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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
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  • The Week Ahead: Barron's Roundtable -- Too Cautious Like 2013?

    The stock market got another monkey off its back last week as the ECB finally came through with a plan for quantitative easing that was slightly larger than the market expected. Stocks had already been rebounding ahead of this news and subsequently accelerated to the upside. This is despite the fact that no one can know yet if their plan will even succeed.

    Every January, Barron's has their Annual Roundtable panel where they assemble ten well known investment experts and get their thoughts for the year ahead. The first part was published last weekend and I always find it an interesting read.

     

     

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    Though I have no affiliation with Barron's, I continue to recommend that all serious investors should be subscribers or at least check out the Roundtable issue at their local library.

    As I discussed two weeks ago (Another Double Digit Year?), my technical appraisal of the stock market suggested that the S&P 500 could reach 2263 sometime in 2015 (a 10% gain). But I have consistently stressed that forecasting a year out is a fool's game.

    I feel much more confident forecasting 3-6 months out and next fall I should have a better idea how the stock market will finish 2015. In October, when the sentiment was getting more bearish, I made the case (Is This the Beginning of the End?) why investors then should not yet be worried about a bear market or new recession.

    Though I find the individual recommendations of the Roundtable experts interesting, I tend to focus on how they view the economy and the stock market. This year, Barron's summed up by saying "On the whole, they expect interest rates to stay unnaturally low and the US to lead the world in economic growth. Yet, they doubt that will translate into robust gains for the stock market."

    In fact, the most bullish was Delphi Management's Scott Black who was expecting "that the Standard & Poor's 500 will return 10% this year-an 8% price advance and a 2% dividend yield." Even those who think the lower crude oil prices will be a positive for consumers and the economy were not expecting strong market gains.

    Most do expect that interest rates, along with inflation, will remain low and they generally do not expect a US GDP growth of much more than 2-2.5%. I think the economy is likely to do much better in 2015.

    In a review of previous roundtable discussions, I found the Roundtable of 2013 to be quite an interesting comparison. There was quite a split in the opinions in 2013, but even the most positive analysts were not looking for more than a 10% gain.

    Many were quite bearish as Barron's commented then "Best we can summarize it, they fell into two distinct camps-those who foresee an improving economy, quiescent inflation, rising corporate earnings, and decent gains for stocks-and those who expect the interest-rate-suppressing policies of the Federal Reserve and 37 similar institutions to end in recession, depression, and 'national confrontation,' otherwise known as war."

    Of course, stocks had one of the best years since 1997 in 2013 as the S&P 500 gained over 32%. Of course, many of the experts' individual stock picks did quite well in 2013, but the very bearish forecasts on the markets clearly did not work out.

    The stock market had one main thing in common technically at the start of both 2013 and 2015. On December 12, 2012, the NYSE A/D line made a new high and December 29, 2014, the A/D line also made another new high. It is again acting stronger than prices as we head into 2015, just as it did in early 2013.

     

     

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    Since the start of 2014, global markets have been nervous about the ECB meeting last Thursday, so some will be surprised to see that the German Dax Index had already closed at a new high on January 16, breaking through the resistance at line a. The completion of the trading range (lines a and b) projects even further gains for the DAX in the months ahead.

    The broader STOXX Europe 600-that represents large, mid, and small capitalization companies across 18 countries of the European region-has also broken through the year-long resistance and also looks quite bullish.

     

     

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    There also has been some improvement in the economic outlook as the EuroZone waits for the outcome of the Greek elections on Sunday January 25. The German Purchasing Manger's Index rose to a three month high and the Markit EuroZone PMI has turned up, as indicated in this chart from Markit. A break of the downtrend I added, line a, in the 55-56 area, would be a positive sign.

    Some data on US manufacturing continues to suggest a slowdown, but last Friday's flash PMI Manufacturing Index of 53.7 still indicates moderate growth as it was just below the final reading from December of 53.8.

    In last week's trading lesson Are the Homebuilders Still in a Bear Market?, I took a look at the disappointing action of this industry group since the bear market low of 2009. The housing data last week was quite good as both the Housing Starts and Existing Home Sales were surprisingly strong. The home construction stocks are not yet responding to this positive data.

    This week, we get the S&P Case-Shiller HPI on Tuesday, along with New Home Sales plus the Pending Home Sales Index on Thursday. This is just part of a busy calendar, with Monday's PMI Services Index and Dallas Fed Manufacturing Survey.

     

     

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    On Tuesday, we also get Durable Goods, Consumer Confidence, and the Richmond Manufacturing Survey. The focus, I believe, will be on Consumer Confidence in light of the continuing decline in gas prices. The long-term chart (courtesy of dhsort.com) shows that the downtrend I have added, line a, was broken in early 2014. A move above the 100 level is not out of the question later this year.

    The FOMC Meeting begins on Tuesday with an announcement, but no press conference on Wednesday. There are several important reports on Friday, including GDP, Employment Cost Index, Chicago PMI, and the University of Michigan's month-end reading on Consumer Sentiment.

    What to Watch
    I thought last week that the close on January 16 might be important and this week's rally supports that view. The major averages had dropped below their quarterly pivot levels but then rallied to close the week back above their pivots (see Pivot Table here). This was a strong enough sign that I recommended traders buy the Spyder Trust (SPY) on Friday afternoon.

    The strong close this week, which may be above the prior two week highs, supports the bullish interpretation but further gains are needed in the next two weeks to signal a breakout to the upside. The quarterly pivot levels and the recent lows are now even a more important level of support.

    The strong close this week will cause most of the weekly studies to turn higher. As I have been noting, the fact that most of the weekly studies did confirm the recent highs is a positive for the intermediate term.

    The daily studies are slightly positive and it will take further gains before turn they can turn strongly bullish. The healthcare sector looked strong as we started last week, and in Three Market Leading Healthcare Picks, I recommended stocks which showed up as positive basis my weekly and monthly technical scans.

    The sentiment picture improved some last week as the bullish % from AAII dropped from 46.11% bullish to 37.14%. This is the lowest reading since October 2nd, which was two weeks before that important low.

    Also, now 30.79% are bearish so it looks like all those "impending bear market" articles are having an effect. Remember it is a big mistake to change your outlook based on any analyst (myself included) without doing your own research.

     

     

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    The 5-day MA of the % of S&P 500 stocks above their 50-day MAs did turn up last week, closing last Thursday at 44.94%. On January 20, it dropped to a low of 41.36%. Turning up from moderately oversold levels is consistent with the end of the market's correction.

    The daily chart of the NYSE Composite shows an apparent continuation, or flag formation, lines a and b. The resistance is in the 10,960-80 area, so a close back above the 11,000 would be an upside breakout.

     

     

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    The monthly projected pivot resistance is at 11,111, which is just below the September high. The 127.2% Fibonacci retracement target from the formation is at 11,279 and just below the quarterly pivot resistance at 11,309.

    The week ending 1/16 the NYSE dropped below the quarterly pivot at 10,597 for several days before closing the week 10,660. This is why using price based levels, like the quarterly pivot levels, that are based on three months of prior data can help you navigate volatile markets.

    The weekly NYSE Advance/Decline made a new high at the end of 2014 and will close the week near the old highs. This is evident from the daily A/D line, which is back to resistance at line c. The A/D line is above its WMA, which is trying to turn higher with long-term support at line d.

    The McClellan oscillator has now convincingly moved above the zero line and broken the downtrend, line e, that connects the November and December highs. The Osc formed a short-term positive divergence at the recent lows, line d.

    The weekly on-balance volume (OBV) made a significant new high at the end of 2014 but close the week back above its WMA. With a strong close this week, it could reverse back above its WMA.

    The rising 20-day EMA is at 10,726, which represents first support.

    S&P 500
    The Spyder Trust (SPY) after the low of $198.55 on Friday, January 16, closed that day at $201.63 and well above the quarterly pivot at $199.42. The high last week appears to be just under $206 and a close above $206.50 should make those on the short side even more nervous.

    There is further resistance in the $209 area with the weekly starc+band now at $217.26. The upper trend line (line a) is just below this level. The 1st quarter projected pivot resistance is at $230.02 (courtesy of John Person's software).

    chart
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    The slightly rising 20-day EMA is at $203.26 with the 20-week EMA at $201.85. There is more important weekly chart support at line b.

    The weekly on-balance volume (OBV) did make a new high late last year confirming the price action. It has turned up but is still below its WMA. A higher close this week should take the OBV back above its WMA. The initial weekly support at line c, was broken in October but the OBV held well above the long-term OBV support at line d.

    The daily S&P 500 A/D line (not shown) has moved well above its WMA and has broken its short-term downtrend.

    Dow Industrials
    The weekly chart of the SPDR Dow Industrials (DIA) shows that it has dropped below the 20-week EMA each of the past three weeks but closed well above the lows. The recent correction low of $172.12 was above quarterly pivot $171.99.

    The daily starc+ band now stands at $180.69, which is just below the all time high of $180.71. The weekly starc+ band is significantly higher at $185.93

    The weekly relative performance determines whether the Dow is acting stronger or weaker than the S&P 500. It is still in a long-term downtrend, line f, so it continues to be weaker. The RS line is in a range and a move above the September highs to signal that is getting stronger.

    The Dow Industrials A/D line (not shown) held above the December lows and closed the week above its WMA. It is now testing its downtrend.

    The weekly OBV may close the week above its WMA, which would generate a buy signal from Aspray's OBV Trigger (AOT).

    Nasdaq 100
    The PowerShares QQQ Trust (QQQ) had a sharp rebound this week as it was one of the strongest major average as it had closed back above the quarterly pivot at $99.67 the prior week. The correction low was $99.36 with the uptrend on the chart, line a, at $97.59.

    The next resistance is at $105.25-$105.86 which is the upper boundary of the recent trading range and the daily starc+ band. The November 2014 high was $106.24. The monthly projected pivot resistance is at $108.76 with the weekly starc+ band at $109.12.

     

     

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    The weekly relative performance will close the week back above its WMA, which is a positive sign. This suggests that the Nasdaq 100 may again be ready to assume leadership.

    The weekly OBV did not confirm the November highs as indicated by line c. It has turned up but is still well below its WMA. If QQQ makes a new high, it will be important that the OBV also makes a new high.

    The Nasdaq 100 A/D line (not shown) has moved back above its WMA and could test the flattening WMA on a pullback.

    Russell 2000
    The iShares Russell 2000 Index (IWM) has been in a narrow range for the past three weeks. It had a recent low of $114.20 that was below the quarterly pivot at $114.73 but did not close below it.

    The weekly chart still shows a major trading range, lines e and f. The most recent high at $121.41 was slightly above the prior two week highs but a strong close above this level is needed to confirm a breakout.

    A close back above the last week's high at $119.39 would be positive as it would be above the prior two week highs. The weekly starc+ band is now at $126.05.
    The weekly relative performance broke its downtrend, line g, in November but has not yet completed its bottom formation as it has stayed in a trading range.

    The weekly OBV turned up this week but is still slightly below its WMA. It also shows a trading range with key resistance at line h. The daily OBV is still below its WMA as the volume on the recent rally has not been impressive.

    The 20-day EMA and initial support is at $117.29 with further at $116.

    NEXT PAGE: Sector Focus, Commodities, and Tom's Outlook

    Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Tags: SPY, QQQ, IWM, IYT, DIA, XLV
    Jan 24 10:03 AM | Link | Comment!
  • Will These Stocks Ignite The Tech Sector?

    The stock market continued to edge higher Wednesday ahead of the widely anticipated ECB meeting today. The market internals at 2-1 positive were stronger than prices. Still, the major averages are locked in their trading ranges. The energy stocks led the market higher as the Sector Select Energy (XLE) was up over 2%.

    The Sector Select Utilities (XLU) made another new all time high while the Sector Select Industrials (XLI) gained 0.82%. The transportation stocks are part of the industrial sector and the technical action in the iShares Dow Transportations (IYT) suggest that its correction may be over.

    The S&P futures need a close above 2062 to signal that the correction is over with $206.50 being the key level in the Spyder Trust (SPY). There has been some positive volume action in the technology sector and a close in the Sector Select Technology (XLK) above $41.62 would be positive.

    There is one part of the technology sector where the positive volume and relative performance analysis suggests it could lead the sector higher.

     

     

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    Chart Analysis: The Market Vectors Semiconductor (SMH) has total assets of $464 million, a yield of 1.32%, and an expense ratio of 0.35%. There are 25 stocks in the portfolio with Intel Corp. (19.8%) and Taiwan Semiconductor (15%) the two largest holdings.

    • Over the past two weeks, SMH has dropped to test the 20-week EMA now at $52.46.
    • The long tails on the candles indicate demand at these lower levels.
    • As of Wednesday, SMH is trading above the prior two week highs at $54.47.
    • The prior high was $55.92 with the weekly starc+ band at $58.61.
    • The quarterly projected pivot resistance is at $63.58.
    • The relative performance is breaking out to the upside, consistent with a market leader.
    • The monthly RS analysis (not shown) is also making a new high and is well above its WMA.
    • The weekly OBV is trying to turn up this week and would move back above its WMA with a strong close.
    • The quarterly pivot is at $51.51 with the weekly starc- band at $50.35.

    The daily chart of the Market Vectors Semiconductor (SMH) has closed higher for the past three days, closing back above the 20-day EMA at $53.89.

    • It is still below the key daily chart resistance at $55.92.
    • There is monthly projected pivot resistance at $57.98.
    • A completion of the trading range has upside targets in the $59-$61 area.
    • The daily RS line moved through its downtrend last week signaling it was a market leader.
    • The daily OBV has broken its downtrend and moved back above its WMA.
    • It has not yet confirmed a completed bottom formation so a pullback is possible before the bottom is complete.
    • There is short-term support now at $53.50-$56 with stronger at $52.50.

     

     

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    Applied Materials (AMAT) is a $29.67 billion provider of semiconductor equipment and services. It has a yield of 1.7% and was up 43.2% in 2014.

    • AMAT peaked at $25.71 in late 2014 and is now 5.41% below its high.
    • The quarterly pivot at $23.06 was violated last week as the low was $22.86.
    • The 50% Fibonacci support is at $22.11 with the weekly starc- band at $21.76.
    • The weekly RS line has turned up from its WMA and did make a new high last month.
    • The weekly OBV is now testing its rising WMA.
    • Both the monthly OBV and RS analysis are positive.
    • There is next resistance at $24.60-$25 area with the monthly projected pivot resistance is at $27.17.
    • The quarterly projected pivot resistance is at $30.22.

    Analog Devices (ADI) is a $17.07 billion designer and manufacturer of integrated circuits. It peaked in December at $57.99 and is now down 5.88% from this high.

    • The low last week of $52.21 was close to the quarterly pivot of $51.93.
    • The weekly starc- band and the 50% support are in the $52.14 to $50.28 area.
    • The daily relative performance has just moved barely above its WMA.
    • There is key resistance at line d.
    • The weekly and monthly RS analysis is positive as the weekly has just pulled back to support.
    • The daily OBV has rallied back to its declining WMA with stronger resistance at line e.
    • With a higher close this week, the OBV will turn up from its rising WMA.
    • A weekly close above $55.52 would be positive.
    • The 127.2% Fibonacci retracement resistance target is at $59.59.
    • This is very close to the monthly projected pivot resistance at $59.94.

    What it Means: The semiconductor sector is acting quite well and both of the stocks are holdings of the Market Vectors Semiconductor (SMH). AMAT makes up 4.55% while ADI is a 3.78% holding.

    The best choice for most, therefore, is SMH, but if the analysis is correct you are likely to get a bigger return in the individual stocks. All three picks satisfy the 6 point checklist detailed in the recent trading lesson.

    How to Profit: For Market Vectors Semiconductor (SMH) go 50% long at $54.36 and 50% at $53.22 with a stop at $51.21 (risk of approx. 4.8%).

    For Applied Materials (AMAT) go 50% long at $24.06 and 50% at $23.48 with a stop at $22.59 (risk of approx. 5%).

    For Analog Devices (ADI) go 50% long at $52.88 and 50% at $52.12 with a stop at $49.86 (risk of approx. 5%).

    Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Tags: SMH, AMAT, ADI, SPY, XLK
    Jan 22 2:39 PM | Link | Comment!
  • Are The Transports Turning The Corner?

    The tug of war between the bulls and the bears resumed on Tuesday as-after a higher opening-stocks reversed to the downside, but the failure of any heavy selling to emerge allowed a late rebound. The declining stocks led the advancing ones by a slight margin. The global markets are waiting for Thursday's ECB announcement.

    Apparently there was a data problem with the McClellan oscillator after last Friday's close as the normally very reliable vendor corrected their data after Tuesday's close. It now shows a close in the oscillator on January 16 of -7. This means that the downtrend was not broken as I thought in Tuesday's column on healthcare stocks.

    The 2.6% decline in Johnson & Johnson (JNJ) hurt the Dow Industrials as it was just barely higher, while the retailers were hit as both Ann Inc. (ANN) and HHGreg Inc. (HGG) both lost over 7%. The Dow Transportations led the market higher on Tuesday as it was up 0.90%.

    This index is often a market leading sector as it topped out at the end of November, while the S&P 500 made its high on December 23. Some of the strong railroad stocks have corrected sharply on worries that weak oil prices would drag down earnings. Union Pacific (UNP) is down 7.8% from its 52-week high, CSX Corp. (CSX) is down 7.9% while Kansas City Southern Inc. (KSU) is down over 13%.

    The leading Transport's ETF appears to be turning the corner and there is one railroad stock that may have already seen its lows.

     

     

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    Chart Analysis: The iShares Dow Jones Transportation (IYT) declined for the first three weeks of 2015 as the 20-week EMA was tested last week.

    • IYT did rebound Friday to close back above the quarterly pivot at $156.15.
    • The weekly chart shows an apparent continuation pattern, with the weekly resistance in the $165 area.
    • The weekly starc+ band is at $172.15.
    • A higher close in IYT this week will suggest the correction is likely over.
    • Such a close will push the weekly relative performance back above its WMA.
    • A break of the downtrend in the RS (line b) would be more bullish.
    • The weekly OBV confirmed the November highs, but is now below its WMA with key resistance at line c.
    • The low last week of $154.04 correlates closely with the weekly low in December of $153.98.

    The daily chart of the iShares Dow Jones Transportation (IYT) more clearly shows the continuation pattern, lines d and e.

    • A strong close above $156 would complete the formation, with the 127.2% Fibonacci target at $171.16.
    • The formation projects a move to the $176-$178 area.
    • The quarterly projected pivot resistance is at $186.85.
    • IYT did violate the 38.2% support of the rally from the October lows, but the 50% support at $152 was not reached.
    • The daily RS line has turned up from support and closed Tuesday back above its WMA.
    • Consistent with the 6 point checklist, the monthly RS line is well above its WMA.
    • The daily OBV has also reached the support from late October, line g.
    • The OBV is still below its WMA, but volume over 800,000 with a higher close would be positive.
    • There is daily chart support in the $155.50-$156.50 area with the lower daily starc- band at $151.98.

     

     

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    CSX Corp. (CSX) is a $34.37 billion dollar company with a yield of 1.80%. They reported 5% increase in revenue on January 12 and are looking for a double digit, per share profit increase in 2015. They have a yield of 1.80%.

    • The daily chart shows the low last week at $33.01.
    • It closed last week at $34.86, which was above the quarterly pivot at $34.61.
    • This was below the 50% retracement support at $33.77, which is calculated from the October lows.
    • The 61.8% support is at $32.78 with the daily starc- band at $32.41.
    • The daily RS line moved above its WMA but turned down Tuesday as the 20-day EMA was tested.
    • The daily relative performance has strong support now at line d.
    • The weekly RS line is below its WMA but the monthly (not shown) is bullish.
    • The daily OBV has pulled back to its WMA, which is trying to flatten out.
    • Both the weekly and monthly on-balance volume (OBV) are above their WMAs.
    • The daily chart formation does allow for a test of the lows or even slightly lower lows.

    What it Means: Surging consumer sentiment is consistent with many of the economic indicators that point to even stronger growth in 2015.

    The current pullback in the iShares Dow Jones Transportation (IYT) and CSX Corp. (CSX) has likely provided a good buying opportunity as both are close to long-term support. The IYT has a tendency to turn quickly, which often does not allow a good entry.

    How to Profit: For the iShares Dow Jones Transportation (IYT) go 50% long at $156.74 and 50% long at $154.16 with a stop at $147.79 (risk of approx. 4.9%).

    For the CSX Corp. (CSX) go 50% long at $34.27 and 50% long at $33.22 with a stop at $32.07 (risk of approx. 5%).

    Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Tags: IYT, UNP, CSX, KSU
    Jan 21 2:20 PM | Link | Comment!
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