still taking place as of this writing. The first month of January has historically had many roller-coaster rides. This year is no different. The tape is not acting well, to say the least, giving me the feeling that this decline could be more serious. The S&P 500 (SPY) weekly chart broke below support at 195.00, changing the intermediate trend from up to down. Daily volatility is increasing, ]not a good sign. The average daily movement in the S&P 500 (SPY) the past 25 days is now over 1% and rising. It looks like more selling to come. There is plenty of room to the downside towards the old lows, that coincides wth the bottom of the channel at 180.00 on the S&P 500 (SPY). Bottom fishing now without the market stabilizing could be dangerous. Be aware, there is a possibility the major trend has changed and a bear market has started.

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

Bonnie Gortler, Senior Portfolio Manager

 

*******Article in Systems and Forecasts January 8, 2015

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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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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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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.

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textBox21915February is off to a great start with the major U.S. market averages such as the S&P 500, Dow Industrials, Nasdaq Composite and Russell 2000 near or at highs for the year. Investors are acting more optimistic, with more buying than selling, causing prices to move higher as they are willing to take more risk. Even with talks of Greece exiting the Eurozone, along with potential higher US interest rates possibly in June, and intermediate technical momentum patterns weakening, the US market forges ahead.

A change in sector leadership away from defensive areas–healthcare, utilities, and consumer staples–occurred in the first half of the month as traders were willing to take on more risk. Those areas weakened more than the major averages. PowerShares QQQ has broken above key resistance trading over 105.00, as mentioned in the February 6th newsletter, now trading at 107.02 at the time of this writing. Apple, the largest holding in the Nasdaq 100 Index (tracked by QQQ) leads the way, now trading at 128.46 near more resistance at the 130 area. The S&P 500 also is showing how resilient it is, working its way higher with the technology sector and financial sector strong. Small caps have also been acting better, closing above
121.41 the high of 2014, now trading at 121.71.

What Are The Charts Saying Now?

IWM Ishares Russell 2000 ETF Weekly Price (Top), and RSI 14 (Bottom)

021715iwm weekly wedgesThe top chart shows the weekly Hi-Low-Close starting in November 2014 of the Russell 2000 Index ETF (IWM). I found in my charting analysis that the more points touched on a line, the more significance it has. Notice the horizontal line that has been touched four times now, connecting February 2014, June 2014, December 2014, and January 2015.

All four times the rally stalled and prices turned down. The IWM is at a key resistance zone, trading at 121.60. Once again price might not be able to significantly penetrate this zone and rise much further from here. I believe that the IWM will stall in this key resistance zone and prices will move lower like it did in June of 2014.

The pattern has formed a clear bearish wedge. This is where trend lines converge creating an arrow shape. Notice the February – June time period on the chart is a very similar looking pattern to what we are seeing now. In June prices traded between two upward moving sloping lines and then price broke to the downside, falling 11.1% from the peak to its low.

The lines are steep; therefore they will be broken soon even if the market simply rises at a slower rate. However, I believe the break will be to the downside. If IWM does stall now, it could potentially fall quickly to 114.50, a likely area of retracement. The next lower downside objective would be 110.00, potentially a 9.5% decline.

The lower portion of the chart is the Relative Strength (RSI 14) indicator, a momentum indicator like MACD.                 IWM monthly for 021815
Notice how RSI has flattened and is no longer rising, not gaining very much upside momentum on this latest rally. A sign of strength would be if RSI could get to the 70 level, (RSI now at 60.18). 80 would be even better, but I’m not expecting this, since it happens infrequently. In 2014 there were no real upside surges of momentum that reached these levels. Each time the market paused and retraced its gains. This latest rally was no exception, no penetration of the trend line has occurred, suggesting no new upside thrust is expected. On a side note, MACD has already generated a sell signal on the monthly chart clearly showing weakening momentum for the longer term. (See chart at right.)

 Just To Sum Up

Even though major market averages are trading at or near their highs, intermediate and long term momentum patterns are not confirming the highs, warning of a potential decline ahead. Another warning signal has flashed, a clear rising wedge which is bearish on the weekly Russell 2000 (IWM), joining the Nasdaq 100 (QQQ) in displaying weakening momentum patterns. Although no real decline has started yet with most investors buying stocks and pushing prices higher, investors could quickly change their minds. Buying could turn into selling, and investors could opt for greater safety by reducing their equity holdings.

For now, the market still has a bullish tone which most likely will continue until an unforeseen event triggers more selling and investors start selling and taking profits. Don’t be the one getting caught up in the euphoria of the market making new highs and taking more risk than what would allow you to sleep peacefully at night. Review your investment holdings to make sure you are not overweight in small caps. My suggestion is to take some profits! New investment purchases are not advised at present price levels, a safer entry is more likely after retracements to 114.50 followed by 110.00.

I invite you to share your insights by calling me at 1-844-829-6229 or Email me at bgortler@signalert.com with your questions or comments.

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