Winning is habit. Unfortunately, so is losing - Vince Lombardi

April 25, 2015

Rotation Report: The facts

When you're in a position where it's hard for you to see all possibilities, you're more vulnerable to losses.  'I just can't see how' and 'I don't see how' are two often fade-able tag lines.  That's basically last week in a nutshell.  It was very easy to anchor opinions to last Friday's action.  I know I was guilty of it.  Enough with looking backward!  Onward and upward.

The best (only?) way to determine if a line of thinking needs changed is to review the facts.

For those who don't want to read the whole post:  Stocks can continue to go up, but the environment keeps getting tougher.  There are easier opportunities in other markets. 

I have to once again note this monster fibonacci extension level Andrew Nyquist mentioned at See It Market.  It could end up being important resistance worth noting.

The S&P 500 is trying to leave the 4% range.


All of a sudden the S&P 500 equal weight RS line has lost it's up trend-line.  A sign breadth is thinning.


The Nasdaq 100 broke another bull consolidation higher.  The measured move is 2% away.


The NYSE advance decline lines are still in line with price.  Volume breadth (bottom item) is starting to lag a tad.


Volatility continues to trade in an area of caution.


Consumers are winning

I mentioned consumer discretionary as a group that needed to pick it up last week.  Well, now it's leading the market.


It's worth noting breadth in the group is not confirming the highs




Restaurants had a monster close to the week, even with Chipotle dropping nearly 10% after earnings.  Incredible.


Bonds

TBT and TLT enter the week back-testing breakout levels.


High Yield Corporate Bonds continue to dance around the old high pivot level.  Yield is still precious in a ZIRP world filled the underfunded pensions.


Commodities

The CRB index continues work off very long term oversold conditions.


Cotton formed a bullish engulfing week here at the right side of it's base.  It's on my long watch list headed into the week.  


 Gas is testing the falling 40 week moving average.  Note it still hasn't regained more than half of it's 2014 decline.


The industrial metals group is trying like all hell to break back above a major pivot zone.  It'll be interesting to watch this long term area in the coming weeks and months.


Steel stocks are close to new year to date highs.  A break above 36 could lead to a 200 day moving average test.


Overseas

The world index continues to lead and outperform the US in 2015.


India has really shown meaningful weakness of late.


The Yen has jumped high on my macro trade list.  At this point, swing players are risking 1 point to make 4.  I guess the BoJ is in play later in the week.  That sets up the old 'but the BoJ is coming this week' excuse.  We all understand the whole QE-forever shtick is here to stay in Japan.


To recap, the stock market environment continues to be pretty tough for swing traders and investors.
  • We're still in the thick of earnings season
  • We've got this major Fibonacci level 1-2% away
  • The market's lack of fear is seemingly coming to a boiling point
  • Even in the best looking group, breadth is starting to fade.  
That doesn't mean the indices can't push higher.  It just seems like there are better opportunities in commodities, bonds and currencies and i'm in full blown less is more mode.

Trade 'em well!

April 18, 2015

Rotation Report: Pushing it

To start the week I was pretty bullish in hopes of sticking this next breakout.  That week end was just nasty.  The volatility environment has suggested bulls were pushing their luck.  It might have just run out!  That was a fast and meaningful change of circumstances.

Be sure to check out my latest linkfest over See It Market.  There are some great reads on earnings season, the dollar, currency hedged ETFs and the power of saying 'I don't know'.

The broad market flopped, and the equal weight S&P 500's leadership was not enough.  That said, the uptrend has yet to break.


The entire NYSE dashboard (price,volume,breadth) hit new highs with the market, but intense selling did significant damage to breadth at the end of the week.  Again note the uptrend hasn't broken.


Fear has completely left the building via volatility term structure.  We're still quite fearless even after Friday's major sell-off.  

It's possible that the market has been lulled to sleep to any earnings issues.  After the continuous cutting of earnings expectations quarter after quarter for years now we've got a potential boy who cries wolf situation.  


The VIX was quite resilient after failing to hold under the key 13 level.  Again, not a good sign.


Also, another concern is the recent rally has been all about bounces in the lagging materials/commodity space.  


My buddy Andy Nyquist over at See It Market notes a MAJOR fibonacci extension level coming into play.  As far as i'm concerned this is a reversal zone.  The fact that the market has struggled to attain that level is disheartening.

The transports have lagged and now the consumer discretionary space is starting to join them.  Looks like earnings season will tell the tale.  


Some longer term trend lines of importance in play:  Financials and Utilities 



Quick commodity look...

Oil still looks great.


This could end up being a good time to buy gold.  It's tried for months to break this major support area and it just hasn't.


About bonds..

The stock to bond ratio looks to have completed a rounding top.  Another lower low here would be note-worthy.


TIP is testing major resistance after a false breakdown.


Investment grade corporate bonds started to fall out of a rising wedge, but were resilient.  It's a big week here.


High yield corporate bonds, like the major indices, failed to sustain an important breakout level,


As for the long bond...the 30 year bond appeared to be forming a top, but TLT might just be a bull flag.


Overseas...

It's going to take a lot for the Asia ex-japan ETF to become unattractive.  I'll be watching this space and the middle east & africa in the coming days and weeks.


For example, Thailand didn't mind the late week sell-off.  


Alas, every time you pick up a news paper you want to run away from Chinese stocks.  Ridiculous quotes, insane data points.  It's out of hand.  However, it's a good thing the government is trying to do something about it.

European indices broke numerous up-trends as well last week.  I don't really have a feel or really cover these markets too much, but the notable weakness does support a global risk off situation here and now.

Russia's rally might be over after reaching it's main bounce target at the falling 40 week MA.


Psych...

Let's talk quickly about how to handle this major psychological swing from being bullish to being negative.  

I think stepping away for a few days or even a couple of weeks is an awesome strategy.  (this is does not include ignoring stops AKA letting losers run).  You get to leave feeling pretty good about yourself.  Your equity curve is looking pretty good.  You get to charge the batteries while the market does whatever it's going to do.  It being earnings season is just a bonus.

But you want to catch the downside?  Fine..maybe if we get a weak bounce early in the week; buy some index puts a month out and set a target.  That opens the door to bad habits though..

The point is, if your psyche is conflicted, who cares if you miss some market opportunity if you're more likely to screw it up anyways?

By the way, a market pullback doesn't mean anything for the average short-term trader.  That is, unless you trade on a whim.  Discipline will still win, it always wins.  

Trade 'em well!

April 11, 2015

Rotation Report: The Chase Is On

There's not much new this week.  Strong breadth action is beginning to be followed by price action as the major indices have formed continuation patterns.  However, markets are starting next week at or near resistance zones.



Looking at the NYSE dashboard, volume and breadth trends continue to be strong and suggest buying weakness.


The 13 level has been key in the VIX.  It's still worth keeping an eye on that level. 


Vol Term structure approaches the lower end of this new complacent range.  


The smoothed arms index is still far from a sell zone.  Another good sign for equities in the short term.


The bond market is getting pretty interesting.  Are investment grade bonds becoming shorts?  The 50 day moving average in the 30 year treasury has turned higher.


Investment grade corporate bonds continue trade within a rising wedge.


Interestingly, junk bonds look like the best corner of the bond market.  The equity bull market is advanced and this bond market dynamic appears to be a function of large fund managers across the globe 'seeking better returns'.  It's career risk to the nth degree.  For more, check out the latest edition of Top Trading Links.


The U.S. Dollar is testing tough resistance here at the 100 level.


Mid-week I wrote this piece on tech for See It Market.  I may have underestimated the group.  Throughout the week, bulls saw everything they wanted to see in the space and then some.

For example, the Internet index broke clear of some major resistance.  


Energy has broken it's half year downtrend with some room to run to the 40 week MA.  The 82 level is key as well.


 Specialty Retail broke out late in the week as it continues to lead the Consumer Spending charge.


Consumer Staples and utilities are really lagging here. Given the risk-on nature of the market they're groups to avoid.  The intermediate trend change in the 30 year treasury is also worth noting.



 Materials continue to find support at the 40 week moving average.


Europe really lagged as folks rotate to the emerging markets.  Euro Financials put in a toppy weekly candle.


It was a monsterous week for the Asian markets with China leading the way.  Of course we don't live in a vacuum, and there are the mandatory bubble murmurs.  I'm using pullbacks to look for setups and i'm pretty confident they'll be there.  Looking across the emerging markets, it appears Asia is LEADING these other markets and they may be soon to follow.  

Is Africa (and the middle east) set to follow suit?  The long term structures are beautiful in GAF and EZA



Of course let's not forget this possible bottom in Thailand.  Again, these charts just speak to how young the emerging markets rally may be.


The world index broke a continuation triangle higher.  All systems go?


It's kind of a mess in this emerging markets range but 44.5-46 is the area that stands out.


Early last week I shared a post on the Latin American 'Amazon.com' Mercado Libre over at See It Market.  Given the price action in EEM and the stock itself (MELI), I bought it in size.  It's just consolidating so well after a four year rally from 7 to 140.

Thanks for reading!

Reminder:

All ideas shown on this blog represent the authors opinion based on the data available.