The Challenge of Speculation

Enjoy Retirement Joe

Joe Sakic retired from the NHL yesterday.  He was one of the best.  He had one of the greatest shots and was a class act.

XOM: Oil Sector Warning?

There is potential for XOM to fall over 30% in the coming weeks / months.  On a daily chart you can see it recently broke down from a triangle formation.  The big picture confirms the potential for big decline as it recently found resistance under the 200-week moving average.

XOM - Daily

 

XOM - Monthly

 

XOM could fall to the 2000 high at $42.36 or down to the 200-month moving average just above $39.

Was That It?

That is the question; was that it?  Is the rally over?  Is the break of the neckline on a clear head-and-shoulders pattern the sign of a summer sell-off?  It could be, but I am not sure I would bet the house yet.

I have been watching the head-and-shoulder develop for over a month, but the growing discussion about the pattern on the S&P 500, Russell 2000 and S&P 400 Mid Cap does concern me.  Why? It is too obvious now.  Everybody is looking for a breakdown here.  Additionally, the breakdown has alot of support between 820-880 on the S&P 500. 

S&P 500 Daily

 

On a macro view, I return to the question above; was that it?  It is possible that the highs in early June were it.  When I look at the major equity indexes going back almost 30 years I can see an important technical development of concern...the S&P 500, DJIA and the NASDAQ Composite all broke through their 200-month moving averages last year.  In fact, the recent rally from early March ended with the DJIA and NASDAQ Composite finding heavy resistance at their respective 200-month moving averages.  The S&P 500 failed to return to it's 200-month moving average.

DJIA Monthly

 

NASDAQ Composite

 

At this point the big picture suggests that there is more downside to come.  What happens in the summer weeks will be an interesting chapter of this bear market.

Leadership Still Grinding

I have been gone for a couple of weeks, but the state of the market leadership remains questionable.  I know that the market has experienced a significant rally, but it was lead by the most oversold areas of the market.  As of the close on Friday, the IBD 100 was up 14.70% from the March low and essentially flat since March 26.  My all-star screens have rolled over and the NASDAQ all-star screen has returned to a negative reading on a daily basis.

The bottom line is that the recent rally does not contain the type of leadership that is characteristic during the beginning of a new bull market. 

Back Soon

I will be back next week after taking a week off to recharge the batteries.  I hope to have the site updated by the middle of next week.

Rango de Trading = Pérdida de Fuerza Relativa

por Paulo De León, CABI

En el post que antecede a éste, se menciona la falta de liderazgo como un elemento a tomar en cuenta para la continuidad del rally.  A mi parecer, nadie puede negar que estamos dentro de un movimiento secundario del mercado, que es dentro de un primerario claramente bajista. El SP500 no ha tocado el 200 moving avg. desde hace casi un año y no es descabellado que lo haga en los próximos meses.

La falta de liderazgo que se menciona aqui también es percibido por el indicador de fuerza relativa que calculo bajos mis parámetros. Nótese como en la gráfica de abajo llevamos casi 3 semanas que no hay fuerza y de hecho está por ponerse negativa. Esto significa que el primer empujo del rally está por terminarse y que se necesita una nueva ola de compras fuertes para que el rally continue y siga hacia el 200 moving avg.

Lo anterior cuadra con el hecho de que mientras escribo ésto el SP500 está coqueteando con nuevos máximos del rally, permaneciendo aún en el rango de trading de 875-830. Es importante recolectar data como quiebra ese high si lo hace.

Por otro lado, la caída en volatilidad (rangos de trading diario, no el VIX) también nos indica una pausa en el camino y se puede inferir que en los próximos días o semanas se espera un nuevo movimiento terciario. Hacia qué lado será? no lo sé, mis indicadores no recogen ninguna señal de venta todavía. Mi impresión es que el mercado puede seguir subiendo en precio y tiempo, sin dejar de ser un bear market.

PS: el indicador está separado por región geográfica. Nótese como el nuevo mínimo visto en marzo no fue acompañado por Fuerza relativa en mínimos creando una divergencia bullish.

Stock Leadership Has Gone Stagnant

A key characteristic of a budding rally is the continual emergence of stock leadership.  The newer stocks reinforce the early stock leadership and the market is able to gain a solid foundation.  In many cases those stock leaders begin to diverge from the market, resisting market corrections.

The present rally appears exhausted from a stock leadership perspective.  For example, if you look a the table below of noteworthy stock leaders, 6 out of the top 10 (and 4 out of the top 5) are stocks that emerged from their bases in March.  Except for JOSB there has not been any powerful breakout in April despite continued gains for the popular market indexes.

Noteworthy Leadership (today's close)

 

Secondly, my allstar screens have gone stagnant.  The daily results have decelerated notably in the last two weeks.

 

Thirdly, the IBD 100 index is barely up for the month as of the close on Friday, registering a .60% gain in April.  Since the April 2 close, the IBD 100 is actually down (.11%).  It has been challenging for traders who target quality stocks.

At this stage of the rally the market is not on solid footing.

Mid-Day Update

AAN, PSMT and VMW have been removed from the Noteworthy Leadership list.  They all hit their 7% stop limit.

ASIA is trying to rebound from it's 10-week moving average.

MDAS is trying to follow-through on yesterday's breakout.

The price breaks in ASIA, FFIV, WIRE, CSKI and LFT are adding some confirmation to the thesis that the market is entering a period of consolidation.

Pre-Market Notes

There are no additions to the Long Candidates list.

There are no additions to the Noteworthy Leadership list.

I anticipate further intra-day volatility with a downward bias in the coming days.  I will be looking for a firming of the present leadership stocks relative to the general market.  Keep the key moving averages in your sights and monitor the leader's industry group members for any price breaks.

Market Wrap

The major indexes retreated into the close on higher volume, signaling distribution.  Highlights below.

1. BWLD broke out on heavy volume.
2. A few of the Noteworthy Leadership stocks closed at new highs; LFT, QSII, ARST, JOSB, and DGIT.  If the market has entered a period of correction the key market leaders should slowly diverge from the market and continue their advance.
3. I added MDAS to the Noteworthy Leadership list late in the day.
4. RGR is getting into trouble.  If it follows through tomorrow to the downside it will be deactivated from the Noteworthy Leadership list.

Yesterday Kevin (Kevin's Market Blog) in his blog did a post on symmetry.  He stated that the rally from November to January was 29 trading days and the present rally was 29 trading days, and their respective percentage gains were similar.  Interesting. 

S&P 500 (60 min.)

The second contact with the broken trendline intra-day (going back to Mar.30) was the kiss good-bye for the S&P 500 today.

Mid-Day Update

A number of stocks on the Long Candidates list triggered this morning; BWLD, CFSG, VMW, PZZA, FRPT, CPA, CYBS, AZO and IBM.

I have added BWLD, VMW, FRPT, CYBS and AZO to the Noteworthy Leadership list.

Pre-Market Notes

I have added CPA, IBM, JCOM, PZZA and STST to the Long Candidates list.

There are no new additions to the Noteworthy Leadership list.

Please note that Noteworthy Leadership list member RNT is now under the symbol AAN following a change in the company's name and ticker symbol.

I will be getting back to my normal posting schedule today following two days of meetings and other commitments.

Pre-Market Notes

I have cleaned up the Long Candidates list by removing those triggered stocks that have hit their 7% stop/loss price level and those stocks that no longer meet my criteria to be a candidate stock.  The reasons could include price, relative strength, earnings rank, sales rank, etc.

All the Noteworthy Leadership stocks remain active.  Only 9 of the 24 (37.5%) Noteworthy Leadership stocks declined on higher volume than the previous trading session.  Those stocks were ASIA, CPSI, JOSB, LL, MTZ, RAX, RNT, TNDM and V.

Nevertheless, the market is far from healthy.  I ran the allstar screens late last night and the NYSE allstar screen closed in bear market territory with a reading of 48...not a sign of health.  It took one day of widespread selling to push the NYSE back below the key 50 threshold.  The 10-day moving average still remains in the 60's. 

 

As I mentioned yesterday, watch the Noteworthy Leadership stocks as they near the key moving averages.  A failure to hold will indicate that the Trading Counsel posture will have to be reassessed.

Watch Moving Averages

On Friday I cut laggard positions and collared my remaining long positions with a large SPY short position, because I had interviews all morning at private schools for my daughter and I would not be able to watch the open.  I am glad I took that decision.

The notable price breaks in the Noteworthy Leadership list suggest that this will be more than a one day event.  I would encourage traders to monitor the 20-day moving average and 10-week moving average for support.  It is also important to watch the potential leadership ranks for relative strength and improved pattern symmetry.

DGIT is showing good follow-through on Friday's breakout. 

The major indexes have not declined for three straight days since the low in March.  Let's see if that changes this week.

Pre-Market Notes

I have added CYOU, HMIN, ICE, STAR, SWN, UBET, VCLK and YZC to the Long Candidates list.

I have added DGIT to the Noteworthy Leadership list after it broke out on Friday with strong volume.

QSII was downgraded this morning to market weight from overweight by Thomas Weisel.  This is the third downgrade in the last month.

(Update) TNDM was downgraded this morning to neutral by Baird.

Since March 18 the S&P 500 has continued to advance, but the underlying strength of the rally is waning.  In the chart below you can see that the 5-day and 14-day relative strength lines have not confirmed the price highs.  Additionally, the 10-day moving average of up volume has been declining on the NASDAQ and NYSE since March 18 also suggesting that market could decline in the near term.

S&P 500 (Daily)

 

For the most part this has been a short covering rally led by the most beaten down areas of the market.  Take a look at the performance of the IBD 100 index versus the S&P 500.  I consider the IBD 100 to be the best index for monitoring the strength of stocks with superior fundamentals.

1. March 6 - April 17 = S&P 500 is up 30% while the IBD 100 is up 15%
2. March 12 (follow through day) - April 17 = S&P 500 is up 15.74% while the IBD 100 is up 7.15%

The allstar screen results continue to improve, but are still well below the average seen in previous bull markets.