SPOT LIGHT CRUDE FORMS INVERSE HEAD-AND-SHOULDERS -- GASOLINE ETF BREAKS WEDGE RESISTANCE -- ENERGY SPDR HITS WALL OF RESISTANCE -- MEASURING BREADTH WITH THE PERCENT OF STOCKS ABOVE A SMA -- 80% OF S&P 500 STOCKS ARE ABOVE THEIR 150-DAY SMA
SPOT LIGHT CRUDE FORMS INVERSE HEAD-AND-SHOULDERS ... Link for todays video. Whats it going to be for crude? Even though stocks are higher and the Dollar is lower the last few weeks, crude is down and not responding very well. Chart 1 shows Spot Light Crude ($WTIC) surging along with the stock market in October and then moving into a sideways consolidation. The highs extending from mid November mark a resistance zone in the 102-104 area. In addition, notice that the pattern since mid October looks like an inverse head-and-shoulders, which is a bullish continuation pattern. A break above 104 would signal a continuation higher and target higher oil prices.
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Chart 1
Focusing on the last six weeks, the pattern at work looks like a falling flag/wedge. $WTIC surged above 102 in the second half of December and then fell back with a zigzag lower in January. A move above 102 would break flag/wedge resistance and signal a continuation higher. I am setting first support at 96. A move below this level would negate the falling flag/wedge and project lower prices. Notice that this is an end-of-day (EOD) chart. Spot Light Crude is trading around $100 early Friday. Chart 2 shows the US Oil Fund (USO) with similar characteristics.
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Chart 2
GASOLINE ETF BREAKS WEDGE RESISTANCE... Even though oil may be lagging the stock market this year, unleaded gasoline is not and continues to move higher. Chart 3 shows the Spot Unleaded Gasoline ($GASO) finding support in the 2.45 area from September to December and then breaking resistance with the early January surge above 2.70. Broken resistance turns into first support in the 2.70 area. The indicator window shows the Correlation Coefficient for gasoline and the S&P 500. Unsurprisingly, these two are positively correlated, which means they move in the same direction. Weakness in stocks hints at weakness in the economy and a decrease in oil demand. Conversely, strength in stocks is bullish for the economy and points to an increase in oil demand. Chart 4 shows the US Gasoline Fund (UGA) with similar characteristics. Incidentally, users can search the term "spot" to find symbols for other spot prices.
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Chart 3
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Chart 4
ENERGY SPDR HITS WALL OF RESISTANCE... I featured the Energy SPDR (XLE) on January 4th as it broke triangle resistance. Chart 5 shows the ETF dancing around the breakout and then moving above 72 early this week. The triangle breakout is largely holding, but XLE is meeting stiff resistance from the October-November highs. In addition to resistance, I am concerned with relative weakness over the last three months. The indicator window shows the Price Relative (XLE:$SPX ratio) moving lower since mid November. XLE is underperforming the broader market and the Price Relative needs to break the early December high to reverse this trend in relative weakness. Returning to the price chart, I am marking support at 68, a break of which would negate the triangle breakout. Chart 6 shows the Oil & Gas Equipment/Services SPDR (XES) with similar characteristics.
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Chart 5
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Chart 6
MEASURING BREADTH WITH THE PERCENT OF STOCKS ABOVE A SMA... The percentage of stock above a certain moving average is a breadth indicator designed to measure the degree of participation within an index. StockCharts.com users can plot the percentage of stocks above the 50-day, 150-day and 200-day SMAs for several indices, including the Dow Industrials, Nasdaq 100 and TSX. Below is a list of available symbols.
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Chart 7
The choice of moving average depends on the desired timeframe. Also note that the percent above the 50-day SMA will be more volatile that the percent above the 200-day SMA. Keep in mind that moving averages are lagging indicators. Therefore, this indicator will have some lag as well. While some chartists like to look for overbought and oversold readings, I prefer to look for crosses above or below a particular threshold. In addition, I like to use the percentage of stocks trading above their 150-day SMA, which is just over six months. In general, the bulls have the edge when more than 50% are trading above their 150-day SMA and the bears have the edge otherwise. While it makes theoretical sense to use the centerline for the bullish/bearish threshold, the reality is that there are a lot of whipsaws when using the centerline for signals. This is when chartists need to apply a buffer to further filter signals. A buffer can be apply by setting the bullish threshold just above the centerline and the bearish threshold just below. This technique can be applied to other indicators as well, such as the Bullish Percent Indices.
80% OF S&P 500 STOCKS ARE ABOVE THEIR 150-DAY SMA... Chart 8 shows the S&P 500 %Above 150-day SMA ($SPXA150R). The bullish threshold is set at 60% and the bearish threshold at 40%. Notice that there were several crosses of the 50% line in the summer of 2010 and in November-December 2011 (blue arrow). While buffers are not always perfect, the 40-60 thresholds limited whipsaws (bad signals) during these volatile periods. The red dotted lines show bearish signals, which occur when the indicator crossed below 40%. The green dotted lines show bullish signals, which is when the indicator crossed above 60%. The last bearish signal occurred on August 3rd, while the most recent bullish signal occurred on January 3rd. Currently, some 80% of S&P 500 stocks above trading above their 150-day SMA. This is a little overbought, but this indicator clearly favors the bulls right now.
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Chart 8
Chart 9 shows the Nasdaq 100 %Above 150-day SMA ($NDXA150R). This series is a little more volatile than the S&P 500 version for two reasons. First, there are fewer issues: 100 versus 500. Second, the Nasdaq 100 stocks are more homogeneous because the index is dominated by technology stocks. This causes sudden and sharp swings as all stocks move in one direction. Instead of a normal data series, I am smoothing the data with a 5-day EMA. The un-smoothed date series crosses the 40-60 levels too often and produces many whipsaws. The 5-day EMA smooths the data just enough and produces fewer whipsaws. Technical analysts are always battling a fine line between sensitivity and lag. Indicators that are too sensitive will produce more whipsaws. Indicators that are too smoothed will lag and produce late signals. The $NDX signals below are similar to the SPX signals above, except for a little lag. The 5-day EMA of the Nasdaq 100 %Above 150-day SMA crossed below 40% on August 3rd and back above 60% on January 10th. It is interesting to note that the Nasdaq 100 ($NDX) is trading above its 2011 highs, but less than 80% of its components are above their 150-day SMA.
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Chart 9
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