April 22nd 2013: SPX is range bound and down!

This weekend, I had an epiphany of sorts.  The stock market is just like Smokey and the Bandit.  The Bandit is constantly trying to steal your money and stay a few steps ahead of Smokey.  If I ever get my hands on the Bandit, I'm going to wring his filthy neck...

From the recent $SPX chart, it appears that we're range bound and down!  [sorry, i couldn't resist]

After 2 failed breakouts, the FORCE index has turned blood red as volume blew out last week.  I could point out the bearish divergences on the chart, the chorus of secondary indicators (like accumulation/distribution days, bullish percent indexes, summation indexes, new highs vs. new lows) but I won't.  It all boils down to price.  The box (range) that I'm looking at now is 1540-1600.  Ideally, I'd like to see a weekly close that exceeds one of those numbers and holds.  Nothing else matters.  If I were a betting man (and I am), I'd bet that we close down.  However, I'll keep my opinions out of this one and let price decide where it wants to go.

Here's the chart and box (range) highlighted in blue outline:

For more of my charts and to read a disclaimer, please see my public chart list on stockcharts.com:
http://stockcharts.com/public/1109955

April 13th 2013: News flash! Gold miners are in trouble!

In case anybody missed it, gold miners are in trouble.  Energy costs are still relatively high and gold is getting cheaper.  Their costs for getting the metal out of the ground are going up - not down.  Ever helpful Goldman suggested shorting gold this week (but not 300 pts ago).  To make matters worse, large holders of gold and GLD (ex. John Paulson) haven't sold enough and GLD itself is selling into the market to match its index.  GLD has become the 6th largest holder of gold in the world behind France.  Canada, which has been historically known for gold production, has a paltry 3.4 tons of gold in reserve.  If GLD with 1158.56 tons of gold gets whacked 3%, that's equivalent to forced selling of ~34 tons of gold (or 10X Canada's entire holdings!).  But that's old news....

The big question is where do we go from here?  My short answer:  down (see chart)

Here's why:

• We've broken a huge trading range to the downside that took ~3 years to construct.
• There's an obvious head and shoulders pattern which projects much lower.
• In terms of historical similarity, the peak of 54.69 in Oct 2012 looks similar to the peak of 50.70 in July of 2008.  Using similar price destruction estimates, projects to ~17.5(!)
• We're into the monthly bar of the 15.48 low in Oct 2008 and often that leads to eventual testing of the low.
• The US dollar was down this week.  Imagine how much gold would be down if the dollar was actually up(!).  What if it gets back to the old highs of $88-$89??

Here's what we need for a bottom:

• ~1 month of rapid price destruction where almost every single day the price of GDX is lower.
• Margin calls.
• Large holders of GLD to throw in the towel.
• GLD to get materially smaller.
• Central banks to start buying heavily to counteract the compounding effects of GLD.
• Calls of removing gold from "diversified" portfolios
• Gold miners to announce they are stopping production en masse.

April 7th 2013: Japan declares war on its own currency!

Does everyone hate their currency?  It certainly seems that way - at least in governments around the world.  The citizens that elect the governments might say otherwise, but I digress...

This week, Japan unleashed the world's most aggressive easing policy (so far).  They plan on DOUBLING their money supply from 135T YEN to 270T YEN(!) by December 2014(!).  In GDP terms, this equates to a 1% increase every month this year and increases to 1.1% every month next year(!).  To put this in perspective, the US is currently expanding its already HUGE balance sheet by 0.54% every month.  In short, Japan has just announced a 2-year war on its own currency and it won't quit until it achieves 2% inflation.  This is big news for Japan and currency markets, in general.

So, how could you play it?  Well, you certainly could go short the yen.  Either in the FX market or by an ETF like YCS (just be aware of the tax complications).

Another option is with a currency-hedged Japan ETF like DXJ.  This has been a popular trade already this year - especially with hedge funds.  Last week, we had a shakeout in DXJ which quickly retraced and closed higher after news from Japan about their new anti-Yen policy.  My take is that governments are bigger than hedge funds and this already crowded trade can get even more crowded with the government behind the move.

Let's go to the chart.  I already noted the shakeout which set-up the bottom edge of a nice box.  We reversed sharply on the news and had follow-through the next day to close up and out of the box.  In an uptrending market, upside box breaks act as continuation patterns and target a box length move to come.  That equates to a price target of $47.85 where I would lock in some gains and let the rest run with a stop.

For more of my charts and to see a disclaimer, please check out my public chart list at stockcharts.com:
http://stockcharts.com/public/1109955

Here's the chart:

April 1st 2013: Boring is the new high-beta???

I'm sure that I'm not the only one that's noticed that boring stuff is on a tear in the market.  Staples, Health-Care, Utilities, Low-Vol.......they're all red hot.  These are the sectors that are driving the $SPX higher - not momentum, not growth - boring is the new high beta.

Generally, at the start of rallies, we see things like small caps, the nasdaq, recent IPOs, etc. leading.  The fact that we're seeing boring stuff leading means that we're at the tail end of this leg higher.  To be clear, I'm not calling a top.  I plan on enjoying the ride while it lasts and focusing on the strongest sectors in the market place.

I could put up ratio charts of the SPHB:SPLV or XLP:SPY, but I think this one says it all.  Almost every week, the XLP is higher regardless of the noise out of Europe or political hand-wringing in the US or real estate bubbles in China.

Here's the chart:

To see more of my charts, please visit the public chart list section of stockcharts.com and see my disclaimer there, too.

http://stockcharts.com/public/1109955

March 23rd 2013: Bonds aren't bursting....yet.

I was talking bonds with a friend of mine this week and the TLT chart looked like an interesting one to discuss for the blog...

For all the talk of a) bonds being in a Fed-induced bubble and b) over-heated bond assets MUST flow into equities, the TLT chart looks bullish or perhaps more likely "not bearish".  What I mean by that is TLT looks like it's going to be trapped in a box (range) for some time.  (By the way, if anyone tells you the market MUST do something, just consider the source and the alternative).

When TLT broke the lower edge of the box with volume and FORCE in early March, I went short TLT (via long TBT) in anticipation of a larger sell off.  However, the sell-off got absolutely no traction and I quickly covered for a small loss.  What happened next is reminiscent of some of the best $SPX bottoms where price undercuts a defined support level and closes sharply higher in the same week.  After undercutting the lows, TLT bounced back into the box on better than average volume and improved FORCE....and then the following week jumped sharply in price.  This is bullish price action.

On the bullish side of the ledger, we have the following:
- Undercut of support and close above
- 5EMA and 10SMA are close to crossover (a few ticks away)
- FORCE index is green (positive)
- Volume on black bars is increasing
- Price closed above 5EMA and 10SMA
- Bullish "W" pattern on daily
- Bullish cup and handle pattern on daily
- Bullish triangle continuation pattern on daily

On the bearish side, we have the following:
- Downtrend is still in place with a series of LL's and LH's
- Gap remains open a few points below
- Volume on red bars is still high

Overall, I think odds favor TLT remaining in the current box for the next few weeks - perhaps months, but I will respect a break in either direction.

I have no position in TLT or TBT right now and don't plan on initiating one any time soon.

For more charts with alot less narrative, please see my public chart list (and the disclaimer, too!)
http://stockcharts.com/public/1109955

Here's the chart (courtesy of stockcharts.com):

March 16th 2013: Apple isn't dead yet!

For my first post on Weekly Stock Charts, I thought that I'd go over everyone's favorite stock, Apple [AAPL].

First a few words about my methods of analyzing stock charts.  As the title of this blog suggests, I mainly focus on weekly stock charts to identify areas of support and resistance areas (which I draw as boxes for convenience).  I trade those boxes based on the teachings of trend-following with a pinch of Darvas box theory and Alexander Elder layered on top.  If that last sentence made absolutely no sense, might I suggest reading 3 books as background:  Michael Covel's "Trend Following" and Nicholas Darvas' "How I Made $2M in the Stock Market" and any of the books by Alexander Elder.  Or just follow along with my posts and you'll see how I do things.

Too many people have given up Apple for dead....and it's not quite dead yet!

As the chart below illustrates, there's some bullish divergences between the FORCE index and price (FORCE is making a higher low while price made a lower low).  Elder Impulse bars are blue (neutral) - which is infinitely better than red (if you're bullish).  Resistance is at 478.81 (the top of the blue box).

So, the million dollar question is can it actually make it to that high of 478.81?

Maybe not, but I'm still playing for a bounce.  Here's why:
- Bullish divergence in FORCE index
- FORCE index is green (positive).
- Bouncing off resistance (now support) from Oct 10th 2011 weekly high of 422.
- Sentiment has become too negative after 6 months of going down

On the negative ledger, you have the following to contend with:
- Trend is still down (5EMA is lower than 10EMA), shaded red on the chart.
- No higher highs printed yet
- Price is below 5EMA
- Volume on weak bounces remains correspondingly weak.

Taken together, I think the odds for a small bullish bounce are better than 50% and certainly better than any time since September 2012, but I wouldn't count on tagging the 478.81 high just yet.

I'll revisit AAPL in a few weeks to see how it all plays out.

For more charts and disclaimer, feel free to check out my public stockcharts list:
My StockCharts Public Stock List

*** This blog post is for informational and educational purposes only and should not be misconstrued as investment advice. ***