S&P Reversal on Chart Cue

The S&P (SPY) continues to track along a rising wedge that starts in 2009 and took shape last year.  The pattern has now predicted five bottoms and three tops in the last year (6 tops and 11 bottoms overall).  To me, it feels toppy.  But who knows what shape the topping pattern will take?  A double top?  A clean break from new highs?  A head and shoulders?  We shall see.  Junk bonds remain unflinching, showing unperturbed confidence in corporate balance sheets and the market at large.  If we ultimately see an upside break to this pattern, I suspect it will be because inflation has broken free and all asset prices are heading skyward.

I have drawn the full picture many times.  Here is a SPY chart from the last year:


Momentum stocks may be putting (temporary?) bottoms in place at supporting price areas.  Many of the high-fliers that have suffered dramatic losses in the last month have similar charts.  Most broke down from longer term rising wedges and put a bullish reversal “wick” on the chart yesterday.  Here is a look at some of charts that look like possible reversals to me.

Small Caps (IWM) have formed a bullish falling wedge in the recent sell-off and seem poised for a possible rally after yesterday’s reversal:


Amazon (AMZN) has formed a bullish falling wedge in this sell-off.  A break above resistance would seem to set the stage for a rally to 340 or higher:


Yelp (YELP) has also sold off hard after breaking down from a bearish wedge.  It if takes out the downtrending resistance, it may rally:


Tesla (TSLA) put a big reversal wick on the chart yesterday, finding support at its 2013 highs:


At this point, I still suspect the market is in a topping process.  But I’ve thought I was seeing topping action at this time of year EVERY year since 2010.  I will try to hold my bearishness loosely.  Speaking of bearishness, a couple of bearish position that seem appropriate: Coffee (JO) seems to have confirmed suspicions of a double-top with wretched action the last couple of days:


Bank of America (BAC) seems to have confirmed the breakdown from its rising wedge.  There is room for a rally, but I suspect more downside in the mid-term.


I still like copper as a short, but then I read that Dennis Gartman does too.  And so do most traders.  Seems like two very good reasons to bail on the trade.  We shall see.


Commodities and Emerging Markets Update

Some very interesting action in commodities and emerging markets of late.  The growth components of the story continue to look very vulnerable.

The broad emerging markets ETF (EEM) has hit downtrending resistance and appears to be turning lower.


Brazil (EWZ) is behaving in-line with that analysis, and appears poised to drop.  It posted a large bearish wick last week and followed up with downside follow-through so far this week.


Last month, copper (JJC) broke support that dates back to 2009.  It rallied back to that trend line and is dropping again today (Tuesday).  A new low would be meaningful.


Coffee (JO) made some serious money for those who held it in the first quarter, rallying over 100% from its lows late last year.  It may now be putting a double-top in place.


One of the more interesting plays to me is gold miners (GDX) and (GDXJ).  I have been long GDXJ for a little while now and am still holding.  What once looked like a possible breakout from a bullish falling wedge has morphed into a possible inverse head-and-shoulders.  Today’s action (4/15) brings GDXJ down to a point of multiple support lines that would seem like a good line in the sand.  If a large gap up (3%) should occur tomorrow, I would take that as a very bullish sign as today’s pricing could be viewed as an isolated doji star.  Even without that development, this appears to be an important inflection point for GDXJ.





Key Support Being Tested

Key support is being tested across major U.S. indexes.

The S&P is flirting once again with a supporting trend line from the 2009 lows.  The line has been briefly broken at times, so I would want to see a solid break over multiple weeks before being fully convinced that the uptrend is broken.


Small caps have significantly underperformed the broader market of late.  It broke under a smaller rising wedge last month, and is now hitting a support line that dates back to the 2009 lows.


Perhaps the most interesting evidence of market support is the resilience that junk bonds (JNK) continue to evidence.





Breakdowns in Bank of America and Copper

There are plenty of broken charts to be found.  High flyers like FB, YELP, LNKD, and company are in the throes of fairly developed breakdowns.  A couple of the securities that I have been tracking here ought be updated.  Bank of America appears to have very clearly broken down from a multi-year rising wedge. 


I have also been tracking copper, which broke multi-year support after grinding lower in a descending triangle single since early 2011.  It has back to 37 – the old support and, theoretically, new resistance.  A breakdown from here would seem to confirm the break and set the stage for new multi-year lows.


I have been short Japan for a little while and it has fallen hard again.  It is sitting near support that has held repeatedly over the last two years.  It will be interesting to see if it can hold this time.  It seems to have formed a descending triangle, which usually has a bearish bias.


S&P Testing Support

Friday’s continuation of the recent sell-off has bought the S&P back to a frequently tested supporting trend line.  A significant break here over the next two weeks would be telling in its bearishness, imho.

Here is the short-term look.


Here is the rising wedge that has been built since the 2009 bottom.


Emerging Markets: Hello resistance!

Emerging markets have had a very rapid rise of late.  But it appears the run to daylight has come upon darkness.  Both emerging markets collectively (EEM) and individual entities like Brazil (EWZ) have hit resistance trend lines.  First, EEM:


EWZ’s very rapid recent ascent appears to have hit an obstacle as well.


Japan (EWJ) is already in a downtrend, but it too hit resistance this week.


A commodity often associated with emerging market growth, copper (JJC), also appears to have hit resistance.  It fell through support on a 4-year bearish falling triangle last week.  This week provided the obligatory bounce and re-test.  It looks likely to fail at the moment, and we’ll see if new lows confirm that read.


With so many of the high-momentum leaders having fallen way off their highs, it’s possible that the long-awaited top has arrived.  We shall see.  Have a great weekend, all.

AAPL cup and handle?

A couple of additional miscellaneous charts: two bearish and one bullish.  First, a bullish setup for a company I dislike: Apple.  But personal distaste aside, AAPL has an interesting looking chart over the last year.  It looks a lot like a 16 month cup-and-handle.  A breakout from this setup would be awfully bullish.


Bank of America (BAC) has a far less lovely setup.  A rising wedge over the last two-plus years puts BAC at risk of significant downside.  Support has not yet broken, but the setup looks distinctly bearish.


Copper (JJC) has broken below the support of a multi-year bearish descending triangle.  This week, it rallied back to the area of the breakdown.  It will be interesting to see how things develop from here.  The chart could also read as a head-and-shoulders, or even possibly as as bullish falling wedge.  I think most of the readings suggest significant downside, but we shall see.


Commodities and Emerging Markets look appealing

I have noted that I read the major U.S. indexes as being near the end of multi-year bearish rising wedge patterns.  Now for a little bullishness.  Many commodities have performed very well in the new year, especially agriculture plays.  Things like coffee (JO) and corn (CORN) have broken above trend line resistance.  Their performance is summarized by the grain sector ETF, JJG.


Chris Kimble pointed out that some coal names look appealing, and I must agree.  ACI, which has beaten down mercilessly over the last two years, may be ready to run higher.


Emerging markets (EEM) have also broken to the upside of resistance.


India remains my favorite play in the group, as it may have an inverse (thus, bullish) head and shoulders in the rear view mirror.  But Brazil (EWZ) and many others look ready to rally for a bit.

One interesting sidelight is the behavior of precious metals.  Gold and silver have sold off hard in recent weeks, as have precious metals miners.  It has made for an ugly breakdown of their early-year uptrend.  The hope for bulls is that support shows itself soon, forming the right shoulder in an inverse head-and-shoulder pattern for miners.  We shall see.



U.S. Index Update

U.S. indexes have pulled back a bit in recent days.  There isn’t really anything new to report, but I thought I’d update the way I see the charts.  The S&P is still in the body of a multi-year rising wedge.  It has pulled away from overhead resistance, and has rising support around 1800-1820.  Until that support is broken, I am trying to keep my bearish sentiment constrained.


The Russell 2000 has exploded higher over the last year.  It has broken under a smaller rising wedge, but looks to have support about 4% below the current price.  I am short IWM (and long RWM calls).


In the short term (and very long term), I have a bearish outlook for domestic equities.  However, the charts are far more appealing in many commodity sectors and emerging markets.


India in Breakout mode?

March 18, 2014 2 comments

While the U.S. equity indexes have bounced back towards their recent highs in what I see as a collection of bearish longer term patterns, some emerging markets look like healthier bulls to my eyes.  India has been a less-than-stellar performer in recent years.  It may be breaking out.  It is moving above a multi-year trendline, and may have an inverse head-and-shoulders at its back.  Below is the chart of EPI, an India ETF.



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