Tickers discussed: SPY QQQ IWM SPDR Sectors Risk on / Risk off Growth or value? Strategy update
The Weekend Profit Navigator provides a big picture stock market analysis for the week just past with a look ahead. 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
Focus on Spiritual growth to grow as a trader
In the mentorship groups I host, we have spent some time discussing the emerging thoughts that spirituality can have a positive impact on our trading. The reason being that the teachings of the great spiritual traditions that have lasted thousands of years are in complete alignment with good trading. Although I doubt the Dalai Lama was talking to traders when he sent out the tweet, negative emotions can and do have a negative effect on our trading. Emotions of pride, anger, jealousy and arrogance have led to the downfall of many aspiring traders. As we have discussed a thousand times, if you want to improve as a trader, stop the endless search for another system to follow or some other silver bullet. They won’t help you. Work on yourself to understand, then control the negative emotions that undercut your performance on a daily basis. Getting in touch with your spirituality is a great place to start.
Earnings
What to watch for Next Week.
FOMC Meeting Jackson Hole
- The market did not like the FOMC minutes last Wednesday. Many think this is the last time the FOMC has a chance to do anything material before the election.
Politics
- RNC Virtual Convention this week. Maybe would give us a peek at potential policy agenda. Probably not market moving, but interesting.
The $USD
- Watch the Dollar. We might have put in a short term low.
- Everybody is short and it’s ripe for a short squeeze.
Post OPEX Pivot
- The week after OPEX often mark inflection points in the market
- AAPL / TSLA parabolic moves could mark a top. Can certainly move higher, but the moves, from a chart perspective are not sustainable.
Strategy Update
- Despite numerous yellow flags, stay bullish short term until price gives us a sell signal.
- Will be watching the risk on / Risk off ratios for clues on any potential breakdown.
- Stay long Growth over value: The great rotation into value / cyclicals has been largely fake. Fading value rallies.
- FAAMGs: If / when these ever break the market is probably toast. That said, keep dancing while the music plays; just know where that exit door is.
- Stock Split Names: Since AAPL and TSLA have announced stock splits, they’ve gone parabolic. Hard to believe other high flier CEO’s have not noticed. How long before GOOGL, SHOP, AMZN or others follow suit? When you get that announcement, I think you gotta buy.
- FOMC Meeting is always a wild card.
Yellow Flags all over the place
$SPX Breadth and $NDX Breadth ( 2nd chart ) are not confirming new highs
Charts courtesy of Cam Hui
$NDX Breadth
$XVG
Pronounced bearish divergence in the Value line Geometric index. Not even close to the February highs.
Advance -Decline Percent had a bad week
From large cap to small cap, breadth deteriorated last week.
The Bears have left the Building
With the lowest short interest in 15 years ( contrarian bearish ) there would be little support from bears covering on a rug pull because there are no bears. Also, coming out of OPEX is a time where market inflection points often occur.
What can Relative Performance tell us?
SPY vs TLT
Although the ratio is at resistance, the trend is still up. That is bullish equities.
Transports vs Utilities
Again, by this metric, risk on.
Consumer Discretionary vs Consumer Staples
The trend is up; Risk on. Keep in mind, with AMZN at around 24% of the weighting in XLY, the chart is heavily skewed to how AMZN performs
High Beta vs High Quality
A crack in the armor, The trend break marks a move to quality over high beta.
High Beta vs Low Vol
The ratio is coming down and needs to hold its 200ema to keep the trend in tact. If the ratio breaks below the 200ema in gold, then we could say there is a move afoot to rotate into low vol names.
$QQQ vs $SPY
Dramatic out-performance by QQQ over SPY tells you to stay long QQQ.
Semiconductors vs SPY
Semi’s are a cyclical sector that is often viewed as a canary in the coal mine for risk on / risk off. Here the ratio is in a well defined uptrend and thus risk on. A break of trend would change the picture.
Growth or Value?
Despite a few weeks here or there where value had a resurgence, those episodes have been faded. Now, growth is actually breaking out. Until this ratio rolls over and breaks the primary trend line, I think value spurts are head fakes.
$VIX – Volatility
A great trend line to follow. Even if you don’t trade volatility, you should watch it. A break out above 25 could pop this and give it running room. A move above 27.50 you’d definitely be feeling and seeing it in an equity pull back. Set an alarm at 25 and sit taller in your chair if / when it triggers. You can see in the history of the chart, break outs above well defined down trends have resulted in significant vol spikes.
Pulling it Together
Yellow flags dominate. Breadth stinks as leadership has narrowed to the FAAMG and other high growth names. Other risk- on ratios are hanging in there. Bulls should be concerned with bearish sentiment at 15 year lows, but until price breaks trend and the other risk on ratios roll over there is not a reason to sell. When / if you see semi’s break down and trend breaks on the risk -on ratios that would be a time when we could objectively say the tide is changing. Watch the $VIX. Alarm $25.
SPDR Weekly Sector Charts
$XLB
Key off $61 as your pivot point. Above ok for Bulls, below not so much.
$XLC
At 44% of this index, as long as GOOGL and FB perform, XLC will continue to perform. THat said, that trend line is extremely steep. Any break would likely result in a pull back to $57. Bulls can stay long against the trend line, but on a break below, be careful.
$XLE
Simply put, a horrid chart. A break below $35 would open the door to March lows. You’d have to respect a break out above trend, but I don’t see that coming. The 40 week ema has contained the rallies for the better part of 2 years.
$XLF
Financials have been a very poor performer for years, not just since from March. The RSI and PPO remain in their bearish regimes. Although you’d have to respect a bbreakout above the symmetric triangle, I would not be a buyer. A break below the triangle would favor a move back down to the $22 level. About a 10% drop. Just not buying the long financial trade.
$XLI
$77 has marked a longer term resistance level. A decisive break above would open the door for a run to the open gap above and potentially the old high. A break below the trend line would open the door for a pull back to $72
$XLK
A clear market leader with price working its way into a rising wedge. Key off the uptrend line. Breaks back below $112 would be a warning shot. Not a ton of technical support until a back test of the breakout around $102.
$XLP
Price inching above $64 and the prior high, but the break out is anything but impulsive. Bulls ok above $64 but a dip back below $64 would offer an objective short with a stop just above.
XLU
$59 and $62 look to be the important levels to my eye. A break below $59 opens the door to $55.50. A break above $62 opens the door for a run much higher. Getting long against the 40 week ema and the trend at $59 looks like an objective trade.
$XLV
Watch / Alarm $104. As long as $104 holds, bulls are in good shape. Breaks below $104 coupled with a roll over of PPO and RSI break below 50 would likely mark a down cycle.
$XLY
All about Amazon. 25% of index; Watch for a break and weekly closes below the steep ascending trend line. Really no structural support until $132.50
Index Charts
SPY 4 hour
Showing signs of weakness here at the top. Breaks back below $335 and moves down to $327 would be red flags. Bearish divergences are ever present.
QQQ 4 hour
Price well within a nice uptrend. If price breaks above the mid point of the channel, price could run to $300. Gotta stay long within the channel and while you do, watch FAAMG like a hawk.
$IWM 4 hour
Hard to see, but IWM on the verge of a breakdown. If price slips much below $155, the target would be $150 and the trend would be broken. Confirmation would come with RSI moving lower below 50 and PPO breaking below 0
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