Saturday, March 15, 2014

Stocks Strong Sell Off Following Negative News

By: Paul_Rejczak

Our intraday outlook remains bearish, and our short-term outlook is neutral:
Intraday (next 24 hours) outlook: bearish
Short-term (next 1-2 weeks) outlook: neutral
Medium-term (next 1-3 months) outlook: neutral
Long-term outlook (next year): bullish

The U.S. stock market indexes lost between 1.2% and 1.5% on Thursday, as investors reacted to some headlines concerning Chinese economy's slowing growth, among others. The S&P 500 index moved further away from last Friday's all-time high of 1,883.57. The index is slightly below the support at 1,850, which is a negative signal. The nearest resistance is at 1,860-1,865, marked by the previous support. On the other hand, the next support is at around 1,825, marked by some local lows, as we can see on the daily chart:

Expectations before the opening of today's session are slightly positive, with index futures currently up 0.1-0.2%. The main European stock market indexes have lost 0.2-0.5% so far. Investors will now wait for some economic data releases: Producer Price Index at 8:30 a.m., Michigan Sentiment at 9:55 a.m. The S&P 500 futures contract (CFD) trades in a relatively narrow intraday range, following sharp decline. The nearest support is at around 1,830-1,840, and the resistance is at 1,850-1,855, among others:

The technology Nasdaq 100 futures contract (CFD) trades close to its recent lows, testing the level of support at around 3,630-3,640. For now, it looks like an intraday correction within downtrend. The nearest important resistance is at around 3,685, as the 15-minute chart shows:

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SPY Trends and Influencers March 15, 2014

by Greg Harmon

Last week’s review of the macro market indicators suggested, heading into the week that the equity markets looked positive. Elsewhere it looked for Gold ($GLD) to consolidate with an upward bias while Crude Oil ($USO) remained on the short term upward path. The US Dollar Index ($UUP) looked weak and ready to move lower while US Treasuries ($TLT) were also biased lower in their consolidation zone. The Shanghai Composite ($SSEC) and Emerging Markets ($EEM) were set up to continue their consolidations from the prior week with Emerging Markets holding an upward bias. Volatility ($VIX) looked to remain subdued keeping the bias higher for the equity index ETF’s $SPY, $IWM and $QQQ. Their charts favored the upside as well, fairly strongly in the SPY and IWM and less so in the QQQ, with all at risk for a very short term intra-week pullback.

Well that did not work out very well. The week played out with Gold pushing higher (so far so good) while Crude Oil’s path turned lower. The US Dollar drifted slightly lower while Treasuries made a move higher to test the recent highs. The Shanghai Composite drifted lower and Emerging Markets broke down. Volatility became unhinged at the end of the week moving higher and closing near the highs. The Equity Index ETF’s just moved lower, also ending the week near the lows. What does this mean for the coming week? Lets look at some charts.

As always you can see details of individual charts and more on my StockTwits feed and on chartly.)

SPY Daily, $SPY
spy d
SPY Weekly, $SPY
spy w

The SPY started the week with a Hanging Man that confirmed last Friday’s Hanging Man lower. Tuesday’s Bearish Engulfing candle confirmed them both lower and it continued lower the rest of the week. The small real body candle Friday, signalling indecision, could mean a reversal, but also could just continue lower. Confirmation is needed. The week ended at prior resistance from December and January, and closed the gap, so there is some basis for a reversal. The RSI continues to fall and point lower through as it cuts through the mid line and the MACD is moving lower after it crossed down Wednesday. These support more downside price action. The weekly chart shows an inside week, holding over the prior resistance level. But here as well the RSI is pointing lower (although in bullish territory) with a MACD that avoided a cross up and is reverting lower. Both support more downside. There is support at 184 and 181.80 followed by 180 and 177.75. A move under 173.75 would put the long term uptrend in jeopardy. Resistance higher comes at 185 and 186.75 followed by 188.96. Over that is a Measured Move targeting the 195-197 area and then much higher. Pullback or Consolidation in the Uptrend.

Heading into the March Options Expiration week and ahead of the widely expected invasion of the Ukraine the markets are jittery if not tired or weak. Specifically look for Gold to continue higher in its uptrend while Crude Oil slows in its pullback and may be ready to reverse higher. The US Dollar Index looks to continue lower while US Treasuries are biased higher and near a break of major resistance. The Shanghai Composite and Emerging Markets are biased to the downside with risk of the Chinese market consolidating and then a possible reversal. Volatility looks to remain low but moving higher cutting the breeze at the back of the equity index ETF’s SPY, IWM and QQQ. Their charts suggest that the SPY and IWM are a bit stronger than the QQQ and may be ready to consolidate and reverse higher, while the QQQ is biased lower. Use this information as you prepare for the coming week and trad’em well.

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The Week Ahead: Stocks or Bonds?

by Tom Aspray

The global stock markets had a rough week with the Asian markets hit the hardest but the Eurozone and US were also under pressure. Still, the US averages are holding well above the prior swing lows. The Russian market has been one of the worst, down over 27%, so far this year, and if they are hit with sanctions it will get worse.

The combination of the continuing crisis in the Ukraine and more weak data out of China has increased the fear amongst investors. It is hard to tell how far Putin will push the West as his behavior over the past few years seems to be steroid induced.

The ups and downs of investor sentiment have been quite typical since the end of 2013 when the bulls dominated, but in just over two months they have become more nervous. Those who decided to buy if the market declined seem to be having second thoughts.

There has been some new buying in the bond market as their safety has become more attractive. As I discuss in more detail in the technical section, given the current stock market outlook, I am not expecting any more than a 5-7% correction, and it could be less. Therefore, I still think it will provide a good buying opportunity in select stocks and last week’s recommendations in Is Your Portfolio Well-Positioned? are generally acting well.

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This comparative chart of the German Dax and the S&P 500 Index shows that the recent decline has been much worse in the German market. Since the June 2012 low, it is sill up over 51% vs. 43.5% for the S&P 500. However, the Dax is down 11% since the late-February high while the S&P 500 is down just a bit over 2.5%.

The fact that the Dax has dropped below both the December 2013 and February 2014 lows has weakened its chart. The concern over the euro’s strength has jumped in the past week as the ECB already seems to be questioning its recent decision on rates.

So what are the prospects for buying bonds now? The yield of the 10-year T-note shows the spike in yields two weeks ago to 2.82% but they have since dropped down to 2.63%. The broad trading range (lines a and b) that we have been watching for the past two months is still intact.

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The key support in terms of yields is in the 2.47% to 2.50% area with the October 2013 low at 2.47%. The completion of the major bottom formation in May of 2013 does still suggest that this range is a pause in the trend towards higher rates.

A strong weekly close in yields above 3.02% would be an upside breakout and signal a move to the 3.4-3.5% area. For those in the short-duration bonds (5.6 years), as represented by the Barclays US Aggregate Bond Index, this would mean about a 5.4% drop in the value of their bonds. Since old bonds would be replaced by newer ones at higher yields, the damage would likely be less.

If the average maturity of your bond holdings is 13.4 years, such an increase in yields could mean over a 13% loss. Of course, the long-term bonds will do even worse as they were down 12.7% last year. Since the start of last summer, I have been recommending that bond holders shorten the maturity of their bond portfolio. On the technical side, the downtrend in the weekly MACD (line c) continues to favor lower yields for now.

Therefore, the investor has to decide between the current 2.3% yield of short-duration bonds that have a potential downside of 5% if rates spike and the stock market rallies. I continue to think the S&P 500 will show double-digits gains some time in 2014. Of course, if you are buying below the 2013 S&P 500 close of 1848, it could be even greater. The risk is that you will bail out if the selling gets too ugly and not be on board for the inevitable rebound.

The US economic data was mixed last week because while the retail sales data on Thursday was better than expected, the initial reading on consumer sentiment for March from the University of Michigan came in at 79.9. Nevertheless, the chart shows a clear uptrend and I continue to think that the consumer has lots of pent-up demand that should be evident once the weather warms.

The markets have quite a bit of data to digest this week because along with the FOMC meeting, there will be new data on manufacturing and the housing market. I would not be surprised if some of the data is better than expected. If it is, then it will be interesting to see how the stock market will react.

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On Monday, we get the Empire State Manufacturing Survey and Industrial Production, followed on Thursday by the Philadelphia Fed Survey. Over the past month or so, the soft housing data has turned some negative on the growth prospects for the homebuilders in 2014.

Technically, the group became a market leader in February and the recent correction has not broken any key support. On Monday, we get the latest reading on the Housing Market Index, which dropped sharply last month but still shows a long-term uptrend. It is followed by Housing Starts on Tuesday and then Existing Home Sales on Thursday.

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On Tuesday, we also get the Consumer Price Index, and then on Wednesday, the FOMC announcement followed by the first press conference by new Fed Chair Janet Yellen. On Thursday, in addition to the jobless claims, we have the latest data from the Conference Board on their Leading Economic Indicators (LEI).

The chart from last month’s release shows that both the LEI and the Coincident Economic Index (CEI) are both in clear up trends. They show no hint of a recession on the horizon, and in the past, they have a done a good job of warning of recessions in advance (see circle).

What to Watch
The bulls faced another test last week, and while there were no signs of panic selling, we had seen in the prior week that some technical damage was done. This could be part of a top-building process that will lead to a longer and deeper correction. If instead the market is able to rally strongly from slightly lower levels, it would allow for another test of the highs.

This is my favored scenario for now based on the recent new highs in the A/D line, which continue to provide a positive intermediate-term outlook for the stock market. There continues to be sector rotation as the Select Sector SPDR Utilities (XLU) formed a short-term top in February but took over leadership again last week.

In this type of environment, it is important to monitor your portfolio on a regular basis to be sure your holdings stay above their support levels. It is best to spend some weekend time doing this, and I adjusted some of the stops in the Charts in Play portfolio last week and took some profits.

Once again, the sentiment showed little change last week. According to AAII, 41.34% are bullish, up 1%, while the bearish percentage was unchanged. It may be a different story in the coming week’s survey.

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There has been a significant change in the percentage of S&P 500 stocks above their 50-day MAs. The five-day MA turned down on Thursday to 73.0% after just exceeding its previous peak. The next key level to watch is the mean at 62%.

The daily chart of the NYSE Composite shows the drop below the 20-day EMA last week. It is now at 10,360. The market has held, so far, above the monthly pivot support at 10,209 (line a) with the quarterly pivot at 10,082.

There is further support in the 9900 to 10,000 area and the uptrend, line b, which is currently at 9800. Initial resistance stands now in the 10,400-500 area.

The McClellan oscillator has been diverging from prices (line c) for a few weeks and broke below support early last week. It turned up on Friday, and so far, has held above its recent lows and the support in the -173 area, line d.

The daily NYSE Advance/Decline made a new high on March 6, but dropped below its WMA last week. The WMA has flattened out and will need a day or so of strong A/D numbers to turn it higher. The A/D line has further support at the January high and the uptrend, line e.

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S&P 500
The daily chart of the Spyder Trust (SPY) shows the four lower closes in the past five days as it also closed Friday below its 20-day EMA. The daily starc- band is now at $183.38 with the 38.2% Fibonacci retracement support at $182.97.

The monthly pivot stands at $182.38 with the 50% support at $181.08. The quarterly pivot and the monthly projected pivot support are at $117.67.

The Arms Index (TRIN) closed at 2.28 last Thursday, which is a quite oversold level as on the March 3rd drop, it closed at 1.58. At the February low, it was much more oversold.

The daily S&P 500 A/D line also made a new high but dropped further below its WMA last week than the NYSE A/D line. A rally failure at the now flat WMA would be a negative sign as it could set the stage for another wave of selling. The A/D line has next strong support at the early 2014 highs, line b.

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Dow Industrials
The SPDR Dow Industrials (DIA) tested its daily starc- band last week, which is now at $159.22 with the monthly pivot a bit higher at $159.83. The quarterly pivot is at $158.58 and a weekly close under that level would be negative. There is additional chart support at $157.14, line c.

There is initial resistance now at $162.40-$163 and then at $164.49.

The daily on-balance volume (OBV) has turned lower after just rebounding to its former uptrend. It has been diverging from price since it peaked at the end of 2013. The weekly OBV (not shown) is very close now to closing below its WMA.

The daily Dow Industrials A/D line shows a longer-term pattern of higher highs, line f, but did drop back below its WMA last week. There is major support for the A/D line now at line g.

The PowerShares QQQ Trust (QQQ) has dropped about 2.7% from its high at $91.36. It closed the week below $88.94 so a weekly low close doji sell signal was triggered.

There is next support at $88.53 with the monthly pivot for March at $88.25. The daily starc- band is at $87.91 with the monthly projected pivot support at $85.50. The quarterly pivot and major support is at $83.66.

The daily OBV shows a clear pattern of lower lows as it failed to move above its WMA on the recent rally. The WMA is clearly declining. The daily AOT moved firmly into the sell mode on March 6.

The daily relative performance (not shown), as I noted last time, had dropped below its WMA and has now also broken its uptrend and is in a clear downtrend

The Nasdaq 100 A/D line did make its high on March 5, but dropped below its WMA and the previous lows last week. It is still well above the major support at line d.

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Russell 2000
The iShares Russell 2000 Index (IWM) did manage to close above its 20-day EMA and above the support at $115.49. The monthly pivot is at $114.50 with the quarterly pivot well below current levels at $111.31.

There is initial resistance now at $119-$119.80 and then above $120.

The daily OBV has turned up from the support at line f, but is still well below its WMA. The weekly OBV (not shown) is still above its WMA so the multiple time frame OBV analysis is now mixed.

The Russell 2000 A/D line did turn up on Friday but just barely moved through resistance at line g, as prices were breaking out.

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Distorted Markets & Disillusionment One Asset At A Time

by Tyler Durden

Thanks to the repression of the world's central banks, investors have exited cash and piled into "everything else," but while this is no surprise to most, Citi's Matt King warns of the possibility of an "entrance with no exit" as investors reach for yield has distorted primary and secondary markets, forced risk-averse investors into alternative asset classes, distorted markets beyond any fundamentals, and left markets incredibly illiquid. This, he concludes, sets up a problem that we are already seeing as investors are disillusioned one asset at a time...

Via Citi's Matt King

Out of Cash and into everything else... investors have been reaching for yield...

With Emerging Markets the most popular destinations... (which could be a problem as it is very crowded still)

But broad investment grade credit markets have exploded as demand beget supply and firms have doubled their outstanding debt

which fits perfectly withgout recent dream-crushing discussion of the rise in cash on corporate balance sheets

US companies are carrying far more net debt than in 2007

Another curiosity is this notion that US companies have substantially reduced their debt pile and are therefore cash rich. The latter is indeed true. Cash and equivalents are at historically high levels, but rarely do those who mention the mountains of corporate cash also discuss the massive increase in debt seen over the last couple of years.

In fact, debt levels have been growing to such an extent that net debt (i.e. excluding the massive cash pile) is 15% higher than it was prior to the financial crisis.

Too much money chasing too few assets... (not just increased demand but reduced supply)

Which has left credit amrkets totally Fundamentals are no longer the driver

and equity markets...

Bu, it would appear, that investors are losing faith...

The big question is - who's next?

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weekend update

by Elliott Wave Theory


The week started off well enough with a rally to within two points of the SPX 1884 all time high by Tuesday. Then weakening upside momentum and the continuous slide in the NAZ (down 6 of the last 7 days) helped take the market down for the rest of the week. For the week the SPX/DOW lost 2.20%, the NDX/NAZ lost 2.05%, and the DJ World index lost 2.40%. Economic reports for the week were good: seven positive to three negative. On the uptick: wholesale/business inventories, retail sales, export prices, the M1-multiplier, the WLEI, and weekly jobless claims were lower. On the downtick: import prices, the PPI and consumer sentiment. Next week is FOMC week: with Industrial production, housing and options expirations. Could be a wild one.

LONG TERM: bull market

For the past several months we have had a difficult time tracking this bull market. Prior to that, and up until the summer of 2013, the four major indices (SPX/DOW/NDX/NAZ) were rising relatively in unison. The cyclical DOW was the first index to deviate from the general market pattern. This put the cyclical/growth hybrid SPX pattern in the middle of the cyclical DOW and the growth NAZ/NDX. Several times we thought Primary III was topping because of the DOW pattern. And, several times we were wrong.

Tracking four separate market indices objectively, becomes difficult when three of the indices are displaying different wave patterns. In the end, or likely before during Primary wave IV, they will all realign into the Primary wave V high. We have called this phenomenon a trifurcation. Please note, all of these indices are still in bull markets. Just their respective wave patterns are different.

The SPX is the index most follow, so we follow it as well. Despite this week’s decline the most obvious count still appears to be an Intermediate wave iii, of Major wave 5, uptrend. The SPX recently made all time new highs by about 2%.


The DOW, which as you know we prefer to track, displays a potentially different pattern. Not only has it not made new highs, this uptrend has not even reached the all time high set in December. The most obvious count here is that the DOW completed Primary III in December, and has entered a wide trading range while the SPX/NDX/NAZ complete their Primary wave III. We highlighted a similar potential trading range pattern that occurred in 2004. There are other counts, but this is the most obvious.


The NAZ represents the growth sector, and it is in a completely different count than either the SPX or DOW. Currently it is in Minor wave 5, of Intermediate wave iii, of Major wave 3, of Primary III. When the current uptrend concludes it will end Int. iii. Then it will still have two more uptrends to end Primary III: Int. v ending Major 3, and then Major 5.


Of these three indices, clearly the NAZ is the most bullish until its Primary III ends. The SPX is also bullish, but the DOW is potentially neutral. Obviously, for an investor/trader, it is much easier just to track one index. We do not have that luxury as we track more than thirty. We repeat, however, despite the current the different counts we are still in a bull market.

MEDIUM TERM: uptrend

From the early February downtrend low at SPX 1738 we have been counting this uptrend as Intermediate wave iii of Major wave 5. At that Intermediate wave ii low we had a RSI positive divergence, and an oversold MACD. After the initial surge off that low, which was quite impulsive, the SPX rallied to a new high at 1868. Then it pulled back to SPX 1834, before rallying quite strongly to another new high at 1884. This week that second rally was nearly completely retraced. It was fully retraced in the DOW/NDX.

We initially counted the SPX 1868 high as Minor wave 1, and the 1834 low as Minor 2. Then we thought, Minor 3 was underway with the rally to higher highs. The negative daily RSI divergences in all four major indices, however, took hold at the new highs and the market pulled back. The most obvious count in the SPX now appears that Minor wave 2 is unfolding in an irregular pattern: 1834-1886-1840 thus far.


A retest of SPX 1834 would complete a bullish irregular flat. A further decline to SPX 1825, the beginning of that Minute iv triangle, would create an irregular zigzag. Either one works, as well as, even a failed flat: where the C wave does not reach the A wave low. Currently the daily RSI is oversold, which also occurred during Minor 2 of the last uptrend. In fact, all four major indices are similarly oversold. Next week should put this market to the test. Medium term support is at the 1841 and 1828 pivots, with resistance at the 1869 and 1901 pivots.


Short term support is at the 1841 and 1828 pivots, with resistance at the 1869 pivot and SPX 1884. Short term momentum ended the week with a positive divergence. The short term OEW charts are negative with the reversal level now SPX 1858.


The hourly chart displays a somewhat choppy pattern, between SPX 1825 and 1884, after the initial two week surge of this uptrend. The triangular Minute wave iv is an acceptable pattern, but it can also be counted as corrective. Which would make the entire uptrend corrective, like some sort of B wave. For now, the 1841 pivot range is providing support. Should this give way and the SPX enter the 1828 pivot range, then break through that, the B wave uptrend scenario would definitely gain in probability. This week should be the tell.


The Asian markets were mostly lower on the week losing 2.0%.

The European markets were all lower losing 2.6%.

The Commodity equity group were all lower as well losing 3.9%.

The DJ World index is still uptrending but lost 2.4%.


Bonds remain in a downtrend losing 0.6%.

Crude appears to be downtrending losing 3.6%.

Gold shrugged off the negative divergence and resumed its uptrend gaining 3.2%.

The USD remains in a downtrend and lost 0.6% on the week.


Monday: the NY FED at 8:30, Capacity utilization at 9:15, then the NAHB housing index at 10am. Tuesday: Housing starts, Building permits and the CPI. Wednesday: the Current account deficit and the FOMC ends it meeting. Thursday: weekly Jobless claims, existing Home sales, the Philly FED and Leading indicators. Friday: Options expiration. There will be a press conference on Wednesday at 2:30 with FED chair Yellen. On Friday: FED governor Stein gives a speech after the market close. Best to your weekend and week!

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Dow attempting to breakout from resistance dating back to 1987!

by Chris Kimble


The Dow is attempting to breakout from this megaphone pattern as momentum is creating lower highs at (1), is attempting to break resistance dating all the way back to 1987 at (2), with valuations a little bit above their 114-year averages at (3), just 66% above (Source Doug Short)

Even though no long lasting bull market in 200 years has started from these current valuations...why not just set back and enjoy a breakout to higher prices!?!?

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