Market Summary

Three days of selling have taken us back three months in terms of where price has gone. It was the second day of selling when we broke the lower trend line for the rising wedge formation which is a bearish chart pattern. Now we have come very close to a reversal in the long term (weekly) sentiment. Will the markets continue south or will we get a bounce? Click on image to enlarge.

For the week the natural gas ETF UNG did the best up 2.58% followed by the dollar tracking UUP up 1.94%. The biggest losers for the week were FXI down -7.26%, EFA down -7.06%, and USO down-6.96%. Click on table to enlarge.

Sellers keep on selling

According to the system that I have set up on the image below Intermediate-Term Sentiment has turned bearish. I use the trend on the daily chart to determine the intermediate-term trend where a close above the Simple Moving Average by a small percent is considered bullish and a close below the Simple Moving Average by a small percent is considered bearish. The break below 112.65 today put the sentiment on the intermediate(daily)term to bearish. Long term (weekly) sentiment remains bullish. Click on image to enlarge.

Market Summary SPY

Short term sentiment has turned bearish per the color change in the background of the image below now with price below 114. Intermediate and long term sentiment remains bullish. Note the long weekend for the Martin Luther King holiday and the trend change giving a statistically higher probability of occurring during a long weekend. Click on image to enlarge.

Market Summary

While the Island Bottom referred to in my previous post in the Volatility Index was filled certain other market top signals have occurred. The image below is of a weekly chart of 3 months duration showing an Outside Key Reversal chart pattern on the $NDX This is where price goes above last weeks high price and closes below last weeks low price. That is a bad sign in the market and a trend reversal signal. Many other markets including gold are showing trend reversal patterns similar to the $NDX . The 1150 area on the $SPX is major multi-year resistance and the market appears to be bouncing down from that point. Click on image to enlarge.

The Oil sector index has performed the best for year-to-date (YTD) period but oil also has made a weekly reversal signal to consider going forward and the USO oil ETF was down the most for the week. Click on table to enlarge.

Volatility Index Island Bottom

Monday saw the Volatility Index ($VIX) gap down below where it was on Friday and today we saw the $VIX gap up above yesterday's close to form an Island Bottom. It is the solitary white candle that is second to the last in the chart below. As long as the gap is not filled we have a chance of having yesterday being the high in the market. The $VIX moves inversely to the market and if the $VIX continues to rise the market will decline. The area of 20 has been pivotal in the past and if the $VIX gets above 20 without filling the 17.74-17.94 gap then we could see the beginning of a trend change in the market with a move to the downside. While yesterday may be a top in the market and a bottom in the $VIX only time will tell and we will just have to wait and see. Click on chart to enlarge.

Markets march higher

Happy New Year to all. Markets have continued to advance and that has implications for the rest of the economy. The stock market is a leading economic indicator. It will fall before the recession officially begins and job layoffs mount. It will rise before unemployment has peaked and for some time thereafter. When the recession is officially over the markets will have been rising for some time. And that is what we have seen. We are in a cyclical bull market in a secular bear market. Because it was the housing crisis that led to the current recession lets take a look at the Philadelphia Housing Index. To my way of counting it looks to be in a 4th Wave with an inverted head-and-shoulders formation which projects up to the 117 area or about the area of the previous high. Click on image to enlarge.

Because housing, the economy, and the financial sector all go together a look at the financial sector index XLF shows it too looks to be breaking out to the upside. A strong housing sector will help support a strong financial sector and visa versa. The chart below shows several months of support in the 14 to 15 range and I suspect it likely we will be testing the October highs soon. Click on image to enlarge.

Finally, I wanted to include a chart of Ford motor company. The state of the automobile industry also reflects the state of the economy and it is looking up for Ford. 2009 was a bad year for the car makers so the possibility of doing much better seems very likely. Click on chart to enlarge.