Posts Tagged ‘stock market condition’
It’s difficult to call tops and bottoms but the price action on AAPL combined with that of other indicators points to the fact that the current correction is in all likelihood over. There is blood in the streets and panic everywhere in the news, a good indication of a botton. While the VIX hasn’t surged as many have expected, this is not the first time this has happened when the markets have bottomed. As a matter of fact, VIX derivatives such as VXX and TVIX have been trending down all through this sell off.
First lets look at the monthly chart of APPL. APPL has pulled back exactly to the uptrend line that has been in effect since February 2010. It has touched this line 5 times. A trend that has been in effect for almost 3 years is extrenely strong and is unlikely to be broken especially considering that APPL is still raking in the dough hand over fist. While there has been some trash talk about AAPL in the news lately, I suspect it is just an attempt to talk the stock down so the big boys can hop in at a better price. The perfect entry point for the stock was reached on Friday at $500 per share but in all likelihood AAPL is going to head back up to re-test the $700. level. AAPL looks like a strong buy at these levels.
If we look at the daily chart of APPL, we can see that it is grossly oversold and has been so for awhile but on Friday it had a hugely bullish candlestick accompanied by gigantic volume. This indicates that while shorts covered new buyers stepped in. Since AAPl constitutes a large segment of the market indices, a stop in the decline of its stock can only be positive for the rest of market.
The USD dollar has been trending upward since September and that has undoubtedly put pressure on the markets. It is now near overbought levels and is also re-testing the neckline of the head and shoulders pattern that broke down in September. There is strong resistance at this level and I suspect the re-test will fail causing the dollar to resume it’s downtrend. This should be positive for both stocks and commodities.
The Dow industrials have pulled back right to the 411 day moving average, the same level where the index reversed direction in June. It is unclear what is special about the 411 day moving average but it does appear to be providing support to the index.
The S&P 500 has pulled back to the primary uptrend line that has been in effect since Jun, 2010. While the index has dropped below this line for short periods of time it has spent most of the time above the trend line. The RSI on this pull back is at the same level as it was on the pullbacks in last May and November.
The monthly VIX has reached the downtrend line that has been in effect since October, 2011 and it should hit resistance at this level.
Conclusion: The technical indicators are pointing to the fact that this correction may very well be over. It could be a choppy ride up as it was in June but APPL looks like a strong buy at these levels. Now is probably a good time to scale into some long positions in anticipation of a holiday rebound.
Note: Another beaten up stock you may wish to take a look at is AMD. It was as high as $8.50 in March but is now trading at $1.83. With any type of market recovery it could probably move to $4.50 which is the first major area of resistance.
The stock market has been dropping in a slow, agonizing fashion for the last 2 weeks although today it picked up a little speed. The SPY stopped it’s slide today right at it’s 200 day EMA of 1307. If the market doesn’t find some support at this level, the next level of support is 1260 which would fulfill the head and shoulders break down.
With the Facebook IPO coming up tomorrow, if some real bad news doesn’t hit the wire we will probably get a bounce off current levels. With on-going problems in Europe still unresolved and the doo at JP Morgan still hitting the fan, any bounce should be sold into as it will in all likehood be a dead cat bounce.
Yesterday GLD came within .33 of the December, 2011 low of 148.27 and today it rallied off a double bottom. The question is whether this is the start of a new leg up or if GLD will continue it’s march downward. There’s a good chance GLD will make a run to the top of it’s downtrend channel which right now sits at 158. We won’t know what the prognosis will be until it gets there as the downtrend must be broken before we can assume another leg up has started.
Conclusion: The S&P 500 looks like it may have hit a temporary level of support. The initial target of this correction is 1260 so even if we get a bounce from here the market will probably be headed lower.
The U.S. stock market is breaking down below critical support levels at the same time the VIX is starting to surge. As I mentioned in my entry of May 13, there was an inverse head and shoulders pattern on the VIX with the neckline at 21.64. The VIX has now closed above the neckline for 2 days in a row and the S&P 500 has closed below 1340 for 2 days in row. This is a strong indication that the market is heading lower. So far panic selling has not set in but the surge in the VIX indicates that it is probably just around the corner.
The S&P has a quasi head and shoulders pattern on it with a projected downside target of 1260.
In the late afternoon word came down that a run on Greek banks is underway. While the ECB claims there is a firewall around Greek banks, viruses have a nasty way of penetrating firewalls. At this point in time it is unclear as to which banks are exposed to European debt and how far things could spread. We know that MF Global made some bad bets on Europe and now JP Morgan is being investigated for trading losses. While we don’t know exactly what led to JPM’s trading losses, there’s a good chance it involved European debt.
It also looks like the really bad news may just be starting. Greece could not form a government and will require a new election in June. A run on Spanish and Italian banks could start at anytime if the citizens of those countries start to panic because of what is happening in Greece.
The U.S. Dollar has been on a rip and has broken through both short and longer term downtrend resistance. While there are horizontal resistance points at 82, 83 and 86, the multi-year downtrend resistance stands at just under 88. If the dollar were to surge that high the S&P would probably drop to about 1000. The question is will Ben Bernanke allow that to happen.
Since this is an election year the incumbents will probably do everything in their power to prop up the markets. It’s unclear at what point the Fed will step in with further easing but I doubt they will allow the markets to drop that far before the election.
Gold as evidenced by the chart of GLD may be approaching a double bottom. GLD is almost at the December, 2011 low and I would think that traders are waiting for it to get there before hopping in. While there will probably be some sort of bounce off that level, it is unclear if it will just be a blip in a larger downtrend of if a new rally will start.
Oil as evidenced by the chart of WTIC may also be approaching a double bottom. Oil broke down from a rising head and shoulders pattern and the pattern looks like it is near completion. An interesting scenario would be if the Fed announces a new round of QE just as the S&P, Gold and Oil hit their projected downside targets.
Conclusion: It looks like the stock market is heading lower. At some point the Fed and ECB will probably step in with further QE.
The VIX has formed an inverse head and shoulders pattern. The pattern does not come into play however unless the neckline is penetrated. If the neckline is penetrated the target of the VIX is 27-28. This would correspond to the S&P 500 dropping to about the 1250-1275 area. The question is does it look like the neckline is going to be penetrated.
We can see that the VIX hit resistance at it’s 200 day EMA of 21.64. This also corresponds to the neckline of the pattern. There are negative divergences forming which indicate that the VIX should drop. The VIX hit a higher high between April and May but the MACD and stochastics hit a lower high. The MACD momentum bars were much stronger in the initial run up that started in April but the bars in the current cycle are much weaker. The RSI is also decreasing.
This would indicate that the VIX is going to pull back. It could pull back to it’s uptrend line and then create another right shoulder or it could drop through the uptrend line and negate the pattern. In any event the market should move up from here. If the VIX were to negate the pattern the S&P 500 and other market indices would in all likelihood resume their uptrends.
The SPY daily chart confirms the VIX chart as there are positive divergences indicating the SPY should head higher. The SPY hit a lower low between April and May but the MACD negative momentum bars are weaker in the current cycle indicating that negative momentum is waning. The RSI is at the same level that it was in April when the market rallied and the stochastics are oversold.
The SPY weekly chart still looks bullish. The SPY has pulled back to it’s 20 day EMA where it has found support. This level orresponds to the 2011 market top which is also acting as support. The RSI and stochastics are still above 50. The MACD has given a sell signal but if the rally continues that should quickly reverse. As long as the RSI and stochastics turn around above 50 the rally should continue.
There are numerous wildcards in play that could influence the market direction.
1) Good or bad news out of Europe and China.
2) The announcement of QE3 by the Fed or ECB.
3) Natural or man made disasters.
Conclusion: The technical indicators are pointing to higher market prices at least in the near term. It remains to be seen if the market can break out of the trading range it is in namely S&P 1340-1400. A VIX surge past 21.64 however would be an indication to at least hedge any long positions or go outright short.
Gold miners as evidenced by GDX double topped at 58. at the end of February and now appears to have bottomed at a major support level. Negative momentum is waning and while we do not have a completed MACD crossover, the MACD is turning up at a higher level than at the end of December when the index made a higher low. I have found this short term MACD divergence to be extremely reliable in calling turning points in the markets.
There was a breakdown of the rising head and shoulders pattern on GDX and the downside target of approximately 48 has been fulfilled. The minimum upside target of this run should be to the 200 day EMA at the 55-56 area. What happens past that point will depend upon the price action of oil and gold.
One way to play the rally in miners would be to buy Yamana Gold (AUY) either the stock or options. AUY has pulled back to the bottom of it’s well defined uptrend channel. The next move up should take it to the top of the channel at about 18.50.
Rising gold prices are good for miners but rising oil prices are not as they eat into the cost of production. Of course if the price of gold increases faster then the price of oil or the price of oil drops the 2 factors can negate themselves. Right now it appears that the price of both oil and gold are on the rise.
As I mentioned in my entry of February 22 GLD had broken through the neckline of an inverse head and shoulders pattern. That quickly reversed as JP Morgan apparently dumped a huge amount of gold on the open market. Any attempt at manipulation of the precious metals markets is doomed to failure as the laws of supply and demand will eventually win out. Central banks around the world are loading up on gold and China is an especially heavy buyer. China will be opening up it’s own gold exchange in June and the government is encouraging it’s citizens to load up on gold.
As a result of JPM’s actions there is an even larger inverse head and shoulders pattern forming on GLD. We have a left shoulder and head and the right shoulder is now forming off the 50 day EMA support line. If the pattern were to complete a successful break out of the neckline would bring gold to $2,100 per oz. With China opening up a gold exchange combined with the fact that Hong Kong will be opening up a silver exchange it seems highly likely that both gold and siver will be hitting new all time highs this year.
WTIC Oil has also formed an inverse head and shoulders pattern as evidenced by the monthly chart. The neckline has already been broken and the projected price target is 125.
Oil has been flagging since February as evidenced by the daily charts. Once oil breaks through the top of the flag formation it should make a quick run to 125.
As I also mentioned in my entry of February 22 bonds were in the process of breaking down but were taking quite some time to do so. Bonds as evidenced by TLT finally broke through critical support this past week and are now staging a counter trend relief rally. I expect TLT to hit stiff resistance at the downtrend of 116 or it’s 50 day EMA at 115.42. From that point on TLT should head lower and the stock market should continue to rally.
Conclusion: The Technical indicators are pointing to higher stock, oil and precious metals prices while bond prices are headed lower.
GLD has just broken through the neckline of an inverse head and shoulders pattern that has been forming since November. The breakout above the neckline at $170. occurred on increasing volume and with a strong bullish candlestick. If the $170. level holds as support then the projected price target for GLD is $192. which equates to about $2000. per ounce of the metal. The move in GLD will undoubtedly carry SLV along with it. This looks like a good time to back up the truck and load up on gold and silver.
As far as the broader market is concerned the charts are indicating that we are in a powerful bull market.
The QQQ has been leading the market higher. Towards the end of 2010 the QQQ broke through the neckline of an inverse head and shoulders pattern with the neckline at $50. and a price target of $75. For all of 2011 the index swung between $50. and $60. In 2012 the index broke through the $60. level indicating that the market is poised to move higher.
The S&P 500 broke through it’s bear market downtrend from the 2007 market top and it is now trading in the upper half of it’s uptrend channel. A breakthrough of the midline generally leads to a run to the top of the channel. In the current time frame the upper trend line crosses at about 1500.
20 year treasury bonds as evidenced by TLT are in the process of breaking down. The breakdown has been taking awhile due to the lingering effects of the Eurozone crisis but it is now almost complete. TLT has formed a head and shoulders pattern with 4 right shoulders that are descending. The RSI is below 50 and the MACD has been steadily dropping and is below 0. Critical support is at $115.
The index is currently just below it’s 10 day EMA where it will in all likelihood find strong resistance. A drop below $115. should quickly bring TLT to it’s 200 day EMA at $110. This drop should coincide with another leg up in the stock market as the S&P is testing overhead resistance at about 1370. Since interest rates move inversely to the underlying security, it makes sense that interest rates should rise along with the improving economy.
Conclusion: We are in a powerful bull market phase for both stocks and precious metals. There’s an excellent chance both the stock market and precious metals will hit new all time highs in this bull run.
The S&P 500 has a shot at hitting 1455 this year. As can be seen in the above chart the S&P 500 has been trending in a wide 400 point bull channel since March, 2009 and it is sitting right at the midline of the uptrend channel. The nature of this chart pattern is that if the price decisively breaks through the midline it almost always runs to the opposite end of the channel. The 1455 target was computed by subtracting the October low (1075) from the inverse head and shoulders neckline (1265) described in my last entry and adding it to 1265. The initial target for the head and shoulders breakout is 1360-1370. If the market can get past those price levels 1455 is only another 6% away.
There are other positive technical developments on the charts. The S&P 500 50-day EMA has crossed over the 200-day EMA indicating the major market trend is now up. The index has also been hugging it’s rising 10-day EMA since the middle of December.
This is reinforced by the fact that the 50-day EMA of the VIX has crossed under its 200-day EMA indicating that the major trend for the VIX is now down. The VIX has been hitting stiff resistance at it’s falling 10-day EMA.
Conclusion: If the market does make a run for 1455 there is a good chance it will get there by the end of April. By then we should have a better grasp of the global economy and whether problems in Europe and potential problems in China will affect the U.S. economy in a negative way.
The shares of energy companies Penn West Energy and Regency Energy Partners are breaking out and look like a solid buy at these levels.
PWE has broken the downtrend from it’s April high and has also broken through the neckline of an inverse head and shoulders pattern. The stock is currently trading at $19.88 and the projected price target is about $27. per share. According to bigcharts the stock pays a 5.28% dividend making it a suitable investment for all types of investors.
The chart of RGP looks similar to that of PWE. It has broken the downtrend from it’s May high and has also broken through the neckline of an inverse head and shoulders pattern. It is currently trading at $24.32 and the price target is about $28. per share. According to bigcharts the stock pays a big fat dividend of 7.48% making it a suitable investment for all types of investors.
As far as the broader market is concerned, the VIX has been dropping like a rock. The implication of this is that the market should rally from this point. Europe has come up with a plan that will stem the tide of sovereign debt defaults at least in the immediate future. When you combine this with the fact that U.S. economic numbers have been good I suspect that Santa Claus will be coming to town after all.
The stock market technicals are pointing to further upside in this current rally. Unfortunately the market is not trading strictly on technicals as sovereign debt problems in Europe are over hanging the market. Barring an immediate European collapse I believe the market can move higher from this point.
As can be seen in the above chart the VIX is breaking down from a diamond topping formation. If it can break below 30 it will in all likelihood head to at least 25 where it may form a double bottom.
The dollar is hitting stiff resistance at the top of it’s downtrend channel as evidenced by the chart of UUP. Any good news out of Europe and the Euro should rise while the dollar falls thereby pushing stocks higher.
In the recent sell off the S&P pulled back to the mid-point of a wide downtrend channel that it has been trading within for the past year. It looks like the S&P could make a run to the top of the channel which would bring it to about the 1260 area. It seems unlikely that this downtrend can be broken unless Europe comes up with a solid financial plan that kicks the can down the road for at least a year.
Conclusion: It looks like we may have a Santa Claus rally after all. Everyone thinks the current rally is just a dead cat bounce and it probably is but the market may go higher than is expected.
The markets sold off heavily today on news that Greek Prime Minister Papandreous wants to hold a public referendum on his country’s Euro bailout package. This announcement coincided with continued selling from yesterday as the markets etched out a bearish chart pattern known as 3 peaks and a domed roof that was first described by George Lindsay. The actual pattern has a lot of technical points to it but a quick glance at the daily charts of the Dow or S&P 500 shows this pattern has been developing since August.
We see 3 well defined peaks, a lower fourth one and then a quick rush up. These are the classic elements of this chart pattern. This pattern can occur in short, intermediate and long term time frames. It does not mean the market has topped out however as I have seen quick sell offs from this pattern followed by fast recoveries that take the market to new highs.
The Dow and S&P stopped their slide today at critical support levels. The Dow hit a low of 11630 and then closed right at it’s 20 day ema on the daily chart at 11,657. The S&P 500 hit a low of 1215 which is right above it’s 10 day ema on the weekly chart and then closed at 1218. If these levels hold the market can move higher.
While it appeared that headline risk was put to rest last week with the announcement of the Euro bailout package that no longer seems to be the case thanks to the Greek Prime Minister. Apparently he did not consult with the other Euro zone countries before opening his mouth. Loose lips sink ships along with the stock market.
Conclusion: Technically the market looks like it has landed at major support levels but there are still a lot of wild cards in the deck. It is now unclear what is going to happen in Greece and the Fed could possibly announce some action.