Saturday, February 15, 2014

Weekly Stock Market Summary: Pivotal week for the short term trend upcoming...

Quick recap for the year so far, the end of 2013 brought the Dow Jones Industrial Average into long term resistance as displayed in the chart above and referenced numerous times in posts throughout the last couple of years, especially this one. The major averages then dropped as much as 7% into 2014.

As the S+P 500 nearly matched it's largest correction of 2013 at 125 points and the Dow Jones Industrial Average hit it's 200 day moving average. The Volatility Index reached the 20-21 level which in recent history has been the buy signal. The confluence of all these factors has created a sharp rally in the broader markets which has put the S+P 500 almost back to it's all time high and the Dow Jones Industrial Average at short term resistance.

The S+P 500 briefly stopped at the projected resistance level of 1820 this week, but otherwise it was pretty much straight up to retrace most of the losses of the prior weeks.

The Dow Jones Industrial Average is further away from it's all time than the other major averages. It closed the week very close to it's projected resistance level at 16,225. This upcoming week should give us the answer to the short term direction of the market. Strength above makes it likely we head back into long term resistance and possibly higher. However if resistance can hold it could setup for the next leg down.

The S+P 500 cumulative advance - decline line continues to show a lot of strength under the surface. More components are advancing in these rallies than declining. This internal strength must be noted and it is hard to be overly bearish while this pattern persists.

Sector performance for the 2014 year to date shows the strength coming from Utilities and Health Care. Utilities was by far the worst performer for 2013 while Health Care was the second strongest.

Performance by asset class year to date continues to show the strength coming from Gold and US long term Bonds, generally considered "flight to safety". However it's a small sample size and as you can see the spread has narrowed considerably in the last week and a half.

The trend matrix continues it's bullish stance, becoming even more bullish this week. As the total tally from all 18 components results in 16 bullish, 2 neutral and 0 bearish. So in conclusion, even as some serious resistance levels remain in a historically long bull market run. It's also hard to deny the upside momentum until or unless sellers can push the VIX above 21 and create a correction larger than 125 points in the S+P 500.

Friday, February 14, 2014

Tesla (TSLA) price chart update...

Tesla (TSLA) has made a new all time high this week. It's been awhile since I created a post involving an individual stock. This name happens to be a very popular one due to the industry it's in, it's very talented CEO and of course it's amazing performance for 2013.

The last time I posted an update on Tesla it was in the middle of it's correction phase where a lot of concerns were arising. We took a look at the short history of this stock's price chart and came up with a solid support zone around the $115 level. That post can be found here. That support zone held and now we find Tesla making a new all time high and trading above $200 a share (over 70% higher above defined support).

This type of growth stock with parabolic like price movement is relatively pointless to come up with price targets or projected resistance. It's movement could hypothetically be unending. In this case it's better to ride the momentum by highlighting support or a line in the sand where you establish the trade is no longer working and until/unless that level is breached you let the momentum work for you.

However if you make me come up with a price target I think the only logical area would be $270 as the next stop. That would mirror the previous trading range now left behind and it's really the only possible price pattern left behind in this amazing rally!

Saturday, February 8, 2014

Weekly Stock Market Summary: January jobs report brings out the bulls...

On Friday the January Employment report revealed a net increase of 113k jobs for the month, well below the 175k-185k consensus. However the buyers came out right from the opening bell, negating the Monday sell-off, marking the first positive weekly close since the beginning of the year. Seeming to suggest that slow growth is still better than no growth at all.

In all reality though, from a macro point of view the stock market was oversold in the short term and due for a retracement. The VIX hit the 20 level which in recent history has been a buy signal (as depicted on the chart above) and the S+P 500 had nearly reached a 125 point correction which would have matched the size of the biggest sell off for 2013.

The major question now becomes whether this is just a short squeeze or the beginning of yet another leg up in this "long in the tooth" bull market. The chart above shows the short term demand pattern which was finally broken on Friday. Each retracement had taken the S+P 500 up 30 handles approximately. Friday's rally broke that pattern and created the "squeeze" we saw throughout the day.

The next likely destination now would be a retracement rally that nears the length of the previous, that being the December low into the all time high at 1850 (as depicted on the above chart). From Monday's low that projects resistance at 1815-1820. This would be my line in the sand, strength above would mean the S+P 500 would be headed well above 1900. However as long as we remain below, the odds favor a continued correction, possibly into long term support as described in this prior post.

As for the Dow, it has a little further upside to go to reach it's projected resistance (chart above). Same rules apply, below resistance and odds favor further correction. Strength above resistance likely means the Dow is headed above 17,000.

Sector performance year to date still shows risk aversion as Utilities and Health Care continue to show relative strength while Energy, Staples and Cyclical sectors show weakness.

Asset class performance also continues to drive home the risk aversion theme but the spread begins to narrow after Thursday and Friday's performance.

The trend matrix continues to show a moderately bullish theme. Only real changes were Consumer Staples turning Neutral from Bearish and Technology turning Bullish from Neutral.

Saturday, February 1, 2014

Weekly Market Summary: Federal Reserve announces another reduction to it's asset purchase program...

On Wednesday the Federal Open Market Committee announced it was further reducing it's "QE 3" asset purchase program by another $10 billion a month. A key takeaway in the statement:

"The Committee continues to see the improvement in economic activity and labor market conditions over that period as consistent with growing underlying strength in the broader economy. In light of the cumulative progress toward maximum employment and the improvement in the outlook for labor market conditions, the Committee decided to make a further measured reduction in the pace of its asset purchases."

The entire statement can be read here.

In last week's post we talked about the significance of 1768 in the S+P 500 and that turned out to be the key support level for the week as traders and investors defended it. Resistance now stands at 1815 and the next support level below is 1730, which would then match the size of the biggest correction of 2013. (Depicted on above Chart)

The Dow has been the biggest under-performer for 2014 so far, as we will see later. It is much closer to it's 200 day moving average and support zone than the others. Resistance comes in around 16,150.

The advance - decline line continues to hold it's uptrend in light of the year to date equity performance. It's ironic because much of 2013 consisted of bearish divergences in this indicator while stock prices continued to make new highs. Now it appears the roles are reversed for the moment.

The year to date performance of the four major market averages all show loses, with the Dow Jones Industrial Average coming in as the biggest loser. While the Nasdaq 100 has lost the least.

Year to date performance by sector shows Utilities and Health Care as the top performer and Cyclical and Energy as the under-performers as the risk off theme persists.

Year to date performance by asset class also drives home the risk off theme as Bonds, Gold and the US dollar continue to outperform while 10 year yield, emerging markets and the S+P 500 round the bottom of the list.

This week's changes in the Trend Matrix consist of the Consumer Staples (XLP) sector turning bearish. The Russell 2000 small caps (IWM) turned from bullish to neutral.

In conclusion we should expect some sort of short term relief rally in equities in the near term. The resistance levels in the major averages will prove whether the short term trends can continue upwards or setup into another leg downward.