Running Hot

Since the election, the US markets have seen considerable appreciation. The S&P 500 in particular has been running hot, advancing more than 200 points between early November and January 26. The rally has attenuated somewhat since the December 13 peak, decelerating notably from the rapid pace of advance immediately after the US election. The post-inauguration bump, while bring the markets to new all time highs, has brought little follow through.

S&P 500, 30 minute bars

On the 30 minute chart, we can see deceleration clearly, as the channel originating Dec 13 shows. Last weeks trade saw a definitive breakdown out of the post-election uptrend channel, confirming the slowdown. The price action to date is indicative of a broad arching top.

S&P 500, daily bars

On the daily chart, we can put the recent price action into more context. While the S&P remains withing the broader upward channel defined by the orange lines, it is sluggishly lingering toward the top of that range. While there are numerous support zones below between the market and the lower orange channel boundary, there is plenty of room for the market to correct before heading higher. While a bullish medium term outlook is favored, the likelihood of mild pullback in the next few weeks to a month has increased over the last week.

2016: A Year In Review

Its been quite a year.

Having started off with one of the steepest declines to begin a year in recent memory, the major indices steadied through the bulk of the year, soldiered through the Brexit referendum, but saved their most surprising move for last. After the US election, the markets defied expectations and staged a huge rally to finish the year, despite tapering off towards the end.

Below are a set of charts showing the full year 2016 for a select set of indicies and asset classes.

S&P 500, daily bars

S&P 500, daily bars

XLF Financial SPDR, daily bars

XLF Financial SPDR, daily bars

GLD Gold SPDR, daily bars

GLD Gold SPDR, daily bars

Happy New Year, Everybody. Best Trading in the New Year!

-Will

 

Acquiescence

The opposite of quiescence. What we have here now in US equities is the sudden, explosive return of volatility, volatility that was wholly absent over most of the summer post-Brexit. With it has come a return of high inter-asset class correlation and low dispersion; a return to risk-on, risk-off behavior.

The latest bout has been Fed induced and Fed stoked, with FOMC voters and non-voters alike sending somewhat mixed signals about the course of monetary policy for the remainder of 2016. Rate hike expectations abound with little certainty as to timing. September’s will, though, be a live meeting, and the markets will be on a razor’s edge. Expect big moves next Wednesday.

S&P 500, 30 minute bars

S&P 500, 30 minute bars

Technically, the market has brought itself down to some nice support, off of which it has bounced dramatically. The drought is over; we have seen back to back 1% + up or down days after one of the longest spells of very small daily moves in decades. The market, while at a significant support level (one that presented resistance back in June), probably still has farther to fall. The rising trend channel line (orange) at 2108 may be place to pause and bounce, like the market did in May earlier this year (see daily chart below).

S&P 500, daily bars

S&P 500, daily bars

Below 2108, the next serious support comes in around the 2050s, where the market abruptly turned after the Brexit referendum. Its possible a level in this range could present a good buying opportunity if reached as we close out the summer selling season and move into late fall. Once we’re well into the 4th quarter, we enter the beginning of the strongest seasonal period of the year, when its very likely we could get a strong rally. The election may present some road bumps, but we will be following the technical developments and keep you updated.

Good luck out there.

Quiescence

The entire second half of July 2016 for US equities can be summed up in the title to this post. Its very rare that the market will spend such an extended time locked within a <1 percent range. Its actually historic. The tight range, coming off the Brexit bounce, is most evident on the 30 minute chart below.

S&P 500, 30 minute bars

S&P 500, 30 minute bars

Looking at the daily chart, its easier to see just how narrow and tight the market range is; just look at the congestion! Its pretty remarkable!

S&P 500, daily bars

S&P 500, daily bars

Its not easy to interpret what it means technically for the next few months. However, the sluggishness does suggest that the market has more to digest, and may require deeper consolidation or correction in order to move substantially higher. The technical and fundamental obstacles to a further rally are many and varied, and I won’t go into them all here.

However, one item that we should consider is the fact that August has been the weakest month of the year since the 2008 Financial Crisis, falling an average of 6 percent. While this doesn’t mean we’re on the edge of a precipice, we should be ready for weakness. The late summer doldrums are typically a time to be cautious on equities before the fall buying season heralds the beginning of the strongest six month stretch of the year from November-April.

Whatever the case, traders should be ready for anything, with a break to the upside just a likely as a break to the downside. The only certainty is that this period of quiescence won’t last forever.

Summer Break

With the summer doldrums upon us once again, the markets have made valiant if underwhelming progress toward the May 2015 all time highs. Despite this, the move higher in the past 3 weeks has been considerably less systematic and considerably more erratic that the bulk of the recovery from the February 2016 lows.

Lingering doubts regarding the strength of both US and global growth, weak headline Job creation numbers, the prospect of Fed rate tightening and possible Brexit are all taking their toll. Not surprisingly, equity indices have given back gains of late. The big question on our minds is, do we go lower from here, or does the market reverse and continue up the wall of worry?

With multiple schools of thought on the issue and the charts less compelling than they frequently are, investors are faced with difficult choices when putting new money to work. Below are some charts with analysis to help identify key levels that may help provide clues for how best to position next.

SP-50030minute2016.6.14

S&P 500, 30 minute bars

SP-500daily2016.6.14 SSOhourly2016.6.14 SSO2day2016.6.14 SDS30minute2016.6.14 SDSdaily2016.6.14

Rollover

Over the past week, the markets have shown a listlessness that they haven’t exhibited since last December. While its possible we’re looking at exactly the kind of consolidation needed to prepare for another leg towards the all time highs, its equally if not more likely we could be looking at the weakness that often precedes a significant drop, of the type we saw back in August of last year.

Seasonally, we’ve reached the beginning the the weakest six month stretch of the year, with the S&P 500 just off of its post-February highs. While a major drawdown is not necessarily imminent, below is a set of charts that outline the dizzying technical confluence of trend-lines that remain in play as the market pauses.

S&P 500, hourly bars

S&P 500, hourly bars

S&P 500, daily bars

S&P 500, daily bars

SDS, 30 minute bars

SDS, 30 minute bars

Keep your stops tight, and good luck out there!

Staircase

The S&P 500 today rebounded after breaking down below the lower trend channel bound of the recent ascending range its moved in for the past few weeks. What seems to be happening now is the process of re-establishing a new “downshifted” range in which the index can move higher gradually up the staircase towards a top. We are reaching the late stages of the move off of the February lows, and a new basing process will have to take place to set the stage for continued motion towards the all time highs.

This process can take a number of forms, with a sharp selloff or a long period of sideways motion being two possible scenarios. Are the process begins, I’ve assembled a set of charts below to help put the technical picture into perspective as I see it. I’ve also taken the liberty of including the charts of a couple ETFs that track the S&P 500 to add new perspectives on my favorite index. As always, I do not endorse or recommend any of the funds or investments below.

S&P 500, 30 minute bars

S&P 500, 30 minute bars

S&P 500, daily bars

S&P 500, daily bars

SSO, 30 minute bars

SSO, 30 minute bars

SSO, daily bars

SSO, daily bars

SDS, 30 minute bars

SDS, 30 minute bars

SDS, daily bars

SDS, daily bars