Market Observations - as of Jun 29, 2018

Transcription

1 Market Observations - as of Jun 29, 2018 By Carl Jorgensen - For Objective Traders - For educational purposes only. Not Financial Advice. The Market changes we began to see last week, continued this week with conviction on Monday. The breaking of support or trend lines we saw in a few sectors and markets last week, were amplified on Monday (June 25 th ) as we saw a very broad based break down covering most sectors and markets. The rest of the week we saw alternating days of small bounces and stronger selling to test or retest support. Most all markets ended the week down from last week. We likely saw some rebalancing last week and this week. Fund managers must sell some of their over weighted holdings to re-balance their portfolios to comply with their fund s objectives, as well as required end of quarter reporting. Managers holding stocks that out performed the markets over this past quarter may have to reduce the size of their holdings of those stocks (FAANG?) since they may now represent too much of their portfolio value in that stock. They can not violate their fund s maximum % value in one stock rule. This is an example of a rule that is meant to insure diversification in a fund, but also reduces that fund s overall performance when they are required to reduce their size of the best performing holding(s). This sadly is one reason why most Funds can only deliver mediocre performance at best. As active self-directed traders, we are not restricted by these diversification rules or reporting requirements. I find it much more effective to think of Diversification as a separate aspect of trading, and it is not directly related to managing risks. Diversification, by its very definition, is an idea that results in having a goal of mediocrity. There are much more effective ways to manage risks, without hoping diversification will do the job for you. I am not against diversifying your portfolio a bit, but that should not be confused with actual active Risk Management. "Diversification is protection against ignorance. It makes little sense if you know what you are doing." - W. Buffett My goals are to perform much better than buy and hold, or passive investing. And if I can do so consistently, then it is well worth my efforts to do so. Due to the large size of most funds, this rebalancing can t be done in one or two days, it can take a week or two. With the end of June and the 2 nd Quarter this week, odds are that a large portion of the selling of the strongest stocks was due to this rebalancing. This then acted like a catalyst for the wider breadth of the markets selling like there was some contagion started by the prior leaders. As we have seen with these markets lately, it seems to not take much to get some to reaction or over-reaction. Oil continued up this week as Gold continued down. The US dollar was a bit stronger while Yield curves flatten. Rather than believe anything I hear in the news, I d rather see what the charts are saying. Let s see what the charts tell us about this week.

2 S&P 500 weekly chart as of Jun 29, 2018 The long term up trend continues, as the S&P remains above both its 50 week and 20 week SMAs. This week the S&P dropped back down to test support near its 20 week SMA and remained above. S&P 500 daily chart as of Jun 29, 2018 The S&P broke down below prior Resistance and new Support (Grey line = 2,742) at the open this Monday (June 25 th ) and dipped below its 50 day SMA (Blue). The week Oscillated under and above the 50d and 2720 mid-point from May this week.

3 DJIA weekly chart as of Jun 29, 2018 The Dow broke below its 20 week SMA this week where it remained all week just above its 50 week SMA. DJIA daily chart as of Jun 29, 2018 The Dow crossed below its 50 day SMA last week and below its 200 day SMA on Monday of this week. The rest of this week oscillated above and below this 200 day SMA level. Even with the Dow being the weakest index this week, it still shows both higher highs and higher lows over the past two months. This week was also when GE was replaced with WBA in this index. Seems times are tough for Industrial companies.

4 NASDAQ weekly chart as of Jun 29, 2018 The Nasdaq had seen a strong rally over the past two months, but it too stalled last week and fell this week. It remains in a long term bull trend with price well above both its 20 week and 50 week SMAs. NASDAQ daily chart as of Jun 29, 2018 Here we can see the Nasdaq gap down below its 20 day SMA at the open on Monday, then find support at its 50 day SMA on Wednesday and Thursday. Note the wider range down days on Monday and Wednesday, with smaller range bounce days on Tuesday and Thursday this week. Friday s small gap up was negated by the close that day. This week was bracketed between 20 day SMA Resistance and 50 day SMA Support.

5 Russell 2000 weekly chart as of Jun 29, 2018 The Russell had seen a strong rally the past two months until this week, when it broke below its trend line. This Index was reconstituted last month and stocks were added or removed from this index. These changes went into effect at the end of Friday, before the open on Monday (June 25 th ). Russell 2000 daily chart as of Jun 29, 2018 Last Friday (June 22 nd ) the R2k had begun to break below its trend line. At Monday s open (June 25 th ) we saw a hard fast drop in the R2k during the first hour of trading. But since we saw similar action in most all the markets on Monday, it s hard to argue that this was dues to the reconstitution of the Russell. Answering why is nearly impossible, so we just make a note on our chart and move on. Knowing the answer to why is not necessary. Next let s look at a few market Internals.

6 NYSE Advance/Decline Line daily chart as of Jun 29, 2018 Market breadth was decreasing on most days this week, but overall not by much. McClellan Summation Index daily chart as of Jun 29, 2018 We do see some negative acceleration in breadth changes this week as the McClellan Summation Index reveals a change from flat last week, to gapping below the 20 day SMA on Monday this week, and gaps down each day this week as it approaches its 50 day SMA.

7 VIX daily chart as of Jun 29, 2018 The VIX moved above its 50 day SMA on Monday and remained above this level all week. Next we will look at a few key commodities.

8 OIL daily chart as of Jun 29, 2018 Oil continued its rally this week off of the 50 day SMA support. GOLD daily chart as of Jun 29, 2018 Gold continued its drop this week, only to see a tiny bounce on Friday.

9 US dollar Index daily chart as of Jun 29, 2018 The US dollar index strengthened this week until Friday when it pulled back some. It still ended this week a little higher than the prior week. US 10yr Yield daily chart as of Jun 29, 2018 The Yield curves continue to flatten. Next we will look at some key Sectors for this week.

10 Dow Transports daily chart as of Jun 29, 2018 With the increasing oil prices, it is no surprise to see transports drop again this week, since fuel is their biggest expense. The Transports broke below their 50d SMA on Monday and their 200d SMA on Wednesday where it remained for most of the rest of this week. XLE daily chart as of Jun 29, 2018 Energy dropped below its 50 day SMA on Monday, then bounce Tuesday and Wednesday back to its 20d and 50d SMAs. Energy sector chopped sideways most of the rest of this week near its 20d and 50d SMAs. You would think that with the rally in oil prices this week, this sector would have rallied also. Well the charts show us that is not necessarily the case.

11 XLF daily chart as of Jun 29, 2018 The Financial sector has been bearish for a while, and this week we saw that continue with price breaking below both the 2-year Trend Line (Red) and the Feb 2018 lows (Grey line). XLF delivered new 2018 lows on Wednesday and Thursday this week. The bounce Friday could not keep XLF above the Feb lows for long, with XLF delivering both the lowest daily and weekly closes of the year this week.

12 QQQ daily chart as of Jun 29, 2018 Tech has been one of the strongest sectors lately, but it too broke below its 20 day SMA and Trend Line Support (Orange line) with the gap down open on Monday. The QQQ found support at its 50 day SMA on Thursday. This week was the worst week for the QQQ in over two months. SOXX daily chart as of Jun 29, 2018 The Semiconductor sector started breaking down in early-mid June, weeks before the Tech sector. This week the SOXX gapped down Monday below its 50 day SMA where it remained all week. The SOXX even broke below its 200 day SMA briefly on Wednesday and Thursday this week. Friday s gap up did not hold and the week ended down over -4.3%.

13 XRT daily chart as of Jun 29, 2018 Like most markets, XRT broke its TL support (Blue line) on Monday, then its 20 day SMA on Thursday. XRT gave back all of the prior week s gains, and then some this week. XLI daily chart as of Jun 29, 2018 The Industrial sector has been in a bearish swing since about June 12 th. This week continued down lower, but at a slower pace. The May lows have not yet been exceeded.

14 XME daily chart as of Jun 29, 2018 The metals and mining sector has been dropping for a few weeks, and broke below its 50 day SMA on Monday with a wide range day. XME broke below its 200 day SMA on Thursday before bouncing a little and ending the week on its 2-year Trend Line Support (Red). XLU daily chart as of Jun 29, 2018 While Industrials were falling Utilities have rallied the past few weeks, and continued this week to break above their 200day SMA and lat April highs. Next we will look at a few key stocks.

15 AAPL daily chart as of Jun 29, 2018 AAPL broke down a little last week, below its 20 day SMA. This week AAPL briefly dipped below its 50 day SMA on Monday, then bounce above the following day. The rest of this week AAPL remained just above its 50 day SMA support. AMZN daily chart as of Jun 29, 2018 AMZN has been one of the strongest f.a.a.n.g. stocks this year, and it had a small pull back late last week. This Monday saw AMZN gap down below its Trend Line Support (Dark Blue line) and below its 20 day SMA. The rest of this week AMZN oscillated in a narrow range until breaking a tiny bit higher and above its 20 day SMA on Friday.

16 NFLX daily chart as of Jun 29, 2018 NFLX has been the strongest of the f.a.a.n.g. stocks this year, and it s too paused late last week after making new All Time Highs. This Monday saw a gap down and drop to the 20 day SMA to find support. The rest of this week oscillated in a horizontal range as NFLX remained above its Trend Line Support (Dark Blue line). FB daily chart as of Jun 29, 2018 FB made new all time highs last week, and then broke down on Monday this week, breaking below its Trend Line Support (Dark Blue line) to find support near its 20 day SMA. The rest of this week was mostly oscillations in a horizontal range centered on the Feb highs (Yellow line) from earlier this year.

17 GOOGL daily chart as of Jun 29, 2018 GOOGL gapped down Monday below its Trend Line Support (Pink line) and below its 20 day SMA to find support near 1120 area. The rest of this week oscillated in this lower range. NVDA daily chart as of Jun 29, 2018 NVDA had been one of the stronger stocks in its sector, until it broke below its trend line support (Yellow line) on June 18 th. The next day NVDA broke below its 20 day SMA briefly. Last week ended with NVDA below its 20 day SMA. This week began with a gap below its 50 day SMA followed by a week of horizontal chop below this new Resistance level.

18 AMD daily chart as of Jun 29, 2018 AMD saw a strong rally in May and June that ended late last week as AMD crossed below its Trend Line Support (Orange line). This week was lower prices as AMD broke below its 20 day SMA on Monday, and then chopped in a horizontal range the remainder of this week. GS daily chart as of Jun 29, 2018 We saw how the financial sector has been bearish for months, so it should be of little surprise that GS (as well as JPM and MS) continued their bearish moves this week. GS delivered new 2018 lows this week and another -2.4% drop from the prior week s close.

19 SQ daily chart as of Jun 29, 2018 One of the few exceptions in the Financial sector, is SQ that had seen a strong rally the prior two months. Monday saw a gap down below the Trend Line Support (Grey line) and below the 20 day SMA. The rest of this week saw horizontal chop in this lower range. DE daily chart as of Jun 29, 2018 One of the Industrial stocks beaten down this year is DE, who broke below its Trend Line Support (Dark Blue line) on June 13 th. DE dropped some more this week closing down another $3.37 from the prior week.

20 CAT daily chart as of Jun 29, 2018 CAT, like DE, broke below its Trend Line Support (Grey line) on June 13 th. CAT continued down this week to deliver new 2018 lows, and then bounce a little on Thursday. LMT daily chart as of Jun 29, 2018 LMT broke its TL Support on June 12 th, and has continued down this week to deliver more new 2018 lows again this week. Thursday saw a test of support at $ followed by a small bounce.

21 As you can see by the Industrial Sector Break Down earlier this month (June 12 th ) there have been some good bearish plays found within that sector. TSLA daily chart as of Jun 29, 2018 TSLA had a pair of strong bearish days last week. Monday of this week TSLA found support at its 20 day SMA and bounce the following days to recover part of the prior week s losses. Friday saw a small drop to end the week just above the 20 day SMA support. We hope you practice your chart reading skills a little bit each day, since that is a good way to learn. Trade Smart, CJ