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JoeHentges
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I am an equity option and futures trader. I have been trading the markets since 1979. More about me on my website
My blog:
Beyond the Chart
My book:
7 Keys to Successful Option Trading
  • Divergence | Stock Market Today | Weekend Update 2/1/14 0 comments
    Feb 1, 2014 4:57 PM | about stocks: XLF

    (click to enlarge)In today's video we look at the DJIA from a daily, weekly and monthly basis. On a daily basis it closed slightly below support after breaking through it during the day. This was not confirmed by the other indices though. The low came right down to an up trendline from November 2012.

    We also look at the other key indices SPX, COMPQ and NYA. These three indices clustered just above support but did not break through it yet. We also look at our regular indicators and take an in-depth look at the XLF.

    Divergence

    The DJIA weekly chart is showing bearish divergence on the RSI (10) and DI+. Even stronger is the divergence showing up on the monthly chart. The divergence is similar to the top in 2007 and 2000. We are getting divergence on both DI+ and RSI.

    The monthly chart is not a pretty picture. It is a bearish broadening top that has formed since 2000. The volume on this last 5 year move was significantly lower than the move from 2003 to 2007. With the January month close, we are resting right on an up trendline from the March 2009 low.

    (click to enlarge)

    XLF

    The XLF is clustering above support but below the 50 day sma. On a weekly basis it closed below the close of the last 12 weeks. The most significant development on the weekly chart is that it has broken a trendline up from the low on 10/7/11.

    On the monthly chart XLF has retraced exactly 50% of the 2007-2008 sell-off. And just like the DJIA it is showing significant bearish divergence on the RSI(10). It hasn't closed below the 10 month moving average yet, but that's what I will be looking for next.

    Apple

    Apple stock plunged this week after their earnings release. I am not going to get into the fundamentals, earnings results, cash on hand, China sales, Icahn's position, etc., etc. All I know is what I see in the chart and I've talked about this since November 10.

    On November 10th I was short-term bullish and projected that the stock would go $570-$575 then roll over. I wrote on the chart $573. On December 5th the intra-day high was $575.13. The closing high was $570.09 on a last gasp rally on December 23.

    On January 6th it broke an up sloping trendline from June 28. On January 15th it pulled back to the trendline in a classic move called the 'kiss goodbye", closing at $557.36. That was the title of my post on Saturday January 18. The low yesterday was 493.55. I review this chart in the video.

    Baidu

    Baidu is another darling of the market and has had quite a performance since listing in the United States on 8/5/05. Its all-time low was $4.45 on 2/7/06. I believe it has had five waves up from there and is now starting to correct. On a daily chart it is currently in a downtrend from an intra-day high on 1/09/14 and has clearly broken an up trendline from July.

    On the weekly chart significant bearish divergence shows for the most recent high which should be the top of Wave [5]. A similar divergence showed at the top of Wave [3], which peaked week of July 29, 2011 and the top of Wave [1] which peaked week of November 2, 2007.

    So is January telling us that the year is going to be down? Who knows? There are theories out there about the January effect and you can always find multiple exceptions for any theory. Let's just keep paying attention to what the market is telling us. I do think that the overall market is close to, if not already seen, its high for this bull market.

    Oh and remember those articles about the chart that 's scaring Wall Street? In my post "History Does Matter" there was that discussion of potential topping dates. The date mentioned was January 14, 2014. The DJIA peaked on December 31, 2013 but the SPX peaked on January 15, 2014! If the analog is correct...I wonder how many S&P 500 futures contracts Paul Tudor Jones is short right now? Of course he may have already covered and waiting for a bounce.

    View the video.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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