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Wednesday, November 14, 2018

Watchlist Update: November 14th, 2018


Market Pulse.


The stock market is threatening to finally enter a bearish stage, judging by the movement of SPX that, technically, fell again under the SMA200 and struggles to overcome it. We mentioned that its monthly chart closing under the SMA10 was a bad sign, and now the usual Christmas mini-rally is in danger of not being made. Some notes:
- The Apple AAPL 5% correction is pulling down the Nasdaq and the entire technology sector XLK, and this time seems it will continue in the short term because there are some fundamental aspects.
- The Trade War makes Wall Street move according to its rumors, news and subsequent denials. Now, it seems that Trump and Xi could meet on November 30 at the G20.
- The VIX volatility reached the psychological value of 20, after many indecisive sessions.
- The dollar remains very strong against all its peers, but today's inflation flat data can generate more pressure to the FED about a Rate Hike in December. 
- On the other hand the apparent tranquility of the 10-year T-Bond yield TNX at the 3.15% level and the collapse in the price of oil /CL (12th. straight sessions of declines, and today falling 6%), can help the market in the mid-term. 
Let's see some technical charts and ideas for stocks of my watchlist.


Comparison between sectors


This comparison chart shows the performance of the nine main sectors during 2018. Shadow in blue sky is the SPX, the benchmark. As we see, since early October, the default three defensive sectors (Staples $XLP, Health $XLV and Utilities $XLU) still leading the market, signing a clear downtrend, confirm by the Sector Rotation Model above, in red.

Apple Inc. AAPL, $192.595


Apple today at a crucial moment when trying to bounce in its SMA200 after 6 months over this. A "buy the dip" trade or wait for the rebound: that's the dilemma. Meanwhile, the bear signals continue strong in the MACD, but now an excessive overbought in its Stochastic can mean a rebound. Good time to trade options or spreads as implied volatility is below historical data. Finally remember, AAPL, despite their problems in the sale of their iphones, is always a long-term sure bet.


Nvdia Corp. NVDA, $203.06


NVDA is one of my favorite stock for daytrading. Always its good volume and volatility above 60%, guarantees good daily movements, but requires constant vigilance. This week several entry points (that usually happens in the first half-hour of the session) were given using the ADX-Ichimoku strategy reviewed in a previous post. Using levels of support or resistance from the previous day and verifying the required price and chart conditions (breakout, above/below cloud, ADX>20 and Tenkan exit), fast profits can be obtained. The ADX-Ichimoku, as all, not infallible, but good strategy in days of choppy markets. Remember in Thrusday, Nvdia reports Q3 earnings.

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Thursday, November 8, 2018

Trader Notes: A Second Line of Technical Indicators


Yes ! There are many reliable indicators as MACD and RSI !


The oscillators MACD and RSI, together with the moving averages, form the standard trifecta of a trader for the technical analysis. Because of its popularity, efficiency and simplicity, everyone, without exception, knows and uses them. So I'm not going to detail its benefits, only give some additional notes about them.

The MACD (Moving Average Convergence/Divergence) combines trend with momentum (or acceleration) of the price, and its signals are simple, we know: bull and bear crossovers, line plot above zero means trend up, plot below zero means trend down, rising histogram means buyers increasing, falling histogram means sellers increasing. My personal note: take care of the divergence of MACD-histogram with price in daily charts, because they had frequent errors if it is not used correctly. For this reason, the recognized trader Alexander Euler recommends using the EMA13 line as a confirmatory signal, verifying that its slope points in the direction of the divergence, bull or bear. In my trading, sometimes I add a second confirmation with the same MACD but in the weekly chart: verify if a MACD crossover matched with the divergence of the daily chart.

The RSI (Relative Strength Index) is also an oscillator but it gives different information than the MACD. It qualifies the situation of the stock as overbought or oversold according to the value of the indicator on a scale of 1-100. Its crossover at levels 30 and 70 are used by traders as a probable reversal or trend confirmation, depending on trading style of each one. You can also used its divergence with price (I do not usually do it), but never as an indicator of the trend of a stock.

Technical indicators there are hundreds, to taste of each trader and his trading style. In my case, after having tried many of them during my years of trading, I manage a "second line" of technical indicators, which serve only as a complement to use in conjunction with the main ones, only to reinforce any bull or bear signal. Usually a good technical analysis can be done with 2 or 3 indicators, its enough. Remember, there are just indicators, not a strategy. There's no infallible or magic indicator: all of them give sometimes false signals. Select and use your favorites indicators in a multiple timeframe (making the strategic decision on the weekly chart and the tactical choices on the daily chart), in conjunction with fundamental analysis for a best trade.


Is necessary read the MACD with a confirmatory study as EMA13 (black line). This avoid false divergence signals as happen this year in Novavax chart during early July.


TTM Squeeze: a mix between Bohlinger and Keltner


Previously I should refer to two other popular indicators, which are quite similar, but give different readings. Both plot lines as an envelope around price, based on stock volatility. The Keltner Channels use a smooth exponential moving average as mid-line and the Average True Range as offset, while the Bohlinger Bands uses a simple moving average and offset with the standard deviation, which varies proportionally with the volatility. Both are useful as trend-following indicators, and its a good idea use them with a momentum oscillator as Stochastic or RSI, and the ADX to identify trading ranges.

In summary, the upper and lower bands of the Bohlinger represents overbought and oversold levels. Take note that touch a band isn't necessary a sign of reversal, but probably a low-risk entry point. Keltner had different readings depending on stock behavior: if it's trending, a close above the upper is a bullish signal, while below the band is considered a bearish one. If it's ranging, envelope lines can be interpret as overbought and oversold levels.

An indicator relates both: the John Carter's TTM Squeeze. The idea is very logical: when volatility increases, the Bohlinger Bands are widening and enveloping the Keltner Channel, while when the market is consolidating (period of indecision) the Bohlinger are inside the Keltner and the market is squeezing, preparing for a breakout to come.


As expected, different indicators give different entry-exit points. Compare several indicators, and define your risk-reward before your trade. The location of the stop loss is key to this.





Carter designed the use of dots across the zero line: red dots indicate that squeeze is on, so a consolidation breakout is coming. Green dots represent squeeze off, so market is trending. The trend momentum oscillator histogram is show by colors: in my configuration I use green for trend up and grey when its decreasing, and red when trend is down and grey when its decreasing. 

When the indicator is on (green) and the momentum oscillator is also green, is consider a buy signal for a trend-trader. When the indicator is on (green) and the histogram is red, is considered a sell signal. Both signals are supposed to be correct until two grey bars in a row appear. Try this interesting indicator in your favorite trading platform.


On Balance Volume (OBV), a different one


Less popular than those described above, the OBV is a trend indicator that measures the pressures of buying and selling, adding/subtracting volume on up/down days. Is simply a running total of up and down volume: when the security closes higher than the previous close, all of the day's volume is considered up-volume, and when close lower than the previous day, all of the day's volume is considered down-volume

As it uses volume in its calculations, and volume, in theory, precedes price, the OBV have truly good advantages versus others:
- A rising OBV reflects positive volume that can lead to higher prices. 
- As rising volume confirms an up or downtrend, if price movement precedes OBV, then it is consider a "non-confirm" movement.
- So, OBV breakouts normally precede price breakouts
An OBV ranging is an undecided trend: better hold until the trend changes.
- OBV are also useful for anticipate trend reversals, using its bullish/bearish divergences with price.
- Be careful when volume spikes: it usually throw off the indicator at that point.

OBV divergences are infrequently but powerful signals. Always use in conjunction with another indicators, as an oscillator. This ADP chart show three of OBV features.
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Monday, November 5, 2018

Weekly Outlook for the S&P500

S&P500: Some keys for the week.


In the fundamental aspects, there are important events this week that will determine the path of the SPX, highlighting two: one, the US Midterm elections, which will surely end with the Senate in the hands of the Republicans, and the Congress probably with the Democrats. Any other result would give the market strong volatility. The other, on Thursday there will be the FED Announcement, where, although no Rate Hike is expected, traders' eyes are in the report with the perspectives of the Central Bank for 2019. In the background, like every week since April, the catalyst of always: the news of the advances (or setbacks) in the Trade War with China. Any news here moves exaggeratedly the SPX and the entire market. Thus, last Friday, Trump announced that he was close to an agreement with China (SPX immediately soaring 1%), and then Larry Kudlow expressed prudence even on the subject (SPX abrupt sinking -1%). All in few hours of session.


To take into account: the period from November to January is historically the most bull on Wall Street.


Within the technical aspect, despite its good last week, finally the SPX index closed October below its 10-month simple moving average, the SMA10. A worrisome signal as, it was already commented in this previous post, is an indicator used by "heavy" banks and financiers to make long-term decisions. This month of November, it is advisable to follow the market with caution, ideally, as I said, by exiting long-term positions. In my case, I already did it, and I will only operate with very short-term trades with tight stop losses.


Its daily chart sees a recovery towards its SMA200, in a new attempt to overcome it and give the green light to the traditional Christmas mini-rally. It has already been commented many times that the period from November to January is, historically, the most bull on Wall Street, and if the SMA200 is not overcome, it is very difficult to wait for this year to happen. You can also see an interesting bull crossover in the MACD but with the plot even in negative territory.


SPX is heading towards its SMA200 in a new attempt to overcome it and start the mini Christmas rally.

10-year US T-Bonds: follow $TNX chart


The TNX chart will be the most important that I will follow this week. Remember that the recent "Red October" began due to its fierce increase, reaching levels of 3.25% that it had not since 2013. 

Last week it began another solid uptrend, and we already know how sensitive Wall Street is to this rises, as well as to inflation, both causing to cool a healthy economy. Already in this previous post I commented that finished the sell-off this yield could continue its rise to the level 3.5% to give more steep to the currently very flat yield curve, not consistent with a growing economy like the North American.

TNX approaching again at 3.25%, the level that burst Red October. Go with caution if it get over this week. On my radar.


Crude Oil, /CL: pullback ends?


In an environment where there are positive and negative aspects for the market, the Crude Oil will take importance these weeks like the faithful of the balance, that probably mark the way the SPX will follow.

The recent and strong pullback of the price of Crude Oil suits very well for the market, since it is a factor that helps the inflation index not increase excessively. Throughout the year /CL price has been rising to over $75 level and although it was expected to increase further with the problems of Iran, finally the necessary technical correction has brought its price to $63, below its important SMA200. The interesting thing is that this pullback could be ending soon because the price is completely oversold and can turn around.


Crude Oil in October below Ichimoku Cloud and last week below its key SMA200, breaking $64 level. Many bearish signals. In favor: hugely oversold.
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Thursday, November 1, 2018

Trader Notes: InterMarkets Analysis. Part 2


John Murphy.


This post complements the previous one published a few days ago and aims to give a summarized idea of ​​what intermarket analysis is about, study developed by John Murphy in his two classic books 'Intermarket Technical Analysis: Trading Strategies for the Global Stock, Bond, Commodity and Currency Markets '(1991) and' Intermarket Analysis: Profiting from Global Market Relationships '(2004). Although they may seem out of date because it does not deal with recent events such as the crisis of 2007, its reading is indispensable for a trader because it gives us a global vision and a better outlook when explaining in very detail the relationship between the four major asset classes (currency, commodities, bond, stocks) and how they influence one in another. This will allow us to establish our portfolio, telling us the best place to start investing in instruments for the medium and long term.


Inflation and Deflation


A basic idea of ​​Murphy's book is to understand that the correlation between markets depends on the environment, which is stronger: inflationary (like the current one, with the general level of prices increasing), or deflationary (the opposite). Both extremes can be harmful to the economy: the first decreases the value of money over time, the other causes one to postpone his purchasing decisions ('I do not buy today, the next week will be cheaper'), situation which ends up increasing unemployment. The ideal is to maintain price stability, with a low and stable inflation, never close to zero, being the order of 2-3% the usual target.


Main correlations


There are several but I only summarize the main ones. In an inflationary environment, stocks and bonds move in the same direction, or have a positive correlation. The useful fact here is that bonds usually change direction before stocks. Another key correlation is the inverse between the dollar and the commodities, being the best known and used by the traders the inverse gold-dollar relationshipAgain, the useful fact for the trader here is that commodities usually change direction after stocks. As a complement, in inflation, a fall in i-rate drive up stocks (stimulate the economy, as in the USA 2009-2016 period) and also bonds (lowers its yield, which is the inverse of the price).



The intermarkets relationships during deflation are largely the same in inflation, except for one: stocks and bonds have a inverse correlation.


In deflation, the fear of it moves the money from the stocks to the bonds, especially towards the safe Treasury Bonds that raise their price, lowering their yield. Observed that the relationship between stocks and bonds is here, inverse. What a central bank usually does as a solution is increase the i-rate to decrease the deflationary effect in the economy.

The charts are explained alone: ​​the best hedges according to
the environment, inflationary and deflationary: gold and bonds, respectively.

Dollar vs. Commodities (or USA vs. China...)


It is understandable that when an economy strengthens and inflation begins to rise, commodities begin to have more demand and raise their priceThe main reason for the inverse relation between the dollar and the commodities is that this are quoted (exchanged) in dollars. When the price of the dollar falls, emerging markets importers will have more purchasing power and therefore, demand for these products will increase, which in turn will cause a rise in the prices of products. So, commodities have a positive relationship with stocks and i-rate, and inverse with bonds, both in inflationary or deflationary environment.

One of the best lessons of intermarket analysis: the inverse relationship between the dollar and commodities. This 2018, the crisis of emerging markets, very linked to commodities, is generating the strengthening of the dollar.

Remember, a strong dollar will always be a problem for a commodity, given that these are always traded with that currency, while a weak dollar is usually a stimulus for exporters and therefore for commodities. Thus, in 2015, China devalued intentionally its currency (falling its exchange rate through a rise of the dollar/yuan pair) to lower its exports (and make imports more expensive) and therefore accelerate its growth to the annual target of 7%. Since 25 years China lives with a trade balance in surplus (exports> impots), with reserves and a fixed exchange rate. 

In the USA, in 2017 the dollar remained under great pressure, as it was expressed Trump's intention to keep it weak in the short term as a government strategy, to favor exports and weaken imports. Totally different this 2018 with the dollar strengthening towards the long term with the beginning of the Trade War and the tax reform, as was the initial express wish of Mnuchin. Definitely successful Trump's strategy with the dollar, complicating all its global peers and emerging markets.



Practical applications


The InterMarkets Analysis has many practical applications in real trading when, with the help of technical analysis, we compare two instruments, of any of the four major asset classes mentioned, that have some relationship between them. This analysis has the advantage that it can anticipate a technical signal on one side to be used on the other.

In Investopedia, the most popular encyclopedia used by traders and investors, there is an interesting case of how Intermarkets Analysis helps the trader, with a example that relates the Hang Seng index of Hong Kong with the semiconductor sector SOXX in Wall Street, both of high correlation since many of its components are manufactured in that Asian country. I suggest a careful reading and analysis from this link.

Example of application of intermarket analysis: the correlation between the Hang Seng index and the semiconductors sector of Wall Street. The first  can anticipate movements with days in advance to the other.
Read more »

Monday, October 29, 2018

The indicator that Wall Street will follow this week

The SPX index, the most representative and important of the NYSE, has been sinking more than 9% this October, losing near all YTD gains. The Nasdaq is also a loser, having its worst month since 2008. Some ideas and reasons for this sell-off, I outlined in this previous post. Now, this week, Wall Street' traders eyes will be on a specific technical indicator. It is the 10-month simple moving average or "SMA10".

The 10-month SMA indicator is equivalent to the well-known and widely used 200-day SMA, given that 10 months of sessions equals almost 200 trading days. The great advantage of the monthly is that it gives a cleaner signal and reading, free of so many false signals of breakouts, pullbacks and whipsaws that are usually presented in a daily candle chart. It is not infallible, but the 10-month SMA helps filtering out all the 'noise'. It's well known that banks and financiers use it and make their investments in the stock market based on their signal.

This indicator is for be used in indices trending up or downward, and its strategy is quite simple, almost elementary: buy (or hold your position) when the candle closes above itEach monthly candle of the chart begins with the opening of the first day of the month and is completed with the closing of the last monthly session, in this case this Wednesday 31. The key is to know if the current sell-off continues and the SPX closes below its SMA10 at the end of that day. Only 3 sessions remain and today SPX is near 100 points below it (2,658.69 vs 2,754.07). 

If happens, it is almost certain (there are no fixed rules in the trading world, only historical data) that the market will enter a correction, instability phase, so it's better to stay out of it. Exit all long-term positions, until price cross it upwards. See in the chat below the accurate sign that this indicator gave during the last crisis of 2001 and 2008. It avoid many headaches and shattered portfolios applying this very simple strategy.


It is not an infallible index (there is none) but it is reliable enough to avoid catastrophes in a portfolio. The EMA10 pointed out the two last major Wall Street crises and the best moment of return.

As a corollary, say that this indicator is applicable if you want to go long in any stock or etf. It is enough to see the entry/exit signal that it gives to proceed.

Finally, an alternative idea for trading in November (assuming the SPX below the SMA10), is through the volatility, which moves in opposition to it, doing it through the VXX etf, or with the triple speed 3X UVXY, for lovers of higher risk-reward. My usual strategy this volatile days is first buy hedge through VXX calls, waiting for the rise in volatility before the sell-off arrives, and at that moment finance the purchase of SPY puts.


The current crisis in emerging markets was also signaled by the indicator. Since May, its EEM index closed the month below its SMA10.
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Friday, October 26, 2018

Watchlist Update: October 29th, 2018

Brief comments and ideas of stocks that belong to my Watchlist. Today the SPX is, technically, in a 2-day slow recovery, but still below its key simple moving average 200, with many bearish signals. Let check some Nasdaq stocks:

Twitter TWTR, $32.36


Twitter TWTR: usually its uptrends are short but strong. Its daily chart confirmed MACD bull divergence today, when its EMA13 (black line) slope turn up. 


Advance Micro Devices AMD, $17.75


AMD in free fall since dissapointing earnings. Friday down 8% and testing
 the key support SMA200, for first time in six months. My swing trade if no rebounds: short.


Square SQ, $71.43


Square SQ testing short-term downtrend channel in its 10-min chart. Take care: today it has been made a huge 400k insider selling. In my radar for Monday.

VMWare VMW, $145.02


VMWare VMW testing its SMA200, and well oversold. Waiting next MACD bull crossover. If happens, is the sign for a long entry.

Read more »

Tuesday, October 23, 2018

Watchlist Update: October 23th, 2018

Brief comments and ideas of stocks that belong to my Watchlist. Let see some tech stocks today.

Advance Micro Devices AMD, $25.04

- Its next earning report (Oct 24th) need to be convincent for investors. Nvidia NVDA is again turning strong in the cryptocurrency and gaming markets and Wall Street is reacting to this, giving down AMD price to the important 38.2% level of Fibonacci and with its first MACD bear crossover since April.
- Is increasing its volatility to levels of 90%, making this stock better for daytrading or swing trades. A bit dangerous for invest long.
- I'm neutral this week until Q3 earning.

Dropbox DBX, $23.49

- My favorite file-sharing application since it appeared 10 years ago. What makes it special is its ease of use, intuitive and elegant, that served as a model to its giant competitors: Google Drive, Microsoft OneDrive and Apple iCloud. What keeps her alive in the face of these monsters, is its accumulated prestige over the years and its focus exclusively on file-sharing.
- After your recent IPO this 2018 at $ 29, today you are near your minimums at $ 22.
- Already issued its two first reports and were very successful: growth 27% YoY, Cash Flow> $100M. Its November earnings will be key because its guidance and operating margin has been raised, both good signs for investors.
- Technically, I keep an alert at all time low, waiting for its Q3 earnings, for my first buy in this stock.

Paypal PYPL, $87.23

- Its very important the data of 9 million additional active accounts for the last quarter. This generate nice growth numbers in revenues, income and earnings.
- Its Venmo social payment application gets stronger every day, and its new "smart payment button" is a good innovation for the platform and very useful for its costumers, despite Square SQ and the success of its "Cash App" this year. Venmo, in the future, probably becomes the most profitable payment solution for the company, making PYPL a buy in the long term. I'm holding  my position, open after last earnings.
Today, despite the early sell off of the market, PYPL maintains its strength (+2%) and can break its weekly resistance at $86.25. I see this stock, at the end of the year, towards its recent all time high at $93.70.

VMWare VMW, $144.96

- Now, as all the technology sector XLK, is in a profit-taking period.
- With great numbers in revenues, EPS and cloud license sales, VMW is a buy in the long term. Guidance for 2019 also show growth rates. Its usual price corrections comes when Dell, its parent, post unclear news of merger between both companies. Be careful with this detail, using a tight stop loss.
- Technically, its chart is testing the key moving average 200, completely oversold. I'm looking for a rebound after today markets sell off and a bull crossover in the MACD, for enter long.



AMD, weekly chart: touching important Fibonacci level, now in "value zone". One of the most popular and trade stock in Wall Street.
DBX, daily chart: showing its performance since IPO. I have it on my radar because I basically trust in the quality of its products.
PYPL,10-min chart: near to break week resistance. Its Venmo application is the future of this company, and the reason to hold my position.
VMW, daily chart, testing key support at SMA200. Great cloud service company, trade carefully because of Dell partnership.

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