Friday, May 24, 2019

Market Pulse through some Main Indicators



SP500 Index SPX, 2826.06


May, is always a difficult month for the stock market, and as I said in the previous post 'Sell in May and Go Away', the explanation of its recent fall is in the swings of the TradeWar, there is no more. It seems Wall Street discounted from January to May a "great" agreement between the US and China with the impressive rise of the SP500 (also thanks to stock buybacks, of course!) and now notice it will not be like that. Today, in moments of maximum tension, with the recent case of Huawei, the market seems to have opened its eyes not only to the complexity of this trade agreement but to assess the already many contradictory results in the US economy (for example, the recent very low ISM). Therefore, it's logical to presume that this correction should continue in next days or weeks. Current Trump's desperate last statements or tweets to bring the market up are notorious. He has done it before, let's see if he does it these days. That is the stupidity of today's market ...

Technically, the SPX made it difficult to overcome the strong resistance at 2,950 at the beginning of the month and its recoil is reaching the 23.6% of its Fibonacci, where it is forming a clear head and shoulder pattern with the last candle touching the neckline support. Its resolution will be key this week: if rebound it could enter to a moe clear ranging mode, with the possibility of overcoming the Kijun and the Ichimoku cloud in 2,874. If falls, its next support would be the powerful SMA200 in 2,777, and further down the 2,718 the 38.2% of its Fibonacci.


US 10-year Treasury Rate TNX, 2.32%


The TradeWar tensions and the indecisiveness of the market move investors taking refuge in the solid US Treasury Bonds, instead of other classic safe-haven instruments such as gold or Japanese yen. Today the benchmark US 10-year notes yield TNX has reached 2.3% the lowest since 2017, even below the 3-month Bill, which again revives the fears of a yield curve inversion.

Technically this indicator is moving in a bearish downtrend channel since January, being now in the lower line, prior to a resolution: could rebound to the channel or break this line and fall to levels of 2.2%. In the short-term, I see here a necessary correction upwards. To follow this week through the US T-Bond ETF TLT or triple speed 3X TLF (bullish) or TMV (bearish).





iShares Russell 2000 Index 
 IWM, $150.79 


The small caps, followed by the Russell 2000 IWM, generally suffer the swings of the market in a more marked degree, due to its greater volatility. Today, it's not exactly the best sector to invest in the middle of a Trade War but you can take advantage of its current ranging price for a swing trade. 

Since January it's moving orderly in a narrow horizontal channel between two clear support and resistance, $150 and $160 respectively, in which its main indicators are converged: SMA averages 50-100-200, and Ichimoku lines and cloud. Its ADX=18.6 (less than 20) confirms the range zone, and for these cases, the Stochastic is the best indicator. It's in 13.27, that is to say, very strong oversold, the reason why an upward rebound in the short-term can be expected. Mindful that its movement this week can correlate and influence other main indices such as the SP500 and Nasdaq.



SPDR Financial XLF ($26.86) and Technology XLK ($73.30) Funds


Some brief notes from the two most important industrial sectors of Wall Street: Financial XLF and Technology XLK, both unfavored in the current Sector Rotation, leading by the bearish Utilities sector XLU.

The Finance Sector can suffer more than any if the yield curve inverts. In addition to this, the crisis of certain major banks in the sector such as the Deutsche Bank DB (in historical lows) and a certain weakness of the Big Four, at the expense of Buffett and Berkshire, justify their bearish bias since April. Technically its weekly chart shows its price bordering his SMA50 and 100 averages, in neutral mode (yellow point in the last candle) according to the Elder Impulse System indicator.  FAS and FAZ, triple velocity ETFs of this sector, seems interesting to follow this week.

As for Technology, after its price forms an inverted V, since one month it's correcting very strongly due to the high tension in the Trade War, which has taken a decisive focus on technology. Trump and Xi know the importance of this sector, they know that who dominates the technology will become the number-one commercial world country. That is why the Huawei case is seen as only the beginning of a "Tech Cold War" that will not end even if both countries reach an agreement. Chinese reprisals against Apple AAPL are feared soon, which can deepen the XLV fall.

Both sectors find their price between the EMA exponential averages of 13 and 26 of their weekly chart, the "Value Zone" defined by Alexander Euler as the ideal moment to invest in a stock. Let's wait for some next news to predict a movement here. Now fundamentals are key here, more than technical analysis.


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Saturday, May 4, 2019

Sell in May and Go Away? Depends on Trade War.


Market Pulse.


"Sell in May and Go Away" says the popular phrase, which is also a well-known adage in Wall Street. Last week the stock market closes in a moment of grace: the SP500 SPX in all-time highs and great numbers in economic events, especially the recent Employment data with great jobs numbers, with a 50-year record unemployment rate and flat average hourly earnings. That's the perfect combination for bull investors: the U.S. economy is strong and with growth without inflation. Also Wall Street is closing an amazing Q1 Earning SeasonThe only divergences are some market overbought signals (not critical yet) and the recent Powell speech, that Wall Street disliked, especially when he told that only a "persistently" low inflation would make the FED consider a rate cut. 

Finally, the Trade War is a separate chapter in this story: could finish (or not) with an agreement in the next weeks, nobody knows, probably neither Trump. As I always said, its resolution is key for the future rise (or drop) of the markets in the short-term.


Update: Today, May 5th. 

Trump in a tweet: Trump vows higher tariffs on Chinese goods.
Answer from Chinese: China considers skip trade talks.
Consequence: now, 22:40 EST, sell-off in world futures markets  SP500 /ES -2%,  Oil /CL -2.5%, DAX -2%, HangSeng -4%, VIX /VX +16%.







"Main15" Stock Watchlist for May


Some brief technical notes and forecasts of the stocks that make up my watchlist "Main15" for May. As usual, remember, they are NOT buying suggestions, only my personal ideas.

1. Cree CREE: after a successful earnings report, continue strong its bull rally, more than 10% in April. As it's trending, I'm only checking weakness signs in its MACD (and its financial news, of course) for taking profits and entry in the pullback. Great stock for all 2019.
2. Cognizant CTSH: its recent Q1 earnings report disappointed Wall Street traders, closing down 11% the session. It seems an entry short is the best play for the short-term.
3. Facebook FB: great performance in April, far overcoming all resistances, now going towards the $200, despite the usual uncertain news about its privacy and data management of its applications. His next resistance at $198, the 78.6% Fibonacci retracement of its fall since August.
4. Fiserv FISV: last weeks returns to its ranging channel between $82.5-87.5, due to its earnings report that beat EPS, flat guidance, but miss sales. I prefer to stay neutral in this stock, but checking carefully the level $87.50 for a possible breakout.
5. General Electric GE: trading now at $10.50, is again its an interesting stock for the short-term, as recently beats earnings and overcomes many resistances in April: the three daily SMA (50, 100 and 200), and the Ichimoku cloud. I'm long here.
6. Illumina ILMN: this health-sector stock came here from my Radar watchlist, after a good earnings report, beating EPS and sales, with flat guidance. Technically is now above all its daily SMA, touching the upper line of an important downtrend channel that could send this stock to $350 levels. Waiting for a more clear breakout: it's my entry signal.
7. Lennar LEN: Housing sector is recovering this year from a disappointing 2018, and Lennar is a key stock in this sector with its 35% YTD gain. Stock mainly for long-term investing, its next important resistance is in $54.68, the 50% Fibonacci retracement of its 2018 drop.
8. Netflix NFLX: the popular FAANG stock is now in my Main15 list due to its recent good earnings and nice world subscriptions numbers. Disney DIS new streaming service was a tough jab that I'm sure Netflix could assimilate well in the future, due to Hastings abilities. Now the stock is in a ranging channel $340-380 all the year, that yesterday overcomes. Probably a breakout is near here.
9. Paypal PYPL: same as in April, technically is unstoppable. One of the few stocks that did not suffer the market correction at the end of last year. Permanent member of my watchlist, I continue long here, with a tight stop loss now.
10. Roku ROKU: as an stock in a ranging phase (ADX<20) rebounding in a channel, it moves well according to the Stochastic indicator. I twitted that two weeks ago, for a nice rebound and next profit-taking. Today is near the upper line of its downtrend channel. I'm neutral, due to its huge volatility, waiting for signals and next Earnings Report.
11. Snapchat SNAP: as I remark always, it is a stock only for short-term speculation, never for a long investing. It's approaching its real valuation, I presume near $12-13. Probably recover to that levels in May due to upgrades because it slightly beats its recent earnings.
12. Atlassian TEAM: another stock winner, in my watchlist since January. I'm long here since it broke the psychological $100 level. Sank after its recent earnings but now is filling that gap, breaking its SMA50. Good pullback for an entry long.
13. Tesla TSLA: continue being the most hated (and the most loved) stock in Wall Street, due Elon Musk personality. Its fundamentals, news (as recent capital raise), and Musk tweets are key in its performance. Technically, the same as ROKU, is rebounding fine in a downtrend channel all 2019. Technical signs in MACD and Stochastic indicate some days in bullish bias.
14. Twitter TWTR: the bird breaks its 9-month resistance at $35, due to its good earnings report, and now the sky seems is the limit. Many bank upgrades confirm that. Long.
15. US Steel X: in April sank near 30% from $20 to lowest 2-year levels ($14.39) due to a Credit Suisse downgrade to $13 that make this a good stock for shorting it that month. Now, after an amazing earning report, it seems the gap could be filled in the next weeks. News of its new billion-dollar plant, a +17% day-recover and also an indirect Trump tweet are very good signals. Interesting stock if it increases volume because it usually takes off strongly.


Images were taken on May 4th, 14:25 EST 



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Friday, April 26, 2019

The NH-NL index do it again



By kind permission of Elder.com, the website of the recognized trader, Alexander Elder, I reproduce for you, literally, its recent article "Books and Trades #256: A Spike Lesson... Education... A new book special" of April 24th, about the accurate signal that gives the New High- New Low Index (NH-NL) indicator in the powerful market recovery since late December 2018, post which I publish hereNot popular in trading platforms,  in www.indexindicators.com you can find this indicator for the SP500 or other indexes. Just select the stock index, and in Breadth indicator the NH-NL option.

Now the SP500 SPX is all-time highs again and, in Elder' words, the question now "is whether the upmove will continue more or less uninterrupted or whether there’ll be a retest of the initial low like we saw in 2016. Some gravity is seen returning to the markets".


Dear Trader,
The letter I had sent to you right after Christmas, was headlined “A major buy signal on stand-by.”  The Spike signal triggered two days later and produced a record-setting rally.
Spike signals are very rare – they occur only a few times in a decade.  They are extremely powerful, but most traders fail to take full advantage of them.  I hope that the following recap will help you be better prepared when this signal occurs again.
A Spike is the strongest signal in technical analysis (which is why SpikeTrade group is named after it). It occurs when weekly New High – New Low Index (NH-NL) drops below minus 4,000 and then rises above that level. Do not confuse it with a Spike Bounce signal which comes from a daily chart in the monthly look-back window.  That lesser signal occurs many times a year (3 times so far in 2019) and delivers more modest rallies.
Let’s review three charts, showing the latest Spike signals, and then draw a lesson from them…


In 2009: an explosive 35% rally in 14 weeks, followed by a great deal more after a reaction to less than one ATR below value. In 2011: not shown because that Spike signal occurred intraweek. Still, it was followed by a great lasting rally. 

In 2016: an impressive 10% rally that lasted 20 weeks, followed by a lot more after two reactions to one ATR below value.
In 2019: a 16% rally over a 15 week period – and it may last even longer.
Most traders fail to take full advantage of Spike-driven rallies because they treat them as normal rallies and sell too soon.  It pays to hold a position taken after a Spike signal for a much longer time. I hope this review and analysis will help you in your trading. Best wishes for successful trading from all of us at elder.com.
Dr. Alexander Elder & staff
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Friday, April 19, 2019

Trader Notes: Trading with the Range Bars


Basics.


The Range Bars are a different way to create and read a stock chart. Develop by Vicente Nicolellis, it exploits the volatility of the markets, making the time irrelevant in a chart, eliminating it. The main feature of this tool is, in my opinion, the great way it filters the noise, and so, avoiding from our analysis many usual false signals and whipsaws.

In a time-based chart of, for example, 10-minutes, we have a bar every 10 minutes, and so the same number of bars for one hour, and so, for all the session, regardless the volatility of the stock. In the range bars, we don't know how many bars are going to be plotted because it depends on volatility: when it's high, more bars are printed. For low-volatility, fewer bars will be print.

Three basic rules define a chart with Range Bars:
- Each range bar equals a high-low range, the specified range that we have to decide.
- Each range bar must open outside the high-low range of the previous bar.
- Each range bar must close at either its high or its low.

The best way to understand the power of this tool is by comparing, in your trading platform, a usual 1-minute time-based chart, with a range bar chart, during an hour, or better, for a complete session. Spend your time watching the range bars in action, trying with different values of ticks as range setting for each stock or instrument, viewing when you get more clear charts, with less noise, so you can draw our usual support and resistance levels, trendlines, channels, triangles, etc.

As a tip, many traders recommend, as a range setting, the Average True Range (ATR) of the stock. That is a measure of volatility, consisting of a 14-day moving average of the true range (high minus low). Finally, another advantage of watching them in action is that we can notice the "timing" of the bars: the slower the bars were print, means lower volatility. The faster they were print, the greater the stock volatility, and so, better trading opportunities.


The best way to view the goodness of a Range Bars chart (below) is by comparison with a 1-min time-chart (above). Highlighted in yellow is an aleatory lapse of a session, between 13:00 and 14:30 EST. Compare the many whipsaws in the time-chart, that can confuse a trader, versus the clean candles in the Range Bars, almost flat, with unnecessary noise. That happens every moment in a daily session. A consequence of this is that the drawing of trendlines, supports-resistances, and patterns is more clear and trustworthy in a Range Bars chart.
Also, we can verify that in the last 30 minutes of the session, the candles in the Range Bars chart increases due to more volatility in the stock, a detail that we can't check immediately in the time-based chart.





Intraday Strategy using Range Bars 


After many testings, simply by trial and error, I prefer to use the Range Bars for a day-trade, with the ATR as range setting. Choose your own timeframe in the same way, always according to your favorite instrument and trading system.

In the web, you can find some strategies for use with range bars. After analyze and test many of them, I get better results with one described by Rockwell Trading. It's simple and powerful. The strategy use range bars in conjunction with the Bohlinger Bands (BB) to identify trends, although the BB works best in ranging than in trending behavior of a stock. For uptrends, use the upper BB, and for downtrends use the lower BB. A setup parameters of 12 for moving average and 2 for the standard deviation, works fine for day-trading. For identifying strong up-down trends, we need two more popular indicators: MACD (using its standard setup with 12,26,9) and RSI (Relative Strength Indicator, set up with 7 bars, oversold 30, overbought 70).

a) You identify the ideal entry point in a strong uptrend when:
- The upper line of the BB is pointing up 45 degrees or more and range bars are touching the band as a magnet.
- Confirm the uptrend if the MACD line is above zero AND above its average line. Use this to avoid false signals. 
- The RSI is a second confirmation: in an uptrend verify is above 70 and stay there for a while. 
- Only entry when the three technical indicators match with the conditions.
- End of Trend: when upper BB starts to flat or turns around, or MACD or RSI confirmations changed. Any of them.

b) The same procedure works for strong downtrend
- The lower line of the BB, the primary indicator, is pointing down 45 degrees or more and the range bars touching the band as a magnet.
- Confirm the downtrend if MACD line is below zero AND below its average line. Use this to avoid false signals.
- The RSI is a second confirmation: in a downtrend verify is below 30 and stay there for a while.
- Only entry when the three technical indicators match with the conditions.
- End of Trend: when lower BB is flattening or turns around, or MACD or RSI confirmations changed. Any of them.


Last week, US Steel X tumbles due news of two downgrades (Credit Suisse and Bank of America) and then technically because a breakdown from its 2-year support at $18. Since that day the stock is in a clear bearish bias, the trend to use for a short-term trade.
As you can view, the chart with range bars (using the ATR as range) fulfill the conditions of the strategy at 9:00 EST: price touching the lower BB that is pointing down 45 degrees, the MACD line (blue) is below both zero and its average (red), and the RSI is below the 30 level. So, the entry point is in that candle, with a stop loss in $16.9. Usually, this strategy is quick, in this case in less than 30 minutes appear the exit signals, simultaneously, for a gain of $0.4 per share. A simple strategy.







As 

As other strategies I post in this blog, this one, being intraday, requires constant vigilance and risk management and is a good method to avoid one of the main causes of losses in stock trading: the false signals. Try it first on PaperMoney mode, because requires practice: you will be amazed how it worksTake note that there's no infallible or magic indicator or strategy: all of them give sometimes errors. 

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