Market Summary

Merry Christmas!! to all. Please see my latest market summary video on the SPY chart by clicking HERE.

Market Summary

Happy Thanksgiving to all. I have a new format for presenting my market wrap and I hope you enjoy the video format. I discuss the current Eliott Wave pattern of the S&P 500 and the link is here. Click on chart to enlarge.

Market Summary

I was surprised after my last post that the market rallied instead of crashed as I thought it would. Last week however appears to have been a retracement rather than a rally as the market went up before it continues on its way down. The S&P 500 has been in a sideways channel for the past 6 weeks in what appears to be a 4th wave and a bear flag. While some markets did appear to put in a 5th wave bottom, for example, the financial sector index XLF on August 23rd, the S&P 500 did not put in a lower low than the 3rd wave and so did not technically put in a 5th wave bottom. While it is possible that the market could rally up from here it would have to be news or event driven to give the market a lift and I believe the higher likelihood is that the market will fail here and go lower. All eyes will be on Greece whose two-year notes rose for the first week in two months last week. The yield had climbed above 80 percent on September 14th but has currently come back to 54 percent. As the risk of default increases so does the costs to borrow money.

The current situation feels somewhat similar to the 2008 crash in the market following the Lehman Brothers bankruptcy. In keeping open to other points of view I read a very interesting article by Prof. Mark Blythe titled How to Turn a Continent into A Subprime CDO which I hope you find insightful.

The chart below shows the open after the weekend of the Euro / US Dollar showing how the Euro has fallen after retracing partially back up last week from its previous move down. The Euro appears to be headed towards the 1.30 area and could go much lower. When the Euro falls the US Dollar rises which puts downward pressure on the stock market. This week the Fed will hold a two-day meeting to discuss monetary policy and interest rates and lets hope they are able to help the market from falling off a cliff. Click on chart to enlarge.

Market Summary

It now appears that a Greek default is imminent and that the banks that hold Greek debt/bonds will now have to write down that debt on their balance sheets. Greece has recently imposed a new property tax in addition to other austerity measures in order to qualify for the distribution of a second portion of a bailout package put together by the European Central Bank (ECB), the European Union (EU), and the International Monetary Fund (IMF). If Greece does not receive this second tranche of the bailout package it will be unable to pay its pensioners or interest on its debt which is currently 57% on a two-year note. From my reading German and French banks are most at risk however the contagion risk could spread to the global financial markets. Among the safe havens are gold and US Treasuries. As foreigners convert their currencies to US dollars in order to buy US Treasuries the dollar rises in value and that is what we are seeing. The chart below shows the Euro bank notes falling below the 1.40 level and to the lowest level in the past six to seven months and headed towards the 1.20 level. We see a series of lower highs and lower lows over the last three years which is bullish for the US dollar. As the Euro falls the US dollar rises which makes it more expensive for foreigners to buy US goods. This hurts exports and the stock market. The S&P 500 futures are currently at 1138 well below the 1150 support area and most likely headed to the next level of support at the 1100 area. Click on chart to enlarge.

Happy Labor Day

Continuing with the theme from my last post that markets make reversals in trend after 3-day weekends, the first chart below shows a 2-month daily chart of the S&P 500 that follows up with the first chart from my last post. The market did continue the rally after the 4th of July with two seeming doji-like days up to the 7th of July with a high of 1356.48 but sold off after that to the low on August 9th of 1101.54 and showed extreme volatility with a spike in the Volatility Index (VIX). With a brief bounce and pullback to form a double bottom the market appeared poised to rally and indeed there was both a higher low and higher high, the classic definition of an uptrend. In many markets there was put in a 5th wave bottom, or so it seemed, but not in the S&P 500 suggesting that the move off the August 9th low was a 4th wave and that the 5th wave has just begun with the August 31 high. Futures markets are poised to open significantly lower with initial support at the 1150 area and below that at the prior low near 1100. As to the theory that the market makes trend reversals after 3-day weekends, while it is true that the market did so on last Memorial Day weekend, the 4th of July did not fit the pattern exactly and as September 1st and 2nd were both down days it appears that the trend has already reversed to the downside and is not fitting the pattern either. Click on chart to enlarge.

Again as a follow up to my last post the second chart below is a 3-year monthly chart of the S&P 500 showing that we are in a 4th wave on the monthly chart. The 61.8% Fibonacci retracement level is at the 1150 area which should act as support. The problem is that if this level gets taken out with a close below this level then the whole wave count would come into question and we would no longer have a classic Elliott wave pattern. I think this level will hold and that the Fed will step in to support the market at their next meeting with some kind of further quantitative easing. The real problem is the European banks and sovereign debt. Greek two year bonds are yielding over 50% as can be seen here indicating a high likelihood of default. Compare that to the German bond yields here. Also, bonds of both Spain and Italy soared to record highs last week. Banks that hold these bonds could fall like dominoes taking one another down. The good news is that inter-bank lending as measured by the Libor has not spiked to the high levels seen after the Lehman Brothers collapse in 2008. The risk of recession has significantly risen with the last Employment Report showing no net jobs created in the month of August. Lets hope the markets don't continue with a downward spiral as shown by the left side of the chart below. Click on chart to enlarge.

Happy 4th of July

There is a pattern in which the market makes a rally into a 3-day weekend and then reverses on Tuesday as happened last Memorial Day weekend when the market rallied up to May 30 and then reversed June 1 continuing the down trend that began with the May 2 high of 1370.58. So far the low 1258.07 on June 16 has held for more than 2 weeks and the question is with price at 1339.67 will we make new highs to take out the May 2 high or have another long weekend reversal to take out former lows? The chart below of the S & P 500 two month daily shows recent market action. Click on chart to enlarge.

On a longer time frame the monthly chart below shows that if the June 16 low holds that we will have made a 4th wave bottom on the monthly chart. Note how the last two red candles on the monthly for May and June both formed Hammer Candlesticks which is very bullish and that should the market take out the high of last month June at the 1365 area it should be off to the races as the market rallies higher. Click on chart to enlarge.

Market Summary

The chart below of the S&P 500 shows where I have drawn in 5 waves in blue and a divergence pattern between price and the Relative Strength index in red. This pattern is consistent with Elliott Wave Theory which enjoys a rich history in market technical analysis. Indeed, I have posted this pattern before back on August 11, 2010 which was the end of wave 1 in this cycle and lead to an approximate 2 week pullback to the bottom of wave 2/start of wave 3 at the beginning of September 2010. This illustrates the fractal nature of the markets where the first wave can be seen as composed of 5 smaller waves. Again, I posted back on April 25, 2010 another example of this 5 wave patter and this time lead to a 9 week sell off in the market to the lows of July 2010. Because of the extended nature of the advance that we have enjoyed since March 2009 I am inclined to believe that we will again have a more severe sell off that is likely to last at least a few months. In fact, this could be the beginning of a fourth wave on the monthly time frame Elliott wave pattern. Other factors influencing my thinking here are the European debt crisis which is pushing the US Dollar higher, and consequently the stock market lower. And also the end of the Fed QE2 program scheduled to end at the end of June. Click on chart to enlarge.

The table below shows the nine S&P 500 index sectors sort by 4 Weeks % Change. I sorted by the 4 Weeks % Change to show which sectors have performed the best since the market high back on May 2, 2011. Since the time of the high in the market Utilities, Healthcare, and Consumer Staples have been the best performers. These are defensive sectors of the market that do best when the overall market is going down. This is consistent with the Sector Rotation Model in which different economic sectors under or over-perform the market at different points in a business-cycle. Riskier sectors in the market are likely to do worse at a time like this. Click on table to enlarge.

Market Summary

The chart below is a 6 month daily chart of the S&P 500 showing an approximate 13% rise from low to high while it is up approximately 6% for the Year-to-Date period. What is noticeable about the chart is what is known as an inverted Head-and-Shoulders formation from about the middle of February up to the present. A Head-and-Shoulders formation is a chart pattern with three peaks, the middle peak being the highest, and the other two peaks forming the right and left shoulders. It is a topping pattern. However, an inverted Head-and-Shoulders formation is the opposite as it is an upside down Head-and-Shoulders formation and is a potential predictor of a move to the upside. In this case it predicts an upside move of approximately 100 points or to 1440. Will that happen? We will just have to wait and see. Click on chart to enlarge.

As a follow up to my previous post on the performance of the nine S&P 500 sectors the table below shows the sectors sorted by Volume % Change and what is of note is that the Technology sector shows an increase in volume while the other sectors and particularly energy show a marked decrease in volume. Energy has had a great run but now appears to be selling off in terms of volume inflows. Libya in particular is responsible for rising oil prices and I would not be surprised if the seeming stand off comes to a close soon with the fall of Gaddafi. That would surely bring the price of crude down. Click on table to enlarge.

A further comparison of Energy and Technology sectors shows that Energy is off of its high and that Technology has outperformed Energy in both the 2 week and 4 week time frames. Money rotates from the different sectors and while Energy is and has been the leading market sector on a shorter time frame it may lag allowing other sectors like Technology a chance to play catch up. Click on table to enlarge.

Market Summary

With the end of the 1st quarter behind us I thought it would be a good idea to look at how the different sectors of the economy are doing. In trading and investing, if you pick the right sector to invest in even if you make a bad individual stock pick chances are you will be a winner and can say along with Charlie Sheen "winning". The old saying "a rising tide lifts all boats" can be applied to sector analysis. The S+P 500 is divided into nine sectors that can be followed with the following ticker symbols: XLB, XLE, XLF, XLI, XLK, XLP, XLU, XLV, and XLY. With this in mind I want to identify and take a look at the strongest and weakest sectors and the winner of the strongest sector award goes to XLE, the energy sector. As can be seen from the chart below it has been rising on a steady uptrend with prices well above their 50 day moving average which has acted as support. Click on chart to enlarge.

The winner of the weakest sector award goes to XLF, the financial sector. As can be seen from its chart below it has had choppy moves going back and forth as it has been rising and is currently right on its 50 day moving average at 16.53. As no continued rally in the economy can take place without support from the financial sector the question arises: Is the XLF the "Canary in the coal mine?" or is it simply lagging the broader economy? This is a difficult question to answer and time will tell so we will just have to wait and see. Click on chart to enlarge.

The table below list the performance of each of the nine sectors sorted by Year-To-Date(YTD). As can be seen at the end of the 1st quarter XLE is up nearly 16% while the XLF is up less than 1%. This is the kind of difference that makes all the difference in your trading and investing. For comparison, the S+P 500 is up 6.45% YTD. I hope this helps. Click on table to enlarge.

Market Summary

The Market Volatility Index, known as the VIX, measures the volatility of the market. A recent news story described it as "the options market's gauge of investor fear." Traders use VIX as a general inverse indicator of market volatility and sentiment. High numbers mean that there's excess bearishness, and low numbers indicate excess bullishness. The VIX is updated intraday by the Chicago Board Options Exchange (CBOE), using Standard & Poors 500 Index (SPX) bid/ask quotes. The chart below of the VIX shows three notable spikes. The first spike at the end of January is associated with the revolution in Egypt, the second spike with the outbreak of fighting in Libia, and the third spike with the March 11th earthquake in Japan. Click on charts to enlarge.

The second chart below is of the S+P 500. Note how the high in the market corresponds to the second spike in the VIX and how the low in the market corresponds to the third spike. The VIX has declined since its March 16th high and the S+P 500 made its bottom on March 15, the Ides of March, and has risen since then just as the VIX has fallen.

The chart below is of the ERX, the energy bull ETF. Note how bullish this chart looks as it approaches a double top and potential breakout to the upside. If, however, oil prices decline so will this ETF. My feeling is that over the next few days oil prices will decline as the US Dollar strengthens. However, in this volatile world anything is possible.

The table below shows the ETFs that are followed. AGQ, the Silver ETF, is up the most for the YTD period up 40.67% and up a whopping 12.23% for the week. The second place goes to DDM, ProShares Ultra Dow 30. Click on table to enlarge.

Market Summary

The market is set to open higher per the futures market with the major indices all pointing higher. With the outbreak of fighting in Libya oil is currently just under $103 per barrel. This will bring up with it the other commodities as well. The US Dollar Index is currently 75.5 which is down from 76.75 a week ago. As a way to follow the markets I post here charts that I can make reference back to at a latter date. For example, last week I posted the EWV chart which goes up when the MSCI Japan Index goes down. Last week it was 34.70 and it is currently 36.10 though it had been as high as 45.34. Today I want to post the United States Oil chart USO to follow oil prices and the Financial Sector index XLF to follow the financials. Click on charts to enlarge.

As can be seen from the chart above USO has been in an uptrend and is expected to break out to new highs. It has support at the 50 day moving average (Red Line).

The XLF chart above shows a breakaway gap at last Friday's open where it broke above the closing price on Thursday. This should act as support and it is set to open higher.

The performance table above shows AGQ to be the top performer on the YTD basis up 25.34%. For last week the top two performers were UBT and UST, both bond funds, as investors sought the safety of bonds in the volatile market. These, however, are likely to decline next week as investors risk appetite increases.

Market Summary

My thoughts and prayers go to the people of Japan. After an earthquake and tsunami of epic proportions laid waste to cities along Japan's northeast coast the effects on the economy of Japan will no doubt play out for a long time to come. While the recovery will take time how the market reacts to this disaster will be followed closely. The chart below is of the ProShares UltraShort MSCI Japan and as can be seen this ETF, which goes up 200% the inverse(opposite) of the daily performance of the MSCI Japan Index, had been falling for many months until just a few days before the earthquake hit. It will be interesting to watch how high this goes. Click on chart to enlarge.

The table below shows the performance of a select list of ETFs sorted by performance on a Year-To-Date basis. While the table lists UCO, the Ultra Oil ETF, as up 315% I believe that is due to a split in the price and not a true reflection of its performance. Still oil is up significantly. The second listed ETF AGQ is the Ultra Silver ETF up 50% YTD. For the week UBT, the ProShares Ultra 20+ year Treasury bond ETF, was up the most followed by AGQ. Click on table to enlarge.

Market Summary

As I have mentioned before on this blog the area between the 20 day moving average(blue line) and the 50 day moving average (red line) on an up trending chart is often a very good place to buy in at and go long as illustrated on the UWM chart below which was up 4.6% on Friday. The UWM is the double leveraged ETF that tracks the Russell 2000 small cap index which was the top performing index that I tracked for last year. I have a button on my blog called Major US Indices which illustrates how all the markets move more or less in concert and have found support between their respective blue and red lines. Click on the chart to enlarge.

I have in the past posted performance tables but will now for convenience sake only post the results of my performance studies as of this date. The top three ETFs in my list on YTD basis are: UCO, AGQ, and IYE. The top three ETFs in my list on a weekly basis are: UCO, USO, and AGQ. These are natural resource plays in energy and silver. Also note that the Basic Materials Sector is the current 6 months leader in performmance up 39.6%.

Market Summary

The chart below is a follow-up to my prior post on the ProShares Ultra Crude Oil ETF UCO. It is interesting to watch history play out in the middle east with unrest in that region causing a spike in the price of oil. From the late January low of 10.71 a quick jump in the price of oil followed the unrest in Egypt but gradually fell off as the news got out. It has been 14 price bars since my last post and a clear down wave can be seen from the 12.57 high that was made during the first few days of the unrest. Now a new up wave can be seen to have been started with the 10.34 low that was put in a few days ago. In fact, as I have mentioned before on this blog, markets have a way of turning direction on long 3 day weekends and I believe oil prices are headed higher. It appears UCO has support on its 200 day moving average (Red Line).With the unrest in Africa spreading, the risk premium in oil is increasing. The futures markets are pointing to a large gap open higher tomorrow. Click on chart to enlarge.

The performance table below shows the Ultra Dow 30 ETF DDM is up the most up 13.40% while UCO is down the most down -13.99% for the YTD period. Keep in mind these numbers can change quickly in a market correction. Of note, for the week, AGQ was up the most up 17.90% while only UCO was down for the week. Click on table to enlarge.

Market Summary

The chart below shows the wild swings the Ultra Crude Oil ETF UCO has gone through over the last few months and the large 8.9% move it made on Friday. The unrest in Egypt has led to a swing high in the price of oil and this ETF is double leveraged moving two times on a percentage basis as the price of oil. Clearly the trend is up and now price is above the 50 day moving average and looks to be headed higher. Click on chart to enlarge.

The table below of ETFs followed sorted by best performing ETF on a weekly basis shows AGQ the ultra silver ETF did the best on a one week percentage change basis up 3.01% but the real story is that it was up 7.70% on Friday as the market may have stopped its decline and begun a reversal to the upside. How this plays out we will just have to wait and see. Click on table to enlarge.

Market Summary

The chart below is of the double levered ProShares Financials Sector ETF with the ticker symbol UYG. This ETF has performed the best for the past week of the ETFs listed in the table below the chart. The financial sector was the laggard for several months relative to the other sectors but has been the strongest sector for the last week with UYG up 5.30% for the last week compared to 2.0% for the S&P500. Click on chart to enlarge.

For the YTD period QLD is up the most up 6.77% while the silver ETF AGQ is down the most -12.29%. For the week, UYG was up the most up 5.30% while the ProShares Ultra 20+ Year Treasury UBT was down the most -3.07%. Click on table to enlarge.

Market Summary

The first chart below is of the QLD which is the double leveraged ETF that follows the QQQQ which is itself an ETF that follows the Nasdaq 100 Index. As can be seen the price action is very bullish. Note a hammer formation on Fridays candlestick and a similar hammer formation that occurred on September 28 followed by four red candlesticks which found support on the 20 day moving average (blue line). Click on chart to enlarge.

The table below lists the ETFs that I track showing QLD to be the leading ETF so far this year and for the week. Click on table to enlarge.

Market Summary

For the new year I will change the format slightly and post a chart of a top performing ETF from the list of ETFs in performance table below the chart. For the first day of this new year the ETF UWM was up the most up 3.63% breaking out of a bullish flag formation. This is a double leveraged ETF fund based on the Russell 2000small cap index which lead the market to the upside last year and is still showing signs that the rally is continuing into the new year. The blue line is the 20 day moving average and the red line is the 50 day moving average. A good place to buy in an up trend is between the two moving averages on a pull back. Click on chart to enlarge.

The table below lists the ETFs that I am tracking and is sorted by largest percent change for 1 day. Note the YTD column is reset to 0. Click on table to enlarge.