Market Internals, the Reflation Trade, and Emerging Markets

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Tickers discussed: SPY QQQ IWM EEM FXI TLT USD WTIC VIX $CRB Market internals

The Daily Profit Compass  provides the stock market analysis for the day. Key levels and trading locations for the indexes are provided, along with trading plans and timely commentary to keep you on the right side of the trade


Trader’s Couch: 

Anger & Aggression vs A Calm Mind




There are traders who deal with bitter disappointment with anger and aggression and put on a revenge trade; it feels good. Then there are aspiring traders whom face adversity and disappointment with a calm mind, poise and inner fortitude.  Which one are you?  Which one to you want to become?

Earnings Calendar – The week is loaded with Risk and Opportunity

Earnings really ramps up this week and it could not come at a more critical time. Key FAAMG names headline the week along with several marquis names in other sectors. AAPL / AMD / BA / TSLA / MCD / SBUX / MSFT / FB / AMZN / V / XOM / CAT /     Lots of market cap here that will most assuredly move the market one way or another.

Market observations and Strategy

Market Internals, the reflation trade, and Emerging Markets

If you missed last night’s recap, you can find all the key levels on the indexes HERE

Today I cover off some market internals along with looks at the reflation trade and the effect of the corona virus on China and EEM.

Unless you’re a nimble, intra-day trader, I would not get too wrapped up with today’s price action. So what if they bounce it ahead of AAPL, the FOMC and all the other names reporting this week. Means nothing for the bigger picture.

What we want to do is determine if the past 2 -3 days was a blip in an ongoing bull market or an emerging trend change that may last for several weeks to months. We will know more later this week and early next week.

Market Internals

McClellan Oscillators

Both oscillators are in a remarkably similar position. Both are about to enter an oversold condition. The deeper these oscillators push into oversold territory the more viscous the snap back rally can become.  Refer to Q4 2018 to see what I mean.  Shorts – beware of shorting into the NYMO hole. It usually does not end well.

Percent Overbought / Oversold by Market Segment

For each market segment, the chart shows the % of stocks above their 20ema.  In the upper panel a guideline is given how to interpret the charts for bearish or bullish moves.

We are rolling out of overbought conditions but not yet oversold enough to expect a bullish move.

Put / Call Ratio Extreme-O-Meter

The chart shows extreme call buying ( above the red line) and extreme put buying ( below the green line) .

You can see the recent extreme call buying cluster.  While in the bull market phase, the indicator has done a much better at calling bottoms than tops.  If we see extreme put buying in the next couple of weeks, it will likely mark an end to this pull back. We’re not there yet.

Advance – Decline Percent

The criteria for a bullish signal is shown along with the criteria for when the bull signal is cancelled. As you can see across the market segments the most recent bullish signal is about to be negated.

VIX – Volatility

Volatility recently broke out of a well-defined downtrend. In order to maintain an “open-door” to higher vol, price has to stay above 18.  At the very least, price needs to stay above the downtrend line for the bears.  Price moves below 15.50 favor bulls and higher equity prices.

The Reflation Trade – Epic Fail so far

With every analyst and talking head calling for a falling dollar, rising yields, and reflation trade emerging, of course, the market does the exact opposite.  The dollar is rising, yields are falling, and commodities are falling through the floor.

$USD – Breakout

$TLT – Breakout

Commodities Index Collapses  ( $CRB and $WTIC )

China and Emerging Markets

China and the Emerging Markets have paid a heavy price with the Corona Virus outbreak hammering these markets. What was once a promising trade a week ago now seems tilted to the bearish side as price for both FXI ( China Large Cap ) and $EEM weekly charts losing their uptrend lines and having yet fallen to support.

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