USING BREADTH INDICATORS FOR SHORT-TERM SIGNALS -- QQQ CORRECTION TARGET -- AROONS GO PARALLEL ON IWM CHART -- BOND MARKET SHOWS RISK AVERSION -- MATERIALS SECTOR BREAKS DOWN -- GOLD MINERS ETF STALLS AFTER BOUNCE
USING BREADTH INDICATORS FOR SHORT-TERM SIGNALS... Link for today's video. The economic news has been pretty good lately, but stocks came under selling pressure and did not act very well. First, I should note that I am not that interested in the news per se. Instead, I am interested in the market's reaction to the news. In general, stocks should rise on good news and fall on bad news. Non-farm payrolls blew out expectations on Friday, but the S&P 1500 barely gained. Retail sales came in above expectations and showed the biggest year-over-year gain since November 2012, yet stocks failed to hold early gains and closed near their lows of the session. This kind of price action is negative and suggests that we may be in for a correction of sorts.
Chart 1 shows the S&P 1500 hitting a new high near 480 last week and then falling below its 21-day EMA. 21 days is about a month. I do not consider this moving average as a support level though. Instead, it provides us with a little perspective on relative price levels. For instance, the index closed above the 21-day EMA on October 21st and held above its until the close on December 10th. Also note that the 21-day EMA turned down for the first time since mid October. With the index hitting a new high just last week, I consider any weakness to be a pullback within an uptrend. Broken resistance marks first support in the 460-465 area and the Fibonacci Retracements Tool marks a few other potential support levels.
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Chart 1
The indicator windows show the 10-day SMAs for AD Percent and AD Volume Percent for the S&P 1500. AD Percent equals advances less declines divided by total issues. AD Volume Percent equals advancing volume less declining volume divided by total volume. The 10-day SMA creates an oscillator type indicator that fluctuates above/below the zero line. The red lines are set at +10% and -10%. A move above +10% is considered bullish until countered with a move below -10%. Using the zero line for signals often results in too many whipsaws. 5% and -5% sometimes work for signals, but these levels are also prone to whipsaws (see late April and early May). Note that I DO NOT look at divergences. Instead, I am looking for a significant upside or downside break to trigger a signal. Both indicators are negative and the 10-day SMA for AD Volume Percent is below -5%. With the index below its 21-day EMA and the 21-day EMA turning down, the odds suggest that a correction is underway. I would respect this correction until a counter signal from these indicators. The first possible signal would be a trend line break and move above +5%.
QQQ CORRECTION TARGET... Chart 2 shows the Nasdaq 100 ETF (QQQ) hitting a new high near 106 at the end of November and then falling in December. This is a minor pullback so far and the highs of the last three days mark first resistance at 105. Should the correction extend, I would watch the 101 area for a potential reversal because of several technical features. Broken resistance turns support, the 38% retracement line and the lower trend line of the Raff Regression Channel all point to this area. The indicator window shows the 10-day SMA of AD Percent for the Nasdaq 100. It has yet to break below -10%, but it is in negative territory and trending lower. A break above +10% is needed for a bullish signal here.
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Chart 2
AROONS GO PARALLEL ON IWM CHART... The Russell 2000 iShares (IWM) is still holding up better than the S&P 500 SPDR (SPY) and the Nasdaq 100 ETF (QQQ) in December, but remains in a very narrow consolidation. Chart 4 shows IWM testing the consolidation lows and the lower Bollinger Band. Notice that the Bollinger Bands are at their narrowest since mid September. Also notice that the Aroon oscillators are below 50 and falling in parallel fashion. Bollinger Bands do not give us any directional clues, but we can watch the Aroons for a signal. The first Aroon to break above 70 would trigger a signal and provide a directional bias.
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Chart 3
BOND MARKET SHOWS RISK AVERSION... While I prefer to look at the stock market and stock market related indicators when analyzing the stock market, external indicators that can give us insight into the general risk appetite in the financial markets. The plunge in oil has been so steep that it is causing turmoil in the credit markets. The risk premium on bonds from oil-dependent issuers has risen significantly and this can be seen in the High-Yield Bond ETF (HYG). Chart 4 shows HYG relative to the Investment Grade Bond ETF (LQD). This price relative peaked in March, broke down in July and moved to new lows for the year this week. The indicator window shows HYG moving below 88 and to levels note seen since December 2013. The move out of junk bonds shows risk aversion in the credit markets and this could extend the stock market. Chart 5 shows the 7-10 YR T-Bond ETF (IEF) holding support in early November and moving sharply higher the last four weeks. This shows a flight to safety and confirms risk aversion in the credit markets.
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Chart 4
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Chart 5
MATERIALS SECTOR BREAKS DOWN... Chart 6 shows the Materials SPDR (XLB) breaking support at 48 with a sharp decline this week. The lower trend line of the Raff Regression Channel, the 1-December low and the triangle apex marked support here. XLB is also showing relative weakness because the price relative (XLB:SPY ratio) moved to a new low for the year. High-Low Percent has yet to break below -5%, but could after today's decline. Note that $XLBHLP is an end-of-day (EOD) indicator that will be updated after the close. Chart 7 shows the Metals & Mining SPDR (XME) breaking down in late November and hitting a new 52-week low this week.
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Chart 6
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Chart 7
GOLD MINERS ETF STALLS AFTER BOUNCE... The Gold Miners ETF (GDX) is holding up better than XLB and XME above, but remains short of a breakout and I am currently bearish on GDX. Chart 8 shows GDX hitting a new low in early November, surging above 20 and then consolidating in the 19 area. GDX is holding up well because gold is up since early November. I am, therefore, watching the four week consolidation for signs of a breakout that could trigger a decent advance. A break above the late November high would signal a continuation of the November surge. The indicator window shows the AD Line for GDX. There is nothing but downtrend here and I would like to see a break above the late November high to confirm a breakout in GDX. Chart 9 shows the Silver Miners ETF (SIL) with wedge resistance at 9.7 and the Silver ETF (SLV) getting a small breakout at 16.
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Chart 8
