July 17, 2011
Weekly Market Outlook
By Keith Schneider
While the debt ceiling issue is ticking away, the guys inhabiting Capitol Hill are playing chicken with our future. This political game of cockfighting should be outlawed just like the real thing. One big difference between us and other countries with similar debt issues is that we are too big to fail. Stress is relative. And from the inside looking out, your stress always seems worse. So when the Equity markets swoon, money flows to US treasuries, even with our balance sheet looking as it does. At least, that is what is perceived for the moment. However, in a world where we still look good on a relative basis, it’s best to let sleeping dogs lie. Pushing this to the limit is just plain stupid! We already have wakened usually comatose dogs named S& P and Moody’s; we shouldn’t be rousing the rest of the pack. Good news on the earnings front with GOOG reporting a blow-out quarter keeping this market intact for the moment.
SPY (S&P 500), DIA (Dow Jones), IWM (Russell 2000) and QQQ (NASDQ 100) Indexes
The SPY and the QQQ’s were down 2.0% for the week, but held the line at the 50 day ma. Also noteworthy is that the market put in an inside day on Friday setting up for an interesting Monday. Since the recent decline, we have come off overbought reading as expected and are now poised to move big again. With the inside day sitting on the 50 day MA, a nice follow thru either way is in the cards. We also have AAPL earning’s after the close on Tuesday, so Friday’s breakout to new highs suggest more good news to come from the most recognized brand in the world.
The primary trend is still up for the major market indexes, although we are trapped in a wide trading range, between 126-136 in the SPY. Another noteworthy development is that the narrower based NASDQ 100 made new highs on the last rally but the broader based averages did not come close, indicating deterioration in breadth. This is a stock pickers market, with some stocks making new highs while most of the market is stalled. Here are some charts.
Spy is holding for now at 50 Day MA
QQQ-Looking better above 50 Day and sitting higher in this well-defined channel.
Market internals
VIX (SENTIMENT) The is sentiment indicator went from nervous to relaxed and now back to a middle of its recent range. As the 200 Day MA on this indicator has drifted lower, it has given us a few mixed signals recently. , The 50 day MA is working better, along with the short term signals generated by the extremes of the Bollinger bands. For now this indicator is moderately bearish, as it is sitting in the middle of it recent trading bands but above both MA. This is not surprising considering the worldwide global financial picture.
VIX –Sentiment is concerned or slightly bearish at this point.
Mccllean Oscillator- This intermediate term breath is still working off it most recent overbought readings and is now in neutral zone. We take this read to be bearish to neutral.
Adv/Decline and Up/Down Volume –These short term indicators have been working quite well recently and are now in neutral zone having worked off the overbought readings from last week. Neutral to bearish with plenty of room to move either way.
Accumulation/Distribution – The big players were selling this week on the sell off and we had 3 distribution days, not enough to generate a sell signal so we are still on the buy from a few weeks ago. Another couple of distribution days and we will have a sell signal.
Gold – (YG Gold Futures) what more can be said as the yellow metal continues to make new highs as sovereign debt issues take center stage and several large banks failed to meet stress tests. The debt ceiling issues at home have helped bolster the flight to precious metals. We are now up for 9 consecutive days!
The worst you can say is that we are a bit overbought on the short term daily RSI and the new moon might spook some longs who hear the howling of those predisposed to following lunar cycles. Short term overbought readings on the daily RSI in face of powerful macro forces most often lead to mild or sideway corrections at best. The weekly and longer term charts are extremely bullish.
Silver ( SLV) The poor man’s gold, silver finally joined the party this week and has now broke out above its recent trading range on good volume. As long as we hold the 37.25 area, this should be a nice ride, otherwise we could test the breakout level all the way down to 34.
Swiss Frank/ US Dollar- The Swiss Frank is a study in fiscal and monetary responsibilty as this chart so clearly demostrates. That Rolex that you missed buying will now cost you twice as much as ten yeas ago and 3.5 times as much 25 years ago. The Swiss Frank had a monster week against the dollar and the Euro, hitting all time highs, indicating severe stress on the financial system. These are critical times. However, we are at the bottom of a 6 year channel and maybe 6-7% away from the very long term 40 year down channel. We are oversold on the RSI on monthly and daily charts. Will we solve the debt ceiling issue here at home, the soverign debt crisses, etc,etc and get a huge relief rally in stocks and the dollar? Or, is there another flush to the downside? The answer is let the charts unfold and use proper risk controls because we are in unchartered territory and no one knows for sure. Old fashioned tape reading and correct trading tactics are crucial because by the time you have the fundamental information, the move is over or a low risk trade is not possible.
Have a great Weekend!
Trade The Easy Gap Set-ups
By Geoff Bysshe
This past week we had some big names report earnings and deliver these much sought after trading volatility that creates great day trading conditions. Earnings season is full of big gaps and intra-day volatility, and some are easier targets for day traders than others.
There are a lot of different strategies for trading in these market conditions, but before you get too focused in the details of a trading strategy start with this very simple approach to figuring out the easiest opportunities to trade.
The criteria for the easiest earnings gaps to trade start with the current condition of the daily chart. I’ve created a video with some detailed analysis, but finish reading this short article before you jump to the video.
If you look for the clear patterns in the daily chart and focus on the set-ups that are consistent with that pattern you will find yourself on the right side of some very nice day trades. This is generally easier than fighting the larger trend with the hope that the earnings announcement will be enough of a catalyst to change the market’s longer term sentiment.
There are some patterns that are particularly noteworthy for trading gaps, and I get into more detail about that in the video associated with this article:
Before you get to the video, here are a few observations from last week based on the simple analysis of the daily trend as it relates to an earnings gap:
AA: Rolling over at a downward sloping 50-day moving average, its earnings gap down accelerated the already bearish trend.
JPM: The gap up was weak relative to recent daily resistance and trend, so once its pre-market moment was broken the intra-day trend followed the daily trend which is clearly down
C: I could repeat the exact comments made for JPM.
JBHT: I could repeat the exact comments of C and JPM only in reverse. I’ll add that there wasn’t any real pre-market action so in this case the initial gap down was a 5 minute flush, which consolidated and then moved in the direction of the daily trend – up.
GOOG: This massive gap is capable of breaking my “keep it simple rule”, but the resistance it hit and the fact that it was sitting at a big round number, $600, were reasons enough to expect this gap to be a dud.
SWN: The big gap in the direction of the trend was never even challenged as it moved steadily higher all day. Its pattern is covered in the video associated with the article.
Certainly there are additional factors that are important considerations for day trading the gaps like the pre-market activity, the conference call reaction, the degree of the beat or miss vs. expectations. I’ll cover them in future videos and articles. This one, the daily chart, is the first thing to look at. Don’t ignore it.
If you’d like more information on trading in earnings season don’t miss our free video series and e-book that is being presented to help day traders profit from volatile market conditions.
Every week you'll gain actionable insight with:
