Weekend Profit Navigator May 17

Tickers discussed: SPY QQQ IWM USD COPPER $CRB EEM

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.

Earnings

Most of the heavy hitters have reported and we are on the downside of the earnings mountain. That said there will continue to be lots of earnings induced gaps and second day plays to take advantage of for those interested.

The Trump ramps rhetoric against China 

  • More blaming of China for Covid global crisis
  • Blocks savings funds from investing in China assets
  • Cracks down on Huawei’s access to US semiconductor supply lines
  • Does not want to talk to Xi; Contemplates total de-coupling from China

Watch this closely. I think there is more here than the normal Trump bluster.  As we head toward the November elections there is but one unifying force in Washington. And that one thing is China bashing. Both Dems and Trump will be ramping the tough-talk on China. I think semiconductors are going to be canary in the coal mine.  There is quite a list of semi names that get over 25% of their revenues from China. Huawei presents an easy target.  Watch semi’s closely. I think the drumbeat against China will continue and get louder over time. I think it will be an overhang on $SMH.  This bearish catalyst may accelerate if China formalizes retaliatory actions suggested recently in the Global Times.

Is the worm beginning to turn?

The FAAMG outperformance / resilience continues as does it’s narrow leadership. This narrow leadership masks the under performance beneath the surface. We can see that as IWM is again leading to the downside. Much too has been made of the dismal price action in financials which is a key offensive sector. Although we may see continued chop, my base case is that a market turn lower is emerging. What would change my mind is price taking out the breakdown candle highs of Tuesday May 12. If the bulls can do that then they’ve “proven it”.  Does that mean I am gonzo short?  No, it just means I have a bearish bias. THe key levels for me are at SPY 272 and QQQ $211.25.  Price closing below these levels would most likely bring in more downside pressure. To my eye, on IWM anything below $125 has bears in control and I view IWM as a leading indicator.

The Oscillators

Both NYMO and NAMO ended the week in the middle of the range with plenty of room to either head higher or lower this coming week. I find these oscillators to only be of benefit when they are at extremes (  + / – 60 or higher )   I keep watching these and give you a heads up if we get an extreme move.

Charts in Focus

Gold and Gold Miners breakout

Gold took it’s sweet time but is now emerging from it’s pennant / flag consolidation. The PPO is poised for a bull cross and RSI never broke below 50 so the indicators are supporting higher prices.

Below, the GDX Daily shows the impulsive breakout above $35. I think there is room to run here. For reference I’ve posted the GDX monthly chart.  You can see there is lots of running room on the monthly chart having just broken above long term support at $30. I can see mid-$40’s in the near to mid term horizon. It won’t get there in a straight line but I remain bullish gold and the miners over time.   Although I do not track as closely, Silver and it’s miners also are on the move higher.

 

$USD

The US Dollar has been chopping in a range between 99 and 100.50 for weeks. Now price is pressing toward the high end of the range and near channel resistance at 101. A break above 101 would give the $USD some running room higher. A runaway $USD presents problems for EM markets who have trillions in $USD denominated debt.  Even with unlimited FED money printing, traders and sovereigns see the $USD as a safe haven and place to hide with the world in turmoil.

$COPPER Weekly

Although I assume most of you reading this are not big time copper traders, its a good idea to keep an eye on Dr. Copper as a proxy for global demand. Currently copper is in a bear market and needs to clear $2.50 to start changing the picture. Most recently, price back-tested the 2016 low and had a massive bounce but was rejected at resistance. If / when price breaks it’s rising wedge I’d expect it to move lower back towards $2.  You won’t hear much about copper on TV until it breaks $2, but by then you’ll will have noticed lots of other problems already.  Keep this chart on your weekly rotation. Aside from oil, probably the most important commodity chart to watch.

$CRB  Commodity Index

This is simply a stunning chart. The CRB index tracks a basket of commodities and data goes back over 50 years. During that 50 year period  180 on the chart was solid support that held since 1973. Since 2016, we’ve been trading above and below it forming more or less a consolidation triangle.  As you can see we’ve plunged well below tagging a remarkable 106 in late March. Now we’ve bounced to 125.  If you are interested in tracking aggregate demand, incorporate $CRB into your chart work.  If inflation starts making it’s presence known you should see it here.  Because commodities are non-correlated to stocks, its a great way to diversify your portfolio, especially if commodities begin to run.

$EEM Weekly

After a plunge and rebound, the emerging market ETF  has spent 3 weeks just below $37 and has not been able to get through. As you can see, there is a confluence of resistance at $37. I have my doubts that EEM has the horsepower to get through that level.  I like the idea of going out in time 3 months or more and establishing a short position against $37.  If the $USD continues to rise, and especially if it breaks out over 101, it will be a big headwind for $EEM.

Index Charts

$SPX Broadening Top

Although we had a fairly wide trading range this week, as of Friday, price was still trapped in a trading range between 2720 and 2945. Bears won the week pushing prices down 2.26% but until key support at 2720 / 2700 fails, bulls are still in control on this time frame.

$SPY Daily

$QQQ Daily

$IWM Daily

 

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