TomAspray's  Instablog

TomAspray
Send Message
Tom Aspray, professional trader and analyst was originally trained as a biochemist but began using his computer expertise to analyze the financial markets in the early 1980s. Mr. Aspray has written widely on technical analysis and has given over 60 presentations around the world. Many of the... More
My company:
Tutor Your Trade
My blog:
Charts in Play
My book:
Bi-Weekly Trading Lessons eLetter
  • The Week Ahead: Another Scare Like 2010, 2011, And 2012? 0 comments
    Apr 13, 2014 1:19 PM | about stocks: SPY, QQQ, DIA, IWM, IYT

    It was another rough week for the markets as the heavy selling came as the average investor was trying to digest the significance of the market rigging headline that I discussed last time. The selling hit panic levels on Thursday, but it is too early yet to conclude that the decline is already close to being over.

    The technical picture last Wednesday allowed for two scenarios and, as of Friday, there is not enough evidence to be confident whether the large-cap Spyder Trust (SPY) and SPDR Dow Industrials (DIA) are going to join the Powershares QQQ Trust (QQQ) on the downside.

    The plunge in the technology and biotechnology stocks is being tied to the perception that the economy is not strong enough to support the current high stock prices. This view is not really supported by the current numbers, as past market declines in this bull market have come in conjunction with much softer numbers than we are seeing now.

    The current environment does remind me of the panic sell-offs that occurred in 2010, 2011, and 2012. I have circled these periods on the weekly close only chart of the S&P. For example, on August 27, 2010, there was this Bloomberg headline "El-Erian Says `Alarming' Data Show U.S. Economy Slowing."

    The S&P 500 had actually made its low in early July 2010, but had a secondary low at 1039, the day this article was published. Below the chart of the S&P 5000 is a chart of the S&P 500 Advance/Decline line which reveals that it had made a new high the prior April (point 1) . By February of 2011, the S&P 500 had risen to 1344.

    chart
    Click to Enlarge

    In the summer of 2011, there was the massive decline that began in late July that was followed by heavy selling in early August in reaction to the budget impasse and downgrade of US debt. By September, the fear of a double dip recession was being widely discussed. On September 7, a CNBC headline read "US Economy Is Basically 'Still In Recession': Fed's Evans."

    The S&P 500 dropped to a low of 1074 on October 4, before reversing to the upside. The A/D line had made a new high in early July (point 2). A week after the low, there was strong technical evidence that the lows were in place, leading to my article "Be Bold, Be Fearless.Buy the Dip." By April 2012, the S&P 500 was trading well above 1400.

    The A/D line made a new high that April, but by the end of the month, it had moved into the corrective mode. By May, the concern was over the troubles in the Eurozone with this headline on May 27 from the telegraph "Lloyd's of London preparing for euro collapse."

    The S&P 500, which had traded as high as 1422 at the start of April, dropped to a low of 1266 on June 4, just five days after the article was published. The Euro dropped to a low of 1.2042 the next month and has been moving higher ever since. At the June lows, there were also strong technical signs that the correction was over, as I noted on June 6.

    In the middle of September 2012, the A/D line made another new high (point 4), which is hard to tell from the chart. By the end of October, concerns over the economy and the outcome of the presidential election resulted in significant selling.

    chart
    Click to Enlarge

    The S&P 500 had reached a high of 1474 in September and, by the time this headline appeared on November 7, it was down to 1394. The S&P bottomed on November 16 at 1343 and then rallied to close the year at 1426, despite a year end decline in reaction to the "fiscal cliff."

    As the S&P 500 chart indicates, the A/D line has made a series of higher highs in 2013 and early 2014 (line 5) as its most recent high was on April 4. It does not yet show a new downtrend, which would be consistent with a deeper correction in the S&P 500 and NYSE Composite.

    chart
    Click to Enlarge

    The bond market does seem to be a bit more worried as the yield on the 10 - Year T-Note looks ready to close at 2.63% as it has dropped below the lows of the past six weeks. The next strong support is in the 2.44-2.50% area and the weekly starc- band. The MACD shows no sign yet of bottoming as it is still in a downtrend, line c.

    There is apparently a problem with longer posts so to see the rest of the Week ahead column including the outlook for the markets please go here

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

    Stocks: SPY, QQQ, DIA, IWM, IYT
Back To TomAspray's Instablog HomePage »

Instablogs are blogs which are instantly set up and networked within the Seeking Alpha community. Instablog posts are not selected, edited or screened by Seeking Alpha editors, in contrast to contributors' articles.

Comments (0)
Track new comments
Be the first to comment
Full index of posts »
Latest Followers

StockTalks

More »

Latest Comments


Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.