Sunday, April 13, 2014

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Saturday, April 5, 2014

Market Summary: Outside reversal day as Dow gets rejected at Long term resistance once again...

We pointed out this interesting long term pattern in the Dow last year. This week, for the second time, we tested those resistance levels. On Friday, after hitting resistance the Dow (and all other major averages) put in an outside reversal day lower, closing at lows.

This daily chart of the Dow notates this second rejection. I continue to maintain this cautious approach as risk vs reward may or may not be ideal at these price levels. And as we took a look at, continued weakness abroad many of the growth and momentum names. However as we will see in this post, when we take a look at the big picture we still see a bull trend in tact. So although cautious, I don't see any reason for panic.

Looking at the S+P 500 daily chart above, we see the tough day that Friday was. However even with Friday's action, the S+P still put in a positive close on the week and trades positive year to date, still above it's 50 and 200 day moving average.

One index that I don't hear much talk about is the S+P 100. This index holds 100 of the largest stocks by market cap. It's very close to it's 2007 highs now, a potential added confluence for resistance, at least on first touch.

The Nasdaq is under more selling pressure as it's 5.58% below it's highs and negative year to date.

We can see the difference as the percentage of stocks on the New York Stock Exchange trading above their 150 day moving average is 72% (a healthy number).

Whereas the percentage of stocks on the Nasdaq trading above their 150 day moving averages is 55%, still a good number, anything above 50% is pretty healthy.

It was interesting to note that with Friday's ugly day the Volatility index was only up about 4%. It's really hard to get overly bearish with a VIX reading sub 20.

The cumulative advance - decline lines for both the S+P 500 and the New York Stock Exchange continue in solid up trends.

The spread between high yield and treasury bonds have even firmed up a bit,  holding it's 200 day moving average.

Sector performance year to date continues to favor Utilities and Health Care.

Performance by asset class year to date.

Lastly the trend matrix continues it's moderately bullish theme, there were no changes from last week. This is not a market timing tool, but rather a gauge of the direction of the overall trend and the strength thereof. The stocks in the S+P 500 trading 20% or greater below it's 52 week high has ticked down to 6.8%, down from 7.0% last week.

So there you have it, we do have some resistance levels above to keep an eye on. However the underlying trend and internals continues to be supportive. 

Amazon (AMZN) Tesla (TSLA) and Biotech (IBB)...

Many growth and momentum names have experienced a considerable amount of selling pressure recently. I've decided to take a look at a few. Amazon (AMZN) chart above shows the bull market run off it's 2008 low. It's now matched the size of it's biggest correction at $80 points and now stands at some short term support levels.

Note the percentage move of that previous correction was approximately 32%, as of Friday's close Amazon is 20% off it's highs.

Amazon came into short term support on Friday, matching the size of the previous decline off it's all time high (70 points) and near a previous swing high at $313. As you can see it now trades below it's 200 day moving average, which is always a caution sign, resistance now stands around $350. Which trend will give way?

We've done a pretty good job analyzing Tesla. We defined support in advance here and came up with a $270 price target here. The swing high came in at $265 and it has since traded back down to it's 50 day moving average. Support now stands around  $195 which is the previous swing high and $185 which would match (in points) the previous drop from $195.

 Biotech has been a monster this entire bull market, the chart above is the Nasdaq Biotech etf by iShares, one of it not the most popular etf tracking the sector. Since 2009 it's had two 25% drops and two 13-14% drops, on it's way up some 400%.

Now this most recent drop has come on increasing volume, which is worth noting. As of Friday's close the sector is down around 18% from it's highs and nearing it's 200 day moving average. The way I see it, support at $212 and $202 will be critical for the near term direction of this trend. These levels of course come in as support as previous swing highs but would also match the size (in percentage points) of the biggest drops biotech has experienced since the 2009 bull market began.

It will be interesting to see how this all plays out. I'm always cautious of any market that breaks the rhythm of it's long term trend.