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I have been investing for over 40 years, evolving from investor to trader. The bear part comes from my degree from Cal: Go Bears! From 1982 to 2000, I managed a 17% return trading mutual funds on the basis of relative strength. This success was, of course, helped by an historic bull market, but... More
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  • ETF Blog For 12/30: Solid Support For This Market 0 comments
    Dec 29, 2013 12:54 PM | about stocks: IWM, XLV, EFA, EWD

    Market Moving News (Summary of 12 Articles)

    Rates of shopping were high last week, but the overall pace was about the same as November. There is apparently no major increase of holiday shopping over last year.

    Manufacturing is on the upswing, with higher employment. November durables factory orders moved up 3.5%, transportation was up 8.4%, and nondefense capital goods orders excluding aircraft rebounded 4.5%.

    The National Activity index moved higher, driven mostly by production increases; employment was higher; however, the 4-week average of unemployment claims, at 348,000, is about 15,000 higher than the prior month's number, and the 4-week continuing claims average, up 40,000 to 2.837 million, is only slightly higher than the previous number.

    Personal income rebounded 0.2%, following a 0.1 percent dip in October. But the important wages and salaries component improved to a 0.4% gain in November after rising 0.1% the month before.

    Higher mortgage rates are reducing mortgage applications, which fell 4% in the December 20 week, for an annualized decrease of 11%. Refinancing activity is also down 8% last week, to the lowest level of the recovery.

    Home prices are rising, as they have done for 21 consecutive months, the annualized rate for October is plus 8.2%. New home sales for November were off 2.1%. Inventory is down.

    Sentiment Metrics

    The consumer sentiment report held steady through December at 82.5 vs. 75.1 in November. Sentiment improved in the second half of December, vs. the first half. The Bloomberg Consumer Comfort Index moved to -27.4 as of 12/22, the fifth straight gain and strongest level since August. The effects of the government shutdown have been erased. The VIX dropped all week, and closed at 12.5, indicating very little fear in the market.

    The Market (S&P 500)

    (click to enlarge)

    The SPY continued its breakout over resistance at 181, achieving new highs each day. There is strong support at 177. Volume was at holiday lows that are likely to continue next week.

    Small Caps (NYSEARCA:IWM)

    (click to enlarge)

    The IWM is running above a trend (dashed line) of 132%/year. Weak support exists just above 113, and strong support is at 109. My stop is at 114; long-term traders can place a stop at 109, which is 5.4% below Friday's close.

    Core Relative Strength

    (click to enlarge)

    The core sector chart shows small caps (IWM) as the leaders, being overtaken on Thursday by foreign stocks (NYSEARCA:EFA). EFA contains companies like Nestle, HSBC, Roche, Novartis, Vodafone, Toyota, BP, GlaxoSmithKline, TOTAL, and Royal Dutch Shell. Tech (NYSEARCA:XLK), energy (NYSEARCA:XLE), and Healthcare (NYSEARCA:XLV) are also among the leaders. EFA represents good diversification in comparison to IWM, as well as being a proxy for foreign stocks, so I will consider buying it next week. I presume the surge in XLE is due to increasing oil prices, and will stay away unless a strong trend emerges.

    Composite Relative Strength

    (click to enlarge)

    The Composite relative strength chart compares performance 36 ETF's to the best major index, which last week was IWM (red). Metals (NYSEARCA:XME) surged to the top position. This ETF includes AKS, SLCA, X, AAA, ATI, CMC, CLF, STLD, ANR, and NUE. AKS was particularly strong in the last two weeks. Homebuilders (NYSEARCA:XHB), Sweden (NYSEARCA:EWD), telecom (NYSEARCA:IYZ), and Italy (NYSEARCA:EWI) constitute the next group. Sweden has a stronger chart than Italy.

    Trades Last Week

    Bought PNQI, XLK, added to IWM

    Conclusion and Action

    The news is relatively neutral, and I more volume next week, but not much action. The market will likely begin a new trend the week of January 6, and it will most likely be higher, but a correction is always a possibility. I will buy EFA on a breakout above 66.9, XLV above 55.65, EWD above 35.4.

    Have a Happy New Year and a prosperous 2014!

    Disclosure: I am long IWM.

    Stocks: IWM, XLV, EFA, EWD
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