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MARKET GAUGE- Confirmed Uptrend Under Severe Pressure
OVERVIEW- The market gave the bulls some hope early in the week with a Monday reversal, but by the end of the week the bears won again, and did so in style on Friday as the indices were hit hard. Similar to last week, our confirmed uptrend is technically in place as the Nasdaq Composite has not undercut its correction lows, but we are splitting hairs at this point and I can easily throw the indices collectively and officially back into correction mode with a two month downtrend firmly in place. Interestingly, distribution days on the S&P 500 and Nasdaq Composite have not been piling up, as they each show only two such days since the rally confirmation on 11/28. However, context is everything and the indices are clearly exhibiting bearish behavior and breakout attempts by leading stocks are continuing to fail at a higher rate. The Russell 2000 eclipsed some longer term support on Friday, while the S&P 500 and Nasdaq Composite are close to some inflection point themselves, so let’s take our weekly run through index charts to see where we are heading into next week.
SPY- The S&P 500 ETF posted only its second distribution day since the 11/28 confirmed rally, but that’s not much solace for the bulls as a series of bearish reversal days plagued the index this week. The $270 area has recently contained any upside for the index, while $260 has provided support now for a third time since late October. Should that level not hold, the longer term support line near $253 which marked the lows of early 2018 correction, is the next line in the sand. The bearish cross of the 50 and 200 day EMA’s was definitively completed this week, but as we have mentioned in the past, this can sometimes be a lagging indicator marking a late sell signal and market bulls can only hope that this is the case this time around. The top 20 industry group list continues to be dominated by utilities, food, beverage and cleaning products, not the sign of a healthy market.
NASDAQ- The Nasdaq Composite posted only a modest loss for the week of 0.84%, but it was the round trip behavior that was more of the concern for the bulls. For the optimist, the index has only posted two distribution days since the confirmed rally on 11/28 and has not undercut the corrective lows keeping the uptrend technically in place, but its the action in individual stocks that traders need to look at in order to round out the picture, and things have not been good in this regard. Few leading stocks have been breaking out to news highs, while many that have tried have failed in their attempts. The 6800 level on the index, which is not too far off, lines up as important support, but if that line does not hold the bulls must try to make a stand at the February lows near 6630. * (Note that Telechart Nasdaq volume figures have not been reported accurately recently but distribution days on the charts are accurately represented).
QQQ- The Nasdaq 100 has completed a bearish cross of its own this week and has three distribution days on the books since the most recent uptrend. Not surprisingly, index has suffered an almost identical decline as the Composite however, it sits more than a full percentage point above its correction lows. The bottom end of the next layer of support sits near $156.50, three percent below where the index closed on Friday.
IWM- The Russell 2000 is now down nearly 19% from its August highs and on Friday broke through important longer term support near $142.50. This index led the way to the downside and has clearly been one of the prime risk on, risk off indicators for the market. Traders should watch this index going forward as it may provide the first clue as to when the bearish tone of the market may come to an end. Should this recent breakdown in the index escalate, the next major line of support may not come into play until price approached the $132-$134 area.
TWTR- Twitter is not quite the typical breakout pattern I look for, as I generally like stocks breaking out to new highs. However, some stocks present strong and compelling technical cases and Twitter also has attributes I look for fundamentally, as it sports a stellar recent sales and earnings record, along with a lofty 93 relative strength rating. The stock printed a text book head and shoulders pattern between March and August of this year however, instead of breaking down at the neckline, the stock has recovered having gained nearly 40% since mid- October. These “failed failure” patterns can sometimes offer gains in the opposite direction of the obvious technical set up, and the stock has already done this to a great extent, but perhaps more gains could be in store. Here we can see the stock is trying to breakout of a nearly five month sideways consolidation with a pivot point of about $36.30. There is some overhead supply above, but should the stock breakout it can move 15-25% before that supply comes into play. The elephant in the room is the overall market conditions, so some serious consideration is in order before pulling the trigger on this, or any other long trade right now, but make a note of these failed failure type patterns and keep this one on your watchlist.
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MARKET GAUGE- Uptrend Under Pressure
OVERVIEW- Thursdays intraday reversal that gave the bulls some hope that the worst of the correction may be over, was crushed on Friday as the major indices turned right back around and tallied large losses. Action in some individual leading stocks during Thursdays session showed some promise, but many turned right back around on Friday and more recent breakouts continue to fail. Technically, by definition, the recently confirmed uptrend that printed on 11/28 is still alive, but contextually and practically, the indices appear to be in the early stages of a bear market. As I have stated many times, bull markets live above their 50 day moving averages and bear markets trend below them, and while the two most recent confirmed rally attempts briefly pierced back above that line, they were quickly rejected and once again are swimming beneath the current. The only beacon of light from Fridays session was that the major indices did not print a distribution day, but that is not much solace for the bulls at this point. It is easy at times like this to throw around wild predictions of what may lie ahead, but here we will continue assess the landscape from day to day. If there is one thing for sure in the markets, it’s that things can change quickly, so traders should continue to stay alert, nimble, flexible and prepared. Now, let’s take our weekend run thru the index charts.
SPY- Shortly after confirming a new uptrend on 11/28, the S&P 500 ETF quickly ran up through its 50 and 200 day EMA’s and challenged its prior breakout level near $280 giving bulls hope that the correction lows have been put in. However, that positive action was quickly squashed with three straight days of losses. Thursdays reversal of early losses that flowed thru on Tuesdays nasty day, gave traders some hope that a floor may have been put in place, but after trading slightly higher early Friday, the index trended lower all day closing near the lows of the day. It’s hard to imagine at this point that the correction lows just below $260 will not be tested, and if that level fails to hold, the 2018 first quarter low hit back in February near $253 is up next. Until the index can remount and hold above the 50 day EMA, a bear market case remains in place.
NASDAQ- The Nasdaq Composite also made a run at its 50 and 200 day EMA’s, but it too was quickly thrown back. Interestingly, these two moving averages crossed bearishly just before the confirmed rally, however this widely followed technical “death cross” can sometimes be a lagging indicator during a correction (this hasn’t proven to be the case in the Russell 2000). That said, we can clearly see that the last three rally attempts dating back to mid October have printed lower highs confirming the recent downtrend. We will be watching to see if the 6800 level on the index contains any further downside, if not, the February lows near 6630 come into play. Again here, the bearish view continues until we can remount the 50 day EMA.
QQQ- The Nasdaq 100 led to the downside on Friday with a 3.30% loss and like the S&P 500 is now in the process of printing a bearish cross of the 50 and 200 day moving averages. It too has printed a series of lower highs and FANG stocks, which have carried the index for some time, look very much broken a this point. Corrections in FB, NFLX and GOOG began up to three months before the October decline began in the major indices and if there is any doubt that bear markets live below their 50 day moving averages, one only needs to look to FB for an example.
IWM- The Russell 2000 staged a bearish cross of the 50 and 200 day EMA’s over a month ago and have not recovered since. Small caps were out in front of the correction in the major indices, and perhaps bulls can hope that they signal a bottom in the major indices by bouncing at a longer term support level they are currently visiting, but the jury is still out on that optimistic perspective. The index has not seriously threatened its moving averages since its decline got underway in earnest in October, and has been trending below the 50 day EMA for just over two months.
MARKET GAUGE- Confirmed Uptrend
OVERVIEW- The major indices posted their best weekly gains for 2018 and this helped flip our Market Gauge to “Confirmed Uptrend.” An initial rally attempt on Thanksgiving Eve was followed by a confirming follow thru on Wednesday as the major indices registered gains of over 2% on an increase in trading volume. It was good to see another potential market rally may be underway, but the indices still have some technical obstacles sitting close in front of them if they want to press higher. The recent rallies that have helped spur the markets have been primarily news driven, including the reaction to the mid-terms, Fed Chair Powell’s comments on interest rate policy and even speculation on a positive outcome in the China trade battle as President Trump meets with China President Xi Jinping this weekend. We would much prefer the market to be responding to institutional buying spurred by company earnings, and although we have begun to see some of this more recently, we will need to see much more if this market wants to challenge its old highs. Newly confirmed rallies are not guarantees of success ,as we saw earlier in the month when the 11/7 follow thru ultimately failed when the Nasdaq Composite undercut its corrective lows, but they are normally a necessary starting point. More importantly, we have to keep index behavior in context. Our ultimate barometer for our trading is the holdings in our portfolio and the continued behavior of leading stocks in the market along with a continued increase of quality stocks breaking out of soundly formed bases. Now, let’s take our weekend run thru the four indices we cover here.
SPY- The S&P 500 ETF is arguably in the best shape of the group however, the recent follow thru day (marked with a blue arrow) ran right into a confluence of technical obstacles including its 50 and 200 day EMA’s as well as a two month downtrend that began when the index topped in early October. The index did start the process fighting its way thru by breaking above the trendline with a 0.61% gain on Friday on solid turnover. Should the index overcome these near term obstacles, some serious horizontal resistance near $280, and the overhead supply sitting just above, would present the next big challenge. The good news so far is that the index has not yet marked a distribution day since the follow thru. Newly confirmed rallies marked by immediate distribution days can turn suspect quickly. There is another view of the current technical set up that I think should be on traders radar screen. When markets or individual stocks top and correct, we can draw in a Fibonacci retracement grid on the chart ranging from the market top down to the corrective lows, focusing primarily on the 61.8% and 78.6% retracement areas, as this zone can sometimes mark the last rally attempt before an index, or stock roll over in earnest. For now we can continue, as always, to monitor the landscape day to day with open mindedness and flexibility.
NASDAQ- As with most corrections, growth stocks have taken the biggest hit and the index that contains them has a further climb back to glory than the S&P 500 however, their recoveries could be equally swift and strong. The Nasdaq Composite sits with a set of similar circumstances with layers of technical resistance close in front of it. Like the SPY, it too was able to crawl back above the two month downtrend line on Friday, but a challenge of the two moving averages, which have recently executed a bearish crossover, still lies ahead. We have drawn in a Fibonacci retracement grid here as well that interestingly shows the 61.8% retracement sitting in conjunction with the top of horizontal resistance near the key 7600 level, which marked the previous breakout in June.
QQQ- As we can see by now, all three indices are portraying a similar theme, but the one thing that stands out is that the key 61.8% Fibonacci retracement level sits right in line with the former breakout area of each index. It will be very interesting going forward to see how this scenario plays out.
IWM- The small cap Russell 2000, which endured the brunt of the correction, has pretty much recovered in lock step with the other indices recently. It too is currently challenging the two month downtrend line from the October top, but I will be watching how the index responds if, and when it approaches the 50 day EMA. Bull markets live above their 50 day moving averages and bear markets live below them, so it will be interesting to see if the clear bearish crossover of the 50 day and 200 day EMA’s near the end of October signaled an end to the bull market in small caps, or if it was a lagging indicator of a correction that has already run its course.
That’s all for now. I will see you tomorrow for what should be an interesting Weekend Trading Review video. Until then, enjoy your Saturday!
MARKET GAUGE- Market in Correction
OVERVIEW- The market remains in correction following the 11/7 failed follow thru as former leading stocks continue to breakdown. All major indices are swimming far beneath their 200 day moving averages, and as a result, this will likely lead to continued volatility in the near term. The current list of the top 20 performing industry groups continue to be littered with many historically defensive names, and until we see some new market leaders emerge in more growth oriented groups, it will be extremely difficult for the market to gain much ground. Much technical damage has been done during this recent correction leaving the indices with much overhead supply to overcome with any potential rally attempt. That said, we never know what the future holds and new market rallies can spring out of nowhere, so traders should continue to monitor the indices and keep a list of stocks that are acting relatively well. In particular, traders should keep watch of what individual groups are showing the most relative strength as new market leaders are likely to emerge from these groups. However, until we see another follow thru day in the major indices, traders should continue to hoard cash and trade with extreme caution. In the meantime, remember that bull markets live above their 50 day moving averages while bear markets live below them, so traders should watch this key moving average going forward. Now, lets take a look at the four major indices we track here.
SPY- Our S&P 500 ETF gapped down severely on Tuesday and the ensuing, lightly traded holiday sessions were unable to result in much of a rally attempt. The ETF seems to be caught in no mans land between the correction lows and resistance that is setting up again in the $268-$270 area. It looks more and more like the index want to revisit and test those lows, which I do agree is a strong possibility, however, many traders are expecting this action with some type of capitulation day to the downside before any new uptrend can emerge. I would warn that the market often does not line up with the traditional expectations of its participants, so keep an open mind and be ready to maintain an unbiased flexibility in any environment. There is no guarantee that the index will test the lows, nor is there any guarantee those lows will provide the expected support many traders are expecting should they be revisited.
NASDAQ- A somewhat similar story for the Nasdaq Composite as two potential support/resistance zones are currently set up between 6800 and 7000. Another bearish development traders may be eyeing is the moving average crossover setting up on the chart. We saw this same type of action in the Russell 2000 back in late October. However, while these “death crosses” are something to note, they should only be used as one piece to the puzzle when analyzing the market landscape. These crossovers can end up being somewhat of a lagging indicator at times with an index marking intermediate to longer term lows not too long after they show up on the chart. I will also be watching the 7000 level closely, as these big round numbers can often become technical obstacles for indices.
QQQ- The Nasdaq 100 finished the week virtually on a level of support near $159. If the index were to give up this level the next layer of support would come in between $150-$154. On the upside, the $169-$170 level and the declining 50 and 200 day EMA’s are lining up to be formidable resistance on any rally attempt. The handful of former market leaders that hold such a heavy weighting in this index that helped propel it on the way up, will likely hold it down until some new leadership can emerge.
IWM- The Russell 2000 lead this correction, but unlike the Nasdaq, it has not gone down to test its correction lows and in fact, the index had the best relative performance this week of the four we track here. The index looks like it may have some long term support not too far below the market, but a break of that level would be an additional and extremely bearish development. Since this index was the first to break, I will be watching with interest to see if any relative strength here may be a precursor to a general recovery of the entire market.
Short trades can be much more difficult and should be handled with care, but occasionally good set ups in the right general market conditions can be rewarding. We alerted members on 11/15 of a possible short trade opportunity in $LPSN. We were able to take swing gains on half our position of 8% rather quickly and have moved our stop to breakeven on the remaining portion of the trade in hopes of capturing additional gains. We invite you to come and join our premium group at http://www.ttptrading.com See you there!
MARKET GAUGE- The 11/7 Follow Thru Uptrend Confirmation Still Remains Under Pressure.
OVERVIEW: A tumultuous week of trading came to an end with the indices gaining some footing after a rough start. A large drop on Monday was followed up with some more selling on Wednesday, but the indices stood their ground late in the week despite some poor earnings from Semiconductor giant Nvidia (NVDA) on Thursday evening. It was good to see the indices fight off that bad news from the former market leader, but the recently confirmed market uptrend still remains under pressure. The late week recovery was still not enough to lift the indices into the green for the week as they all finished in the red led by the Nasdaq Composite which traded lower by 2.15% for the week. Many traders have been looking for the strong seasonality pattern to develop and although there is still time as we officially roll into the holiday season next week, some retail sectors such as Apparel, Specialty Retail, and Department Stores that would perhaps lead the charge in what has been a strong economy, have not acted very well recently. The final chapter for 2018 has not been written yet and the recent follow thru confirmation may end up to be nothing more than a retracement in a new longer term downtrend, or the beginning of a sideways chop that frustrates traders for an extended period of time. For the time being, we still recommend members trade from a cautionary stance, limiting their risk while keeping cash levels higher than normal, but as always remain flexible and prepared as market conditions can change quickly. Remember however, that leading individual stocks in the market and the stocks in your portfolio are your ultimate barometer for your trading. Now, let’s take our weekend run thru the four indices we track here and see where we stand heading into the holiday shortened week.
SPY- The S&P 500 ETF finished the week down 1.45% but found some support on Thursday at an area we highlighted earlier in the week near $268. The late week recovery came on solid volume, but the November monthly options expiration accounted for some of this. On the upside, any advance faces three layers of resistance, the first near $275 which aligns with the 200 day EMA, the second at a declining 50 day EMA near $278 and the third at former support that has turned into major resistance near $280. On the downside, should we break thru the $268 area, the possibility exists for a retest of the October lows near $260. We are heading into a holiday shortened week of trading which may lead to lower trading volumes as the week progresses and because of this we may not get a good read of where we are ultimately headed. The ETF already sits with three distribution days on the books since our follow thru confirmation further muddying the picture of an already pressured uptrend confirmation.
NASDAQ- The tech heavy Nasdaq Composite has taken the brunt of the recent correction as it sits just over 11% off its all-time highs compared to the S&P 500 which is currently down less than 7% from its highs. This is not much out of the ordinary as growth stocks will take the biggest hits during market corrections. The index is in a similar predicament to the S&P 500 but sits much further below its 200 day EMA and the 50 day EMA is catching up to the 200 day quickly setting up a possible crossing of the two EMA’s that bulls would rather not see. These two now down sloping moving averages, along with major horizontal resistance between 7500 and 7600, present formidable obstacles for any further advance. On the downside, traders can watch for round number support at 7000 or a retest of the correction lows near 6922. One positive development since the 11/7 follow thru is that we have booked only one distribution day.
QQQ- This week we are going to take a quick look at the Nasdaq 100 on a slightly longer term weekly chart to gain some perspective. Here we can see that the longer term trend, dating back nearly 2 1/2 years, was decisively broken in mid-October, but what sticks out much more to me on this chart is the heavy volume on the weekly declines dating back to mid-summer of 2018. Eight of the 21 weeks, or nearly 40%, have marked distribution in the index highlighted by the extreme volume spikes in October that marked the start of the current correction. On the upside, the Q’s could see some resistance near $170 and then $175. Any renewed selling effort that would undercut the Thursday lows could bring a test of the correction lows near $160. The daily chart shows three distribution days since the 11/7 follow thru confirmation.
IWM- The small cap Russell 2000 has been painting a more bearish picture since the correction began. Its 50 day EMA has been in a clear downward trajectory for over a month now and we have seen the two major averages make a bearish cross as we entered the month of November. Its a long climb back for the index with plenty of overhead supply and if the index continues to track below the 50 day EMA I will consider it in a bear market despite the conventional definition. The Russell also sits with three days of distribution on the books.
MARKET GAUGE- Confirmed Uptrend
OVERVIEW- The major indices confirmed an attempted rally that started on 10/30 Wednesday by rallying over 2% on an increase in trading volume. It remains to be seen how much traction this rally receives but I think its important to note a few things. Firstly, the market high of September marks a top and a possible change trend until that high is taken out. So, in spite of the newly confirmed uptrend we have to consider we may possibly have new longer to intermediate term trend in place as all signals should be taken seriously. Secondly, we are in a historically positive seasonality period that may help propel this recent rally into the end of the year. Lastly, we also have to recognize that these V-shaped recoveries that print on the charts can be hard to sustain on a shorter term basis. Furthermore, these recoveries are running into some important support/resistance zones on the charts. As usual, the market prints a grey area for traders to navigate thru and as a result they should continue to monitor the health of the general market on a daily and weekly basis, as we do here, while also paying close attention to the action of individual leading stocks. Although our Market Gauge is in “Confirmed Uptrend” mode we feel it would be prudent for bullish traders to get long slowly until the indices prove themselves further, rather than jumping in with both feet. Now, let’s take our weekend run thru the four index charts we monitor here.
SPY- Our confirmed follow thru signal on Wednesday sent the S&P 500 ETF right up into an important support/resistance zone near the $280 level that dates back to March of this year. This V-Shaped recovery that is marked on the chart below traveled over 8% off the corrective lows, registered on 10/29, in just seven sessions. This is a large move in a short period of time and these sharp retracements can be hard to sustain without some type of consolidation over the shorter term, especially as they run into prior support resistance zones on the charts. I think the next couple weeks will prove to be very interesting as positive seasonality may be enough to push prices higher, however, many bears lick their chops when they see these type of set ups on the charts. With a confirmed uptrend in place we will now monitor distribution days in the volume pane and we can see that the ETF did register its first day of distribution of this rally on Friday. Occasional distribution days are normal and acceptable until they start to mount to 5-7 days within a 20-25 session period which would start to put us in a cautionary stance. It is also important to note that distribution days that register quickly on the heels of newly confirmed rallies can raise the odds of failure. Confirmed uptrend or not, cautionary trading may still be the best route into the end of the year.
NASDAQ- The Nasdaq Composite underperformed on Friday losing 1.65%, however if we were to overlay these two charts on top of each other one would be hard pressed to tell the difference. Both charts are challenged by their 50 and 200 day EMA’s as they trade up into resistance areas. The congestion zone for the Composite is a bit wider than that of the S&P 500 ETF ranging from near 7500 to about 7630. Interestingly, the Nasdaq did not register a distribution day while the three other indices we cover here did, which is important because distribution days in close proximity to follow thru days raise the failure rate of newly confirmed uptrends.
QQQ- The Nasdaq 100 rallied hard on Wednesdays follow thru session blasting thru the 200 day EMA and trading right up to the 50 day EMA. This is an interesting area for the index as the 50 day EMA is running concurrently with a major support/resistance zone near $175. Once again we have a sharp V-shaped retracement rally that printed on the chart with plenty of overhead resistance to work thru. The 100 did register a distribution session on Friday as well and closed right on the 200 day EMA after slashing thru it intraday.
IWM- The underperforming Small Cap ETF has been staging a fierce recovery of its own after a nasty decline of over 16% in a short period of time. The index is facing an area of resistance near $160 with plenty of overhead supply above that level that could possibly plague the index down the road. The index also sports an extra bearish development on the charts that the others don’t in the form of a bearish moving cross over of the 200 day and 50 day EMA’s. The index did register a distribution day on Friday in a rather ugly session with a loss of 1.85%. A heavy challenge lies ahead for this index.