Archive for the ‘Technical Analysis’ Category

Could A Geometric Shape Save The Bulls?

Wednesday, April 1st, 2015

Earnings Concerning For Bulls

In the markets, everything matters. Common sense tells us that stocks in the long run are tied to corporate earnings. Therefore, it is not particularly surprising that stocks have been going nowhere fast in recent months given the recent negative slant on earnings expectations. From CNBC:

Analysts are widely expecting S&P 500 companies to post their first year-over-year decline since the third quarter of 2012. U.S. markets struggled in the first quarter as investors worry over the impact of falling oil prices on overall earnings and the effect of a strong dollar on multinational companies, whose products are more expensive in foreign markets when the greenback firms up.

Bullish Door Not Closed Yet

With respect to earnings, the easy thing for investors to do is to extrapolate the recent bearish trend several months down the road. While earnings reports may meet bearish expectations, it is also possible that future guidance comes in above low expectations. Is there any support for the “things could turn out better than expected” scenario? Yes, one example comes from the easy to understand triangle formation shown on the weekly chart of the NYSE Composite Stock Index below.

Triangles Are A Reflection Of Conviction

Points A, B, C, and D in the chart below show a series of higher lows. The higher lows tell us that buying conviction has exceeded selling conviction at higher and higher levels in recent months. Another way to visualize the formation of the triangle is that dip buyers have been less and less patient since the October 2014 low. The higher lows are the good news for the bulls. The bad news is that based on numerous concerns, including earnings and the Fed, buying conviction has not been strong enough to exceed the “cap” (see orange line below).

What Does History Tell Us?

The formal name of the pattern above is an “ascending triangle”. According to Investopedia:

An ascending triangle is generally considered to be a continuation pattern, meaning that it is usually found amid a period of consolidation within an uptrend. Once the breakout occurs, buyers will aggressively send the price of the asset higher, usually on high volume. The most common price target is generally set to be equal to the entry price plus the vertical height of the triangle.

All patterns speak to probabilities, rather than certainties. Is it possible the bears seize the day in the coming weeks and stocks experience a correction? Sure, it is possible. Even if the bearish scenario plays out, the charts above can still assist us by giving us a reference point to spot a lower low.

A Bullish Bias, But Momentum A Big Concern

A reader of our recent posts may have a fair argument along the lines of “you clearly have a bullish bias”. The bias is the market’s and has nothing to do with our personal opinions at CCM. The following statement is factual…”the stock market has a bullish bias”. How do we know that? The hard data/facts still side with the bulls. The series of higher lows since the October 2014 low is observable…and it also leans bullish until the chart morphs into a series of lower lows and lower highs. While the weight of the evidence still sides with the bulls, a portion of the evidence is screaming “slowing momentum…be open to lower lows and a correction”. This video clip puts some additional context around some observable changes that would increase our concerns about the stock market.

Triangle image by pbemjestes via Flickr.

How Worried Should We Be About Earnings?

Saturday, October 12th, 2013

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Where Is The Stock Market Headed?

Monday, September 23rd, 2013

CCM Market Model Readings

The market’s current profile is summarized at the 01:00 mark of the video. More detailed coverage of the present day market begins at the 19:08 mark.

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VIDEO: Link To Today’s Video

Saturday, August 3rd, 2013

Up and Running via Link Below:

This week’s technical analysis video compares stocks in 2013 to October 2007 (a major top). You can find it on See It Market.

Bulls Maintain Grip On Stock Market Trends

Saturday, July 27th, 2013

Thank you to all viewers, followers, and those who have re-tweeted - helpful to us and much appreciated.

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Charts and Models Remain Bullish

Saturday, July 20th, 2013

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Market Has Rebuilt Bullish Base

Wednesday, July 10th, 2013

Reaction to Fed Minutes

Sometime between late Wednesday and mid-day Thursday, we should get a read on the market’s true reaction to the minutes from the last Fed gathering. At some point, the market will take a breather for a day or two in the form of a pullback. If the Fed minutes serve as the catalyst, the recently cleared downward-sloping blue trendline below may act as support.

It seems unlikely the markets will swoon for an extended period due to any tapering-related comments in the minutes. From Reuters:

Peter de Bruin, a senior economist at ABN Amro, said he expected the minutes to show a consensus forming at the Fed to start scaling back its $85 billion-a-month stimulus program in September, following a recent pick-up in U.S. data. “I think we have already seen the main fireworks from the Fed’s intentions to taper (scale back stimulus),” de Bruin said. “I would be surprised if we saw another strong rise in yields.”

Paying Attention to Stay On Track

One of the best ways to stay aligned with the market is pay attention to what is happening vs. wasting too much energy on what you think will happen or want to happen (forecasting). The major U.S. stock indexes looked vulnerable and were weak technically on Friday, June 21. Since the intraday low on Monday, June 24 they have improved significantly.

Some Hurdles To Cross

The table below shows one of the components of the CCM Market Model. All of the markets and ratios shown are used to monitor investors’ tolerance for risk. The markets and ratios are rated on a scale of 0-100%, with 100% being the most favorable. The results on Tuesday, July 10, were bullish overall but the ratings for the major stock indexes ranged from 59% for the S&P 500 to 61% for the NYSE Composite. These are favorable scores but we would feel better if they are able to move into the 65-80% range.

China’s Troubles Continue

It seems as if the nothing-but-glowing comments period regarding the Chinese economy has come to an end. Investors have stayed away from emerging markets (EEM), but have not let China derail the bull in the United States. Wednesday provided another less-than-stellar report on the Chinese economy. From the Wall Street Journal:

China’s key export sector shrank 3.1% in June compared with a year earlier, down from 1% year-on-year growth in May and the first contraction in a non-holiday month since the height of the financial crisis in November 2009. Imports fell 0.7% year-on-year, pointing to weak demand at home as well as abroad.

Small Caps Lean Risk-On

While the U.S. Indexes still have some technical ground to cover, the supporting cast is in place for another leg higher. All things being equal, investors tend to migrate to smaller growth companies when they feel good about future economic outcomes. Conversely, they tend to migrate away from small caps (IWM) when deflationary or recessionary concerns are gathering steam. Currently, small caps are healthy from a weekly trend perspective.

Credit Markets Tame

Another way of keeping tabs on the tolerance for risk is to compare the performance of riskier “junk” bonds to more conservative long-term Treasuries. When the ratio below is rising, it tends to be bullish for stocks since it reflects confidence that junk bond holders will receive their principal and interest payments in a timely manner.

Investment Implications

Since the S&P 500 was able to clear the key levels of 1628 and 1643, noted Tuesday, we redeployed some additional cash in the well-diversified S&P 500 ETF (SPY). If our models reflect continued improvement in the NYSE Composite, S&P 500, and Dow, we will be more open to gaining additional exposure to leading sectors, such as small caps (IWM), financials (XLF), and consumer discretionary (XLY). Should the S&P 500 retreat below its 50-day moving average (1629), our short-term bias would become more defensive.

Stocks Remain In Vulnerable Position

Sunday, June 30th, 2013

S&P Push Back Above 50-Day Would Relieve Some Bearish Pressure

This week’s stock market forecast and technical analysis video covers bearish vulnerabilities that remain in place, as well as hurdles the bulls must cross to improve the technical outlook.

Video Contents - See Below Player

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Video Contents

The video kicks off with “Simple Is Important and Simple Works”; a segment covering a time-tested method of monitoring stock market trends – see 2:03 mark of the video above.

An update is provided comparing the markets current technical profile to two vulnerable and bearish periods in 2012 – see 4:17 mark.

Key levels and areas of potential support and resistance for the S&P 500 are covered on daily and weekly charts - see 7:38 to 9:30.

On-going deterioration in stock market breadth is covered at the 9:30 mark.

A key trendline dating back thirteen years (2000-2013) remains in play as potential support for the stock market – see 11:44 to 12:50.

An important DeMark indicator used to identify the primary trend remains in play for both the S&P 500 ($SPX) and the futures market ($ES) – see 12:50 mark.

The VIX Fear Index remains within a “hope for a stock rally” channel. However, an area is close by that could signal another leg down in stocks – see 14:46.

The present day weekly looks of stocks and a long/short ratio continue to lean toward the bearish camp. Bullish hurdles that need to be cleared are outlined – see 15:18 to 16:26.

If the bears wish to maintain control, the ratio of stocks vs. bonds will most likely need to weaken in the coming days and weeks. The video describes what to look for and why this ratio matters – see 16:26.

The last portion presents two areas that have held up relatively well – small caps and credit spreads – see 17:54 and 18:42 marks.

Bulls Maintain Grip On Trends

Saturday, June 8th, 2013

BIG PICTURE STILL BULLISH: This week’s technical analysis and stock market forecast video covers bullish trends from a daily, weekly, and monthly perspective. We review the CCM Big Four charts, look at where the markets held this week, the VIX, and small caps. ETFs covered include SPY, SH, AGG, JNK, TLT, IWM, and VXX. Video contents and times below video player.

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Video contents:

  1. $SPX long-term breakout retest - 02:22
  2. $NYUD breadth breakout holding - 03:09
  3. S&P 500 daily trend - 03:29
  4. S&P 500 weekly trend - 04:46
  5. S&P 500 monthly trend - 06:02
  6. Big Four - S&P 500 - 06:57
  7. Big Four - Longs vs Shorts - 08:02
  8. Big Four - Stocks vs Bonds - 08:50
  9. Big Four - Credit Spreads - 09:22
  10. NYSE Composite still tentative - 10:22
  11. VIX analysis - 13:29
  12. Retracements and Trendlines - 14:47
  13. FIBS and 50-day - 16:13
  14. Daily DOW - 17:32
  15. Risk-on vs Risk-off - 18:30
  16. Small Caps - 19:50
  17. Hedges - 20:04

Bulls Stay In Control

Friday, May 17th, 2013

Since we noted numerous weekly divergences were cleared in a bullish manner in this May 4 video, the S&P 500 has gained 52 points. After reiterating the bullish set-ups in this May 10 video, the S&P 500 added 32 points in the past five trading sessions.

Bullish Charts on Twitter: On Friday, we added a few links to bullish charts on Twitter (click here).

New Video Coming Sunday: We will be posting an updated video this weekend - look for a link here or on the CCM Twitter Feed.