The monthly, weekly, and daily charts of the major indices are bullish but, absent the usual media cheerleaders, there seems a noticeable lack of enthusiasm at this point in the rally. It’s not fear, the low reading on the VIX can attest to that, just an absence of the usual over-reaction normally seen around new high levels. One reason may be because the last time we made new highs they failed, and one month later the S&P 500 was back below its 50 day moving average and down 3.5% from its peak.
The index pulled back from new intraday highs on Friday, to close in a zone of resistance delineated by the March high and the symmetrical triangle downtrend line. The S&P 500 SPDR (SPY) made a new all-time closing high but formed a small doji candle in the process. This candle is defined by its narrow opening and closing range. It represents indecision and is often seen at market tops, but can also be a continuation candle. A similar doji formed in February near the top end of that breakout to new highs.
Bullish multiple timeframe trends are more technically significant that individual candle formations, but it will be interesting to see how the market proceeds from this point.
A gravetone doji candle formed on the weekly Facebook (FB) chart. This candle is defined by a narrow opening and closing range situated at the bottom of a wide range period (long wick) candle, and represents a failure to hold highs. The bottom of the range and low of the week is sitting right on the trend line that was the top end of its previous six month trading channel and its 50 day moving average.
The daily chart shows that most of the damage this week occurred over the last two days, and while the daily candle looks weak there are multiple layers of support, which include the channel trend line, the 50 day moving average, the long term uptrend line, down to the rising 200 day moving average.
Google (GOOGL) shares are up 2.5% at this point in the session, but they are currently off their highs by about the same percentage.
The S&P 500 index made a new intraday high yesterday but pulled back to close in the zone between the channel top and symmetrical triangle resistance. The siren song of new highs is compelling and is reflected in the positive price and money flow momentum, and volume that exceeded the 50 day moving average of volume by about 9%. There will be continued attempts, and likely several closes that make new highs, but be cautious, back in February a break to new highs turned out to be what many called a “bull trap.” I’m not saying that will be the case this time if, in fact, resistance is definitively taken out, just block out the “song” associated with the hype, and maintain your trading discipline.
The Germany iShares (EWG) fund sold-off sharply last Friday, along with our markets, breaking below the uptrend line that supported this year’s rally. It has since been unable to return back above that trend line, and is down a percent in today’s trading and below its 50 day moving average. Market participants are always looking for a non-random reasoning for the behavior of the markets and last week it was Europe. If they pick-up on this theme again, it could put pressure on our market, as the major indices are retesting all-time highs.
The PowerShares DB Agriculture ETF (DBA) is composed of a portfolio of agricultural commodities futures contracts, the iPath Bloomberg Livestock SubTR ETN (COW) invests in hog and live cattle futures contracts, the United States Natural Gas ETF (UNG) and the United States Oil ETF (USO) invest in their respective energy futures contracts. A cursory look at the weekly charts of these funds shows them near all-time lows. The macro-economic implications are outside of my area of expertise, but whatever they may be, they are not likely to be inflation related.
The S&P 500 index is, as everyone knows, in a trading range and that range is contracting. What looked like a horizontal channel consolidation a few weeks ago is converting into a symmetrical triangle pattern, currently below a zone of resistance between 2120 and 2110, and above a rising trend line drawn off the March/April lows. The symmetrical triangle has two converging trend lines, unlike the rising triangle which has a flat upper trend line and a rising lower trend line. A coil or symmetrical triangle is considered a continuation pattern.
The index recaptured its 50 day moving average in Monday’s strong session and yesterday it closed just above the previously important 2014 high level. The text books suggest at some point we should expect a breakout to new highs and a resumption of the long term uptrend. If the index were to breakout at this point, the pattern projects a target in the 2180 area, but the books also say that mature patterns that break later in their formation and at or near their apex are less reliable and less potent. We’ll see how it plays out.
Shares of the Market Vectors Gold Miners (GDX) fund are testing key support-turned-resistance in the $20.00 area.
Over the last year big data company, Tableau Software (DATA) has made a series of higher highs and higher lows on its weekly chart, and is currently retesting its all-time highs in the $100.00 area. The Bollinger Band histogram shows the entire advance within the upper band. (The light grey area is the upper band, the middle tone is the 20 period moving average centerline, and the dark bars are the lower band range.) Since the beginning of the year, however, the stock price has been trading in a consolidation channel between $90.00 and just above $100.00 level.
The consolidation can be seen more clearly on the daily chart, with the price and money flow momentum indicators flat as would be expected at this location in the zone. The stock has pulled back off its highs in this early stage of the session, and a weak close could be a precursor to a retest of the 50 day moving average or the channel bottom. In either case, the long term trend remains higher and the intersecting support lines, if tested, should offer solid support. There is something about the psychological magnetism of the $100.00 level, and I expect this stock will eventually retest it and breakout to new highs.
Monday’s market action was impressive and may very well be the first leg of another assault on the upper border of the S&P 500 index trading channel. But the widely speculated proximate cause of the downdraft in stocks on Friday, namely the weakness in Germany, has not gone away. The Germany iShares (EWG) fund was up a solid 0.87% yesterday, but closed in lower candle range and just managed to recapture the 50 day moving average after a small rally in the last hour of trading. It failed to close the Friday gap and retake the intermediate term uptrend line.
The fund should open higher this morning based on pre-market trading, but watch to see if it fades after Europe closes today like it did yesterday. The ability to maintain momentum into the close is a requirement for returning to its previous trend.