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Who would have thought the major average averages would be in a steady uptrend since late August?  There has been no decline of more than 3% on the S&P 500 index as the market climbs the wall of worry to record highs. Short term price uptrends and support levels remain intact in the major averages.

The Russell 2000 (IWM) has been in a consolidating pattern since October 4. Several times the IWM has tried to break out to the upside.  However, it’s a bit worrisome the latest rally attempt failed this week. Also a point of concern, investor sentiment is showing very high optimism. In the past, at these levels short-term declines have started.  On the other hand, the Volatility Index (VIX) that measures fear is near its lows, a positive sign, and favorable seasonality has begun.

Watch the Movement of Small Caps Closely

Weakness in the Russell 2000 (IWM) or sudden weakness in Technology stocks (QQQ) would be a sign a short term pullback is likely.  A bullish sign would be if the Russell 2000 (IWM) index were to stop its present decline, reverse and take out the highs made on November 1.  In addition, if the Russell 2000 (IWM) could outperform the S&P 500 (SPY), new 52-week highs begin to expand, and volume increases on up days, while new 52-week lows contract, this would be positive for the market.

The iShares Russell 2000 Index (IWM) Weekly Price Channel, Upside Objective Channel, and 19-26-9 Week MACD

The top portion of the chart shows the weekly iShares Russell 2000 Index ETF (IWM) which is made up of companies with a market capitalization of between $300 million and $2 billion. The IWM made a high of 150.68 on 10/09/17, breaking out above its upper channel.  A consolidation followed with the IWM confined in a tight trading range, but has since turned down.  Even so, IWM is holding above an important support area.

The good news is during the short-term decline, the IWM remains above the weekly uptrend (pink line) while the other major averages are holding their ground.

The lower portion of the chart is MACD, a technical indicator that measures momentum. MACD peaked in January 2017, confirming the price high. The MACD sell turned out to be premature. The IWM consolidated while MACD weakened but didn’t get oversold, and go below 0. In September MACD turned up, broke the down trend (black line) not confirming the October high, and is now starting to roll over, showing a sign of a loss of momentum.  It’s a little early to know if MACD will continue to decline or if MACD will turn up and have enough strength to make a new momentum high.

The Russell 2000 (IWM) support is at 143.00. Resistance is at the old highs at 150.68 with an upside objective of 162.00.

Summing Up:

With our models in the most favorable condition and favorable seasonality, I am looking for the short term decline in the IWM to reverse and at least challenge the old highs at 150.69 and potentially reach the upper channel at 162.00.  If the IWM were to close below the lows made on 08/18/17 at 134.12 (circled in orange), this would negate my bullish view.

Intermediate Uptrend Continues In Technology Despite Slowdown in Momentum

 

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 operative trend channel (purple line).

The QQQ includes 100 of the largest domestic and international nonfinancial companies listed on the Nasdaq stock market based on market capitalization.  As of 11/7/17, Apple, (AAPL) is the largest holding comprising 12.47%, Microsoft Corp (MSFT) 8.96%, Amazon.com, Inc. (AMZN) 7.45%, Facebook, Inc. Class A (FB) 5.90%, Alphabet Inc. Class C (GOOG) 4.96%, and Alphabet Inc. Class A (GOOGL), 4.33 % totaling 44.07%.

The QQQ breached the middle channel after a 9-week consolidation (red circle) on 04/24/17 and continues to make new highs with only small pullbacks along the way.  The intermediate price trend remains up as long as the QQQ is above its uptrend line (orange).  Support is at 145.00 and the upside channel objective at 162.00.  If the QQQ falls below 145.00, on a weekly close, (an unlikely event), this would change the intermediate trend from up to down, implying weakness potentially to the lower channel at 116.00.

The bottom half of the chart is MACD (12, 26, 9), a measure of momentum. There has been no MACD confirmation of the highs made in QQQ as it did in June.  However, it is a positive sign MACD has turned up, after the negative divergence in MACD (green circles) and the uptrend is broken. I recommend keeping an eye on the top holdings in the QQQ over the next several weeks for an advanced warning of a trend change.

In Sum:

Technology continues to be in favor, outperforming the S&P 500.  As long as the QQQ is above 145.00 on a weekly close (orange line), more gains are likely toward the upper channel objective at 162.00.  Our models are positive and price uptrends are intact so there is a good reason to expect a year-end rally. Be aware of a short term decline to start if small caps remain weaker than the S&P 500, the top holdings in the QQQ begin to falter, and the uptrends are violated.  However, the trend is your friend.  Continue to 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.

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*******Article published by Bonnie Gortler in Systems and Forecasts November 9, 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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Renewed talk of U.S. tax reform and the good start to earning seasons have pushed the Dow Jones Industrial Average to a new record high on October 24.  However, the Nasdaq, S&P 500, and Russell 2000 were unable to do the same. The market has been in a steady uptrend since late August.  As the rally continues higher, so does investor optimism.  Short term price uptrends and support levels remain intact for the major averages.

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

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

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

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

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

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

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

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

The bottom half of the chart shows the Relative Strength Index, a measure of momentum developed by Welles Wilder. RSI is based on the ratio of upward price changes to downward price changes. RSI peaked at 76.04 confirmed the SPY price high.  RSI readings of 70 or higher show strength and are most times considered bullish, not a sign of a top. Generally, as long as RSI stays above 40, the trend is up.  The bullish uptrend in RSI from 1/16/16 remains intact.

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

 In Sum

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

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

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*******Article published by Bonnie Gortler in Systems and Forecasts October  26, 2017

Disclaimer: Although the information is made with a sincere effort for accuracy, it is not guaranteed that the information provided is a statement of fact. Nor can we guarantee the results of following any of the recommendations made herein. Readers are encouraged to meet with their own advisors to consider the suitability of investments for their own particular situations and for determination of their own risk levels. Past performance does not guarantee any future results.

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Historically September has not been favorable for stocks, with the S&P 500 declining a majority of the time. But surprisingly this September the major averages are near or at new highs, positive for the month. The major averages didn’t give up much ground after the Fed meeting and political concerns overseas.  The Federal Reserve left interest rates unchanged but implied they would increase interest rates one more time by year-end, despite low inflation. There was a noticeable shift that took place as investors took profits rotating out of some of the leading sectors this year such as Technology and Utilities, and moved into sectors that were lagging.  Energy, Industrials, and Financials were the big winners.

The bullish case remains for the overall market. Our equity timing models remain overall on a “hold” suggesting further gains are likely with risk contained.   The advance decline line of the New York Stock Exchange Index and Transportation average has confirmed the major average highs suggesting a market top is unlikely.  The iShares Russell 2000 Index (IWM) ETF is trending higher leading the advance, a healthy sign for the market. However, there are some sectors showing a loss of upside momentum, which means stock and sector selection will be more important going into the fourth quarter and early next year.

 Health Care (XLV), a leader so far this year might have hit its peak.

  Figure: Health Care Select Sector SPDR ETF (XLV, top and MACD 12-26-9 (bottom)

The top portion of the chart above is the weekly Health Care SPDR (XLV) that is comprised of companies from industry groups including pharmaceuticals; health care providers & services; health care equipment & supplies; biotechnology; life sciences tools & services; and health care technology.  As of 09/25/17, the top 5 holdings in the XLV were Johnson and Johnson (JNJ) 11.26%, Pfizer (PFE) 6.78%, United Health Group (UNH) 5.98%, Merck (MRK) 5.70%, and AbbVie Inc. (ABBV) 4.41%, totaling 34.13%. Except for a few short term declines, Healthcare (XLV) in 2017 has trended higher and is up 18.00% through 09/26/17, outperforming the S&P 500.

The biggest holding, Johnson and Johnson (JNJ) has been trending down. MACD is on a sell along with a bearish negative divergence. JNJ has broken its uptrend from January 2017 (chart not shown).

Notice in the top chart, how the XLV made a new high in July, breaking through its old high, but stalled immediately.   A few weeks later the XLV pulled back to 77.82 (red circle) successfully testing its breakout then rising for three weeks to make a new high at 83.41.  It’s encouraging the XLV uptrend remains in effect from February 2017.  However, in the last two weeks, investors have shifted away from healthcare and some short term selling pressure has begun.

The bottom half of the chart shows MACD, a measure of momentum.  MACD is on a sell and the MACD pattern is suggesting a possible peak for the short term in healthcare (XLV).  MACD is above 0, rolling over with a double top, forming a negative divergence (a higher high in price but a lower high in MACD, (green circles).

The moment of truth is here. There are two significant uptrend lines in jeopardy if the XLV continues to decline.  The uptrend from 02/08/17 would be broken (pink line) on any further weakness. However, the longer term uptrend in MACD from 12/5/16 remains intact (orange line).

In Sum: Healthcare has had a substantial rise.  Declining momentum patterns are appearing signaling some weakness might lie ahead. Keep an eye if the XLV breaks below support at 77.82 on a weekly close.  Now is not a good time to be over invested in health care.  Caution is warranted, the party could be coming to an end soon.

More evidence: A potential shift away from Health Care (XLV) in the short term.

Figure: Daily (XLV) / (SPY) Ratio (Top); MACD of XLV/SPY Ratio (Bottom)

The chart above is the daily Health Care Select Sector SPDR ETF/ S&P 500 ratio XLV/SPY.  A rising line means the XLV is stronger, and if falling, the S&P 500 is stronger.  The XLV/SPY ratio has been in an uptrend since January 2017.  Since the peak on September 8, 2017, the XLV/SPY ratio has turned down, giving a warning of deteriorating momentum in comparison to the S&P 500 (SPY). The uptrend was broken today.

The bottom half of the chart shows the 12-26-9 MACD, on the XLV/SPY ratio. MACD recently generated a sell, turning down from an overbought condition.  Notice the negative divergence in the MACD pattern.  MACD formed a lower high than the peak in June (green circles) while the XLV/SPY ratio in the top chart made a high, (red circles) suggesting a shift in trend has started and more weakness in XLV is expected compared to S&P 500.

I am recommending you review your holdings, making sure you are not over weight in health care.

Summing Up:

The stock market advance continued through September, one of the weakest months historically. Investors appear to be rotating out of some of the leading sectors starting with Nasdaq early in September.  Health care, (XLV)  one of the strongest sectors of the market this year, is giving warning signals of weakening momentum compared to the S&P 500 (SPY),  suggesting it too might hit a bump in the road.  I recommend reviewing your portfolio and reducing your healthcare exposure.  If Healthcare (XLV) breaks below 77.82, on a weekly close this would trigger further selling.

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 September 28, 2017

Disclaimer: Although the information is made with a sincere effort for accuracy, it is not guaranteed that the information provided is a statement of fact. Nor can we guarantee the results of following any of the recommendations made herein. Readers are encouraged to meet with their own advisors to consider the suitability of investments for their own particular situations and for determination of their own risk levels. Past performance does not guarantee any future results.

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The bears were unable to take control through the ups and downs during July and August. Normally a weak market period, the averages had a modest pullback, holding above key support levels and working off their daily overbought condition.   After the short decline without much price fluctuation, the major averages formed favorable technical patterns on a daily basis  from oversold conditions. The bulls stepped in to buy and the bears were disappointed once again.  At the time of this writing, we remain in a rally phase that began in the end of August. The Dow, S&P 500, and Nasdaq made new record closing highs on September 12.  

Price trends seem to be more significant indicating market direction than weakening momentum patterns.  The recent rise occurred even thought there were clear negative patterns on many intermediate charts.  It’s good to keep in mind, there has been not been a bear market since March 2009, when the past bear market ended.  The rise in equities since then is one of the longest time periods without at least a 20 percent drop in the S&P 500.

On this latest rally there has been no big thrust in volume or surge in market breadth to suggest a strong up move is forthcoming.  However, there has been no major sign of danger either.  Our models remain overall neutral-positive for the intermediate term which means upside potential remains greater than downside risk.  Weakening momentum patterns remain on the intermediate charts and still need to be monitored.  However, until support levels and uptrends are broken look for higher prices ahead.

These clues will help guide you if the market will continue to advance or weaken.

7 Simple Clues You Want To Follow For a Potential Trend Change

  1. Overseas markets have been strong. Observe the action to see if 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. Follow the Nasdaq 100 (QQQ) if it continues to make new highs or turns down. Keep an eye on Apple (APPL), Microsoft (MSFT), Amazon (AMZN), Alphabet Inc Class A (GOOGL), and Facebook, (FB) if they start to lag and start to turn down.
  3. High Yield Bonds weaken, turning lower instead of holding their ground or rising. Use the ETF’s HYG or JNK as a benchmark.
  4. The Transportation Average (IYT) has not yet confirmed the Dow Industrials high. If the IYT turns down now and doesn’t close above 175.40 this would not be a good sign.
  5. Volatility remains low. Watch if VIX takes out the August 11 high of 17.28. A warning signal would be if VIX goes above the high made on September 5 at 14.06.
  6. New 52 week lows on the New York Stock Exchange Index are low, presently at 8. An increase to over 150 would not be a good sign.
  7. Watch the last hour of trading. If the major averages closes near the low end of their daily range instead of near the highs, this would be bearish.

 

Keep an eye on the S&P 500 (SPY) For a Breakout

 

The SPDR S&P 500 (SPY) Daily Price Channel and 19-26-9 MACD

The top part of the chart is the SPDR S&P 500 (SPY) ETF and its active daily trading channel.  The S&P 500 Index (SPY) is comprised of 500 stocks of the largest companies in the U.S.   The S&P 500 (SPY) this week made a new all-time high.  The new high coincides with hitting the daily upside channel.  Further strength in the SPY now, will give a new short term channel objective to 259.00, another 3.6% higher.  A break below 239.00 on a closing basis would raise a red flag.

The lower portion of the chart is the 12-26-9 MACD, a measure of momentum.   MACD is on a buy since late August.  MACD is above 0, rising and its pattern has room to the upside before it would be considered extended.  MACD broke its daily down trend from its March 1 peak.

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

 

 

 The SPDR S&P 500 (SPY) Weekly Price Channel and 12-26-9 MACD

The top part of the chart is the SPDR S&P 500 (SPY) ETF and its active weekly (intermediate) trading channel. The SPY has had a slow and steady rise this year.  The SPY chart pattern has been in a consolidating pattern, with an upside bias.  The SPY remains clearly in an uptrend (black line).  There has not been even a minor downside penetration of the trendline since the lows were made on 2/8/16.   Declines have been small and for relatively short periods of time. Until this trendline is broken, no serious threat of a major decline should occur.   The upside channel objective is 277.00. Below 239.00 implies more weakness towards the middle channel at 212.00.

Summing Up:

The major averages have made new highs.  However, keep in mind intermediate momentum patterns have not confirmed the recent highs.  The market breadth and volume indicators that we follow have not been strong enough to generate any impulse signals that suggest the rally is sustainable and would be stronger than an average market rise.  There has been no real thrust on the advancing days to get excited about, however not much ground has been given up either.  Our stock market timing models remain neutral-positive, indicating a potentially profitable market climate and potential further gains over the next several weeks to months.

As long as the SPY remains above 239.00, the trend is up and the odds favor the SPY to work its way higher towards the upside channel objective at 277.00.  If the SPY falls below 239.00 on a weekly close, then risk would increase, and the intermediate trend would change from up to down implying more potential weakness towards the middle channel at 212.00.  Ride the trend for now. However, watch for the 7 clues for a potential trend change.

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

*******Article published by Bonnie Gortler in Systems and Forecasts September 15, 2017

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The market remains very resilient.   The bulls appear to be in control again after the bears were unable to take the market down.  Major averages are only a few percent away from their highs after the recent short term decline.   Investors continue to be enamored with technology stocks.   Apple is (APPL) leading the way, making new all-time highs this past week. However, intermediate momentum patterns are weakening.

The good news is the market is oversold on a short term basis, suggesting more gains in the early part of the month are a good possibility. However, keep in mind September is not a favorable month historically.  Also, intermediate and long term chart patterns are not in favorable position. Many have potential negative divergences that could cause the rally to fizzle if the buyers turn to sellers.

Our models remain overall neutral-positive for the intermediate term (weeks-months).  If there is a decline, it should be limited.

Keep an eye on Technology for leadership or trouble ahead.

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 operative trend channel. The QQQ includes 100 of the largest domestic and international nonfinancial companies listed on the Nasdaq stock market based on market capitalization. As of 08/30/17, Apple, (AAPL) is the largest holding comprising 12.51%, Microsoft Corp (MSFT) 8.40%, Amazon.com, Inc. (AMZN) 6.80%, Facebook, Inc. Class A (FB) 5.90%, Alphabet Inc. Class C (GOOG) 4.74%, and Alphabet Inc. Class A (GOOGL), 4.13 % totaling 42.48%.

The QQQ breached the middle channel after a 9-week consolidation (red circle) on 04/24/17.  Buyers stepped in and the QQQ rallied for several weeks. However, the rally was not strong enough to reach the upper channel.  At the present time, the QQQ has successfully pulled back for the second time, testing the breakout from June, as of this writing at 145.48.  The intermediate trend remains up as long as the QQQ remains above its trend line (see the orange line).  As long as the QQQ remains above key support at 139.00, the QQQ could work its way higher, potentially to the upside channel objective at 161.00.

The bottom half of the chart is MACD (12, 26, 9), a measure of momentum. MACD is giving a different message than price.  In June, MACD confirmed the price high suggesting further gains ahead and any decline would be short lived and contained.  This is not what MACD is saying now.  MACD has given a sell. Notice the clear negative divergence in MACD (green circles).  Price made a high that wasn’t confirmed by MACD.  The sell might be a bit early, however tops take a longer time to form than bottoms.  I recommend keeping an eye on the top holdings in the QQQ over the next several weeks for when and if they start to decline and causing pressure on the QQQ, giving an advanced warning of a trend change.

 

Weekly Price of Microsoft (MSFT), Amazon (AMZN), Alphabet Inc Class A (GOOGL), and Facebook, (FB) and MACD 12-26-9

Microsoft (MSFT), Amazon (AMZN), Alphabet Inc Class A (GOOGL), and Facebook, (FB) are all top holdings of the QQQ, and are in weekly price uptrends (orange line). MACD in all four stocks is overbought. Alphabet Inc A (GOOGL) and Amazon (AMZN) remain in an uptrend based on price similar to the QQQ.  Both stocks are on a MACD sell with the uptrend broken, not a favorable pattern. The risk is high at this time.  Microsoft (MSFT) is at key price support, MACD has stopped rising, and threatening to break it’s up trend. Facebook, (FB) is under its all-time high and looks to be the strongest of the four stocks.  MACD has made higher highs confirming the strength of the stock.  As long as these stocks remain firm, the QQQ should continue higher towards the upside objective of 161.00.

Summing Up:

Our models remain overall neutral-positive for the intermediate term which means upside potential remains greater than downside risk. Investors continue to find joy in technology stocks that are leading the latest advance.  The intermediate uptrend in the Nasdaq 100 (QQQ) price and four of its top holdings, Microsoft (MSFT), Amazon (AMZN), Alphabet INC A (GOOGL), and Facebook, (FB) are all intact which is bullish.  As long as the QQQ remains above its key support of 139.00, the QQQ could work its way higher to the upside channel objective at 161.00.  If the QQQ falls below 139.00 on a weekly close, the risk would increase, as the intermediate trend would change from up to down implying weakness could occur, towards the lower channel at 113.00.  The rally has come to life. However, intermediate momentum patterns say it could be short lived and fizzle.

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

*******Article published by Bonnie Gortler in Systems and Forecasts September 01, 2017

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Disclaimer: Although the information is made with a sincere effort for accuracy, it is not guaranteed that the information provided is a statement of fact. Nor can we guarantee the results of following any of the recommendations made herein. Readers are encouraged to meet with their own advisors to consider the suitability of investments for their own particular situations and for determination of their own risk levels. Past performance does not guarantee any future results.

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

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

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

 

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

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

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

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

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

ETF Corner: Negative Divergences Have Formed on Weekly Charts

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

 

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

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

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

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

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

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

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

Summing Up:

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

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

*******Article published by Bonnie Gortler in Systems and Forecasts July 7, 2017

Disclaimer: Although the information is made with a sincere effort for accuracy, it is not guaranteed that the information provided is a statement of fact. Nor can we guarantee the results of following any of the recommendations made herein. Readers are encouraged to meet with their own advisors to consider the suitability of investments for their own particular situations and for determination of their own risk levels. Past performance does not guarantee any future results

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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 one really knows if the old adage sell and go away in May will hold true for 2017. What is known is May has begun quietly as the S&P 500 remains in a narrow trading range on less than inspiring momentum. However, the present tape action is a far cry from bear market action.

The technology sector continues to soar to new highs. In the 02/16/17/ Issue of Systems and Forecasts I brought attention to the possibility of another leg up for Technology, revisiting the article on 01/13/17 “Breakout in Technology Looms”, QQQ looked poised for a breakout. This indeed has occurred. The QQQ original objective was 130.00, followed by 139.00.  On 05/09/17 the QQQ made an intra-day high of 138.93, meeting the upside objective.

 

The Tape Remains Mostly Bullish


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 operative trend channel.  The QQQ includes 100 of the largest domestic and international nonfinancial companies listed on the Nasdaq stock market based on market capitalization.  The top holdings are Apple, (AAPL), Microsoft Corp (MSFT), Amazon.com, Inc. (AMZN), Facebook, (FB) and Alphabet Inc. (GOOG) and all have been climbing.

The Nasdaq 100 (QQQ), led by Apple is red-hot and looks as if there is more room to the upside.  In the latest issue, I pointed out it’s necessary to watch and see if MACD made a higher high or if MACD turns down. Notice the lower chart.  MACD made a new high confirming the high made by QQQ. This confirmation suggests the odds favor an extension of the rise and has bullish implications going forward over the next several weeks to months.  Any weakness now should be contained and only be temporary before another rally attempt would occur.

If the QQQ falls below support at 129.00, just under where the QQQ consolidated early this year, much more caution is necessary.


In Sum:

The QQQ intermediate uptrend remains in effect (orange line). The upside target for the QQQ is 157.00.  The breakout is in process. Time is now on the side of the bulls.


Apple Charges Ahead Leading the Technology Sector Higher

The top half is a price chart showing the weekly high-low-close of Apple since April 2014.  Apple was out of favor in 2015, until June 2016 when investors selling turned into buying.  A clear uptrend is in effect (black line). As long as Apple is above the trend line, the intermediate trend is up.

Apple has had explosive momentum in 2017, going from 117.91 to 154.08, a gain of 30.68 %. Notice how Apple this week has penetrated the upper channel. This is a bullish breakout giving a new channel upside objective to 175.00 (orange line).  A test of the breakout could occur in the near term, amounting to only 2.00% – 3.00%.  However the recent thrust suggests the advance will continue and declines would be very minor.

The bottom half of the chart is MACD (12-26-9), a technical indicator that measures momentum. MACD has confirmed the Apple’s price high (green circle) similar to the QQQ.  A solid uptrend remains intact.


Summing Up:

Our equity models remain overall neutral–bullish, a potentially favorable market climate, although there has been an increase in risk. Technology stocks remain the leader supporting the overall market.  MACD on the Nasdaq 100 (QQQ) and Apple (AAPL) has confirmed the recent price highs. The intermediate uptrend in Nasdaq (QQQ) and Apple (AAPL) are solidly intact.  The Nasdaq 100 (QQQ) has an upside target of 157.00 and Apple has an upside target to 175.00.  This could be the year where you don’t want to go away and sell in May.

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.

If you like this article, then you will love this! Free Instant Access to Grow Your Wealth and Well-Being E-Book HERE

 

*******Article published by Bonnie Gortler in Systems and Forecasts May 11, 2017

 

Disclaimer: Although the information is made with a sincere effort for accuracy, it is not guaranteed that the information provided is a statement of fact. Nor can we guarantee the results of following any of the recommendations made herein. Readers are encouraged to meet with their own advisors to consider the suitability of investments for their own particular situations and for determination of their own risk levels. Past performance does not guarantee any future results.

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The short-term decline in April has ended.  The Nasdaq, S&P 500 and Russell 2000 all successfully tested key support levels this past week.  The recent news of possible tax cuts sooner rather than later, an optimistic perceived outcome to the election in Europe, and a good start to the earning season has spurred a potential new leg of the advance.   Overhead resistance on some indices exists.   However, the Nasdaq 100 (QQQ) has made a new high, has broken through resistance giving new upside projections, which could carry the overall market higher for the next several months.   More time is needed to know if other averages will follow suit or if the present rally will fizzle.   However my prediction is there is more room to the upside.

Technology leads the way.

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 operative trend channel.  The QQQ includes 100 of the largest domestic and international nonfinancial companies listed on the Nasdaq stock market based on market capitalization.  As of 04/24/17, Apple, (AAPL) is the largest holding comprising 11.84%, Microsoft Corp (MSFT) 8.20%, Amazon.com, Inc. (AMZN) 6.80%, Facebook, Inc. Class A (FB) 5.38%, Alphabet Inc. Class C (GOOG) 4.70%, and Alphabet Inc. Class A (GOOGL), 4.10% totaling 41.02%

The QQQ has been rock solid this year, leading in relative strength vs. the S&P 500, and up almost twice the gains of the S&P 500.  The QQQ has slightly penetrated the middle channel after a 9-week consolidation, where the QQQ traded between 129.38 and 134.00 (the red circle), now trading at 135.14.  The bullish outcome is not a surprise.  (See my article in the 03/15/17 Systems and Forecasts: Weekly MACD confirms the advance: Higher prices anticipated).  The next upside target is 157.00, a 16.2% gain from present levels. The intermediate trend remains up as long as the QQQ remains above the up trendline line (orange).

Because the initial upside thrust since the election was so strong, the expectation the first decline wouldn’t be significant is exactly what has occurred.  The present breakout needs to be watched closer.  Keep an eye on how Apple (AAPL) performs, the largest holding of QQQ.  If the Nasdaq continues to show leadership, making new highs, then it could support the market and help the technology sector over the next several months.  

On the other hand, if the QQQ falls below 129.00, retracing its recent gains, a warning sign of a potential change of trend would be given.  If the QQQ falls below 125.00 breaking the uptrend, (orange line) more caution would be warranted with possibly a larger correction on the horizon than the decline in April.

The bottom half of the chart is MACD (12, 26, 9), a measure of momentum.  It was a bullish MACD pattern that confirmed the price high made in QQQ in February 2017, before the recent consolidation.  The uptrend remains in effect (pink-line).  The QQQ has made a new high.  If MACD turns down failing to make a new high, a negative divergence would occur.  Over the next several weeks watch to see if MACD makes a higher high.  This would be bullish.  If MACD turns down, this would complete the negative divergence pattern and would be considered bearish. 

Summing Up:

Our models remain overall neutral-positive for the intermediate term which means upside potential remains greater than downside risk.  Technology stocks continue to lead the market higher.  After many weeks of consolidation and weakening momentum, the Nasdaq 100 (QQQ) has broken through resistance giving new upside projections to 157.00 which could carry the overall market higher for the next several months.  The advance seems to be broadening.  Market breadth is improving, financials and small caps have come to life again gaining in relative strength. These are all signs of a healthy market.  The intermediate uptrend in Nasdaq (QQQ) price and in MACD is intact.  If the uptrend is broken on either price or MACD more caution will be necessary, as the odds would increase the advance will fizzle and no longer sizzle. For now, the bulls remain in control, continue to 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.

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*******Article published by Bonnie Gortler in Systems and Forecasts April 27, 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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During the past five weeks the stock market held its own, holding key support levels and avoiding any major losses. The S&P 500 remains near its highs, holding above key support as it has been consolidating within a narrow trading range. Nonetheless, bullish momentum slowed down in US equities during March. This is normal considering the huge upside thrust that occurred in January and February. The Nasdaq Composite continues to lead the S&P 500 in relative strength, a bullish sign.

Fewer stocks have made new highs during the advance because of the decrease in momentum. Financials and small caps were the leaders of the advance in the aftermath of the election. However, they have weakened considerably in the past month. Continue to give the benefit of the doubt to the bulls. On any weakness look for buying opportunities with the expectation of another rally attempt taking place sooner rather than later.

Buying Opportunity in Energy

One of the worst performing sectors in the first quarter was energy. But that might be about to change. The short and intermediate term has shifted from down to up. This could present an opportunity to buy low rather than chasing a rally.

Energy Select Sector SPDR ETF XLE Daily (TOP) and MACD 12-26-9 (Bottom

The top chart is the Energy Select Sector SPDR (XLE) that tracks the Energy Sector Index, investing in common stocks in the Oil, Natural Gas, and Oil & Gas Drilling & Exploration industries.  As of 04/7/17 its top 4 holdings are Exxon Mobil Corp (XOM) 23.11%, Chevron (CVX) 15.47%, Schlumberger Ltd (SLB) 8.23%, and Conoco Phillips (CON) 4.66%, totaling 51.47%. Be aware the XLE is an aggressive investment vehicle.  The XLE 90-day volatility is 1.72 compared to the S&P 500 of 1.00.

The XLE peaked on 12/16/2016 at 78.45 and steadily declined through the first quarter of 2017, making lower highs and lower lows forming a down trend. The XLE bottomed 03/27/17 at 67.86. The downtrend was broken on 04/05/17.   However, the XLE reversed to close near its lows suggesting the breakout could be false.   There was no follow through to the downside so investors stepped in to buy.  On 04/10/17 the XLE closed clearly above the downtrend line and is in the process of testing the breakout.  Short term support is at 70.00, resistance is at 73.00.

The bottom half of the chart shows the 12-26-9 MACD, a technical indicator that shows you  changes in direction, momentum, and strength of the stock’s price. MACD generated a buy in late March from an oversold condition below 0, is gaining momentum, and has broken its downtrend from its December 2016 peak after moving sideways since February.  This suggests the downside risk should be contained in the near term.

Energy Select Sector SPDR ETF XLE Weekly (TOP) and MACD 12-26-9 (Bottom)

The top portion shows the weekly SPDR S&P Energy Select SPDR ETF (XLE).  The XLE was trending higher for 2016, peaking at 78.45.  This year the XLE has been the opposite, out of favor by investors, much weaker than other sectors to start the year.  The XLE this past week broke the weekly downtrend (purple line), shifting the intermediate trend to up.  Resistance is at 76.00.  A break below the recent low at 67.86 would negate my near term bullish outlook and increase the odds of a further decline.

The bottom half of the chart is MACD (12, 26, 9) a technical indicator that measures momentum. MACD gave a sell in January. However, MACD has now reset, falling to below 0.  Downside momentum has subsided.  If the XLE turns up now, MACD would generate a fresh buy signal supporting the bullish case the XLE is ready to resume its bullish trend from 2016.

In Sum:

The market continues to be resilient.  The S&P 500 is holding above key support consolidating within a narrow trading range.   Another rally attempt toward new highs is possible sooner rather than later. Continue to give the benefit of the doubt to the bulls on any weakness looking for buying opportunities.  A buying opportunity has developed in the energy sector (XLE).  The short and intermediate trend has shifted from down to up.  As long as the XLE remains above 67.86 you can anticipate higher prices in the near term and risk to be limited.

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.


If you like this article, then you will love this!
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*******Article published by Bonnie Gortler in Systems and Forecasts April 13, 2017

Discover the right wealth building attitude…

Download a Free chapter of my book
Journey To Wealth

 

 

 

 

 


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.