Category Archives: Weekly Market Analysis

We’re Baaaaack! Market Monday: April 4, 2016

Eight years after starting this blog in 2008, the Federal Reserve has raised rates only once, in December 2015. The .25% rate hike coincided with a Wave 5 top on the monthly chart of most emerging market currencies, including the Dollar / Ruble (USD.RUB). Of these currencies, I’ve selected the USD.CAD (Canadian Dollar) and the USD.ZAR (South African Rand) because of their chart formations.

Weekly USD.CAD

20160404 USD.CAD Weekly Short

The Dollar Cad is set for a Wave 3 Elliott Wave move. In order to protect against a missed drop through support, I’ve set a sell stop with a sell limit set above the market at weekly resistance.

Prognosis

The Bank of Canada issues a rate statement in two weeks on 4/13 at which point I expect the BOC to sell strength in the Canadian economy. Until then, after the strong US jobs report on Friday, a pullback to weekly resistance is possible. I’m positioned for both outcomes.

Market Update – Record Close!

Yesterday’s record setting rally could set up the market for a renewed rally provided that we close out the week above resistance.

20140513 S&P Daily Market Snapshot

Don’t jump in just yet. The weekly charts are still ugly. As previously discussed, the risk is still to the downside. Wait for the weekly close to jump in.

20140513 S&P Weekly Market Snapshot

 

Market Monday Message – April 28

Last week’s market action marked the completion of a short Wave 2 of a five wave Elliott Cycle. Daily QQQ shows an erratic pattern, which portends further selling. New highs will not be made until this pattern solidifies into an extended, tight  pattern. Weekly QQQ MACD portends further correction with the start of Wave 3, the longest wave in the pattern.

The S&P has been quiet relative to the volatile NASDAQ. That said, with the head and shoulders pattern now complete, we can expect a break of weekly moving average (MA) support and further downside ahead.

You might ask, what’s the catalyst for the downward momentum?

When the market extends by as much as it did in 2013, consolidation is needed to digest the gains. Weekly charts confirm this overextension. Monthly charts, at this point, show nothing more serious than a weekly chart correction. Additionally, over 120 companies report earnings this week. Anything short of collective expectations could be sufficient to warrant the expected selloff.

Wide ugly pattern is not a solid base for gains. Further downside ahead.
Wide ugly pattern is not a solid base for gains. Further downside ahead.
Waves 1 & 2 now complete. Close on Friday below weekly MA and reversal from highs of the week marks start of Wave 3.
Waves 1 & 2 now complete. Close on Friday below weekly MA and reversal from highs of the week marks start of Wave 3.
Head & shoulders top marks start of bearish pattern.
Head & shoulders top marks start of bearish pattern.
Retest of weekly lows expected.
Retest of weekly lows expected.

Market Monday: 14-18 April

20140421 S&P Weekly Market Snapshot

Erratic action on SPY daily.
Erratic action on SPY daily.

 

20140421 QQQ Weekly Market Snapshot 20140421 QQQ Daily Market Snapshot

 

Both the NASDAQ and S&P are showing reversal on the daily charts while the weekly continues to show a downtrend. This is likely to be a Wave 2 formation.

The widening reverse triangle on the QQQ shows that the pullback has gotten ahead of itself and is in need of consolidation just as much as the S&P shows the same need of consolidation on the daily chart. Speaking of the SPY daily, the highly erratic action is not a good base for further gains in the market. We’re looking for tight price action on low volume before the next leg up. Whether the market continues to correct or consolidates, it’ll likely be September before new highs are made.

As the adage says, “Sell in May and go away.”

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Week-in-Review: 07-11 April 2014

20140414 QQQ Weekly Market Snapshot20140414 S&P Weekly Market Snapshot20140414 QQQ Daily Market Snapshot  20140414 S&P Daily Market Snapshot

Since the NASDAQ is leading the correction, off 7% from the market high in March, we’ll begin our analysis with a QQQ update.

As you can tell from the Weekly QQQ chart, the correction has just completed a potential Wave 1 of the five Elliott Wave series. The strong angle and separation on the MACD portends future downside after a retracement to the moving averages (MA) which now provide upside resistance. The short term bounce is foreshadowed by the widening triangle on the Daily QQQ chart. I expect consolidation and Wave 2 bounce before the start of a protracted sell off.

Last week’s post: “…Based on Friday’s candle, my money is on a break of weekly support THIS WEEK…”

While the S&P sold off last week as expected, the move has been slower and less pronounced than NASDAQ. That said, earnings season looks like the catalyst that will prompt a continuation of the bearish move that started last week.

As the summer approaches, market lore warns us to “Sell in May and go away.” Summer trading volumes tend to be lighter, which can exacerbate market weakness. Buyer beware.

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Week-in-Review: 31-04 April 2014

Last week’s comments:

“We’re at an inflection point with triple short term support, neutral consolidation and long term bearishness due to divergence. If we break support, we’re in for a correction. If we bounce off support, it’s still not safe to buy. At some point, the divergence will cause the long due correction. Hold tight.”

Friday gave us the reversal that we expected, our third in the past month. Now, it’s a matter of follow through, which is more likely to happen with the start of earnings season this week. While the daily S&P crossed and regained MA support, weekly MA support has held strong. NASDAQ (QQQ), however, is another story as depicted in the chart. We see an attempt to regain weekly support followed by a hard selloff and close below support with the MACD appearing as if we’re at the top of the Magnum from Cedar Point. (The Magnum was at one point the tallest rollercoaster on the planet.)

So what does this mean?

Market turns are led by small caps and momentum stocks, in this case, Apple, Netflix, Tesla, and Amazon, all of which have had significant corrections of around 20% or more from their all time highs just a few months ago.

http://www.marketwatch.com/story/us-stocks-edge-higher-dow-hits-intraday-record-2014-04-04

If earnings disappoint, we’ll break weekly support and we’ll be in for a rough ride. Based on Friday’s candle, my money is on a break of weekly support THIS WEEK. S&P puts, long SH or DOG, inverse ETFs for the S&P 500 and DJI, are good options for riding this selloff into profitable territory. For the more conservative investor, you may want to consider going to cash to wait out the selloff.

20140404 S&P Weekly Market Snapshot20140404 QQQ Weekly Market Snapshot 20140404 S&P Daily Market Snapshot

 

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Week-In-Review: 17-21 Mar 2014

Divergence shows an eventual pullback. Weekly support show a possible bounce. Negative news could send the market lower.
Divergence shows an eventual pullback. Weekly support show a possible bounce. Negative news could send the market lower.
Break of support in daily action. Negative news would exacerbate this downward move.
Break of support in daily action. Negative news would exacerbate this downward move.

Last week, I highlighted bearish indicators in the market. Monday marked the beginning of a potential Wave 2 (see Elliott Wave Cycle) retracement and consolidation. Friday’s action showed an intraday record high on the S&P followed by a heavy selloff portending more selling this week, which would signal the start of a Wave 3 break of support at 184 on SPY. That said, weekly support could prompt another upside bounce.

The Wednesday Fed announcement confirmed expectations of a second $10B per month taper, which reduces purchases of mortgage backed securities and long-term treasuries to $30B and $25B per month respectively. They reiterated their prerogative to be responsive to market needs moving forward, implying that they could slow or accelerate the taper and adjust short-term rates as needed. Additionally, Chairwoman Yellen cited reasons for slow growth to include household balance sheet repair, restrictive small business and mortgage financing, unsatisfactory fiscal policy (deficit spending policy), and global macroeconomic outlook concerns.

So what does this mean and how does it affect our investments?

Prepare for contraction in the market.

In my opinion, this article best explains our current economic situation:

“There is an increasing risk of recession in 2015 but not because of some clock that is going to go off. Whereas most recessions are caused by the Federal Reserve tightening monetary policy in response to growing inflation, my view is that the potential for a recession lies in the fact that we have created a very distorted interest rate environment. Ironically, what may be a catalyst for recession is potentially slower growth”.

Abate says that some of this is because of “the ageing demographic globally something that I continue to feel is unappreciated by most investors and most economists. What you have is essentially a very powerful deflationary impact with negative demographic trends around the world.”

– See more at: http://www.mindfulmoney.co.uk/uncategorized/us-faces-risk-of-recession-in-2015-if-federal-reserve-loses-control-of-long-term-interest-rate/#sthash.OwLwDIzZ.dpuf

Chinese data continues to disappoint. They’re transitioning to a consumer led rather than manufacturing led economy. Yet, even with disappointing Chinese data, the market still desires to climb higher. More action out of Ukraine could be the impetus to derail this seemingly unstoppable bull.

http://www.reuters.com/article/2014/03/24/us-markets-global-idUSBRE96S00E20140324

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Week-In-Review: 10-14 Mar 2014

Weekly support prompts bounce. Russian sanctions and Fed next up.
Weekly support prompts bounce. Russian sanctions and Fed next up.
Very bearish immediate outlook on last week's action.
Very bearish immediate outlook on last week’s action.

Very bearish action last week with five consecutive down days. Friday’s action, showing a retracement to the moving averages (MA), which are now resistance, portends a heavier selloff in the near future after consolidation around the MAs. We may not get a break of weekly support this week, but it’s coming soon. A sharp increase on heavy volume and close above previous highs would change the short term outlook.

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