Tag: point and figure

Holiday Shopping Bonanza: Retail Stocks You Need to Watch

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KEY

TAKEAWAYS

  • Since holiday shopping season is here it could be a good time to add some retail stocks to your portfolio
  • AMZN, WMT, COST, and TGT could be potential stocks to add to your portfolio as holiday shopping begins
  • Set alerts for these stocks so you can enter at opportune levels

The holiday season and discretionary spending can be synonymous, ringing in a boom in retail profits. And with Halloween in the rearview mirror, it’s time to strategize a few killer plays in the retail arena.

Perhaps it’s no coincidence that, upon running a StockCharts Technical Rankings (SCTR) report using the US Industries menu, the Dow Jones US Broadline Retail Index ($DJUSRB) emerged among the top outperformers with an impressive score of 98.9 (see below). The holiday shopping season has started, so it’s worth looking more closely at this industry. Retailers in this industry have diverse products and services that work across several sectors.

CHART 1: US INDUSTRIES SCTR RANKING. $DJUSRB ranked second in the US Industries category.Chart source: StockCharts.com. For educational purposes.

CHART 2: DAILY CHART OF $DJUSRB. The index is currently pulling back, but shows several support levels should the bounce fail to break above the most recent swing.Chart source: StockCharts.com. For educational purposes.

The index bounced off the 38.2% Fibonacci retracement level from the December 2022 low to the September 2023 high. It’s outperforming the S&P 500 index ($SPX) by over 6% and looks like it’s on the verge of moving even higher.

So, How Might Inflation Affect Holiday Spending?

According to recent consumer spending reports, cash is flowing out of pockets and into the hands of retailers despite inflation and mounting household debt. “Borrow and spend freely” seems to be the main theme as we head toward the end of 2023.

Still, you must consider the toll that inflation may eventually have on consumers’ spending pockets, especially when it comes time to play Santa Claus. And that makes the Dow Jones US Broadline Retailers Index particularly sturdy this holiday season.

In 2022, AMZN took the largest share of holiday shopping (around 41%). It’s also a large component of the $DJUSRB. Looking at the daily chart of AMZN below, you can see that the stock is outperforming the S&P 500 index ($SPX) by about 29%. It also has a strong SCTR score.

CHART 3: DAILY CHART OF AMZN. The recent slide in AMZN’s stock price suggests that buying momentum may be slowing.Chart source: StockCharts.com. For educational purposes.

Though AMZN has pulled back, it appears to be clawing to challenge its September high. However, there’s a deceleration in buying pressure, and you can view this more clearly if you look at the Chaikin Money Flow (CMF) in the lower chart panel. AMZN bounced strongly off the 200-day SMA line and broke above its most recent swing high of 134.50. It will have to challenge its 2023 high of 145.85 if its uptrend is to remain valid.

Let’s look at some of the other US large retailers, starting with Walmart (WMT).

CHART 4: DAILY CHART OF WMT. The stock price is about to challenge its all-time high, and the CMF shows that buying pressure is still strong.Chart source: StockCharts.com. For educational purposes.

WMT, too, is outperforming the S&P 500, and the buying pressure, as exhibited by the CMF, concurs with this reading in momentum. Though WMT’s price appears to be pulling back, it has several levels of support, including its 100-day and 200-day SMAs before its 50% Fib retracement. If WMT breaks above 165.75, it will have reached record highs, and right now, it looks poised to break above that level.

Like WMT, Costco (COST) benefits from a diverse suite of private-label products and economies of scale, allowing it to control costs better and maximize profits.

CHART 5: DAILY CHART OF COST. Investors seem indecisive about accumulating CSCO stock.Chart source: StockCharts.com. For educational purposes.

Technically, COST is experiencing higher levels of volatility as it approaches its all-time high above 600. It also outperformed the S&P 500, though its relative performance exhibits slight indecision. Its CMF reading is positive, but shows divergence over the last month (see the flat blue line on the CMF and compare it to Costco’s rising trajectory, leading to its pullback and the following fluctuations).

Although COST appears to have bounced off its 100-day SMA, if it falls further, it has plenty of technical support between 510 and 530, where the 38.2% and 50% Fib retracements are clustered along with the 200-day SMA.

The stock price for Target (TGT) presents a different scenario. Amid a high-interest rate environment, mounting theft, and, particularly, a strong consumer backlash against certain products, TGT shows the most epic falling knife scenario (see chart below) among the largest retail giants. Still, it’s an arguably solid company with a diverse portfolio of cost-competitive offerings.

CHART 6: DAILY CHART OF TGT. Ouch! However, the selling pressure looks like it’s drying up. If it breaks out to the upside, its reversal faces many headwinds.Chart source: StockCharts.com. For educational purposes.

It’s difficult to predict if the stock price has bottomed, but certain levels can help you gauge its advance and momentum once it begins to show signs of recovery. And the holiday season may provide the catalyst for TGT’s upside reversal.

TGT is caught within tight consolidation between roughly 106 and 113.50 after a 42% plunge from its 2023 high of 177.50. Its SCTR score of 13 and -38% underperformance against the S&P 500 underscore the severity of TGT’s drop. Any early signs of a recovery would begin with a close above resistance at 113.50. The CMF indicator paints a slightly optimistic picture of this likely upside break as selling pressure recedes, and buying activity sends the indicator above the zero line for the first time in four months. 

But even if TGT bulls attempt to rally the stock, it has multiple resistance levels. Drawing a Fibonacci retracement from its 2023 peak to its lowest point, you can expect resistance between 132.50 (38.2%) and 140 (50%), a range in which the 200-day SMA will likely be met. Also, 125 and 137.50, the bottom and top of a previous rectangle formation, will likely provide additional resistance, adding to TGT’s technical headwinds (not to mention the consumer-driven headwinds that played a significant part in its near-term demise). 

Actionable Levels

AMZN, WMT, and COST are all prone to pullbacks, while TGT awaits signs of a potential reversal. Each stock presents different technical scenarios, momentum profiles, and potential support levels. Where you choose to buy (if you’re bullish) depends on your level of aggressiveness and means of (bullish) confirmation. Fibonacci and SMA levels (as well as swing points) also present different stop-loss scenarios that can be trailed should you find yourself on the right side of the market.

The Bottom Line

As we enter the holiday season, retail stocks will likely take center stage. The Dow Jones US Broadline Retail Index ($DJUSRB) shines with a robust SCTR score. Its biggest component, Amazon (AMZN) faces challenges. Other large retailers show different scenarios—Walmart’s gaining ground, Costco is wavering, and Target is eyeing a comeback. 

Add these four retail stocks to your StockCharts ChartLists and set alerts at the possible support and resistance levels shown in the above charts.

Disclaimer: This blog is for educational purposes only and should not be construed as financial advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional.

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Don’t Even Think About Investing Without Addressing These 10 Essentials (Part 1: Essentials #1 – #5)

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We investors are frequently guilty of hearing only what we want to hear. The justification often being “that doesn’t apply to me.” Or my other favorite line, “Oh, I don’t do that.” In my previous blog — a tribute to William J. O’Neil, — I said that in the near future I’d share my specific takeaways from all his seminars I attended and his books I read. I absorbed this material from O’Neil over many decades, and in reviewing my extensive notes, I freely admit to paraphrasing his insights.

As with so many instances in life, O’Neil may have implied one lesson and I inferred something slightly different. Nevertheless, this is my collection of useful investing essentials that all of us need to remember and that all novices must adopt sooner rather than later. Not just for the betterment of our own portfolios, but for the crucial responsibility of passing the investment management baton to the next generation. Without this baton pass, your legacy dies. That may sound brutal, but it’s entirely truthful.

1. SUCCESSFUL INVESTING CAN BE LEARNED

This is a fact, and I’ll offer you proof. The Market Wizard, Richard Dennis, set out to prove this point by making a wager with his business partner. He won! He proved it could be done to the tune of $175 million. You should read Wikipedia’s biography of Dennis. He turned $1,600 into $350 million and then famously taught his system to a small group of investing recruits who he labeled “the Turtles.” In five years, his novice Turtle investors produced an aggregate profit of $175 million. The conclusion? Yes, you can learn to be a consistently profitable investor, too. 

2. START EARLY — DON’T PUT OFF INVESTING

In my over 25 years teaching investors, I consistently heard the same regret over and over again, “gosh, if only I had started investing sooner.” Be it Buffett, O’Neil or Bogle, they all applaud the magic of compounding and preach the gospel of starting early. You’ve all seen the seemingly unbelievable numbers. Young people who start investing almost certainly will be able to retire in their fifties. And even for those of you already 50, investing $15,000 annually and letting it grow at a reasonable market rate of 8% will reap a nest egg of $440,000 by the time you’re 65. But my God — do the math if you start at 25 years old! I’d present you with the number, but you probably wouldn’t believe me. Remember the importance of the baton pass. Teach young people to start investing early. Don’t be like 64 year-old Ned, a former student of mine who said he’d just begun doing some financial planning and discovered he could retire by 65 — but only for 45 minutes. Make it happen before you end up like him! Stop waiting for inspiration as all you are doing is feeding your procrastination.

3. THE WORLD’S GREATEST HOBBY WILL REWARD YOU

I began investing as a young man and then continued through my entire career as an entrepreneur. It began as a hobby — albeit a serious hobby. At the time, my assets were managed by a professional firm. When I transitioned to making my hobby a full-time avocation, I had already been a very serious student of investing for many years. Unlike some lazier novice investors who flame out early and quickly ( for some that may be a blessing in disguise) I continued to grow and succeed by bumping, grinding and persevering. If we commit ourselves to do what needs to be done and thereby grow as investors, the market will reward us as long as we’re willing to apply ourselves. The University of Wall Street will extract its tuition, but graduation pays immense dividends. It’s worth it! Investing Hell is reserved for “middle earth” which is where mediocrity resides. Far too many investors are by their own design sentenced to a life of investing mediocrity. Embrace this wonderful hobby! I believe author and professor Stephen R.Covey puts it nicely. “Sow a thought, and you reap an act; sow an act, and you reap a habit; sow a character, and you reap a destiny.” As an investor, growth is an obligation. The alternative is not financially attractive. Make the commitment.

4. THE METHODOLOGY OF POTHOLES

It might seem counterintuitive at first. It’s not what a novice investor wants to hear, but you’ll have far far more assets in your pocket over the long term if you first focus on what you should NOT do as an investor instead of trying to find the Holy Grail of stock trading methodologies. Once again, take heed of what Buffett and other Marker Wizards have advised. They will tell you that you can indeed outperform the market and actually possess mediocre investing skills — but there’s the big if — if you avoid falling into the most common potholes and don’t make all the usual mistakes and blunders that investors are prone to do over and over again. The reality is that the Methodology of Potholes will trump the Methodology of Investing, so to speak!

5. SIMPLE BEATS COMPLEX

Many investors have multiple university degrees, high IQs, and very successful careers. Generally, they are cerebral folks who understand complex stuff. That’s why they’re attracted to the stock markets and investing in the first place. Here’s the conundrum — one that I was myself was guilty of initially. Increased complexity is inversely related to profits. Simplicity (within reason) produces profits and clobbers complexity in most instances. Steve Jobs had it absolutely correct when he said, “Simple can be harder than complex: You have to work hard to get your thinking clean to make it simple. But it’s worth it in the end because once you get there, you can move mountains.” And you have to admit, Steve Jobs moved mountains. You can as well.

Till the next blog then, when I’ll present you investing essentials #6 through #10.

Trade well; trade with discipline!

Gatis Roze, MBA, CMT

StockMarketMastery.com

Gatis Roze

About the author:
Gatis Roze, MBA, CMT, is a veteran full-time stock market investor who has traded his own account since 1989 unburdened by the distraction of clients. He holds an MBA from the Stanford Graduate School of Business, is a past president of the Technical Securities Analysts Association (TSAA), and is a Chartered Market Technician (CMT). After several successful entrepreneurial business ventures, Gatis retired in his early 40s to focus on investing in the financial markets. With consistent success as a stock market trader, he began teaching investments at the post-college level in 2000 and continues to do so today.
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Stay Ahead Of The Curve To Make More Money

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Everyone’s a stock picker. And to be quite honest, everyone gets hot and everyone gets cold. Every trader has to find strategies that work for him/her and then hit the “rinse and repeat” button. Personally, I’ve found three keys that have helped me beat the major indices, particularly the S&P 500, over the years. They are:

  1. Get the market direction right
  2. Follow rotation and relative strength
  3. Stick with leaders

That might seem like a lot, but it’s really not.

Getting Market Direction Right

This one requires market experience, knowledge, and research, but there are several tried and true techniques to help us in this regard. (Hint: It’s not watching CNBC and Jim Cramer.) I always talk about perspective, because WAY too many folks, both Wall Street professionals and retail traders, get so caught up in the NOW that they can’t comprehend what’s happening in the Big Picture. Start with the FACT that the stock market goes up a whole lot more than it goes down, so get all the perma-bear influencers out of your life. Seriously, they’ll ruin your perspective. Surround yourself with realists, those who are primarily bullish, but remain objective when evaluating current technical, fundamental, and historical indications. You MUST understand the role that sentiment plays. When selling accelerates and pain grows, irrational selling and market behavior will ultimately mark critical bottoms. I have found sentiment to be my absolute best bottom indicator.

If you study history, you’ll also understand that capturing the most bullish advances are the best opportunities for a financially-secure future. Once those rallies have ended, so too has the investment opportunity.

There are plenty of signals that the stock market provides us BEFORE or during major rallies. Sector rotation, positive divergences, and extreme bearish sentiment are perhaps the three most reliable, in my opinion, and I have my own strategies on how to use those. Recently, however, was the breakout in transportation stocks ($TRAN) and that signal is UNMISTAKEABLE. There is only one reason why transportation stocks go higher – economic conditions are strengthening and more goods will be delivered (or Wall Street is anticipating economic strengthening). Don’t believe me, believe the charts. Here’s what happens to the S&P 500 when transports break out to new highs or above periods of consolidation/selling:

Listen, there is NEVER a guarantee that the stock market will go higher. If you’re looking for that, then stop investing in stocks. But do some research (or follow ours at EarningsBeats.com) and invest knowing that the odds are on your side. Many times, when I call market tops or market bottoms, I do so based on the shift in market risk vs. market reward. I don’t guarantee my calls. I can’t. But if you follow my work, then you know I’m convicted. I don’t waffle. My signals are my signals and I follow them. I don’t care what Jim Cramer says. I certainly don’t care what all the market influencers (ooops, meant to say market analysts) are saying on CNBC. It’s almost all a pile of garbage to consume our time so they can sell ads. And what occupies our mental space? Fear. If you don’t believe we’re all manipulated by the media, then we can’t be friends. (just kidding)

Follow Rotation and Relative Strength

Let’s look at the market top at the beginning of 2022:

I think the continuing weekly negative divergence was clear (pink lines). But the change in relative strength was eye-popping. There’s no problem with a pullback in these relative ratios IF the market is also pulling back. Profit taking will show up that way. But when you see final highs accompanied with massive rotation into more defensive areas, you need to take that very seriously, which I did.

Now let’s look at the exact same chart in mid-June 2022, when I called for a potential market bottom:

Price moved substantially lower from May 2022 to June 2022, but the pace of relative weakness began to slow, even turn higher in many growth ratios (IWF:IWD is the one I provided in this example, but there were others). I also wrote many times in mid-2022 about how manipulation was showing that Wall Street was accumulating heavily starting during the May 2022 to June 2022 period. Sentiment was beginning to “reset” as well. History now has proven me correct in calling for higher U.S. equity prices from that June 2022 low and making calls like that one is how you build wealth. But you have to be willing to “think differently” and not simply follow all the bearish talk on CNBC.

Stick with Leaders

When 2023 opened up with narrow leadership from the key, high-market-cap stocks on the NASDAQ 100, Wall Street eschewed that early surge. I love technical analysis and I believe it’s AWESOME to help us trade during uptrends and downtrends. But I believe intermarket relationships, sentiment, and good ole perspective are much better in helping us locate market tops and market bottoms. Throughout much of the current bull market move, the naysayers have been everywhere, saying the stock market couldn’t go higher, because of “this” or “that”. I said “stay the course, we’re going higher”. To this day, I still will never understand why those who follow market-cap weighted indices grow bearish when the highest market-cap leaders outperform and send our indices higher. What if “breadth” had been great, but these mega-cap leaders were left behind? Would everyone have grown bullish? I doubt it. Personally, I believe that once the majority of folks develop a bearish mindset, NOTHING MATTERS. They’re bearish no matter what the market is doing and what’s leading. That’s why at the beginning of 2022 I said that sentiment needed to “reset” and now I hope everyone can appreciate what’s necessary to make that happen.

The truth is that at nearly every bottom, the leaders are bought first. Semiconductors ($DJUSSC) are historical leaders and NVIDIA Corp (NVDA) has to be considered one of the best stocks in this space. Check out NVDA’s breakout in late 2022, followed by a quick retest, then an explosion higher:

Trading smarter and better and, ultimately, carving out a more secure financial future is about RESEARCH and EDUCATION. We are never satisfied at EarningsBeats.com. I feel like I need to learn something new about the stock market every day I wake up. We also have to deal with an evolving market. Economic changes, interest rate outlooks, profit projections, geopolitical concerns, management issues, political policies, and the like, all play a role in shaping and re-shaping our stock market landscape. We MUST change with it and be open-minded to the possibility that things will play out differently than the way we believe today. But just as important, we must always keep a healthy dose of perspective. While things do constantly change in the short- to intermediate-term, the Big Picture generally remains the same. It’s a balancing act and it’s up to us to get it right. No one cares more about your financial future than you. Always remember that.

In an effort to constantly engage with our EarningsBeats.com community, we pass along our experience, knowledge, and research via our 3x per week EB Digest newsletter. The subscription cost is ZERO and there’s no credit card required. I’d like to provide you with a “Money Flows” e-book just for subscribing to our EB Digest. You won’t believe the impact that money flows has on stock market performance. CLICK HERE and then hit the “Download” button. You’ll be prompted to provide your name and email address. From there, we’ll immediately send you this FREE Money Flows report and begin sending you our EB Digest every Monday, Wednesday, and Friday. You may unsubscribe at any time.

Happy trading!

Tom

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How To Benefit From a Big Rotation in Asian Markets

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It’s been a while since we discussed international stock markets.

Above is the Relative Rotation Graph that shows the rotation for a group of international stock market indices against $DJW, The Dow Jones Global Index.

Looking at this chart I see two big(ger) rotations that are probably worth tracking and possibly trading.

US vs Europe

The first one is the relationship between the US and Europe. On the chart above the tails for $SPX and $E1DOW are a bit covered by other markets so I highlighted them in the RRG below to better see their current rotations.

After a period of outperformance, the European market(s) have now turned down into the weakening quadrant where the tail stabilized and started to move lower on the JdK RS-Ratio scale. The length of the tail indicates that the loss of relative momentum has been quite powerful so far.

The S&P on the other hand, has rotated from lagging into improving and has recently crossed over into the leading quadrant again. The tail is a little shorter than for $E1DOW and it is closer to the benchmark but that is primarily because of the heavier weight of the US markets in the DJ Global index.

There is still a chance that Europe will curl back up while the US rolls over. Which would essentially mean that the recent rotations have only been a pause in the outperformance of Europe over the US.

However, based on the individual charts for both markets that seems to be the less likely scenario.

USA

The S&P is on its way to breaking above its previous high at the moment which, in itself, is already a good sign. But more importantly, the relative strength line against The DJ Global index is solidly moving higher indicating a relative uptrend against the world.

Europe

The European index, on the other hand, has just bounced off overhead resistance around 380. This has caused the RS-Line to start rolling over which is now pushing the RRG-Lines lower.

Not only from a price perspective is Europe now lagging behind the US but also in relative strength against the world. Both markets are at opposite trajectories, and these sorts of situations always provide good trading opportunities.

A straight comparison between $SPX and $E1DOW on a daily chart highlights the improvement of the US over Europe in even more detail.

Japan vs Hong Kong

The second major rotation that I see on the RRG for world indices is the one between Japan and Hong Kong. These tails are well visible on the RG at the top as they are further away from the benchmark and the clutter of the other markets.

The RRG below zooms in on the rotation between these two Asian markets.

The opposite rotation is clearly visible and the length of the tails indicates the there is quite some power behind both moves.

Three weeks the tails crossed over from left to right and v.v. confirming the change of trend.

Japan

The Japane Nikkei Index is breaking beyond a major overhead resistance level at the moment. It already looks pretty impressive on the chart above, but when we change the chart to monthly and show more history, things are getting even more interesting.

Not only are Japanese stocks pushing to the highest level in more than two years. This break also opens up the way for a test of the all-time high for the Nikkei index. And unlike many other markets, this all-time-high was not set in the last 3-4 years but more than two decades ago.

And also, don’t be fooled by the log scale on this chart. The level of the 1990 peak is around 39.000. From current levels, that means an upside potential of around 25%.

This break also, at the same time, limits the downside risk as the previous horizontal resistance level can now be expected to return as support in case of setbacks.

Hong Kong

How different are things looking for the Hang-Seng index…

This market just convincingly dropped below its previous low, which opened up the way for a further decline toward the 2022 low near 15.000. From current levels, that means around 20% downside while the upside is now capped at the breakout level near 19.000.

How To Play

Exposure to these international stock markets can easily be created through ETFs that are quoted on US exchanges (in USD). Two widely used ETFs are EWJ for Japan and EWH for Hong Kong. As long as you realize that by using an ETF quoted in USD to trade a market that is traded in another currency implies a currency risk in your portfolio, you’ll be fine.

The chart below clearly shows that the price development for EWJ is quite different from $NIKK (which is what EWJ is tracking)

The top chart shows the ratio between $NIKK and EWJ. The lower chart shows the $USDJPY exchange rate. As you can see, that $USDJPY exchange rate pretty much entirely explains the difference between the $NIKK cash index in JPY and EWJ in USD.

The problem with buying EWJ is that you will also get a long position in JPY against USD which is not a preferred position at the moment as USD/JPY has just broken important resistance levels and seems to be underway for a further rise.

So from a portfolio management perspective, this is a force to be aware of as it has a negative effect at the moment.

For EWH, the impact is negligible as the $USDHKD exchange rate is pegged and hardly fluctuates.

As the expected fluctuations in the underlying markets ($NIKK and $HSI) are pretty significant, the potential profit from the directional moves in these stock markets will likely offset the drag from the exchange rate.

Here is the chart of EWJ in the top half and the ratio EWJ:EWH in the bottom half.

#StayAlert, –Julius

Julius de Kempenaer
Senior Technical Analyst, StockCharts.com
Creator, Relative Rotation Graphs
Founder, RRG Research
Host of: Sector Spotlight

Please find my handles for social media channels under the Bio below.

Feedback, comments or questions are welcome at [email protected]. I cannot promise to respond to each and every message, but I will certainly read them and, where reasonably possible, use the feedback and comments or answer questions.

To discuss RRG with me on S.C.A.N., tag me using the handle Julius_RRG.

RRG, Relative Rotation Graphs, JdK RS-Ratio, and JdK RS-Momentum are registered trademarks of RRG Research.

Julius de Kempenaer

About the author:
Julius de Kempenaer is the creator of Relative Rotation Graphs™. This unique method to visualize relative strength within a universe of securities was first launched on Bloomberg professional services terminals in January of 2011 and was released on StockCharts.com in July of 2014.

After graduating from the Dutch Royal Military Academy, Julius served in the Dutch Air Force in multiple officer ranks. He retired from the military as a captain in 1990 to enter the financial industry as a portfolio manager for Equity & Law (now part of AXA Investment Managers).
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The Bears Are On Life Support And Hoping For A Fed Miracle

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The end is at hand. Bears, just surrender now. Since the mid-June low (where I called the S&P 500 bottom), we’ve seen the fed funds rate jump from 1.00% to 4.75%. Of course, all we’ve heard since then is what?

Don’t Fight The Fed

Well, since that first 75 basis point hike on June 16th, the S&P 500 is UP, not down. We’ve had four 75-basis point hikes, two 50-basis point hikes, and two 25-basis point hikes. In my opinion, all of it was built into stock prices at the June 2022 low. How else do you explain the significant rate hikes over the past year and an S&P 500 that is 10% higher than it was when the first 75-basis point rate hike was announced? Stop listening to CNBC and the media clowns and pay attention to those who actually do research – like EarningsBeats.com. 2022-2023 isn’t the only period where we’ve seen a number of rate hikes coincide with stock market strength. Do you remember early 2016 when the market bottomed and then soared? That occurred during a period when the Federal Reserve raised rates 9 times:

This chart shows the “Effective” fed funds rate, which coincides with the direction of fed funds. Good thing we “fought the Fed” during that HUGE market rally. Ohhh! And what about the 2004-2006 period when the Fed raised rates at 17 consecutive meetings!?!?!?!?!?

Whatever you do, don’t fight the Fed! (sarcasm)

I’ve actually had plenty of folks come up to me and ask how the stock market can go up when the Federal Reserve is so hawkish – that the stock market has NEVER gone up when the Fed is hiking rates. My response? Do some research and STOP listening to the media. Many authors writing articles have never done an ounce of research, but those headlines drive lots of interested viewers! Quite honestly, that’s all that matters for most authors. Drive that viewership!

Market Rotation

Let me tell you what’s been happening “under the surface” of the stock market. Actually, before I do, let me show you why I told everyone that a cyclical bear market was a real threat as we entered 2022 at all-time highs. A huge part of it was sentiment (and I’ll get to that in a minute), but another big part was market rotation into defensive areas. As the S&P 500 printed its all-time high in January 2022, Wall Street was repositioning in those defensive areas. Lots of Monday morning quarterbacks will tell you how they pointed out the bear market. The problem is that most of them pointed out the bear market after it happened. What good does that do? I fired warning shots in December 2021. On the last day of that December, I wrote an article, “It Could Be A Very Rough Start To 2022”. That was just one day before the all-time high was set. I’ve had dozens and dozens of emails and feedback from EarningsBeats.com members, indicating how much money they saved by exiting stocks at the beginning of 2022. And it was as simple as following a few key charts. Here was one of them:

That red-dotted vertical line represented a MAJOR warning signal for stocks as the bulls’ last gasp came after significant bearish market rotation took place. Let’s see, should we follow the intermarket relationships or tune into CNBC? Those who used the former and avoided the latter did quite well in 2022.

But now the bulls are getting excited. Why? Because the intermarket relationships no longer favor the bears. Money is rotating quite bullishly into growth areas. Here’s the same chart as the one above, but this time for the past six months:

The growth ratios I follow are all soaring. Wall Street is repositioning into growth and this has been occurring throughout 2023. Ask yourself why. For everyone that’s now screaming “inverted yield curve” and “recession”, why would money rotate so heavily into growth stocks. It doesn’t make sense, and that’s why you need to pay attention to it.

But market rotation isn’t even the most bullish signal.

Sentiment

The equity-only put-call ratio ($CPCE) is my “go to” chart when I want to understand how retail traders feel about stocks. And when the 253-day (1 year) moving average of the CPCE begins to turn – and it doesn’t happen often – you need to take note. Extreme readings, either to the upside or downside, can mark major stock market bottoms and tops, respectively. Here’s how this chart looked on Saturday, January 8, 2022, at our 2022 MarketVision event:

The red arrows mark reversals in long-term downtrends. These are reversals off EXTREMELY bullish readings and sentiment indicators are contrarian indicators. They essentially tell you to “batten down the hatches” and grow much more defensive, or even think about shorting the stock market. The opposite is true when this 253-day moving average reaches a stop and begins to roll over. On the chart above, it doesn’t appear as though we’re quite ready to roll over, but I’ve used a User-Defined Index at StockCharts to track what I consider to be a much more reasonable CPCE. There were several outrageously-high daily readings in November and December of 2022, due to unusual hedging activities of institutions. They skewed the readings on the CPCE and needed some adjustment to more accurately reflect the true psyche of the retail trader. After making those adjustments, here’s how my “adjusted” CPCE chart now looks:

The long-term 253-day moving average is just beginning to roll over and if you look above at the earlier CPCE chart, you’ll see that when this rolls over, the S&P 500 begins to soar.

If the stock market was chess, and I was on the bull side, then I’ve been calling “Check” for a few months now. I’m calling “Check” one last time. We’re about to witness “CheckMATE”. It’s time to ditch your bearish thoughts. Stocks are about to scream higher. The Fed is our wild card short-term, but once the effects of this meeting dies down, stocks will soar.

If you’d like REAL research and facts and what truly drives the stock market, you need to join us at EarningsBeats.com. I’m never short on conviction. Even if you disagree with my views, I’ll provide you interesting insight to make better investment decisions. If you think knowing that a bear market was coming before it ever arrived would have helped you in 2022, then I believe following us at EarningsBeats.com in 2023 during a massive rally will prove quite beneficial as well. CLICK HERE to get your FREE 30-day trial started!

Happy trading!

Tom

Tom Bowley

About the author:
Tom Bowley is the Chief Market Strategist of EarningsBeats.com, a company providing a research and educational platform for both investment professionals and individual investors. Tom writes a comprehensive Daily Market Report (DMR), providing guidance to EB.com members every day that the stock market is open. Tom has contributed technical expertise here at StockCharts.com since 2006 and has a fundamental background in public accounting as well, blending a unique skill set to approach the U.S. stock market.

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#Bears #Life #Support #Hoping #Fed #Miracle

Six Bullish Signs That a Short-Term Bottom May Be Brewing

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The correction in stock prices may be gathering steam, and the potential for a full blown liquidity crisis seems to be rising. The reason may be that several big players in commercial real estate have recently defaulted on billions of dollars’ worth of loans.

Last week, in this space, I wrote: “Something happened to the markets around Valentine’s Day which could reverse the recent uptrend.” Well, the trend is increasingly wobbly, and we are getting new information which may explain at least part of what’s happening.

Real Trouble in Real Estate

The hotter-than-expected PCE (Personal Consumption Deflator) data grabbed the headlines. But it seems that its arrival on the scene may be more of a catalyst for an already churning dynamic in the market than the cause for the renewed selling on 2/24/23.

Think commercial real estate defaults.

Over the last few weeks, in this space, I’ve reported that several major real estate investors have faced increasing difficulties. I’ve also noted that it is possible that these and other commercial property REITs that have had problems with foreclosures may have been selling U.S. Treasury bonds in order to raise cash to fund operations, as their cash flow dries up due to rising vacancies.  

I’ve noted that Brookfield’s LA default (highlighted in prior link) has been well reported, while the even bigger Blackstone (BSX) is also having its share of problems along with Starwood (STWD). Brookfield’s (BAM) CEO Bruce Flatt is calling the L.A. default insignificant, while citing demand for premium space around the world, in places like Dubai, as more than enough to offset the L.A. issues for the company.

Six Bullish Signs that a Short-Term Bottom May be Brewing

The creep up in U.S. Treasury bond yields of late has been due to steady selling from one or more players. The question that matters most for investors is who is doing the selling and why. So far, it’s not clear. But, for now, things seem to have calmed down. And this pause has had a calming effect on the stock market, which may be a worthwhile short-term trading opportunity.

The selling in bonds may have come too far too fast, given the apparent rolling over of yields, on 3/3/23, as I discuss below. Thus, it follows that, if this is the case, then a short-term rebound in stocks is more likely than not.

As a result, there are six short-term indicator reversals in the works for the stock market. And if they hold, they will support higher stock prices. I describe them in detail below. The first one is the pulling back of the U.S. Ten Year note yield below 4%. The other five are related to the technical action in the stock market, including market sentiment, the action in major stock indexes, liquidity indicators, and the market’s breadth.

Meanwhile, although not out of the woods completely, homebuilder stocks may actually have one more price surge, as spooked buyers who have pulled back their horns due to the recent climb in interest rates could return, as they fear that rates will rise again in the not too distant future.

I have recently added several new picks including actionable options to my model portfolio. Check them out with a free trial to my service here.

Is Starwood the Canary in the Coal Mine?

I’ll discuss the homebuilders below. But first, a bit more on commercial real estate.

Investors are clearly losing confidence in companies that invest in commercial real estate. For instance, take the response to real estate giant Starwood’s (STWD) recently reported better-than-expected results. Normally, you’d expect some sort of rally due to the good news. Yet, instead of a move higher, the stock’s price mostly went nowhere. That suggests that confidence in the sector, even in companies that are holding their own, is starting to erode significantly.

Starwood delivered $140 million in profits, a 53% year-over-year increase based on $456 million in revenues, also a nifty 56% year over year increase. CEO Barry Sternlicht shed some light on the status of the commercial market, noting that the multifamily market is “solid” while the commercial market is “bifurcated.” He also added that the U.S. office market is being hampered by the “work from home” dynamic, while noting that the rest of the world isn’t this way anymore.

Perhaps the remark that should have eased investors’ fears was Sternlicht’s comment about Starwood’s exposure to office properties is only 13% of its total portfolio, while adding that the company has “almost no exposure” to New York and San Francisco, where the office markets are struggling more than other areas. He also noted that office markets in states like Texas are doing much better.

Instead, investors seemed to focus on Sternlicht’s comments about the Fed, where he noted that the Fed isn’t likely to bring inflation back to 2% without some sort of miracle occurring.

The stock had a token bounce 3/1/23, but almost immediately rolled over and resumed its downward path — only to then rebound once bond yields reversed on 3/3/23. We’ll see how this develops. Certainly, the stock is oversold. Thus, if bond yields take a breather, the shares could bounce for a few days to weeks.

At this point, though, it may pay to look elsewhere, as the Accumulation Distribution (ADI) and On Balance Volume (OBV) indicators are not offering much hope, as ADI’s recent bounce, an indication of short covering, has been overshadowed by the worsening On Balance Volume (OBV). Putting the two together, sellers are taking the opportunity to increase their selling into the temporary rise in prices due to short sellers abandoning the stock.

You can check out both long and short real estate and homebuilder picks here with a free trial to my service.

Why the 4% Yield on the U.S. Ten Year Note Could Help Homebuilders in the Short Run

The first potentially bullish sign of a turnaround in the markets is the action in bond yields.

For several weeks, I’ve been writing about the U.S. Ten Year note yield (TNX) and the crucial 4% yield area. Well, last week, 4% TNX crossed above the key line in the sand for a couple of days before reversing. What that means is that all market interest rates that are tied to TNX may again reset higher in the next week or so, at least temporarily, due to the lag effect. 

Among the most crucial rates are those related to mortgages. Already, we’ve seen the troubles in commercial real estate due to higher rates. More recently, we’ve seen homebuilder stocks roll over, as investors factor more decreases in existing home sales, and even new home sales which rebounded in January when TNX fell to nearly 3.5%.

Now, we’ll have to see if this was the top for the current move or whether yields will rise further after a pause. With payroll data due on 3/10 and CPI due out on 3/14, anything is possible.

You can see that mortgage rates have already retraced most of their recent drop and that, once again, the 7% yield is within reach. We’ll see what happens to these rates and what the response from potential home buyers is if there is a slight pullback in rates. My guess is that we will see more action on the housing front in the short term as homebuyers try to lock in current rates before the Fed raises rates again.

The homebuilder sector (SPHB) had been fairly steady in comparison to other areas of the stock market, but the move above 4% on TNX is had a noticeable negative effect on the sector. Not surprisingly, though, as soon as TNX pulled back from the 4% area on 3/3/23, homebuilder stocks rebounded.

That’s not really surprising because, for homebuilders and for sellers of existing homes, the recent and aggressive rise in mortgage rates created a panic scenario. Thus, the potential for a temporary reversal in rates may be beneficial in the short term. Indeed, if those buyers who recently pulled back their bids due to higher rates fear that even higher rates are coming in the not-too-distant future, it will likely spur a boost in the homebuilders shares.  

For a detailed explanation of how to manage your portfolio during a liquidity crisis, watch this Your Daily Five video.

Five Technical Signs Which Point to Short Term Bottom

The technical environment for stocks improved on 3/3/23 as bond yields reversed their recent climb and the NYAD, SPX, NDX, VIX, and XED all delivered some positive action. However, if there is going to be a meaningful short term rally, these five signs need to hold.

The New York Stock Exchange Advance Decline line (NYAD) broke below support at its 20-day moving average last week and found support just above its 50-day moving average. This is certainly encouraging, as is the close for NYAD above its 20-day moving average.

Meanwhile, the S&P 500 (SPX) bounced back above the the 4000 area after finding support at its 200-day moving average. This is also bullish.

The Nasdaq 100 Index (NDX) also found support at its 200-day moving average, adding to the short term bullish scenario.

Adding to the sigh of relief, the CBOE Volatility Index (VIX) rolled over, signaling that bearish sentiment is pulling back. 

When VIX rises, stocks tend to fall, as rising put volume is a sign that market makers are selling stock index futures in order to hedge their put sales to the public. A fall in VIX is bullish, as it means less put option buying, and it eventually leads to call buying, which causes market makers to hedge by buying stock index futures, raising the odds of higher stock prices.

Liquidity finally stabilized, as the Eurodollar Index (XED) has found new support at 94.75 after breaking below 95, which had been a reliable support level. Usually, a stable or rising XED is very bullish for stocks.

You can learn more about how to gauge the market’s liquidity in this Your Daily Five video.

To get the latest up-to-date information on options trading, check out Options Trading for Dummies, now in its 4th Edition—Get Your Copy Now! Now also available in Audible audiobook format!

#1 New Release on Options Trading!

Good news! I’ve made my NYAD-Complexity – Chaos chart (featured on my YD5 videos) and a few other favorites public. You can find them here.

Joe Duarte

In The Money Options

Joe Duarte is a former money manager, an active trader, and a widely recognized independent stock market analyst since 1987. He is author of eight investment books, including the best-selling Trading Options for Dummies, rated a TOP Options Book for 2018 by Benzinga.com and now in its third edition, plus The Everything Investing in Your 20s and 30s Book and six other trading books.

The Everything Investing in Your 20s and 30s Book is available at Amazon and Barnes and Noble. It has also been recommended as a Washington Post Color of Money Book of the Month.

To receive Joe’s exclusive stock, option and ETF recommendations, in your mailbox every week visit https://joeduarteinthemoneyoptions.com/secure/order_email.asp.

Joe Duarte

About the author:
Joe Duarte is a former money manager, an active trader and a widely recognized independent stock market analyst going back to 1987. His books include the best selling Trading Options for Dummies, a TOP Options Book for 2018, 2019, and 2020 by Benzinga.com, Trading Review.Net 2020 and Market Timing for Dummies. His latest best-selling book, The Everything Investing Guide in your 20’s & 30’s, is a Washington Post Color of Money Book of the Month. To receive Joe’s exclusive stock, option and ETF recommendations in your mailbox every week, visit the Joe Duarte In The Money Options website.
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#Bullish #Signs #ShortTerm #Bottom #Brewing

Economic Modern Family: More to Prove to Traders

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All in all, the key sectors (retail, transportation) have more to prove, especially by clearing the 23-month moving average or 2-year business cycle. This is a significant level, as these sectors proved recession was held off when they both held the 80-month moving average or their 6-7 year business cycle low.

So if, after 2021 was a huge up year and 2022 was a huge down year, 2023, SPX clears a 2 year cycle, it looks way better for the economy and market. If SPX cannot clear, we are back to predictions that SPX can fall as low as 3200. And stagflation predominates.

To date, there has been incredible resilience in the market indices. All the indices are in a trading range. SPX 4200 is the key resistance. 4100 is pivotal (above bias more positive, below bias more negative). And 3900 is the key support.

The chart is of the weekly price action. Particularly striking is not only the 4200 level, but also that we had an inside trading week last week (inside the trading range from the week prior). Furthermore, this week begins within the trading range of last week.

A range within a range means pause. It also means the investors/traders are getting smarter–holding off until the next direction becomes clearer.

Let’s look at more charts.

The CPI tomorrow could shed light on next moves. In the meantime, here is the monthly chart of the retail sector or our very own Granny Retail. Note how the blue line confirms that 2-year business cycle resistance, as if to say we are a bit optimistic about the future growth of the economy and hardiness of the consumer.

Nonetheless, Granny also says not so much, as we can easily get dismayed and break under the green line or (we are in a) recession line.

Of course if Granny is hesitating, the Transportation sector is as well.

Looking a bit more positive than consumerism, transportation, or the movement of goods and services, certainly defies recession. However, IYT sits between the 23-month and 80-month moving averages as well. Most of the family charts in fact, look the same. As if we are this close to a new leg higher, or a major disappointment for the bulls. 

Interesting to follow right now is how our MarketGauge’s  GEMS Model is positioned. GEMS has broad exposure to sectors, regions, bonds, indicies, and global macro assets.

The top ranked ETF using our Trend Strength Indicator (TSI, a measure of momentum using our proprietary software) is the Europe Index (VGK). However, that too sits right below its 2-year business cycle or 23-month moving average. It seems, pretty much everywhere we look, the market is paused waiting to see what happens next with inflation.

Please read the weekend update, as we believe the real pause is in inflation. And we see no reason to believe that central banks of governments are close to having it under control.

For more detailed trading information about our blended models, tools and trader education courses, contact Rob Quinn, our Chief Strategy Consultant, to learn more.

IT’S NOT TOO LATE! Click here if you’d like a complimentary copy of Mish’s 2023 Market Outlook E-Book in your inbox.

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Follow Mish on Twitter @marketminute for stock picks and more. Follow Mish on Instagram (mishschneider) for daily morning videos. To see updated media clips, click here.

Mish gives you some ideas of what might outperform in this new wave of inflation on the Friday, February 10 edition of StockCharts TV’s Your Daily Five. She has picks from energy, construction, gold, defense, and raw materials.

Read about Mish’s interview with Neils Christensen in this article from Kitco!

In this appearance on Making Money with Charles Payne, Charles and Mish discuss whether Powell can say mission accomplished.

Mish shares her views on how to approach the earnings announcements of Apple, Amazon, and Alphabet, and gives her technical outlook on how the earnings results could impact the S&P 500 and Nasdaq 100 in this appearance on CMC Markets.

Listen to Mish on Chuck Jaffe’s Money Life, beginning around the 27-minute mark.

Kristin and Mish discuss whether or not the market has run out of good news in this appearance on Cheddar TV.

Harry Melandri and Mish discuss inflation, the Federal Reserve, and all the sparkplugs that could ignite on Real Vision.

Jon and Mish discuss how the market (still rangebound) is counting on a dovish Fed in this appearance on BNN Bloomberg.

Mish discusses price and what indices must do now in this appearance on Making Money with Charles Payne.

In this appearance on TheStreet.com, Mish and JD Durkin discuss the latest market earnings, data, inflation, the Fed and where to put your money.

In this appearance on CMC Markets, Mish digs into her favourite commodity trades for the week and gives her technical take on where the trading opportunities for Gold, oil, copper, silver and sugar are.

  • S&P 500 (SPY): 420 resistance with 390-400 support.
  • Russell 2000 (IWM): 190 pivotal support and 202 major resistance.
  • Dow (DIA): 343.50 resistance, 338 support.
  • Nasdaq (QQQ): 300 the pivotal area, 290 major support.
  • Regional Banks (KRE): 65.00 resistance, 61 support.
  • Semiconductors (SMH): 248 resistance, 237 then 229 support.
  • Transportation (IYT): The 23-month MA is 244–now resistance 228 support.
  • Biotechnology (IBB): Sideways action 130-139 range.
  • Retail (XRT): 78.00 the 23-month MA resistance and nearest support 68.00.

Mish Schneider

MarketGauge.com

Director of Trading Research and Education

Mish Schneider

About the author:
Mish Schneider serves as Director of Trading Education at MarketGauge.com. For nearly 20 years, MarketGauge.com has provided financial information and education to thousands of individuals, as well as to large financial institutions and publications such as Barron’s, Fidelity, ILX Systems, Thomson Reuters and Bank of America. In 2017, MarketWatch, owned by Dow Jones, named Mish one of the top 50 financial people to follow on Twitter. In 2018, Mish was the winner of the Top Stock Pick of the year for RealVision.

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If This Is a Bull Market, the Dip Buyers Will Reappear

Post By Stock , , , , , , , , , , ,

There are loud voices on Wall Street who continue to talk about bear markets. In my opinion, that’s a good thing. That’s because bull markets climb walls of worry. And the higher this rally goes, the more the bears seem to growl.

So, are we in a new bull market? A lot depends on what happens after the dust clears on the employment numbers. If the dip buyers come back strong, the uptrend will continue.

Taking Stock

The S&P 500 index ($SPX) is up some 19% from the October bottom, near 3500, and is currently trading above its 200-day moving average. That means that, when the S&P 500 closes somewhere above 4200, it will meet the definition of a bull market. For now, even after the employment report pullback, we remain in an uptrend.

Doubters in the recent uptrend got yet another wakeup call when the Fed raised interest rates, as expected, and Fed Chairman Powell sounded as pragmatic as he possibly could in his press conference. As a result, the market rallied. By Friday, when the employment report surprised those expecting signs of weakening on the jobs front, the market again sold off. However, by day’s end, there was no technical damage done to the market; at least, not yet.

Of course, there are plenty of reasons to be concerned about the future. First and foremost, there is whatever is next in Ukraine. Closer to home, we have the Fed. And even though the central bank may slow the pace of its rate increases, Mr. Powell isn’t likely to stop raising interest rates in the first half of the year. Still, private matter surveys such as PMI, ISM, consumer confidence, homebuilder sentiment, crashing home prices, layoff announcements, and similar data continue to suggest the economy is slowing.

The difference between government reports and private market data doesn’t add up, for sure. Indeed, there are some analysts who suggest that the BLS numbers are too statistically jiggered to be believed at face value. In fact, a recent report by the Philadelphia Federal Reserve cast serious doubt on the BLS numbers.

Bull Markets Are for Dip Buyers

When the news whipsaws the market, it’s important to focus on the general vibe of any market trend. For example, bear markets are unforgiving. Bad news is bad news. And good news is bad news. Rallies are often powerful but fizzle quickly. And the longer they last, the more investors become disillusioned.

Bull markets seem to find the silver lining, no matter what the news. Take, for instance, the recent Federal Reserve rate hike, which led to a rally. The silver lining was that the Fed raised interest rates by 25 basis points instead of 50 or 75 basis points. Moreover, bull markets are fueled by naysayers. Bearish analysts pound the table, calling for the end of the rally on a regular basis. Yet, it keeps going higher.

But perhaps the most salient feature of a bull market is the constant dip-buying behavior from investors. This is the mirror image of what you see in a bear market, where every rally is sold and new lows are a regular occurrence. So, the next test for this uptrend is whether, after the employment report pullback, the dip buyers reappear.

Trade What You See But Don’t Trust the Market

Because we are in an uptrend, and perhaps in the early stages of a bull market, it pays to focus on what the price charts are saying and how the markets respond to news.

The bond market is torn over the notion that the Fed will cause a recession by over-tightening interest rates. That’s why yields have dropped starting in October. At the same time, bond traders aren’t sure about what the robust BLS jobs report means for the economy and what the Fed will do in response.

The 3.5% yield on the 10-Year U.S. Treasury Yield index ($TNX) seems to be a good floor for bond yields at the moment. Thus, what happens at this chart point is very important. If yields break below this level, it will likely be in response to a very credible piece of economic data—either on the inflation front or on the employment front—that the economy is increasingly weak. An even more important point is the 50-day moving average. A move above that for the 10-Year yield would be a negative sign.

On the other hand, certain areas of the technology sector continue to power higher despite bad earnings misses from Amazon (AMZN), Alphabet (GOOGL), and, recently, Microsoft (MSFT). The strength has come from the semiconductor sector, and companies like Apple (AAPL) have managed to convince traders that the worst may be passed.

The bottom line is that focusing on what’s working while keeping an eye on how the markets respond to the news, is likely to be the best strategy for the rest of 2023.

I have plenty of picks that are working in the current market; check them out with a free trial here.

Uptrend Remains Intact: NYAD, SPX, and NDX All Hold Above 200-Day Moving Average

The Nasdaq 100 Index ($NDX) has moved too fast and has gotten ahead of itself over the last few days. On February 3, 2023, it closed above the upper Bollinger Band®, which is usually a sign that a reversal or a consolidation is due. A move back toward the 200-day moving average and the 12,000 level may not be out of the question. A break below the 200-day moving average would be very negative. For now, we are seeing normal technical behavior.

On the bullish side, note the upturn in on balance volume (OBV) as the accumulation distribution line accelerates. This combination of indicators highlights an increase in short sellers bailing out (ADI) and buyers coming in (OBV).

The New York Stock Exchange Advance Decline line ($NYAD) reversed its recent uptrend at the same resistance level in which it reversed in August 2022. The major difference is that this reversal has occurred above the 200-day moving average. A move back to the 20-day moving average would not be unexpected here.

Meanwhile, the CBOE Volatility Index ($VIX) is barely moving, which is a bullish sign. The index continues to make new lows, which is also bullish. When VIX rises, stocks tend to fall as put volume rises. It gives us a sign that market makers are selling stock index futures to hedge their put sales to the public. A fall in VIX is bullish, as it means less put option buying and eventually leads to call buying, which causes market makers to hedge by buying stock index futures, raising the odds of higher stock prices.

Get all the details on why my favorite indicator, the NYAD, is bullish on the market right here.

Liquidity, the market’s lifeblood, remains flat, which is better than when it’s falling, as the Eurodollar Index ($XED) has been trending sideways to slightly higher for the past few weeks. Note the market’s most recent rally, off of the October bottom, has corresponded to this flattening-out in liquidity. Note how the continuous decline in the Eurodollar Index corresponded to the bear trend in 2022.

The S&P 500 index ($SPX) remained above 4100, having now moved fairly decisively above its 20-, 50-, and 200-day moving averages. A move above 4200 would be a 20% move off of the October 2022 bottom.

As with NDX, the Accumulation/Distribution (ADI) On Balance Volume (OBV) combination suggests money continues to flow into stocks.

To get the latest up-to-date information on options trading, check out Options Trading for Dummies, now in its 4th Edition—Get Your Copy Now! Now also available in Audible audiobook format!

#1 New Release on Options Trading!

Good news! I’ve made my NYAD-Complexity – Chaos chart (featured on my YD5 videos) and a few other favorites public. You can find them here.

Joe Duarte

In The Money Options

Joe Duarte is a former money manager, an active trader, and a widely recognized independent stock market analyst since 1987. He is author of eight investment books, including the best-selling Trading Options for Dummies, rated a TOP Options Book for 2018 by Benzinga.com and now in its third edition, plus The Everything Investing in Your 20s and 30s Book and six other trading books.

The Everything Investing in Your 20s and 30s Book is available at Amazon and Barnes and Noble. It has also been recommended as a Washington Post Color of Money Book of the Month.

To receive Joe’s exclusive stock, option and ETF recommendations, in your mailbox every week visit https://joeduarteinthemoneyoptions.com/secure/order_email.asp.

Joe Duarte

About the author:
Joe Duarte is a former money manager, an active trader and a widely recognized independent stock market analyst going back to 1987. His books include the best selling Trading Options for Dummies, a TOP Options Book for 2018, 2019, and 2020 by Benzinga.com, Trading Review.Net 2020 and Market Timing for Dummies. His latest best-selling book, The Everything Investing Guide in your 20’s & 30’s, is a Washington Post Color of Money Book of the Month. To receive Joe’s exclusive stock, option and ETF recommendations in your mailbox every week, visit the Joe Duarte In The Money Options website.
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Earnings Analysis: GOOGL, AMZN, AAPL

Post By Stock , , , , , , , , , , ,

Three big bellwether stocks announced earnings on the same day, after the close, and they all missed estimates. Does this mean the Technology sector or the broader market will head lower?

Not necessarily. From a technical perspective, ahead of earnings, the charts of Alphabet (GOOGL), Amazon (AMZN), and Apple (AAPL) were leaning towards being bullish. Here’s a technical perspective.  

Alphabet (GOOGL): What to Watch Out For

GOOGL’s breakaway gap on February 2 indicates some significance for the following reasons. It betrays strong bullish sentiment on the day it’s slated to report earnings after hours. It also places share prices above three critical levels of resistance:

  • The 200-day moving average
  • The December 2 (2022) high leading to the most recent rounding bottom, and 
  • The October 25 high preceding the bearish swing, which brought GOOGL stock to its lowest 12-month level.

CHART 1: WILL GOOGLE STAY ABOVE ITS 200-DAY MOVING AVERAGE? We’ll see how the stock reacts after its earnings report. If it goes above it, the 200-day MA could become a support level. Chart source: StockChartsACP. For illustrative purposes only.

  • Depending on the scenario, gaps often get filled, and the outcome following the fill depends on whether the initial bullishness was driven by real anticipated value or overextended exuberance.
  • For the current swing to develop into a stronger trend, GOOGL should remain above its 100-day moving average. 
  • A move below the January 6 swing low (at 84.86) would likely invalidate any uptrend thesis.

Amazon (AMZN): What to Watch Out For

Adding the Ichimoku cloud overlay to the price chart takes care of some of the critical points a trader should be looking for. The cloud helps identify trend direction, support, and resistance levels. 

While Amazon’s stock price may be tempting to buy given it gapped up to its 200-day moving average, it’s best to take a step back and look at the bigger picture (see chart below).  

CHART 2: AMAZON IN THE CLOUD. The Ichimoku cloud overlay identifies support and resistance levels and trend direction. Chart source: StockChartsACP. For illustrative purposes only.

Consider the following:

  • Price is trading above the shaded band, which means the top line of the band (green line) would be your first support level. The bottom band line (red line) would be the second support level. 
  • The base line (cyan) can be used to confirm a trend. Since AMZN’s stock price is above the base line, it’s an indication that price could go higher. 
  • The conversion line (pink) is another trend confirmation indicator. The direction of this line coincides with trend direction. In the chart of AMZN stock, the pink line is trending higher, which is another positive for the stock price.

There are many other ways to use the Ichimoku cloud indicator but its main purpose is to act as a measure of future price movement which is why you see the cloud extending beyond the prevailing price bar. You can see a bullish cloud forming with the red line above the green line. There’s also a lagging span line (white). While it’s lagging, it still is useful in identifying price direction. It’s trending up and is above the price charts from 26 bars ago. That’s another positive indication.

Any reversal in any of these lines or a reversal in the crossover should alert you to a potential reversal in price direction. 

Apple (AAPL): What to Watch Out For

Out of the three, Apple’s stock price has held up pretty well. Since reaching a high in January 2023, the stock price has seen slightly lower highs and lows but the stock has held above its 50% Fib Retracement levels (see chart below). 

CHART 3: A BULLISH BIAS IN APPLE? The stock price is approaching its 23.6% Fib retracement level and there’s a chance that price could move higher. Chart source: StockChartsACP. For illustrative purposes only.

  • If you look at the Fib retracement levels from the 2020 low to the January 23, 2022 high, price is approaching its 23.6% level (upwards), having bounced slightly above the 50%  retracement level. If Apple’s stock price crosses above it, then it would likely become a support level, considering it’s been tested as a resistance level about five times since 2021.
  • Note that from December 13 to the present day outlines a V Bottom. If Apple stock pulls back in the next few days to test its V bottom neckline (white trendline), you at least have some idea as to the prevailing market sentiment, which currently leans bullish.
  • The relative strength index (RSI) and stochastic oscillator indicate that AAPL may be approaching “overbought” levels. That might make you think that prices may pull back but remember, these oscillators can sustain oversold readings for a lengthy period of time (so exercise caution).

Another thing to consider: Apple’s earnings, along with those of Amazon, Alphabet, and other stocks within or correlated to big tech may play a significant role along with or despite the prevailing technical readings. This is a case where fundamentals may or may not play along with trader sentiment as revealed by the pre-earnings technical setup. 

Trade With Caution

Earnings are tricky to trade, particularly for those attempting to enter early on to catch the upside. Based on the Nasdaq’s performance compared to the S&P and Dow, the overall market bullishness seems to be favoring tech-heavy names. Today’s triple earnings, following Meta’s positive surprise, may boost all three stocks. But they could also pull back to their support levels. So, just set your stops before you enter any trades. 

  

Disclaimer: This blog is for educational purposes only and should not be construed as financial advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional.

Jayanthi Gopalakrishnan

About the author:
Jayanthi Gopalakrishnan is Director of Site Content at StockCharts.com. She spends her time coming up with content strategies, delivering content to educate traders and investors, and finding ways to make technical analysis fun. Jayanthi was Managing Editor at T3 Custom, a content marketing agency for financial brands. Prior to that, she was Managing Editor of Technical Analysis of Stocks & Commodities magazine for 15+ years.
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Karl Montevirgen

About the author:
Karl Montevirgen is a professional freelance writer who specializes in finance, crypto markets, content strategy, and the arts. Karl works with several organizations in the equities, futures, physical metals, and blockchain industries. He holds FINRA Series 3 and Series 34 licenses in addition to a dual MFA in critical studies/writing and music composition from the California Institute of the Arts.
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The S&P 500 Leaves the 200-Day Behind

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How much weight should we put on the fact that the S&P 500 index powered above its 200-day moving average this week? If history is any indication, then this is actually a fairly momentous occasion. Unless it’s a repeat of March 2022, in which case we’re obviously poised for a push to new lows any minute now.

To be clear, any signal considered bullish or bearish is based on the average reaction back through the history of the financial markets. So, instead of a signal always being 100% bullish or 100% bearish, I tend to think in terms of tendencies. In short, we should ask ourselves, “What tends to happen after this signal has occurred?”

Today, we’ll dig into a brief history of the S&P 500 and its 200-day moving average.

The 200-Day as a Market Barometer

One of my mentors used to say, “Nothing good happens below the 200-day moving average.” To rephrase, it pays to be patient for a move above the 200-day moving average, because, until then, it’s at best a bear market rally.

Way back in 2021 (actually not that long ago!), the SPX stayed well above its 200-day moving average. In fact, it often tested the 50-day moving average, and pretty much every one of those tests ended up being a decent buying opportunity.

In January 2022, when the S&P 500 broke below its 50-day and 200-day moving averages, it certainly suggested that something was different. This is the sort of “change of character” that I hope to identify in my daily and weekly market analysis routines. Attempts to break out above the 200-day in August and November 2022 failed to see any upside follow through. So, when I see the price break above this moving average earlier this month, then the subsequent followthrough with higher swing highs over the last five trading days, I have to consider that a bullish tell.

Going into next week, I’d love to see a confirmed break above the 4100 level, which, I believe, would open the way to a retest of the August 2022 high around 4300. But let’s continue our analysis of market history and consider some alternative approaches to the 200-day moving average.

The Moving Average Crossover Technique

While there is often plenty of noise produced when we achieve a “golden cross” or “death cross” on the major averages, I have found them to not be the most effective ways to determine uptrends and downtrends. However, while the timing may not be perfect on these signals, I would admit that the occurrence of a golden cross next week (which seems highly likely if we rally further around the Fed meeting) would confirm even more strength in equities off the October low.

You’ll notice on this chart that, when the 50-day moving average (blue) crosses above the 200-day (red), it’s often way after the bottom. And that makes sense for a trend-following indicator! The most recent buy signals were in July 2020 (well after the March low) and April 2019 (after a big rally off the December 2018 low).

So while waiting for the golden cross may not feel like the best timing signal ever created, the fact remains that, in a secular bull market phase (which we are arguably still in), these signals often lead to much stronger gains.

We could also strip out the 50-day moving average and just look at the slope of the 200-day moving average. On The Final Bar this week, my guest Willie Delwiche did a great job explaining why the slope of the 200-day can be an important data point.

You can easily see the relationship between the slope of the 200-day moving average (in purple on this chart) and the trend of highs and lows in the raw price data (in light gray). So when the 200-day has been sloping lower and then turns higher, this could be a better indication of an upside follow-through than some of the other techniques we’ve discussed.

Putting It All Together With Other Indicators

You have to remember, however, that moving averages don’t just happen in a vacuum. There are other indicators we can use to confirm or deny the signals we’re finding in a simple analysis of the moving average patterns.

Let’s add the PPO and RSI on the weekly S&P 500 chart and see how the current configuration relates to other market declines. Now that we’re using a weekly chart, I’m showing the 40-week moving average (similar to the 200-day moving average and shown in red) as well as the 150-week moving average in green.

If you look at 2022-2023 and compare it to 2015-2016 and 2007-2008, you’ll notice that these factors are all the same for the S&P 500 index:

  • A new all-time high, followed by a lower high and a failure to hold the 40-week moving average, which then turns lower
  • A retest of the 40-week moving average from below, then a break below the 150-week moving average
  • The PPO gives a buy signal, followed soon after by another sell signal
  • The RSI shows a bullish momentum divergence

But then the patterns start to diverge a bit. In 2008, the S&P failed to get back above the 40-week moving average. There was no additional buy signal from the PPO, and the RSI plunged into the oversold territory as the SPX accelerated lower for the next six months.

In 2016, however, the S&P briefly dipped below the 150-week moving average before powering back above this long-term barometer. The index then moved above its 40-week moving average, the RSI pushed above 50, and the PPO generated a new buy signal.

Now look at the current configuration, and you’ll notice that it matches much more closely to 2016 than 2008. The conclusion? This may be just the beginning of a bullish recovery as positive momentum builds for stocks.

Want to digest this article in video format? You can find it over at my YouTube channel.

RR#6,

Dave

P.S. Ready to upgrade your investment process? Check out my YouTube channel!

David Keller, CMT

Chief Market Strategist

StockCharts.com

Disclaimer: This blog is for educational purposes only and should not be construed as financial advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional. 

The author does not have a position in mentioned securities at the time of publication.   Any opinions expressed herein are solely those of the author and do not in any way represent the views or opinions of any other person or entity.

David Keller

About the author:
David Keller, CMT is Chief Market Strategist at StockCharts.com, where he helps investors minimize behavioral biases through technical analysis. He is a frequent host on StockCharts TV, and he relates mindfulness techniques to investor decision making in his blog, The Mindful Investor.

David is also President and Chief Strategist at Sierra Alpha Research LLC, a boutique investment research firm focused on managing risk through market awareness. He combines the strengths of technical analysis, behavioral finance, and data visualization to identify investment opportunities and enrich relationships between advisors and clients.
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