TomAspray's  Instablog

Stocks finished the week with nice gains, as even though the market was lower most of Friday, once again late buying pushed the major averages back into positive territory.

For the week, the ranges in some of the other world markets, like gold, were much more dramatic. The yellow metal was hit hard Friday, as expected.

Stocks spent most of the week responding to earnings reports, as there was little in the way of economic data. The new highs in the major averages were confirmed by the market internals, and the number of stocks on the NYSE making new highs surged to over 500, which was above the January high.

The financial networks almost appear to be showing reruns; many fundamentalists either argue for much higher prices or that the market is ready to fall off the cliff.

Traders continue to act skeptical without being too bearish, as the market has been finishing days higher despite early declines. Once we get the first strong down day, their attitudes are likely to change significantly.

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There was some data on margin debt last week that I found surprising. As of the end of March, investors had $379.5 billion in margin debt, which was just below the prior record of $381.4 billion set in July 2007. But is this something investors should be concerned with?

Twenty or 30 years ago, I think there was a closer correlation with speculative excess than there is now. For many, the interest rate on margin debt is lower for consumer loans, and the margin debt is also tax deductible. This can help to explain the 28% increase in margin levels over the past year.

As was evidenced by the plunge in gold prices, many traders were forced to sell their gold positions to meet margin calls, pushing prices even lower. So as you can see, it can accentuate a severe market decline. In my opinion, it is not a reason to sell, but is just another sign of the increasingly positive attitude toward the stock market.

Much of the focus for the week was on Japan and the continued weakness in the yen. The country's monetary policy is having a very positive impact on its exporters. Meanwhile, the US dollar has been gaining strength against many currencies. This has added additional pressure on the precious metals.

Some analysts are still taking the view that the move in Japan's Nikkei-225 and the yen is almost over. But a longer historical view might convince them otherwise.

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The monthly chart of the Nikkei-225 and USD/JPY only goes back to 1992, and does not show the Nikkei's high of 38,952 in December 1989. The downtrend from just the 1995 and 2007 highs is still above the market in the 16,000 area. It also does not reflect that USD/JPY made a high soon after the stock market peaked, at 160, nor that it traded at 303 in 1975.

The downtrend of the USD/JPY is now above 108, but a move this year to 125 would not surprise me at all. This makes the recent action look less impressive, though the length of the decline in these markets increases the odds that a major bottom is being formed.

I would expect to see a decent pullback in these markets in the coming months, which should present a much better buying opportunity than chasing prices at current levels. Prices right now are too far above meaningful support.

Many of the overseas markets are also acting well. The German Dax made another new high last week, and several of the other country ETFs also broke out to the upside. A new recommendation was made in the iShares MSCI Mexico Investable (EWW), and the holdings in Singapore and Indonesia have done quite well.

In contrast to last week, there are quite a few important economic reports due out this week. They start Monday with retail sales and business inventories. Last week's same-store sales data suggests April may be better than March's disappointing results, as lower gas prices have helped.

On Tuesday, we get import and export prices, followed on Wednesday by the Producer Price Index, industrial production, and the Housing Market Index.

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Industrial production in the US was stronger than expected last month. The chart actually shows steady improvement over the past three months. Globally, it is a mixed bag; while UK numbers were better than expected, those from Mexico were much weaker.

In addition to the jobless claims, on Thursday we also get the Consumer Price Index, housing starts, and the Philadelphia Fed Survey. Finally, on Friday we have the mid-month reading on consumer sentiment from the University of Michigan and the Conference Board's Leading Indicators.

What to Watch
The rotation into technology has been a big plus for the market. You are starting to see money moving out of the more defensive sectors. This is consistent with the improved outlook for the economy, and will be a positive factor as the year progresses.

The ability of the S&P 500 to reverse to the upside in April after briefly violating the widely watched 1,540 level has hopefully taught many that any one price level is not that important unless there are other signs of weakness.

Everyone now appears to be watching the 1,595 to 1,600 level, and then the 1,570 to 1,580 area. A break of this lower level would be negative if accompanied by confirmation from the other technical studies.

Bullish sentiment of individual investors jumped sharply last week, according to AAII, as 40.7% are now bullish, up from 30.9% last week. The bearish percentage has now declined to 27.4%.

Financial newsletter writers have also become more bullish now, at 52.1%, which is up from 44.3% two weeks ago. These numbers could reach more extreme levels in a few more weeks.

The daily chart of the NYSE Composite, below, shows the recent breakout above the resistance at 9,265 (line a). This now becomes the first good support. This also now corresponds to the rising 20-day EMA and the daily Starc- band. Thre is more important support in the 9,000 area (line b).

The daily Starc+ band was tested last Wednesday, with the upper band now at 9,545. It is still over 300 points below the May 2008 high of 9,724. This also corresponds to the upper boundary of the trading channel on the weekly chart (not shown).

The daily NYSE Advance/Decline made another new high last week and is still well above its strongly rising WMA. In early 2013, the WMA was rising at a similar angle. There is support at the April highs and then at the uptrend (line c).

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S&P 500
The daily chart of the Spyder Trust (SPY) made a high last week of $163.70, which is not far below the quarterly R2 resistance at $164.58. This week, the Starc+ band is at $165.50.

The daily on-balance volume (OBV) broke out above resistance (line e) in the latter part of April and continues to act strong, as its WMA is in a clear uptrend. The weekly OBV (not shown) made another new high last week, and is confirming the price action.

The daily S&P 500 A/D line signaled the most recent rally phase by moving through its resistance. It made another new high last week. A break of its WMA and support (line g) would be the first sign of a more meaningful correction.

There is support now in the $159.80 area, with additional support at $156.20 and the uptrend (line b).

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Dow Industrials
The SPDR Diamond Trust (DIA) made another new high last week, as the Dow Industrials crested the 15,000 level. DIA reached a high of $151.37, with the Starc+ band at $152.60. The recent trading range still has measured upside targets in the $153 to $154 area.

The daily Dow Industrials A/D line (not shown) again made new highs last week, while the relative performance has dropped back below its WMA and is now testing its uptrend (line c). The RS line broke its downtrend (line b) in February.

The weekly OBV made new highs last week after staging an impressive break through its resistance (line d) at the start of March. Initial support now sits in the $148.20 to $149.60 area.

Nasdaq-100
The impressive recent action in the PowerShares QQQ Trust (QQQ) even shows up on the weekly chart, as it already quite close to the weekly Starc+ band at $73.80.

The move above the September high makes the $70.58 area (line d) a first key support level. The 20-week EMA is now at $68.60, with the weekly support (line e) at $68.

The relative performance broke its downtrend (line f) in the middle of March, and now appears to have completed its bottom, as it has moved well above its WMA. The weekly OBV has moved out of its tight range, but is still well below the September highs.

The weekly Starc+ band is at $72.55, with the monthly at $75.80. The breakout completed a trading range about ten points wide, so this gives upside targets in the $80 to $81 area.

NEXT: Small Caps, Best Sectors, Commodities and Tom's Outlook

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

The Spyder Trust (SPY), as well as the Dow Industrials, broke their five-day winning streak on Thursday and the futures are a bit lower early Friday. No real US economic data today for the market to react to but Asian markets were strong on the back of the higher dollar and weaker yen.

A further correction in the stock market is possible at any time but it would take a weekly close below the prior week's lows to signal a more significant market turn. However, there is one market that has rebounded sharply over the past few weeks, tempting some to buy. A look at the technical studies suggests that it is ready for another wave of selling.

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Chart Analysis: The weekly chart of the Spyder Gold Trust (GLD) shows that a LCD sell signal was triggered the week ending October 12, 2012, when it closed at $170.06.

• The uptrend in the weekly OBV, line b, was broken in December as the volume spiked.
• As the selling picked up in April, Fibonacci support as it hit a low of $130.50.
• The major 50% support from the 2008 lows is at $126.
• GLD has rebounded over the past three weeks to fill the gap as it hit a high of $143.43.
• There is much stronger resistance now in the $148-$150 area.
• The OBV rallied back to its declining WMA (see arrow) in early February and shows a clear pattern of lower lows.
• The on-balance volume (OBV) has major resistance at its WMA and the downtrend, line a.

The daily chart more clearly shows the recent rebound and the sideways pattern that has formed over the past 11 days. Gold futures are lower in early trading so this range will likely be broken today.

• It is a negative sign that prices have just been testing the flattening 20-day EMA but have not been able to decisively close below it.
• The daily chart shows that there is another gap in the $148.85 (line d) to the $150.65 area.
• The daily downtrend, line c, is now in the $154 area.
• The daily OBV has just rallied back to its long-term downtrend, line e, which is also negative and consistent with a failing rally.
• The OBV has failed to make it back to the former support, now resistance at line f.
• There is minor support now in the $139 area, which is likely to be broken today.

In last month's article, The Most Oversold Gold Miners, I took a look at the oversold status of gold mining stocks as several had closed below their starc- band. The technical outlook then suggested that while some analysts were turning bullish, oversold rallies were expected to fail.

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Many have rallied 20% from the lows, and the weekly chart of the Market Vectors Gold Miners ETF (GDX) shows that it has just been moving sideways for the past four weeks.

• Everyone who bought since early 2010 was holding a losing position after the support at $38.80 (line a) was broken in February.
• GDX has not yet filled its gap from April.
• A drop back below the daily support at $28 will reaffirm the downtrend.
• The monthly pivot is now at $31.84 and the failure of GDX to move above it on the recent rally is a sign of weakness.

The chart of the Market Vectors Junior Gold Miners ETF (GDXJ) looks even weaker as it has formed a clear pattern of lower lows, line d.

• GDXJ is already close to its recent lows at $11.28 and the daily OBV (not shown) has been back below its WMA since early May.
• The monthly pivot is at $13.61 with stronger resistance now in the $15.50-$16 area.
• The long-term downtrend is in the $17.80 area.

What it Means: Gold and the gold miners were weak enough before the US dollar started to gain strength. It will take much more time from a technical perspective before a sustainable bottom can be formed in gold or the miners. Typically, gold does form a seasonal low in late July.

How to Profit: No new recommendation

Portfolio Correction: Yesterday's portfolio page did not reflect that our long position in Murphy Oil Corp. (MUR) was stopped out at $59.19.

I will be out next week and the next Charts in Play column will be released on May 20.

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

rom last Friday's sharply higher open, the Spyder Trust (SPY) has closed higher for the past four days, gaining 2.2% so far in May. The tech sector has started to catch up as the Powershares QQQ Trust (QQQ) is up 2.8% so far this month.

The market internals have remained strong and the number of new highs on the NYSE Wednesday was 505, which is the highest level for the year. The new highs had been diverging from prices, but are not now, which is a further bullish signal.

Once you start a new month, it is always instructive to look at the past month's recommendations to see which ones worked as planned and review those that did not. One can learn from both these picks and pans, as in investing or trading, there is always room for improvement.

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Chart Analysis: Air Products and Chemicals Inc. (APD) is part of the materials sector, which has just broken out of major resistance. It was recommended on April 10.

• APD dropped back into the 38.2% support level several days later hitting the buy level (see arrow).
• APD has just closed above resistance at line a, completing its four-month trading range.
• The quarterly R2 resistance is at $92.89 with the upside targets from the chart formation in the $96-$97 area.
• The daily relative performance had been forming a base (line c) that was confirmed by the break of its downtrend, line b.
• The daily OBV was acting stronger than prices at the March highs and then pulled back to test its uptrend, line e, at the April lows.
• The on-balance volume (OBV) broke through its resistance last week, line d, as the volume was heavy.

Transocean Ltd. (RIG) was recommended on April 9 as it was a favorite stock of Carl Icahn. The stock plunged just after it was recommended as it dropped below its daily starc- band.

• The correction did hold above the 61.8% Fibonacci support before it reversed to the upside.
• The move through resistance at $53.40, line f, confirmed that the correction was over.
• The daily starc+ band is being tested with the February highs at $59.50.
• The major 50% retracement resistance is at $62.50.
• The daily relative performance moved above its WMA on April 24.
• The daily OBV broke through its major resistance, line g, at about the same time.
• The weekly OBV (not shown) is also positive so the multiple time frame OBV is positive.

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Halliburton Co. (HAL) was one of my oil sector recommendations at the end of March and it dropped into the buying zone in early April.

• After a sharp rally to above the previous high, the sellers came back in as the 50% Fibonacci support was broken (see arrow).
• This also hit the stop at $36.92 as the low was $36.77.
• The relative performance had broken its uptrend, line a, on the correction but the weekly RS line had confirmed the highs.
• On the correction, the daily OBV dropped briefly below the long-term support, line c.
• The weekly OBV (not shown) was much stronger than prices in February and just dropped below its WMA on the correction.
• Both the daily RS and OBV analysis are now positive as the OBV has just broken out (line b).
• There is initial support at $41-$42 with the quarterly pivot at $39.79.

Also recommended at the same time as HAL, was SPDR S&P Oil and Gas Exploration ETF (XOP) hit a high of $62.66 in the middle of March but it also had a much sharper correction that I expected.

• It dropped to a low of $54.06, which was a drop of 13.7% from the highs.
• The recommended buy level was hit just before the uptrend, line d, was broken.
• The stop at $57.25 was hit just a few days later (see arrow).
• XOP then had an impressive rally back to strong resistance and closed back above its 20-day EMA for a few days before plunging again.
• The relative performance now is trying to bottom out but the weekly (not shown) is still negative.
• The daily held its support, line f, on the correction and now shows a pattern of higher highs.
• XOP is now back to resistance in the $60-$61 area.

What it Means: The positive outlook for Air Products and Chemicals Inc. (APD) has just been confirmed, and it now has a 6% profit. I will be looking to take some profits on this position at the chart formation targets.Transocean Ltd. (RIG) is acting well with a $125 profit, and I recommend below to sell half at higher levels.

As for Halliburton Co. (HAL), in hindsight I should have had a wider stop or a lower buying level that was in between the 38.2% and 50% support levels. Alternatively after the first bounce from the 38.2% support, the stop could have been raised to limit the damage.

Given the strength of the overall market and the seasonal positives for the oil sector, I was looking for a brief correction in SPDR S&P Oil and Gas Exploration ETF (XOP). It turned out to be much more complex but the stop was tight enough to limit the damage.

How to Profit: No new recommendation.

Portfolio Update: For Air Products & Chemicals (APD), we are 50% long at $85.86 and 50% long at $85.36. Stop now at $85.89.

For Transocean Ltd. (RIG), we are 50% long at $49.54 and 50% long at $48.84. Sell half at 58.26, use a stop $49.53.

For Halliburton Co. (HAL), the 50% long from $39.72 and $38.62 were stopped at $36.92 for a 5.6% loss.

For SPDR S&P Oil and Gas Exploration ETF (XOP), the 50% long at $60.24 and at $59.48 were stopped out at $57.25 for a loss of 4.3%.

NEXT PAGE: The Charts in Play Portfolio

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