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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: A Spring Breakout For The Economy?

    Just a week ago the stock market was looking quite vulnerable as most of the major averages closed near their lows last Friday, April 11. There were signs of heavy selling, so I concluded last week that "On a short-term basis, the market is getting oversold, so we should see a bounce this week. Unless it is quite strong, it will likely be an opportunity to become more defensive and raise some cash."

    The higher close last Monday signaled the rebound was indeed underway and made Wednesday's action pivotal as a sharply lower close would have signaled that the rebound was over and that investors should prepare for a further decline.

    Instead, Janet Yellen's clarifying comments at the Economic Club of New York seemed to calm the markets and bring in more buyers. She made it clear that the Fed would keep rates low as long as needed to be sure the recovery stayed on track.

    She also seemed more worried about deflation than inflation as she said "inflation persistently below 2% could pose risks to economic performance." The Fed continues to think that the recent soft data is due in part to the very hard winter.

    This has been dismissed by many analysts early, but I continue to think much of the weakness is weather related. This was the spring thaw I discussed in February. The concern that a weaker economy would not support the lofty stock prices was one of the reasons many bailed out of stocks, especially those with suspect earnings.

    So far, the earnings season has not been as bad as many feared. To be sure, there have been some big misses but also some results that were much better than expected. This earnings season may end up as a positive for the markets.

     

     

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    The S&P 500 closed higher each day last week and gained 2.7%, which was its best weekly performance since last July. The Nasdaq Composite was up 2.4% as the hemorrhaging in the tech and biotech stocks seems to be over. The sharp decline in these sectors and small-cap stocks is now looking more like sector rotation.

    The % change chart of some of the consumer Internet stocks illustrated the wild swings, so far, in 2014. For example on March 4, Yelp Inc. (YELP) was up over 46% for the year, but as of last Thursday's close, it is now down 4.5%. Facebook Inc. (FB) has done a bit better as it peaked a few days after YELP and was up close to 32%. It is still positive for the year but now shows just a 7% gain.

    Twitter, Inc. (TWTR) has spent very little time in positive territory this year, and even though it has bounced recently, it is still down over 33% for the year. In comparison, the PowerShares QQQ Trust (QQQ) looks relatively stable as after being up almost 5% in March it is now down 0.8%.

    The weekly chart of the PowerShares QQQ Trust (QQQ) shows that the decline has not yet reached the 38.2% Fibonacci support at $82.57. Therefore, there is no evidence of a change in the major trend. The weekly OBV did drop below its WMA and violated the uptrend from the September lows, line a. It has held well above the long-term support at line b and turned up last week.

    Most of the major global markets have had a rough time, so far, in 2014 with the German Dax down 1.5%, the Hang Seng Index dropping 2.5%, and Japan's NK225 even worse as it is down 10.9%. This poor performance, combined with the publicity blitz over Michael Lewis' new book, has given many investors a reason not to buy stocks. I think that the misguided emphasis of the financial media, which I pointed out a few weeks ago, did a disservice to the investing public.

    According the AAII, the percentage of bullish investors is now down to 27.2% after reaching 55% at the end of 2013. This reflects the increasing fear of or distrust of the stock market by many investors. Though this is bullish for stocks, it may keep the public out of the market until it is much higher.

    Though there are still concerns over the situation in the Ukraine and the health of China's economy, I see signs of continued improvement in the global economy. It was just two years ago that many analysts were predicting that Greece would drop out of the European Union and that it might totally fall apart.

     

     

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    That is why I found this chart of Greek bond yields quite amazing as yields started to rise in 2011 when their economic plight worsened. In March 2012, the yield rose to over 30% after new austerity measures were passed and there were riots in Athens. Now the yield is below 6% and back to the levels seen in early 2010. Though the weaker Eurozone countries still have problems, they are getting better, which suggests to me that the Eurozone is on the mend.

    The next couple of months of economic data will be important. Last week's Retail Sales rose 1.1%, which was the best gain in 18 months. The data for February was also revised upward leading many to conclude that the consumer was once again starting to spend. Nearly 80% of tax returns processed by early April resulted in an average tax refund of $2,792, which means consumers should have more to spend.

     

     

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    The Housing Starts and Industrial Production reports were also out last week and both beat estimates. Industrial Production is in a steep uptrend as it is back to levels last seen in 2007. Housing starts are still below last year's level and the Housing Market Index was also weaker than expected. The data on the housing market will need to be watched closely in the months ahead as it is an important driver of economic activity.

    Wednesday's release of the Fed beige book was quite encouraging as they reported that of the 12 regions there was "modest to moderate" expansion in eight regions." Most regions showed an improvement in manufacturing activity, though the Empire State Manufacturing Survey was flat last week. The outlook from the Philadelphia Fed Survey was much better as it jumped 7.6 points to its best level since last September.

     

     

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    This week we get Leading Indicators on Monday, along with the Chicago Fed National Activity Index, which is a weighted reading of 85 monthly national economic activity indicators.

    More data on the housing market will be released this week with Existing Home Sales on Tuesday, followed by New Home Sales on Wednesday. The PMI Manufacturing Index is out on Wednesday, and on Thursday we get the jobless claims and Durable Goods. The week ends with the final monthly reading on consumer sentiment from the University of Michigan.

    What to Watch
    The market last week was a tough call after the PowerShares QQQ Trust (QQQ) and iShares Russell 2000 Index (IWM) had broken more important levels of support the week of April 11. The odds of a failing rebound would typically be quite high.

    By lunch time, Wednesday, the strong market internals (3 to 1 advancing issues over decliners) shifted the evidence to a positive view that was confirmed by the strong readings again on Thursday.

    The new highs in both the weekly and daily A/D lines reinforce the bullish intermediate-term outlook while the volume analysis is still mixed. The weekly readings are positive while the daily OBV analysis is still lagging the price action.

    The chart patterns do allow for some backing and filling this week before the NYSE Composite (NYA), Spyder Trust (SPY), and SPDR Dow Industrials (DIA) could challenge their all-time highs.

    Recent data suggests that many of the big hedge funds were hurt the most by the drop in the technology and biotechnology sectors. One $28 billion fund lost 4.2% in March and another 4%, so far, this month. Most also underperformed the averages like the S&P 500 in 2013.

    Seeking alpha apparently has a restriction on the article length so wee the rest of my commentary on stocks, sectors, crude oil and waht to do please click here

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

    Apr 19 2:55 PM | Link | Comment!
  • 4 All-Weather Picks Approaching Support

    All of the major market averages, except the NYSE Composite, closed last week below their quarterly pivot levels. The PowerShares QQQ Trust (QQQ) had closed below its quarterly pivot a week earlier, on April 4, and is now close to the quarterly projected pivot support at $83.53.

    Last Friday's review of the market's corrections in 2010, 2011, and 2012 revealed that they coincided with overly-pessimistic views of the economy or markets. The current concern seems to be focused on, what is expected to be, a weak earning's season. The positive long-term readings from the NYSE Advance/Decline identified that these corrections would ultimately lead to a good buying opportunity.

    That is also the case this time, but stronger sells signal are possible this week that would indicate that the current decline has further to go and will last longer. The growing tensions in the Ukraine do add a further "real" concern to the markets over the near term.

    The European markets were hit in early trading, before rebounding, and the US futures are now in positive territory. Many are watching the 1800 level in the S&P 500 which, if broken, could signal a decline to the 1770 area. However, a rally is likely below these stronger levels of support and could be tested.

    The improving relative performance of the SPDR Dow Industrials (DIA) indicates that some large-cap stocks should be on your buy list during the market correction, but what other stocks look attractive?

     


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    In the March 21 weekend edition of the WSJ, Mark Hulbert highlighted these six stocks in his article "Stock Picks From Intrepid Advisers." The table also included their current P/E, as well as their projected three-five year earnings. A technical review of these stocks revealed that four are approaching important levels of support, so investors should now be watching them.

     


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    Chart Analysis: Catamaran Corp. (CTRX) is an $8.03 billion technology software company that specializes in providing pharmacy and healthcare benefits' software.

    • The stock peaked last August at $58.73 and is now down 33.8% from its high.
    • The weekly chart shows major support, line a, from the 2011 high, is at $33.70.
    • The uptrend from the 2010 and 2011 lows is a bit lower at $32.60.
    • The quarterly projected pivot support at $38.44 was tested last week as the weekly starc- band was also reached.
    • The weekly relative performance is below its WMA and is still in a downtrend, line c.
    • The RS line is now getting closer to its long-term support at line d.
    • The OBV broke below support last summer but is now getting close to major breakout support, line f, from early 2012.
    • The OBV is still in a clear downtrend (line e) and the daily OBV shows no signs of bottoming.
    • There is initial resistance now in the $42-$44 area.

    IPG Photonics (IPGP) is a $3.84 billion dollar developer and manufacturer of fiber lasers that are used in the semiconductor industry. The stock was actually up just over 1% last Friday.

    • The weekly chart shows that it overcame resistance, line g, last November.
    • The quarterly pivot is at $70.73 with a seven week low at $66.17.
    • The former downtrend at $64.74 now represents stronger support.
    • The longer term uptrend, line h, and the weekly starc - band are in the $60.70 area.
    • The relative performance is above its WMA and shows a solid uptrend, line j.
    • A move in the RS line above resistance (line i) would be very positive.
    • The on-balance volume (OBV) closed the week below its WMA but is still above long-term support at line k.
    • The daily OBV (not shown) does look much stronger as it is rising and above its WMA.
    • There is resistance now in the $75.75-$76 area.

    NEXT PAGE: 2 More Large-Caps to Watch

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

    Apr 16 4:52 AM | Link | Comment!
  • The Week Ahead: Another Scare Like 2010, 2011, And 2012?

    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
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    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
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    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.

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    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.

    Apr 13 1:19 PM | Link | Comment!
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