Weekly Market Update 12/5/10

The US stock market indexes had a very good week. It appears the gains had a lot to do with a rebound in the Euro and decline in the Dollar. Now the US indexes are all near their November highs, and showing a negative divergence with RSI. I would not recommend trading based on the negative divergence, for me it is more of a caution sign. This week could prove interesting. Will the dollar continue to decline? Will a decline in the dollar be enough to push the indexes above their November highs? The dollar is pretty oversold on a short-term basis. If the rally in the Dollar from its November lows is truly a change in trend, and I am not sure it is, there should not be much left in this pullback for the dollar. I think this week might see a modest move above the November highs in the US indexes followed by some consolidation.

Weekly Market Update 12/12/10

The US indices had a modest move up for the week. The good news is that the November highs have been taken out. This move came while the dollar gained for the week. That is contrary to the dollar based move we have seen over the last several months. Bullish sentiment numbers continue to increase and suggest that a top may be near. For this reason I will be moving the stop on our SPY position to 120.50.

Weekly Market Update 12/19/10

This feels like it is starting to get a bit repetitive. The markets moved modestly higher this week. There has been, no real surprises, on the economic front. The dollar has managed to find a trading range. And, market sentiment continues to get more bullish
For this reason I will be moving the stop on our SPY position to 122.75.

Weekly Market Update 12/27/10

The markets moved modestly higher again this week. Market sentiment is at levels usually only reached during market tops. That being said as long as the FED continues purchasing our national debt, I am reluctant to call the top. I will be moving the stop on our SPY position to 123.50.

Weekly Market Update 7/3/10

Well the market could not close above June 25^th high and it soon became apparent that 104 on the SPY would be tested. It was breached on Wednesday. Despite the fact that some of the indexes have lost almost 10% over the past two weeks, I do not believe we have seen the last of this sell off. Market sentiment is poor but not bad enough that we should expect a rebound. Last week I mentioned a target of 87 based on a break in a head and shoulders formation. If this market were to act like a true textbook head and shoulders we may see a failed test of the 104 level on the SPY. That should now act as resistance. Looking at the charts the next support level of significance is near 94 on the SPY. This would also be a 50% retracement of the move that started off the March ’09 lows. I have written in the past how I use RSI as a long-term trend indicator. Well with Fridays close the 14-period RSI on a weekly SPY chart closed below 40. To me this officially makes this a bear move. It also makes it more advantages to sell rallies than to buy dips.

Our Quarterly ETF portfolio has taken a beating. The good news is the pain should be over soon. We will be adjusting this portfolio in next week’s newsletter. An early look at the Lipper Mutual Fund Performance Indexes indicates this portion is likely to go 100% into cash.

Weekly Market Update 7/11/10

What a difference a week makes. I am glad I had not placed any new trades based on the bearish moves prior to the holiday weekend. This market feels like the professionals are moving the market around to inflict maximum pain on the average investor. First we have the unexplainable flash crash on May 6^th. Then the markets test the 104 level on the SPY during the last week of May and the second week of June. This should have confirmed 104 as support. Then the markets make a higher high the week of June 14^th. This indicated maybe a bottom was in place and we could expect higher prices. The next week began a sell off that took the market below support at 104, and indicated the possibility of a new leg down. This week the market reverses and gives us its best performance in over a year. I am not sure what to make of this weeks move. I am glad we have been mostly on the sideline except for the Quarterly ETF portfolio, and when we exit those positions on Monday we will be 100% in cash.

Typically a failure of a head and shoulders can be a bullish pattern itself. But I do not trade off chart patterns alone. The interpretation is to subjective for me. Last week I stated that the RSI had indicated we are in a bear market and I will stick by that until the RSI tells me otherwise.

Weekly Market Update 7/18/10

The SPY seems to have found some resistance near 110. The highs Tuesday thru Thursday were very close to that level. Friday the market decided to sell off and closed down 2.5% for the day. Typically a new bull move would brush off its first overbought readings and just keep moving higher. That did not happen this week and confirms my suspicions at least momentarily.

Two weeks ago I indicated we are in a bear market. I would like to take a moment to clarify and adjust my opinion slightly. I have stated previously that a RSI (14 period) close below the 40 level indicates a bear market move. On a daily chart I would call this an intermediate bear move. The SPY RSI closed below 40 on May 6^th, the day of the flash crash. The RSI, on a daily chart, has not traded over 60 since that time so we are still technically in an intermediate term bear move. I also look at the RSI on a weekly chart to indicate long term moves in the market. During the week of July 2^nd the weekly RSI closed below 40. On a weekly level I would like to see the market trade below the low of the week that generated the RSI reading below 40. We did not have that so the long-term RSI bear signal was not confirmed. However a close below 101.13 would confirm a new long-term bear move.

Weekly Market Update 7/25/10

The SPY managed to close over resistance at 110. This is a good short-term sign for the bulls. The next level of resistance will be between 112 and 113. I think this will be a much more significant level than 110.

About 85% of the S&P 500 companies that have reported earnings in the last two weeks have beaten estimates. Yet the SPY is up only a little over 2% during that same time frame. The markets appear to have run up in anticipation of a positive earning season. Now the question is, “What will drive the markets from here?” I am not going to try and pretend I know the answer. However if the market struggles from this point, the implications would clearly be a negative for the markets going forward. Maybe letting the Bush tax cuts expire will be the catalyst. Raising taxes in this fragile economy, I think is a recipe for disaster. Some of the news stories I am reading are implying that the Bush tax cut debate will be used to sway votes in the elections this fall. Are our representatives in Washington so psychologically disturbed they are willing to risk an economy, on the edge of a depression, to garner a few votes?

Weekly Market Update 5/2/10

Some volatility has found its way back into the market. We have not seen two large down days this close since the decline that lead to the February low. Momentum is waning; the market has basically been flat over the past three weeks. Where it goes from here is anybodies guess but with market sentiment at bullish extremes this is probably not a bad time to tighten stops.

It appears Greece is close to a bailout from the EU and IMF. The question is how will the markets react. Will they see it as bandage when a tourniquet is needed? There is a troubling trend I am starting to see emerge as it is occurring in Greece and here in the U.S. As governments struggle to balance their budgets during this prolonged recession, they are starting to get resistance from labor groups and those reluctant to seeing a cut in wages or benefits. Those with the biggest budget problems could face financing issues just has Greece has.

Midweek Update for 5/6/10

In case you have not heard the market took a serious drop today. At one point the DJIA was down 1000 points, before closing down 347 points, or –3.20%. The jury is still out on what caused the sell off, but two primary factors are the Greece bailout and error in a Proctor and Gamble trade. I am sorry but something is seriously wrong when a trade error can cause a 1000-point decline.

I am glad that I have been 75% cash for the time being but questioning whether I should have had stops on my Quarterly ETF portfolio. I think in the long run the quarterly rotation will keep us out of any prolonged declines, and that is why I am hesitant to place any stops on this portfolio. The portfolio is down 6 percent for the quarter, with most of the damage in SCZ, which is of 10%.

The charts look pretty scary. Today’s price action basically even if it was a result of trade error is a bit bothersome. On more than one occasion I have seen the markets trade back down to the trade error lows. I am not sure why, maybe the markets feel a need to test that level again. Anyway if that happen the DJIA will have to trade down another 600 points before it can stabilize.

Weekly Market Update 5/9/10

Friday came and went and there still does not seem to be a consensus as to what the hell happened on Thursday. In November 2007 the NYSE ended trading curbs, which limited program trading. Prior to that date program sales could not be placed on a down tick if the curbs were in affect. Now only circuit breakers remain and they do not kick in until the DJIA has dropped 10% or 1050 points. Today a lot more trading occurs off the floor of the major exchanges and on the electronic exchanges. There are no consensus rules, between the various exchanges, that handle an event such as the one that occurred on Thursday. In my personal opinion some sort of circuit breaker at -5% and program trading limits at -3% would be more appropriate. Sometimes things happen in the market that no one can explain and, a temporary halt to trading to figure out what is going on, is not a bad idea. Another possibility is that sense market sentiment was so high; there were probably a lot of stops in place that started getting triggered, as the market began its fall. Something like yelling, “fire!” in a crowded theatre. I would like to think that the SEC would come out, before the end of the week, with some safeguards to prevent this from happening again. This is a real blow to the confidence that people have in the markets something will have to be done ASAP.

Until there is some stability to the markets I do not think I will be recommending any trades. The charts are just plain ugly. There is a void between the Friday lows and Thursday lows and it will be hard for me to put faith in any attempts the market makes at forming a bottom until the Thursday lows are tested.

Weekly Market Update 5/16/10

The week came and went and still there is no consensus, on what caused the May 6th sell off. I find that somewhat disturbing. What I find even more disturbing however is, that the SEC has not come up with any plans for trading halts to prevent future declines of a similar magnitude.

From a technical standpoint the averages managed to rally through Wednesday but rolled over on Thursday and Friday. The high this week provide a price level that when breached to the upside will begin to give some comfort to some stabilization in the market. I am not saying that is what I expect. However, until The May 6th lows are tested or the market can make a series of higher highs, we are kind of in a no mans land, with no clear intermediate term direction.

Weekly Market Update 5/23/10

The SEC is still investigating the May 6th “flash crash.” Several factors appear to have contributed to the sell off. The factors appear to be, inconsistent rules among the various exchanges, speculation in the futures market and, the lack of participation by market makers. It appears that the market makers were not able to step in and be the buyer of last resort. Maybe that is because so many went out of business as the electronic exchanges took volume from the physical exchanges.

The markets took another big hit this week. But as I have been saying the last few weekends I felt there was a good chance the May 6th low would need to be revisited. The markets tested that low during Friday’s open then proceed to make a very strong rally to close up 1.5% for the day. If the markets have worked out there issue with the Euro, I think there is a very good chance this is a tradable low. Most of the trading strategies I watch will require a decent bounce from this level before triggering a buy signal. But the more aggressive subscribers could look to go long the SPY if in the final hour of trading the SPY is trading over 110. The market should be able to manage at least a two-week rally from these levels. I will have to wait for more signals to come in before I can get more confident about a longer-term scenario.

Weekly Market Update 5/30/10

A rare but reliable technical signal has set up this week. This signal is 9 for 9 dating back to 2000. Simply put when the 14 period ADX goes over 40 buy at a price of 2 times the 21 day average true range added to the 5 day low, then hold for 15 trade days. The buy price would be 110.90 on the SPY. Keep in mind this is a short-term signal and I would not recommend it for your 401k or retirement account.

We did not get the close over 110 on Monday I was hoping for. As bullish as sentiment was last month it has done almost a complete reversal. This could mean we are getting close to some buy setups. The market has sold off but now it will have to show some strength over a period longer than a couple days. If we have seen the worst of the selling, the ADX signal could start a cascade of buy signals. Only time will tell.