Market Posture

In my last post on June 3, despite the apparent reasons for caution, I concluded that things were still quite bullish. I am trying to reiterate to myself as well as others that a trend or posture isn't "changed" until it changes. So since the various significant levels and moving averages hadn't yet been broken, a trend trader could only assume that things will continue on as usual. Since then, some of the significant red flags have been raised. The uptrend has not yet been broken in terms of highs and lows, but we have put in an equal high and backed off that level, leaving it as a fortified resistance point and putting the uptrend strongly in question. A lower high and lower low will officially change the trend to downward. Until then, we'll noodle more or less sideways.
As for the moving averages, the 20 MA was broken, reclaimed and again broken. Meanwhile, the 50 MA has provided support on two quick bounces. Friday's close was just below the 50 MA, so I'll call it breached but not definitively broken. Will it hold again or finally crack?
You may also notice on your charts that the SPX is now showing a fresh set of 3 red arrows, the second set that has recently appeared since the big run began with a double bottom reversal in March.
Notice also that the Market Forecast intermediate term line (green) is heading down and has exited the upper reversal zone. Obviously, this is bearish for the intermediate term on this indicator. The Longer term orange line is still above 80 but is rounding over and showing potential for a more meaningful downturn, though 80 remains the official signal line to call it bearish.
Keeping things simple, though, we must remember that price is king and the most obvious signs now will be the strong breaking of the 50 and certainly taking out the recent lows around 1490.
(Click imagine to see it larger)

For the third part of the Investools taught market posture procedure, we look to the VIX. I want to emphasize, particularly to ease Jim's mind, that these other aspects of the Market Posture procedure should be looked at as confirming indicators and in no way should be thought to hold more sway or even equal the power and significance of the index price and posture itself.
With that said, last time I suggested setting an alert to go off if the VIX broke above its resistance at around 14.50. That alarm was sounded and the VIX has since dropped back below and again risen through 14.50. This weekly chart shows it most clearly. The bias looks upward to me.

But even if the market doesn't drop and in turn lift the VIX, I suspect that this slightly higher level will be sustained and perhaps with a wider range from the 17 area down to 12.50 if not 14. Whatever the specific numbers for support and resistance on this volatility index may turn out to be, the message seems clear that rise or fall, the markets will be more volatile for the foreseeable future. For the active trader, this is actually a good thing. For the buy and hold investor, maybe not.
I'm not going to go through the whole Posture thing for the Nasdaq too, but for a bit of comparison, here is a view at some of the major indexes with weekly candles. I always like looking at weekly candles because it simplifies the daily noise into a clearer big picture view.
I've left off the Dow Jones, as it closely resembles the picture of the SPX. I've also used the Nasdaq 100 because the composite shows a discrepancy between the TOS charts and Prophet charts and I think the data is wrong. Besides, the NDX is perhaps a better, more focused look at the powerhouses of tech.
Most noteworthy to me is the succession of weekly bearish engulfing patterns on the SPX after the recent series of bull runs. This speaks strongly for the likelihood of a trend reversal. What these matching bearish engulfing patterns on the weekly chart translate into on the daily is a potential double top pattern.
But the other thing to consider from a bullish perspective in these charts is that the tech indexes have not shown the same strength as the SPX and Dow since the highs in February. The NDX and SOX especially are showing a bit of relative strength compared to the SPX. While the SOX did sell off with the rest of the market on Friday, it broke out to a new 52-week high on Thursday.

Could the semis and tech lead the next leg of the bull market?

Other factors to keep in mind:

Crude oil broke above its recent resistance level. From here, up seems more likely than down. You can check here for a longer term weekly chart. But here's the daily.



I won't pretend to be very knowledgeable about bonds and treasury notes. But at the very least it makes sense to me that if yields go up, the appeal of being in stocks is decreased for long term investors. We've heard a lot about the 10 year yield rising lately. It may find some resistance here in the area below 5.5, but this very long term chart going back to '81 shows what might be a very significant long, LONG term trend break forming.



I know I've said this before, but I hope to get a new and improved watchlist up soon.
For now keep eyes tuned to VSEA. After a wild up and down day on Friday, it closed near the top of the range, breaking the recent downtredning resistance and peaked back above the 50 MA.

LRCX also looks interesting, though not as high scoring.
Tech monster Google(with an impressive F/E score of 3.88!) is out at a new high after testing old resistance as new support. If you're interested in getting in this stock and not missing the boat again, this seems like as good a time as any. Remember, there's not that big a difference between buying 10 shares of a $50 stock and 1 share of a $500 stock.


On the downside, REITS are looking weaker and weaker. Some have clearly begun breaking down, others are just beginning to crack now. I'd like to see some of the first to break down come up to test resistance for a better entry.
Homebuilders have seen renewed selling. Banks look pretty weak too.

Have a great week!

Bullish, Bullish, Bullish, some stocks to watch

Well it seems that it's business as usual. Just when the market gives you pause to think the uptrend might tiring, the potentially bearish weekly candles from last week all got wiped out with a strong week across the board. Particularly encouraging for the bulls is that the Nasdaq and Russell, which I pointed out had been lagging, pushed strongly above their recent resistance.
This image shows the weekly candles for the major indexes since Jan 1. Judging from these alone, it seems that the intermediate to long term trend is still quite bullish.
(Click image to see it bigger)


The Vix remains in its low range. It might be a good idea to set an alert for if it moves above 14.50 or so as a wake up call to assess things.


One observation I'd like to make is something of a cautionary bit. I tend to be a worrier, which doesn't really help in the face of a strong bullish market, but it is worth considering the risk in the air when there seems to be such a strong sense of confidence and perhaps, complacency among the bulls. I think this mockup shows my thinking clearly enough.



The fact remains, as always, that an uptrend is an uptrend until it's not anymore. So everything is all systems go at the moment. But it is interesting to consider the momentum of the last year and whether it might just be waning a bit. Last week's gains were done in a short week(whatever that means) and Friday's finish was on less than average volume.


That said, there's a ton of strong looking stocks out there.
Here's a china play.
CTRP - Very nice 5 year chart with a recent high volume week of an earnings jump. Biggest weekly volume since the end of 2/27 China stock market scare.



It even looks great on the daily chart with the Investools study set. It's looking prime for a support bounce and a set of fresh green arrows.



GROW had some serious volume on Friday for a bounce up and further forming of a potential ascending triangle. It's early to assume that it will bust through the triangle resistance, but a play up to that point would still be a pretty good risk/reward ratio for those bold enough to play it.
The volatility bouncing down from resistance in the last 5 months is unnerving, but considering it was a $2.50 stock just two years ago, maybe this is a very natural and healthy period of consolidation.



Here's another from the investment world.
AINV - It looks like it needs to come in and establish new support here after such a quick upward move, but it's certainly one to watch.



The growth is smaller than we look for, but it is better than its group. Investools has lumped a lot of industry groups together on their recent change to the Big Chart and Industry Group designations. So some stocks, like this one, are compared to a group of stocks that are not entirely accurate as competitors or comparable companies.
This from moneycentral.msn. com.

Anyway, one can quibble about which website is correct or if growth estimates are suitable for one's standards, but a strong chart speaks for itself. The stock is at an all time high after 4 days of above average volume and big moves.

And last, but certainly not least.......
Our very own VSEA!
It's a bit difficult to figure out what the SOX is doing, but VSEA appears to have put in a new support level and it may be ready to resume upward movement.

First the SOX, for your reference. Friday's candle is not exactly what we want to see at potential resistance from a double top pattern.

But VSEA does look nice.


Have a great week. I'm pretty busy in the coming weeks, but I hope to put together a new and improved watchlist for the group. So stay tuned.

Patterns and Sticks in their time, Opera too

I thought I'd make a quick point about candlesticks and patterns in the context of a time frame. I know that candlesticks have been somewhat of a focus lately and we've talked about double tops and bottoms recently, so I thought I'd point out an observation I made this week.
Candlesticks, like chart patterns, are applicable to all time frames and have increasing signficance the larger the time frame. Take a look at this double top formation on the SPX this week. This chart of the SPY shows each candle representing 15 minutes. There is a Double Top reversal pattern that would have worked out nicely as a clear and clean entry point for a bearish intra day trade. There is even a confirmed Hanging Man candle pattern on the second top. One might even consider playing a downward break of the symmetrical triangle in the most recent day for a bearish continuation on an intraday basis.
(Click the image to see it larger)

But would this bearish entry make sense for an intermediate or long term entry? Looking at the daily chart, probably not. Of course, there are plenty of signs that the chart is weakening. My uptrending support line from March was broken and then acted as resistance. The incline of the trend is becoming less steep. This week shows three days with topside shadows followed by a big red candle on Thursday. One could look at this cluster like an evening star formation. It's not textbook, but it tells the same story. With the Investools study set, you will even find that the chart now shows 2 red arrows on the MACD and Stochastic. Nevertheless, the SPX is still in an uptrend and has now found support for the second time in recent weeks at the 20 MA. Though many things may be pointing us to look for a reversal, it is a bit early to call it a top here, particularly when the recent months have repeatedly shown us drastic down days followed by days and weeks of upward movement.

Finally, the weekly chart shows just how the candlesticks and patterns can be used to simplify everything in the bigger picture. It is really quite amazing when you think about the amount of information, news and action that is represented in that one simple candle. This image shows the SPX, DJX, Nasdaq composote, and Russel 2000. The SPX and Dow show very strong weekly candles with the most recent week resulting in a harami, which is a potential reversal. According to Steve Nisson, the Japanese will say that with a harmai the market is "losing its breath." I would say, though, before seriously worrying about a drastic bearish move, we should like to at least see this weekly pattern confirmed with a lower close at the end of this week. For now we must look at these markets in a strong uptrend as taking a very natural breather and perhaps a very healthy pullback.
The Russel and Nasdaq, on the other hand, are looking a bit more ominous. Neither have participated in the strength of the SPX and Dow in the last month and look to be more setup to roll over. The Russell small caps, in particular, have barely found life above the resistance level from late February. Of the "Gravestone Doji" which is seen on the Nasdaq, Nisson says that the Japanese call it this because it "represents the gravestone of the bulls that have died defending their territory."

I hope this is of some use to you. I just want to reiterate that the use of candlesticks and patterns are fantastic but must be appropriately applied to the time frame you are looking at.
On the subject of watching for a reversal, it is worth noting that the VIX has established a very clear level to watch for. Remember, "When the VIX is low(and starts to rise), it's time to go." 14.50 or so seems to be the magic signal for the moment.


So in addition to the ideas from the last post on REITs, Retail may be a good place to look for potential bearish setups if the market does continue to show weakness. We know that our COH has been taking it a bit on the chin lately. But this weekly chart of the $RLX shows a symmetrical triangle that could have big potential to the downside. Having shown relative weakness to the Dow and SPX recently, and with consumers being pinched by the high costs of gas going into the summer season, it would make sense that this sector might take a hit. As is noted in "Week Ahead" found in the strategies tab on the Investools site, Dell, Costco and Sears report this Thursday.


And now for a shameless plug:

As you may know, I am an opera singer.

In case you are looking for a little culture in the coming months, I thought I’d share the information on my performances this summer.
I will be singing in three different operas in June and July. In June, I sing the role of Basil Howard in The Picture of Dorian Gray, a setting of the Oscar Wilde novel by composer Lowell Lieberman . The music is quite impressive and the cast is a very good group of singers. This is being done with Center City Opera at the Kimmel Center in Philadelphia.

There are four performances but it is double cast, so make sure you buy tickets for one of these two dates when I’ll be singing. For more info on the company and these performances, go to their website.

My performances:
Wednesday, June 6, 8 PM
Sunday, June 10, 2:30 PM

In July I will sing two roles with the New Jersey Opera Theater, performing at the Berlind Theater at McCarter in Princeton. In Mozart’s Die Zauberflöte (The Magic Flute) I will sing Sarastro, the high priest of the temple of Isis. In Gounod’s Romeo and Juliet, I will sing Frere Laurent, the provider of poison. For information on tickets, go to their web site.
This is one of my favorite pictures from past performances with that company.

The dates for those shows:

Die Zauberflöte (The Magic Flute), Sarastro

Friday, July 13,8pm
Sunday, July 15, 2pm
Saturday, July 21, 8pm
Saturday, July 28, 1pm

Roméo et Juliette, Frère Laurent

Friday, July 20, 8pm
Sunday, July 22, 2pm
Saturday, July 28, 8pm

Both of the theaters where these performances will take place are ideal for seeing and hearing opera in a more intimate environment. I think they seat somewhere around 600 people. The casts are all young, up and coming talent. So there will be no old, tired, park-and-bark singing here. So come on out to the opera!

For a few last laughs, here's a picture of me as Sarastro in a children's production of The Magic Flute in Zurich. The costume was all mirrors from head to tow. By far the heaviest costume I've ever worn. Not very mobile, but it made quite an affect under the lights on stage.

Here's a picture of me as one of the waiters in Rosenkavalier. Baron Ochs refers to them as Maikäfer, a type of bug that comes out in Spring, so the designers decided to have us painted up as bugs in very nice, linen servant outfits. They do some crazy stuff in the German speaking countries. I won't show you the picture of me as an "old servant" dressed in tight, white boxer briefs and a pink, silk ladies bathrobe with a choker around my neck!


The opera world is a strange and wondrous place.
I do recommend coming out to see any of the productions I'm involved with this summer, even if you've never been to the opera before. They're all good shows, and seeing opera up close is quite impressive. And for those worried about language, they will all have super-titles projected above the stage. I would recommend buying tickets very soon. Almost all of the performances for New Jersey Opera Theater sold out last year and I would expect them to do the same this year. And don't worry, there's not a bad seat in the house, so just buy whatever is available. Ideally, I'd recommend somewhere in the middle of the house and no closer than the first 3 or 4 rows. That way, there's a little room for the sound of the voices to come out and blend with that of the orchestra.

Roaring Market, tired? REITs seem to be.

The Market has been on an amazing tear lately. Big caps have clearly been leading the charge with the Dow and the SPX at record highs and showing no signs of weakness. The Nasdaq and Russell 2000, however have not been quite as hot. Both have spent time below their 20 MAs and the Russell has even plodded along its 50 MA still barely peeking above the peak before the late February sell off. In recent weeks they have consolidated and only in the past week made an effort to retake new highs, though not yet successful. It seems to me that the Dow and SPX are more than ripe for a pullback, but the Nasdaq and RUT may be ready for a breakout to further heights, finally joining in the exuberance. The question is, will the Nasdaq and RUT step it up to join the big caps surging higher or will they all succumb to the weight of a big caps correction? Whatever the case, the easiest first warning signal to watch for will be the 20 MA on the SPX. Until that is broken, there's no reason to worry. After all, we use the charts to show is what IS happening, not what we think is going to happen, right? This is how we take the emotion and guesswork out of the equation.
(click imagine for bigger view)


One important factor as far as the Nasdaq is concerned will be the Sox, which seems to be at a make or break area. After breaking out of its previous range, it looks like old resistance became new support. So a bounce from this level would make a lot of sense. The inverted hammer yesterday(needs confirmation) lends support to that idea. Nevertheless, it isn't a good sign that the Nasdaq was so strong and the SOX tried but then didn't ultimately contribute to that gain. The bullish case for the SOX is further dimmed by a clear double top formation. If it does break back below this support area, the double top will be confirmed as a pattern and we would look to a target of about 470, right back where it was before breaking out of the symmetrical triangle.


If, by chance, the SOX does rally from here, I'd love to see VSEA break its pullback after not holding the level it gapped to. There are a few potential diagonal lines of support and a confirmed hammer a few days back. So it's not out of the question, though there is still some room to go yet before completely filling the gap.


Oil stocks have been ripping lately. How about that SLB flag we discussed at the last meeting? I hope somebody took this trade. I didn't because I was a bit scared by the upper shadows on the 14th and 15th. Would, coulda, shoulda....


I read a good article on the weakness of REITs.
Stocks Can't Fall? Check Out REITs' Retreat. It gives a good perspective to consider with respect to the strength of the current overall markets.
It is interesting too that the weakness of this group has all but been ignored in the recent market hysteria. People go straight to the homebuilders for weakness mentions, but this group's weakness is more recent and may have only just begun. I can't remember, but I think we may have looked at this chart at the last meeting. Regardless, there is a pretty clear head and shoulders pattern there. The long term trend line has not yet been broken, but it seems likely in the coming months to see continued weakness from this group. The Head and Shoulders pattern is said to be one of the most reliable reversal patterns. With a height of roughly 10 pts. on the IYR, an expected target would be around 72.50, coincidentally an old area of resistance.

Just for reference, here's a sweet, year-long head and shoulders pattern on the Homebuilders. Actually, it's kind of funny to look at the last 3 1/2 years as a giganto pattern with a neckline at 550. But I don't think that one is going to pan out, because it would call for a target of Zero. We'd be in serious trouble! :)
Notice that the more recent peak of the homebuilders in February coincides with the all time peak of the REITS.

Anyway, the REITS do look weak, but not quite as gory as the homebuilders.....YET!
I don't know what happened yesterday, but there was huge volume in the IYR was it bounced at both horizontal and diagonal support. So it looks like a bounce is likely, but I'll be watching this group for short entries in the coming weeks if the market does ever run out of steam.

You can certainly search the Investools site for Real Estate stocks, but I went straight to the source to find out what is in this ETF. The Ishares page for the IYR holdings.
I went through a bunch of the top weighted stocks on that list. Many of them look ugly.
Here are some I think have fairly clear lines to watch, either for a support break or a resistance bounce.
ABM

KIM

SPG


TCO

UDR


VNO


It might seem foolish for spending all this time on bearish ideas when the market is ripping. But just as we should be looking for stocks with relative strength during a downtrend for when the market does turn upward, we should also be looking at relative weakness during a bull market for when the market turns over.
Happy hunting.

FED relief

The FOMC released their statement today at 2:15 PM and decided to keep the target fed funds rate at 5.25%. It seemed a foregone conclusion that they would not cut rates, but judging from the action in the markets starting at 2:15, I'm thinking what people needed to hear was that there wouldn't be a rate hike. Even if slower, the economy is still growing and the bulls seem to want to run further. Look at today's chart with 15 minute candles for the SPX, Nasdaq composite, Dow Jones Indusrials (Thinkorswim doesn't support the ticker for the dow, so the DJX is the same thing at 1/10 the size) and the Russell 2000 small cap index. The red line is drawn before the 2:15 candle.
(click image to see it bigger)


Look at the total volume New York Stock Exchange for the past 4 days broken down into 15 minute chunks. The cross hairs on each day show the level right before the 2:15 period began. Today's trading increased significantly as the market pushed rapidly higher in the last hour and forty five minutes of trading. Perhaps that seems like a silly and obvious observation to make, but it is a good piece of confirmation for the upside sentiment.
(I still can't figure out why this Total volume chart doesn't' show the same numbers we see for total volume on the NYSE home page or Yahoo. Nevertheless, it gives a good relative picture.)

Though the Nasdaq and especially the SOX still look somewhat questionable in their technical strength, the Dow is back working on a new high and the SPX has jumped back above the 1431 resistance line I've shown on recent posts. So it seems the breakout may get another chance.
But most of all, I like the look of the Russell 2000 moving above it's relatively orderly period of sideways consolidation. This would indicate that small caps would be good stocks to look for buys, or you could just play the IWM, Russell 2000 ETF. Remember that even if you're wrong about a bullish stance, it's best to get in near support so you know where to get out for a small loss. It did come in more than the other indexes off the high of the day, but strength tomorrow could be a great entry. I would look to 79 for new support and aim for a target of 81 judging from the height of the sideways channel.


Notice that the FOMC statement mentioned tentative signs of stabilization in the housing market. The housing stocks have been rising steadily since September and were up nicely today even before the statement and more so after. Our KBH is looking well on its way. 55 may yet be a point of resistance in the short term, but 60 seems like an inevitable destination.


I'm kicking myself over ISE, which I discussed briefly in the last post. If had stuck to my original plan to give it room up 'til 47.50, I'd be feeling very good right now. I guess this is one nof the major realities of options trading. The massive swings in option price can really bring out the emotions. This is why we have to examine what we as individuals are comfortable with. Mine was a good analysis and the exit was not such a horrible decision either based on what I was seeing. But the added pressure of time decay and the leverage of the option are more what weighed on my decision, emotionally, than my certainty that it was going to go upward, the wrong direction.
I don't know what happened today, as there's no major news, but the stock is down on big volume. The ideal bearish entry to make here would have been on the first lower high after second of equal highs. That also was a bouncing down off the MA and had 3 red arrows. Would have been much easier to sit through the turbulence during which I bailed out. Double GRRRRRR!
That this stock had such a down day with no obvious news when the market rallied strongly does not say good things for it at all.


Happy Hunting. If the market is going to start a another leg up, this is the place to be looking for entries. The VIX, by the way, feel lower again today for a definitive lower high.