The bull market in US stocks looks more vulnerable today than it has in a long time. This could be the next big market top the likes of which we haven’t seen since 1987, 2000 and 2007. A fairly important juncture. Personally i am still sifting through the data and have yet to decide on whether to sell the bounces or buy the dips.
This week i have chosen to present you with research from my good friend and comrade at Akron Technicals. Less subjectivity and pure price action analysis. If you enjoy this type of research be sure to check out http://akrontechnicals.com/ and subscribe to his free and highly original technical perspective.
Global Asset Classes
The ISM Manufacturing figure came lower than expected at 59.3% and lower than the previous month. That will add up even more to the ‘growth has peaked’ narrative, or is it a narrative? We should keep an eye on the stocks with the highest correlation basket and look how they perform in the next weeks/months. Today we will also look at world indexes and how they perform relative to their February lows. We are going to use a framework of Monthly RSI (looking for breaks of 60 level for trend exhaustion), Weekly charts with Moving Average Channel (For trend direction and trigger), and daily % above/below 30MA with VWAP for trend acceleration.
We are going to start with US indexes – S&P, QQQ, IWM, DJI, DJT
S&P Monthly – the drop in RSI was pretty sharp from the highs, and it’s fast approaching the 60 level
On the weekly chart, we still don’t have two consecutive bars below the Moving Average Channel for a sell trigger. I highlighted the criteria with the yellow ovals for buy
triggers (two consecutive bars outside the MA channel). Note in the text we mean ‘two weekly bars below the MA channel’ not monthly bars.
On the daily chart, S&P made a close below the volume weighted average price (VWAP) – this translates as pain for the people who are long, as the price is below their buying
levels. It is not a sure thing, but the assumption is that it might accelerate the move down. We also have an island reversal pattern (I ignored the last bar high as it must be
below the low of the previous bar)
With regards to targets, we look at point&figure as it presents us with an excellent methodology for establishing targets, as they represent pure momentum. In the case of S&P,
no upside targets – this is signal on its own as it shows us that the upside momentum has run out for now.
Next QQQ – Nasdaq. Nasdaq has much more room to go back to 60 (if it goes back). Note how the previous corrections and the bear market of 2008 exhibit price action below
RSI 60. That is what we want to see if the price action is about to continue down we must have this 60 level break on a monthly base.
We do not have a sell trigger on a weekly chart yet. Watch Friday close; we might get it, then if April brings RSI below 60 that is a condition for an extended move down.
On a daily chart, we see stacked periods of oversold prices (the green areas on the chart). The price is 4% below its 30 day moving average. We also have close below VWAP,
perhaps this leg down has more momentum.
Dow Industrials DIA presents us with a similar picture, RSI falling towards 60 level – Neutral
On the weekly, we can see that this is the first index now that pierced the February lows. However, we need a close below that – Neutral to Bearish
On the daily, we have a close below the VWAP – Bearish
DOW Transport (IYT). First index that shows long-term momentum divergence and it’s extremely close to breaking the 60 level – Bearish
On a weekly, it was the first index that almost gave sell signal based our MA Channel methodology – Neutral
On the daily chart, it formed a topping pattern (after January we saw lower highs which bear a resemblance to a double top) and produced a close below VWAP – Bearish
EWA – Australia ETF. Monthly chart, RSI is not just below 60 but is fast approaching 40. For a reference, look at the yellow circle periods when RSI topped at 60 level and the
corresponding price action. Bearish
Weekly MA channel – two consecutive closes below MA Channel. Bearish
EWA Daily – close below VWAP. Bearish
EFA – developed world ex US and Canada. Monthly RSI sits at 60.3 and bearish engulfing pattern was formed on the resistance line. Keep an eye on this one
Vanguard Europe ETF – VGK. Bearish Engulfing pattern on resistance and RSI below 60.
EWY – South Korea
Gold ETF – GLD. Price is close the a long-term resistance, RSI is at 56.2 (previous high level from 2016 is 58) and there are multiple upside P&F targets (144, 152, 163). There
is also a buy MA Channel signal (yellow oval on the chart)
This one is extremely negative – HYG. Taking into account the potential for higher interest rates, Consumer sentiment peaking, and to some extend the high levels of consumer
debt, not just corporate debt, its important chart to look at. RSI is below 40. Last time when the RSI was above 60 was to signal the top in 2013.
Materials Ichimoku Breadth looks Bearish. The measured move down AB=CD find support at 78.6%
Healthcare XLV – Monthly. RSI below 60
XLV Weekly – Sell Trigger
Utilities XLU – Monthly. On momentum base XLU should break the channel
XME Weekly – we have a sell trigger, which suggest a possible close below the trend line next week.
Interestingly, there is only one stock from 145 that has close below Bollinger Band lower band – VAR (and the RSI close was 40.1). Since it covers just the volatility assessment
lets evaluate it through our monthly, weekly, daily framework.
Weekly RSI is still above 60, but RSI pierced its 9 period MA (yellow oval). Please note the relationship between RSI and it’s 9 period MA is much choppier on this chart.
Usually, we get a clearer picture of that relationship on the monthly chart.
We run the same scan on a list of highest correlated S&P stocks to Non Manufacturing PMI. The scan returned two stocks CXO and DOV