Archive for November, 2012

Like To See Risk-On Resistance Cleared

Friday, November 30th, 2012

New Video Coming Saturday: DeMark & Traditional Charts

The chart below is one of the reasons we took some profits near the close on Friday. If resistance is cleared, we are happy to redeploy the capital.

From a bullish perspective, the markets have been “sticky” near resistance, meaning a significant and sustainable imbalance between buyers and sellers has not materialized yet. The longer a market “sticks” near resistance, the greater the odds it will eventually breakout in a bullish manner. Still, we would like to see the breakout occur.

Reduced Risk, Locked In Some Gains

Friday, November 30th, 2012

We took some profits in technology stocks today by reducing our stake in QQQ. The short-term risk-reward profile for the markets is cloudy. We prefer to lock in some gains when QQQ is up (we sold when it was in the black) rather than during a pullback/mini-panic.

After the Sunday talk shows, the bias concerning the fiscal cliff may be negative early next week. Locking in some gains is never a bad idea in range-bound markets. The S&P 500 has gone nowhere since the end of Q1 2012.

More charts and comments via Twitter (@CiovaccoCapital) – you do not need to know anything about Twitter to view our commentary.

Rally Off November 16 Low Still Intact

Wednesday, November 28th, 2012

Note: The S&P 500 was down 13.5 points on Wednesday morning. It rallied in the afternoon to finish up 10.9 points.

Even with the declines on Wednesday morning, the bulls still have the upper hand. Assuming we did not know what symbols were used to generate the charts below (removes our bias), we can ask ourselves:

“Would I be interested in buying this as an investor (rather than a day trader)?”

Looking at the first chart, the answer is “no, we are not interested in buying”. The chart below has a recent bearish MACD cross. It also experienced a bearish break of the RSI trendline (see green line bottom). The ratio is also below the 10 (blue line), 20 (red line), and 200-day (green line) moving averages, which is indicative of bearish trends. The ratio faces resistance near the intersection of thick blue trendlines.

Looking at chart two, the answer is “no”. The chart below recently broke two CCI trendlines in a bearish manner. Rate of Change (ROC) also dropped below zero (see bottom).

Looking at chart three, the answer is again “no”. The chart below is forming a bearish TRIX cross and has broken a bullish ULT trendline (see bottom).

The charts above are based on the performance of being short the Dow relative to being long the S&P 500. As of the close on Tuesday, and even as of 10:00 AM EST on Wednesday, the charts above have not deteriorated in a manner (yet) that says the odds favor being short over being long in the coming weeks. Can the shorts have the upper hand for a few days? Sure, but until stronger evidence surfaces pointing to a resumption of the recent bearish trends, we will not overreact to the declines this week.

With Greece Aid Deal In Place, Can Markets Avoid Cliff?

Monday, November 26th, 2012

After the close on Monday, the markets received some good news from Europe. It appears the expected deal to once again “save Greece” is in place. From the Washington Post:

Euro-zone finance ministers and the International Monetary Fund clinched agreement on a new debt target for Greece on Monday in a breakthrough toward releasing an urgently needed tranche of loans to the near-bankrupt economy, officials said.

Partly due to expectations of a deal in Greece, markets have stabilized over the past five trading sessions. As shown below, the NASDAQ held at the lower end of a weekly trend channel formed by lines A & B. Williams %R, used to monitor market momentum, has improved in a manner similar to early June.

The primary driver of the recent shift back toward risk-on was the fiscal cliff press conference held on Friday, November 16. Since then, technology stocks have led the push higher. Last week, the NASDAQ ETF (QQQ) cleared the downward sloping blue trendline on the right side of the chart below. Notice a similar break occurred near the June 2012 low in stocks. A popular momentum indicator, MACD, experienced a bullish cross last week similar to the one that occurred at the summer low (see bottom of chart).

The real test for the bulls will come when the almost inevitable “bad news” starts to surface related to difficult cliff negotiations. The tone of the Sunday talk shows hinted that the road to compromise could be difficult at best. From Reuters:

Republicans in the U.S. Congress on Monday called on President Barack Obama to detail long-term spending cuts to help solve the country’s fiscal crisis, while holding firm against the income tax rate increases for the wealthy that Democrats seek.The White House has been equally firm in its position, threatening to veto any bill that does not include the tax rate increases opposed by Republicans.

Our weekly technical review of the markets shows a mixed bag. From a bullish perspective the technicals have improved noticeably. Concerns remain relative to possible “trend exhaustion” as measured by DeMark counts and long-term resistance for European stocks. This week’s video contains:

  1. A risk-on vs. risk-off analysis using a weekly chart of S&P 500 longs vs. S&P 500 shorts (SPY/SH at 01:26 mark).
  2. An inflation vs. deflation analysis using a daily chart of silver relative to long-term Treasuries (SLV/TLT at 04:14).
  3. Discernible bullish progress on the daily chart of the S&P 500 Index (06:51).
  4. Possible weekly resistance for the S&P 500 (08:29).
  5. Long-term resistance for German stocks ($DAX at 09:16 mark).
  6. DeMark count and indicators for Euro Stoxx 50 (FEZ at 09:53 mark).
  7. S&P 500 daily DeMark count and indicators (11:47).

After you click play, use the button in the lower-right corner of the video player to view in full-screen mode. Hit Esc to exit full-screen mode.

Video

Video

As shown below, the broader S&P 500 Index has also seen improvement from a technical perspective.

On November 16 we postulated the markets were positioned for a rally attempt. Last week the rally did indeed transpire. Our approach has been to scale back into risk assets primarily via the beat-up technology sector. If the markets can continue to digest developments in Europe and Washington, D.C. in a fairly positive manner, we will continue to reduce our cash position by “buying low”.

Europe Key To Rally’s Staying Power

Sunday, November 25th, 2012

S&P 500’s Chart Improving

This week’s video contains:

  1. A risk-on vs. risk-off analysis using a weekly chart of S&P 500 longs vs. S&P 500 shorts (SPY/SH at 01:26 mark).
  2. An inflation vs. deflation analysis using a daily chart of silver relative to long-term Treasuries (SLV/TLT at 04:14).
  3. Discernible bullish progress on the daily chart of the S&P 500 Index (06:51).
  4. Possible weekly resistance for the S&P 500 (08:29).
  5. Long-term resistance for German stocks ($DAX at 09:16 mark).
  6. DeMark count and indicators for Euro Stoxx 50 (FEZ at 09:53 mark).
  7. S&P 500 daily DeMark count and indicators (11:47).

After you click play, use the button in the lower-right corner of the video player to view in full-screen mode. Hit Esc to exit full-screen mode.

Video

Video

Most Recent Comments Via Twitter

Wednesday, November 21st, 2012

You can access them here (@CiovaccoCapital). You do not need to know anything about Twitter to view our comments.

Risk-On Making Some Progress

Monday, November 19th, 2012

It is only two days, but so far we like what we see in terms of progress in our CCM Market Risk Model. The bullish set-ups we covered after the close on Friday were leveraged by the bulls.

Many markets have held at logical levels of support. Unfortunately, most also have recently broken support overhead and not far away. The recently broken support may now act as resistance. The range between risk-on support and risk-on resistance is narrow.

The real battle to determine if the next move involves higher highs or lower lows will be fought between 1390 and 1403 on the S&P 500. The second battle, should we get there, will be staged below 1420 (see below).

Today’s gains cancelled many daily DeMark counts and left others intact. Like the narrow range between risk-on and risk-off, DeMark counts and indicators paint a market that is tentative and confused. That is what happens when the number one driver of assets prices is not earnings or the economy, but central banks and government bailouts. Manipulated markets create confusion relative to asset prices. Where would the S&P 500 be today if the Fed had not printed money at breakneck speeds? Where would bond prices and interest rates be without the Fed’s never-ending intervention?

What turned the markets around? A favorable earnings report? Nope. A better than expected update in the economy? Wrong again. What flipped the binary switch from risk-off back to risk-on was a press conference on the fiscal cliff, which is a sad commentary on the state of our “free” markets. It is price action just like what we have seen in the last two days that inspired us to create the “faster” CCM risk-on vs. risk-off models in Q1. Thankfully, the new model is proving to be a valuable tool.

Possible Rally, But Outlook Remains Cloudy

Sunday, November 18th, 2012

Taken in isolation, Friday’s gains did little to improve the intermediate-term outlook for stocks. Set-ups are in place for a possible rally attempt, but a pop for more than a week or two should prove to be difficult for stocks. DeMark charts and indicators are proprietary tools from Market Studies, LLC.

Video contents - November 18:

  • S&P 500 daily (02:20 into video)
  • S&P 500 weekly (06:13)
  • S&P 500 monthly (08:01)
  • DeMark S&P 500 daily (09:06)
  • DeMark S&P 500 weekly (14:00)
  • DeMark S&P 500 monthly (17:04)

After you click play, use the button in the lower-right corner of the video player to view in full-screen mode. Hit Esc to exit full-screen mode.

Video

Video

Cliff Talks Set Markets Up For Possible Bounce

Friday, November 16th, 2012

On Friday, the Democrats and Republicans made a joint and civil statement to the press following a brief meeting on the fiscal cliff. It signaled to the markets they are trying to begin this round of talks in a more professional manner, which was not the case in 2011. Therefore, something changed today…it was a step in the right direction. After the rare show of political civility, the tone of the markets improved immediately. The S&P 500 rallied to close 16 points off the session low.

Like Tech, But Need More Than One Day Wonder

On September 10, we sold our technology stake in XLK noting “tech stocks look tired”. Since then, XLK has dropped 12%. Is it time to buy back in at lower levels? After the fiscal cliff press briefing, we did see some improvement on many fronts, but not enough to justify making any changes (yet).

We had orders ready on Friday to buy the NASDAQ QQQ ETF, but it closed just below resistance on short-term charts. For example, resistance on a 15-minute chart sits at 62.49 with support coming in at 61.06. QQQ closed at 62.30, or 0.3% below resistance and 2.0% above support. It makes sense to see if the nearby resistance is cleared vs. risking a 2.0% drop out of the gate. DeMark counts for QQQ also told us to exercise some additional patience with our large cash position.

Charts Mixed, But Improved

Since warning of slowing stock momentum on September 24, we have seen little to get us interested again in stocks. Friday was better. On the charts, let’s start with the good news; the S&P 500 found buyers at a logical level (see green arrow below).

A Rally…Then A Lower Low?

Based on numerous factors, we can envision a countertrend rally back toward the 1388-1448 range on the S&P 500. A similar A-B-C rally took place in May 2012. The rally began at point A, moved to point B, and then made a lower low at point C (see below). Markets often have symmetry and a move toward point B on the right is certainly one possible scenario for the next week or so. Keep in mind, point C would represent a low lower than Friday’s low of 1359. A good next step is to clear resistance near the pink line below, which sits at 1362 on the S&P 500.

Resistance Still Overhead

Another scenario is the S&P 500 holding below the downward-sloping trendline from the April and May highs (see red arrows). Stocks broke above the same trendline in August (see breakout below). Now the trendline may act as resistance; it sits near 1370 on the S&P 500.

Not Just Cliff…Europe Still A Problem

The biggest obstacle to a rally may be Europe. There is talk of another round of “haircuts” for holders of Greek debt, which sides with the “risk-off” camp. The German DAX is clearly in a downtrend and has broken some key support levels (see orange arrow).

You may say, “I don’t care about German stocks”. As shown below, the S&P 500 has a very high correlation to the problems in Europe. Therefore, we need to keep an eye on Europe.

Stage Not Set Yet For June-Like Low

A multi-day bounce could occur next week, but we need to see some follow-through gains on Monday. Unfortunately, based on numerous factors, including DeMark counts:

  1. Lower lows remain probable.
  2. Even if a low has been made, a move toward 1440-to-1450ish would be met with more obstacles.

Friday was a good day on the fiscal cliff front, but Bloomberg reported a more realistic view of what lies ahead:

“We expect a complex negotiation process that takes many months and multiple brinkmanship moments before full resolution of the cliff,” a team led by Ethan S. Harris and Gustavo Reis, New York-based economists at Bank of America Corp., wrote in a report published today. “Given its fragile economic backdrop, Europe has much to fear from the U.S. fiscal cliff.”

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Friday, November 16th, 2012

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