Shares of Facebook (FB) broke through their 50 day moving average in March and have since traded in a range between $64.00 and $55.00. Channel resistance is just below the 50 day moving average and channel support is being reinforced by an uptrend line drawn off the July and November 2013 lows. The relative strength index and MacD (note: I underlay the weekly histogram on the daily indicator) are in slight bullish divergence to price, and while positive money flow is weak, the Chaikin money flow indicator and the money flow index, a volume weighted relative strength measure, are above their 21 period signal lines. If the stock price has stabilized and is ready to turn higher it’s in a good position to begin the move.
The well-choreographed and broad based reversal on Monday came at a point in time and price when the major indices were testing key moving averages and a number of high profile stocks were at or near important levels of support. If those levels had been breached the charts would have suffered severe technical damage, and created the potential for aggressive selling. The algorithmic machinations may continue into the end of the week as we close out the month, and if they do they will help to refurbish the appearance of the intermediate and long term charts.
So, mechanical or not was this technical buying at sound levels of support or was there an ulterior motive? The motive suggested being – supporting the market on the surface while distribution takes place underneath the surface.
The weekly SPY chart shows the continued move higher this year with the MacD in bearish divergence to price. At the bottom of the chart is the Chaikin money flow indicator, which is a measure of accumulation/distribution over a specific look-back period, and it reflects a recent sharp drop-off in positive money flow.
At the bottom of the daily chart is a graph that shows the percent difference between daily volume and the 50 day moving average of volume. Even during the rise in price two weeks ago off the 50% Fibonacci retracement level volume was well below average, and yesterday’s session saw volume about 27% below the 50 day average of volume.
Continuing negative money flow interrupted by low volume moves to stabilize and support the market is a suspect combination. I am not a conspiracy theorist, but I am long the SDS.
The social media space has seen serious declines this year, as reflected on the Global X Social Media Index Fund (ETF) weekly chart. It nearly doubled in price from its 2012 low to its high in March of this year and has since retraced 50% of that gain. The relative strength index is nearing an oversold condition and the money flow index, a volume-weighted version of the RSI, has reached an oversold level, but there is still much technical work to be done. If the sector can repair some of the damage the zone between the 50% and the 62% retracement levels would be a good place to start.
Another series of shooting star candles formed on the weekly index charts similar to those seen three weeks ago. At that time the Russell 2000 and the Nasdaq Composite were testing their 50 day moving averages, this set of stars forms as they are testing their 200 day moving averages, and the DOW and the S&P 500 are testing their 50 day averages.
These high wick and low opening and closing range candles reflect rejection at or near recent highs or areas of resistance, but they are just preliminary indications. The condition of these charts this time next week will be more telling, and a week is a long time in this market.
I am long the SDS.
One of the definitions of a stock that is being “squeezed” is when Bollinger Band range, which measures standard deviation around a simple moving average, falls within the Keltner Channel, which is a measure of average true range around an exponential moving average. Shares of Cooper Tire and Rubber (CTB) have seen this type of compression over the last several months, as they consolidated between the 50% and 62% Fibonacci retracement levels of their 2011 low and 2013 high. Price and money flow momentum indicators have been trending higher during the period, and in yesterday’s session the stock broke above resistance.
I have no position in CTB.
In the first half of the month the SPY declined to a 50% retracement of the February low and the April high. The second half bounce that is underway recaptured the 50 dma and is threatening to make new highs. One technical issue, however, has been the lack of volume and positive money flow. The graph at the bottom of the chart shows daily volume as a percentage of the 50 dma of volume, and it is not confirming the price movement.
I am long the SDS.
NAZ futures are higher on the Facebook (FB) and Apple (AAPL) reports and should further the advance in the index. Volume, however, has not complimented the seven day rally. The graph at the bottom of the chart shows the percent difference between daily volume and the 50 day moving average of volume. This reading will have to improve to sustain the momentum.
I have no position in AAPL.
Shares of United Parcel Service (UPS) have been squeezed within a narrow Bollinger band range for nearly two months, and today look like they are breaking out to the upside. The price momentum indicators and on balance volume are moving above their signal lines, but the stock will need to close in upper candle range with better overall volume to confirm the breakout.
I have no position in UPS
Apple (AAPL) has been trading within a series of Fibonacci retracement lines for over a year. The 2012/2013 decline in the stock price ended in the area of a 50% retracement of the 2009 low and 2012 high, and the 62% level acted as resistance for several months. The subsequent breakout took it back up to a 62% retracement of the 2012/2013 range, and the stock has since been reverting around that 50% retracement level. The company reports earnings after the close today and with Bollinger bandwidth tightly compressed (graph at the bottom of the chart) there is the potential for a volatile move. Monitor the retracement levels going forward for areas of support and resistance.
I have no position in AAPL.
A good way to get started here on the site is to present a baseline overview of the broader market using multiple timeframes. The monthly chart of the S&P 500 index shows a series of cycle highs and cycle lows.
The 82 period cycle between the 2000 high and the 2007 high marked by the vertical lines suggest the formation of a third cycle high at current levels. Cycle circles mark the cycle lows and while they have little relationship to the configuration of the price action, there is a common angle of the radii of their amplitudes and the phase of the cycles that intersects with the vertical cycle high lines. This lends support to the current cycle high thesis.
The weekly chart uses coordinated crossovers in some basic price momentum and money flow indicators to mark turning points.
The S&P has been trading in a rising channel since breaking above the resistance line of a rising wedge formation early this year. The relative strength indicator and Chaikin money flow, which gauges money flow based on closing price within a range over a specific look-back period, are overlaid with 21 period moving averages. They, along with the MacD indicator, have made bearish crossovers and, in the past, this coordination in price and money flow indications has seen the index move lower. The market, however, has moved higher since the last bearish signal and continued strength would reverse these indications. Price action is the final arbiter.
The daily chart gives a more detailed view of the price action in the rising channel.
Two weeks ago the 50 day moving average was taken out to the downside and a key area of support in the 1810 to 1820 range was tested, with the RSI and MacD turning lower and on balance volume dropping below its 21 period average. A bounce followed last week and the price indicators are back above their centerlines and on balance volume is back above its signal average.
Over the shorter term the broader market has seen a sharp reversal and the magnetic effect of new highs on the major indices could power further gains, but intermediate and longer term technical conditions should eventually weigh on the broader market.
Multiple timeframe analysis often presents conflicting scenarios but is a useful exercise because it contextualizes and can help traders decide to push a position or tighten up on stops, take smaller size on a longer time frame to weather potential volatility, or to simply look elsewhere to risk capital.