Seeking Alpha

TomAspray's  Instablog

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:
My blog:
Charts in Play
My book:
Bi-Weekly Trading Lessons eLetter
View TomAspray's Instablogs on:
  • 2 Solid Stock Picks For A Weak Euro

    The disappointing news on Chinese industrial production has added to the selling pressure in the Eurozone after Friday's weak US close. The US futures were lower in early trading but are trading above the early lows.

    The technical outlook in Friday's Week Ahead column presented the view that further market weakness early in the week should create a short-term oversold condition that will lead to a rebound if not a resumption of the market's uptrend.

    The markets are nervous ahead of this week's FOMC meeting as many are expecting a subtle change in their policy on rates. This could be a sell the rumor and buy the news situation so Wednesday's afternoon trading should be quite interesting.

    The recent drop in the euro has gotten the market's attention but, as I have noted, the bearish sentiment has reached extreme levels. The December Euro FX futures have reached monthly projected pivot support at 1.2938 and show some signs of bottoming. This makes a rebound likely but it is likely to be a pause in the currency's downtrend.

    A weaker euro will create some profit opportunities in the coming months and will likely stop the recent slide in their economies. These two Eurozone healthcare companies, because of their overseas business, are likely to benefit from a weaker euro.


    (click to enlarge)


    Click to Enlarge

    Chart Analysis: The weekly chart of the German DAX Index shows that the recent rally has taken the average above its quarterly pivot (QP) at 9683.

    • The monthly projected pivot resistance at 9746 was just exceeded.
    • There is stronger resistance in the 9850-10,000 area.
    • Based on current data, the 4th quarter pivot and the 20-week EMA are now at 9528.
    • There is a band of stronger support in the 9250-9350 area.
    • The 4th quarter projected pivot support is at 9025.
    • The seasonal analysis shows that the DAX typically bottoms in three weeks on October 3.
    • The daily studies like the MACD are still positive but declining.

    The SPDR Euro Stoxx 50 (FEZ) is made up of the 50 largest Eurozone companies. It has an expense ratio of 0.29% with a current yield of 3.17%. They have 36% holdings in French companies with 31.4% in Germany.

    • The top ten holdings make 39.8% of the ETF with the largest holdings in Total SA (TOT) and Sanofi-Aventis SA (SNY).
    • FEX has rallied 4.6% from the August low of $39.14.
    • The 3rd quarterly pivot is at $42.78, which represents more important resistance.
    • The 20-day EMA is now being tested with trendline support (line b) at $39.50.
    • The relative performance broke in early July, two weeks after FEZ made its high.
    • The RS line is still well below its WMA, consistent with a stock that is weaker than the S&P 500.
    • The weekly OBV has just rallied back to its downtrend, line d, and closed barely back below its WMA on Friday.
    • The daily OBV and RS analysis does look more positive.
    • The OBV has major support now at line e.
    • A daily close back above $42 would be a short-term positive.



    Click to Enlarge

    Fresenius Medical Care (FMS) is a $19.5 billion German-based kidney dialysis company that is one of Morgan Stanley's basket of stocks, whose earnings could rise 3-4% with every 10% decline in the euro.

    • They reportedly receive 63% of the revenue from non-developed Eurozone sources.
    • FMS is up 9.69% over the past three months but down 0.6% YTD.
    • The chart shows that the quarterly pivot at $33.43 was tested in early August.
    • The quarterly projected pivot resistance at $35.57 was tested last week.
    • There is next resistance from early 2014 in the $36.39-$36.62 area.
    • The weekly relative performance moved above its WMA in early August.
    • A move in the RS line above the downtrend, line a, would be a positive sign.
    • The weekly OBV was able to move above its WMA in early August.
    • It is now well above its WMA but still below the highs from early in the year.
    • There is first support in the $34.41-$34.56 area with the rising 20-week EMA at $34.16.
    • For the 4th quarter, the preliminary projected pivot support is at $33.64.

    Sanofi-Aventis SA (SNY) is a $148 billion French-based multi-faceted healthcare company. It has recorded an 8.78% YTD gain and has been up sharply in the past month.

    • The major resistance for SNY, line c, was overcome three weeks ago.
    • The weekly starc+ band is at $57.23.
    • The completion of the trading range, which goes back to mid-2013, has upside targets in the $62-$64 area.
    • The weekly downtrend in the relative performance, line e, was decisively broken in early September signaling it was outperforming the S&P 500.
    • The weekly OBV made new highs for the year in the middle of August as resistance at line f was overcome.
    • The OBV shows a solid uptrend, line g, and is well above its WMA.
    • The preliminary 4th quarter pivot is at $54.55, which is just below the breakout level.
    • The EMA Osc based on the 20-day EMA is at 2.86% so SNY is high risk at current levels.
    • There is more important support at the 20-week EMA which is now $53.01.

    What it Means: Both the DAX Index and the SPDR Euro Stoxx 50 (FEZ) both look vulnerable to a pullback, which is not surprising given the debate over the ECB's stimulus plan. I would expect both to hold above the August lows. I will be looking for a good entry point in FEZ.

    I think that the Eurozone economies and some companies in particular, will benefit from a weaker euro. Both of these stocks are too far above a reasonable stop level and will need a correction to reach my recommended buy levels.

    How to Profit: For Fresenius Medical Care (FMS) go 50% long at $34.33 and 50% at $33.77 with a stop at $32.92 (risk of approx. 3.3%).

    For Sanofi-Aventis SA (SNY) go 50% long at $54.76 and 50% at $53.46 with a stop at $51.86 (risk of approx. 4.2%).

    On September 23, I will be doing a Webinar on FX trading techniques and if would like to join me, sign up here.

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

    Tags: FEZ, SNY, FMS
    Sep 16 9:22 AM | Link | Comment!
  • The Week Ahead: Profiting From A Weak Euro

    It was a nervous week for the markets as September's history of weak stock performance kept some on the sidelines. The other main concern for the market (as overseas tensions subsided) was whether the FOMC may change its policy this week.

    In last week's analysis Is the Junk Dump a Warning?, I noted the heavy selling in some of the high yield or junk bond ETFs ahead of the FOMC meeting. If we do see a change in the wording of the FOMC announcement, as some are expecting, it could trigger a sharp-but I believe brief-market decline.

    In a way, it would be a positive as it would remove one more concern from the investor's wall of worry. A decline would also serve to reduce the high level of bullish sentiment as-amongst the Wall Street firms-the bearish strategist camp was reduced further last week.



    Click to Enlarge

    The volatility has returned to the currency markets with a vengeance as forex traders have been suffering with the low volatility. The Japanese yen fell to a six-year low last week as their bond yields dropped into negative territory. Overseas yields are now much more attractive, especially with the potential of higher US rates in the next year.

    The chart shows that the yen broke major support, line b, on December 12, 2012. Since then, it has lost 22% of its value. The breakout (line 1) came one week before the NK225 broke through its downtrend, line a. The NK225 is up over 71% since the bottom formation was completed. I continue to think that the yen will get even weaker, which will be good for Japanese stocks.

    The comments from Mario Draghi last month that the Eurozone should drop its austerity-based recovery plan was followed-up by an asset repurchase plan. Some countries, like Germany and France, are not in favor of this change in policy. He also suggested that the governments should guarantee some of the riskier assets.

    The pressure of the low inflation and low growth needs drastic action, in my opinion, to avert a deflationary spiral. As I pointed out in October of 2012, Austerity Didn't Work in '37...What About Now?, the brief switch in 1937 to austerity by FDR almost pushed the country back into a depression.



    Click to Enlarge

    The action by the ECB has had a big impact on the euro as it has dropped almost 14% from the March highs. The euro has been forming lower highs since the spring (line b) and then violated its uptrend, line c, in the middle of July.

    As I noted last week, sentiment on the euro is overly bearish so a rebound is likely before it moves even lower. For those interested in the forex markets, I will be doing a Webinar on September 23 discussing FX trading techniques (If you are interested, sign up here).

    European stocks have been lagging this year, including Vanguard FTSE Europe (VGK), which is one of my dollar cost averaging picks I discussed last week. In addition to the 66% in developed European stocks, it also has 33% in the United Kingdom. The Scottish vote on independence has hurt the pound recently.

    The chart of VGK shows that it has come back to support from the 2011 highs, line a, which is holding so far. I think the weaker euro will have a positive impact on their exports and their economies. I expect more widespread growth in the Eurozone by next spring.

    Some of their economies are already recovering nicely as the beaten down Irish economy has staged a dramatic turnaround as they will repay part of their IMF loan early. Their composite purchasing mangers index recently hit the highest level since 2000.



    Click to Enlarge

    Though the economic calendar was light last week, the falling gasoline prices should translate to stronger consumer spending in the next few months. The chart shows the sharp drop in the gasoline futures since early in the year. A drop much below $2.50 (line a) would signal that prices can move even lower.

    Lower gas prices may have helped push the University of Michigan's Consumer Sentiment higher as the mid-month reading came in at 84.6, up from the August reading of 82.5. The jump in expectations, a component of the index, says Econoday "does point to long-term confidence in the jobs and income outlooks."

    Retail Sales were also out on Friday and-at 0.6%-it was not disappointing. One of the highlights was the 0.6% increase in food service and entertainment, indicating a higher level of discretionary spending.

    The economic schedule is much heavier this week with the Empire Sate Manufacturing Survey and Industrial Production on Monday. The FOMC meeting begins Tuesday and the latest reading on the Producer Price Index is also released. Consumer Prices are out on Wednesday followed by the FOMC announcement and press conference in the afternoon.

    Some new numbers on the housing market are out on Thursday as the Housing Starts data is released along with the Philadelphia Fed Survey. On Friday, we have the Leading Indicators as well as the quadruple expiration of futures and options.

    What to Watch

    The stock market was hit with heavier selling on Friday as the declining stocks led the advancing by a 5-to-1 margin. The selling was the heaviest in the Dow Utilities, which were down 1.5%. All the major averages did close the week lower.

    The A/D analysis, including the S&P 1500 I featured Friday (see chart), did confirm the early September highs. This is consistent with an orderly pullback not a test of the August lows.

    The monthly OBV analysis for the Spyder Trust (SPY) and the PowerShares QQQ Trust (QQQ) did make new highs in August and the weekly has also confirmed the recent highs. This is in contrast to the daily OBV analysis which has been diverging from prices.

    The number of bullish investors, according to AAII, did decline last week to 40.38% from 44.67% the previous week. The bearish percentage at 26.6% is still quite low.



    Click to Enlarge

    The number of stocks above their 50-day MAs has dropped sharply from the early September highs. In blue, there is the % of Nasdaq 100 stocks, which has dropped from 59% at the end of August to just above the 40% level.

    In green, we have the same plot of all US stocks, which was 75.5% on September 5 and is now at 61.6%. This suggests that we can see a further correction this week as we head into the all-important FOMC meeting.

    The NYSE Composite (NYA) hit a high of 11,108 on September 4 after breaking its short-term downtrend, line a. It looks ready to close Friday just above the monthly pivot at 10,886 with the 50% support level at 10,816.



    Click to Enlarge

    The monthly projected pivot support is at 10,717 with the longer-term uptrend, line b, at 10,650. This is approximately 2.3% below Friday's close.

    The daily NYSE Advance/Decline has made higher highs, line c, before it dropped below its WMA. It is already close to support from the late July high.

    The McClellan Oscillator looks ready to close around -165, which is at moderately oversold levels. It dropped to -278 at the August lows.

    The flattening 20-day EMA is now at 10,962 with further resistance in the 11,000 area.

    S&P 500
    The Spyder Trust (SPY) looks ready to close the week on its lows. The week of September 5, SPY formed a doji so a final print on the SPY below $199.42 will trigger a low close doji sell signal.

    The monthly pivot and the daily starc- band are in the $197.56 area. There is further support in the $195.50-$196 area. The weekly starc- band is at $191.17 with longer-term uptrend, line b, just a bit lower. The support from the early 2014 high is at $188.



    Click to Enlarge

    The weekly on-balance volume (OBV) did make new highs two weeks ago but has not turned lower. It is still well above its rising WMA and support at line c. The daily OBV has been below its WMA for most of September.

    The S&P 500 A/D (not shown) looks ready to close the week below its flattening WMA.

    Dow Industrials
    The SPDR Dow Industrials (DIA), after a new high in early September, has closed below its 20-day EMA at $169.37. The 20-week EMA is at $167.57, which is just above the 50% Fibonacci support level at $167.12. The quarterly pivot is at $164.98.

    The Dow Industrials A/D line (not shown) did confirm the recent highs but may close just below its WMA on Friday.

    The weekly relative performance has been below its WMA since it broke down in the summer of 2013 (see arrow). This was an indication that it was starting to lag the S&P 500.

    The weekly OBV did make a new high this week with support at its WMA and then the recent lows, line h. The daily OBV did not make a new high with prices.

    Nasdaq 100
    The PowerShares QQQ Trust (QQQ) continues to hold up the best with the 20-day EMA now at $99. The daily starc- band is at $98.31.

    The monthly pivot is at $97.86 with the monthly projected pivot support at the $95.81 area.



    Click to Enlarge

    The September high for QQQ is at $100.46 with the daily starc+ band at $101.24 and the weekly is just slightly higher.

    The technical studies still look the best on the QQQ. The weekly relative performance closed at a new high last week as it broke through resistance, line c, in late July.

    The Nasdaq 100 A/D line, after making a new high, has traded in a narrow range but looks likely to close above its WMA. A drop below the late August lows would be more negative.

    Russell 2000
    The iShares Russell 2000 Index (IWM) is trying to close barely above its 20-week EMA and the quarterly pivot at $114.61. A close below the $113 level would be more negative. There is still major support, line d, in the $107 area.

    The weekly RS line is now testing its steep downtrend, line e, but is still below its WMA.

    The weekly OBV has turned down and is very close to dropping below its WMA. The daily OBV is holding above its still rising WMA.

    There is initial resistance now at $117-$118 with more important in the $119-$120 area.

    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, DIA, IYT, XLV
    Sep 14 2:01 PM | Link | Comment!
  • Is The Junk Dump A Warning?

    The stock market rebounded nicely Wednesday but concerns over next week's FOMC meeting may cut short the rebound. The major averages had tested short-term support before turning higher. The market internals were slightly positive as the McClellan oscillator has turned up to -79. A close back above the zero line would be a short-term positive.

    The futures are lower in early trading and the selling in the Eurozone markets has increased since they opened. The focus has turned to the bond market as the yield on the 10-Year T-Note has risen from 2.32% at the end of August to 2.53% Wednesday.

    Last week's fund flow data showed that money moved out of high yield funds for the first time in four weeks. I would expect this week's data to show even more dramatic outflows as the selling in some of the high yield ETFs has been heavy.

    Is the bond market in the process of turning? A look at the weekly and daily technical studies will help you be prepared for the remaining months of the year.



    Click to Enlarge

    Chart Analysis: The weekly chart of the 10-Year T-Note Yields shows that the recent drop in yields just took them back to important support.

    • A major reverse head and shoulders bottom formation was completed in May, point 1, as the neckline (line b) was overcome.
    • Yields then surged to above the 3.00% level forming the second point for the weekly downtrend, line a.
    • The weekly starc+ band is now at 2.672%.
    • The quarterly projected pivot resistance is at 2.749% while the downtrend is at 2.853%.
    • In classic chart terms, the recent retest of the neckline is quite normal.
    • The weekly MACD-His turned negative last fall and the uptrend, line c, was broken in early 2014.
    • The MACD analysis shows signs of bottoming but no new buy signals have been triggered yet.
    • The daily MACD analysis did turn positive last week.
    • There is now short-term support in the 2.439% area.

    The Vanguard Total Bond Market Index (VBMFX) was discussed in early August as it is one of the largest bond funds with total assets of $121 billion. It has a current yield of 1.94%.

    • It is up 3.86% YTD and the weekly chart shows a classic flag formation, lines d and e.
    • This is consistent with a rebound that is normal after a sharp decline.
    • A weekly close under $10.71 will complete the formation.
    • The 127.2% Fibonacci target from the formation is at $10.39%.
    • This would be a decline of 3.6% from current levels, almost double the current yield.
    • The MACD line formed lower highs last month and this negative divergence, line f, is consistent with formation of a top.
    • There is resistance now in the $10.82-$10.85 area.
    • The daily starc- band is now being tested, which increases the odds of some stabilization or a rebound over the short-term.



    Click to Enlarge

    The SPDR Barclays High Yield ETF (JNK) has assets of $9.17 billion with a current yield of 5.76%.

    • JNK is up 3.70% YTD but down 1.22% in the past three months.
    • At the early August low of $40.06, the weekly uptrend was tested.
    • The rally from these lows just tested former support now resistance (line a) in the $41.50 area.
    • JNK has been testing its daily starc- band for the past five days as the quarterly projected pivot support at $40.35 has been reached.
    • There is resistance now at $41.04 and the declining 20-day EMA.
    • The volume was very heavy at the August lows but quite light as JNK peaked at the end of the month.
    • The selling has been heavy over the past week.
    • Both the weekly and daily OBV are now below their WMAs.

    The iShares 20+ Year Treasury (TLT) has assets of $4.61 billion with current yield of 2.91%.

    • It has gained an impressive 15.15% YTD compared to 9.33% for the Spyder Trust (SPY).
    • TLT is down 3.7% from its August high of $119.43.
    • The resistance at line c, was just slightly overcome on the rally.
    • The monthly projected pivot support at $114.92 is now being tested.
    • The weekly uptrend (line d) and the 20-week EMA are now in the $113.76 area.
    • A weekly close below the June low of $110.34 would complete the top.
    • The weekly on-balance volume (OBV) did make a new high in August and is now testing its rising WMA.
    • There is more important support at the uptrend, line e.
    • The monthly pivot and strong resistance is now at $117.18.

    What it Means: The short-term oversold status of the bond market does favor a rebound in the near term. If the SPDR Barclays High Yield ETF (JNK) does rally back to its 20-day EMA ahead of the FOMC announcement, it will set up an interesting situation.

    If there is no significant change in the FOMC policy, it will be interesting to see if the bonds can rally substantially. The market is likely to react negatively to any signs that they are now ready to raise rates earlier than the market expects.

    The daily technical studies on the ProShares UltraShort 20+ Year Treasury (TBT) are positive but the weekly analysis has not yet confirmed that a bottom is in place. Having taken two small losses in TBT this year, I will wait for weekly confirmation before buying again.

    How to Profit: No new recommendation.

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

    Tags: JNK, TLT, TBT, SPY
    Sep 12 10:39 AM | Link | Comment!
Full index of posts »
Latest Followers


More »

Latest Comments

Posts by Themes
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.