Welcome To the Stock Synergy, Momentum & Breakout HUB On AGORACOM
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Message: Pristine comments and charts
The daily trend in most of the broader market indices continues to be up. That's a fact. However, this market is one that has consistently given intra-day traders and investors mixed messages about the continuation of those trends. For that reason, we have seen many morning gaps lower, nasty selloffs days, and multiple day pullbacks that stop just short of breaking Major Support (MS). We've also seen multiple days of whippy overlapping bars. All of which communicates that market participates have been in a state of second guessing the majority of this uptrend. Well, nothing has changed this week. We have more mixed messages and I'm going to review a few with you. Let's start with the positives. |
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The Transports cleared prior resistance and closed above it on Friday, which is bullish. A strong Transportation sector supports higher stocks and a belief that the economy is on sound footing. It doesn't mean that businesses are going great, but it suggests that it's on the way. While there are negatives at this time, I'll have to see the breakout in this sector fail before my view on the broader markets becomes bearish. Set an alert under Friday's low. |
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The small cap Russell 2000 sector has been showing relative weakness for a while now, which has been a concern. However, it refuses to breakdown. A matter a fact Friday ignored the prior day's bearish engulfing bar at the prior Topping Tail (TT) and showed relative strength to the broader markets! Clearly, a deeper understanding of candles is needed. Want to learn to read candles like a trader? I'll be doing a candle free workshop this week and a one-day seminar on them early next year. Sign up from the workshop and let's talk candles! Here is the link. |
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The Semiconductor sector rallied strongly last week and cleared its prior highs, but could not close above them. The strength in this sector support the NASDAQ market and it will be hard to break the NASDAQ while the Semi's are strong. After multiple days up and at prior highs the odds suggest a rest in this sector. A consolidation at these highs or shallow pullback this week will be bullish. Short-term weakness here will put some selling pressure on the NASDAQ. |
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The broader markets have had a strong correlation to the trend in the EURO, which moves inverse to the US Dollar. As traders sell Dollars, the cash from that sale is used to funds other investments. This is what is known as a carry trade. The idea is by selling a currency that has a relatively low interest rate; the funds are used to buy an investment that will return more than the interest rate paid on that currency. However, when a trend or trade becomes extended, as the Dollar trade is, it can ignite a sharp reversal. Friday's selloff in the EURO may be the start of that. First support is just below. Should it break, the selling pressure will continue to rollover into the stock market as it did on Friday. If you don't have access to EURO futures use the EURO ETF symbol FXE. |
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As the EURO moves lower, Dollar higher, Gold should move lower. This inter-market relationship forms the bias and confirmation of trading strategies. With this in mind, the recent action in these markets is telling us that Gold is likely to see more selling pressure. So what to do? Take profits in Gold if you are long or consider selling out of the money calls. The trend in Gold is still up, but the odds are that a correction is now under way. |
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The S&P 500 has attempted to break above its recent highs three times last week and failed each time. Friday was the most bearish of the attempts as it cleared the highs and lows of the prior two days and ended with a Topping Tail candle. This is still a short-term trading range within an uptrend until the recent support is violated. The EURO will give us insights to that possibility. However, don't forget to keep an eye on the Transports. If they continue to move higher, it will support stocks. If that breakout fails and the EURO breaks support, shorts are going to be the bias to have. BTW, mighty Apple (AAPL), not shown is showing signs of tiring. It's just another mixed message for now, but worth noting. |
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The last chart for this week is the Financial ETF symbol XLF. I mentioned the head and shoulders pattern that has formed in the last Chart of the Week. It has not broken its support and continues to consolidate. Friday XLF ignored a large bearish reversal, but didn't overcome any resistance, so neutral. This may be a long consolidation or a large topping pattern. You never know until you do. We'll set alerts and keep an eye on the sector. We've covered a lot of ground to come to the same conclusion that we have had most of this year. The trend is up, but the mixed messages continue to keep us guessing. Monitor the markets that I've shown and they will guide the way. |
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