Before I get into today’s action, I want to preface this post with an explanation of why my charts will look a little different from here on out. In the past few posts I have used SMA’s as i thought it would be more appropriate for a broader range of readers, but I simply don’t have the time to keep duplicate charts to show both versions of this popular indicator. I personally choose to use EMA’s simply because I’d much rather be stopped out of a position on an early or false signal and get a paper-cut than be made aware of a trend change well after the move has been made and lose my shirt. Neither option is better than the other, it’s just a choice one has to make based on their trading style, time frame and ability to read and judge the tape.
Now…Let us look at how the market closed out August. Commentary will be below the image, but overall I think the market is still in a neutral spot after experiencing some technical damage throughout the month. We really need to see how we handle an uptick in volume next week as people come back from vacation and work on positioning themselves for some of the potential headwinds that may present themselves in September.
More in depth analysis to come Sunday night.
Today’s SPY candle was a bearish signal, dark cloud cover. This signal does need confirmation on Tuesday, but does shake the bulls confidence a bit as they try to hang onto the 100 day EMA and trend line from the November lows. RSI continues to diverge from lower lows in price. Below the 100 day EMA we will test the trend line which with a breakdown from there, we could see a test of the June lows which corresponds with the 200 day EMA.
Today’s session was relatively muted given a GDP revision to the upside and another great weekly jobless claims number. Stocks and bond yields both moved higher putting in the highs of the day early in the session and drifted lower after the first hour of trading, accelerating late into the session and closing near the flat line. The Nasdaq continued its out-performance closing up seven tenths of one percent lead higher by 3D printing and internet stocks which were up over 4% at the highs of the session. Small caps, a past leader also showed relative strength closing up 1% on the day. As we near the end of the summer, it is tough to judge whether or not the past week’s moves will have follow through once volume starts to pick up into early September.
Although most of today’s actionable moves happened in individual stocks, lets look at the major indices to see where we stand heading into Friday’s session.
SPY closed just above it’s 100 day sma after being rejected by its 8 day early in the session. It gave a nice entry on its reversal yesterday after bears failed to push new lows. If you took that trade it gave you 2 points of upside and some time to adjust intra-day as it failed to move into the gap on the hourly chart.
Today, US equities attempted a less than convincing bounce after a steep sell off yesterday which added to the relatively weak tape we’ve seen since early August. Pending home sales came in a bit lighter than expected adding to the weakness we’ve seen in XHB and IYR since early May. It was a relatively quiet session with light volume all around, although the market did give some good individual stock action. Given that the market is in a spot where its tough to have conviction on the long or short side, it’s probably best to take some tactical trades in individual names until we get some resolution from the major indices. In addition most market players probably didn’t want to put a lot of risk on ahead of weekly jobless claims and GDP revision number on Thursday.
The VIX is suggesting that more downside for the markets may come in the following days. Although it put in a bearish engulfing candle after yesterdays gap up, it did not breach yesterday’s low. We will have to see if this consolidation continues in the coming days as moving averages catch up to provide support.
Today’s sell off in global markets prompted the re-emergence of End of the World headlines and talking heads who claim to have “nailed” every sell-off since the November lows. Regardless of whether or not they are right and we are headed for a correction much larger than we’ve seen this year, it is important to trade the market in front of you.
If you’ve been watching the markets over the past few weeks then it today’s sell off was not a huge surprise. We’ve had a great run this year, with only a few small pullbacks along the way, so we were due for at least a pause before we could attempt new highs. The market was looking for a reason to go lower and the issues in Syria were just the catalyst it needed to spark a low volume summer session sell-off (hows that for alliteration?). In addition, we’ve seen a change in leadership over the past few weeks with financials, consumer discretionary and semiconductors struggling to regain footing and slicing through and failing back tests of prior support, turned resistance. In addition XLF and SMH did not confirm the new highs in SPY put in during the first week of August. Rising rates have also been an issue putting pressure on IYR, XHB, XLU, XLP and other interest rate sensitive sectors. This has raised some concern over falling mortgage applications and some weaker than expected economic data causing some volatility in all asset classes as investors try to time the Fed Taper. Lastly, higher oil prices and a weaker dollar may put some pressure on consumers and hamper the acceleration in economic growth that consensus is expecting in the second half of 2013. Seasonality also played a bit of a role in today’s sell off because it was a relatively light volume summer session and August/September tend to be two of the weaker months in the market. Not to mention the negative divergences we’ve seen in market breadth indicators throughout most of August. We’d like to see those indicators confirm a move higher in the market on our next attempt at testing higher levels.
Also, High Beta tech names AMZN, NFLX, GOOG which have been leaders in the past showed continued weakness over the past month. That weakness continued today with the Nasdaq leading the market lower pulling other tech names like AAPL, FB, DDD, SSYS, which have been showing relative strength, down with it. Continue reading
Today, as well as most of this week, I will be out/away from the computer preparing for classes starting next week, therefore I will most likely not put any trades on this week. That does not mean I can skip out on updating my journal, so without further adieu, lets look at today’s action.
The market remains in a neutral place as it tries to figure out whether the lows of last week were a confirmed higher low or if this bounce is a headfake to suck in more longs. Technology continues in its attempt to pull the market higher.
SPY tested the may closing highs and failed, pulling back to close just above its 50 day sma, printing a bearish engulfing candle. XLF a previous leader has yet to break above its 50 day sma, while SMH consolidates below its 100 day sma as its daily attempts to occupy the above gap are met with selling pressure. With continued weakness in slow growth sectors XLP and XLU; bulls really need to see a push higher in the Financials and Semiconductors to validate market strength and provide fuel for the next leg higher. Continue reading