November 2012 – Andrew Thrasher

High Yield Exhaustion

Posted on November 30, 2012 by Andrew Thrasher, CMT

With Treasury yields at historic lows investors have gone after yield in other segments of the market, the high yield bond market is often one of the places investors seek out in that chase for income. Today we are going to take a look at the iShares High Yield Corporate Bond ETF (HYG).

With the rally in equities, HYG has also seen its price rise, taking it back to September and October highs. Many technicians argue the validity of a triple top, but what I want to focus on is the exhaustion that appears to be happening in the high yield ETF. As HYG has gotten near the $93 level we’ve seen momentum, based on the Relative Strength Index (top panel), diminish. Each attempt to make a new high appears to be accompanied by fewer and fewer buyers. With yesterday’s price action taking us just a few cents under the previous level of resistance, the RSI is also a hair below the October level, and well under the September level in momentum.

We can also see that each rally was done on declining volume. When traders take a security to new highs or levels of resistance, they often look for heavy volume to be present. Large volume tells us that there is a lot of demand for shares, which we don’t seem to be seeing in HYG. Instead, each rally attempt has been on dying volume, giving traders less confidence that resistance can be broken.

With that said, there is still some hope for HYG. As I wrote yesterday, this market is currently swaying to the words of Congress. If we get a debt deal then there’s a definite possibility that the $93 level can be taken out and bulls will maintain in control.

Disclaimer: Do not construe anything written in this post or this blog in its entirety as a recommendation, research, or an offer to buy or sell any securities. Everything in this post is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in the blog. Please see my Disclosure page for full disclaimer. Connect with Andrew on Google+.

The Fiscal Cliff Runs the Show

Posted on November 29, 2012 by Andrew Thrasher, CMT

We sit just a few points under the 50-day moving average for both the S&P and the Nasdaq as I write this. The market continues to be obsessed with the fiscal cliff. It seems like it doesn’t even require a statement from Obama, Reid, or Boehner to move the markets, a Congressional Page could probably post a Facebook status update and the Dow would shift by 100 points.

While reviewing yesterday’s price action I began to see some very small divergences as traders appear to be shifting a little more towards the defensive/low beta parts of the market, but this divergence is not enough to pound the table on the current short-term rally being over. A bounce to 1420 and the 50-day moving average has not been out of the question and is healthy. Until the fiscal cliff talks are ended, for better or worse, they control each day’s movement, this should be taken into consideration when evaluating a short-term view on the equity markets.

Elliott Wave Analysis of Emerging Markets – All Star Charts

Posted on November 28, 2012 by Andrew Thrasher, CMT

Elliot wave is a technical analysis tool that doesn’t get much airtime, probably because it’s one of the least understood tools out there. One of the biggest users of elliott wave that I can think of is Paul Tudor Jones, the founder of Tudor Investment Corporation who has a net worth of over $3 billion and is considered by many to be one of the best traders out there.

J.C. Parets over at one of my favorite blogs, All Star Charts, put up a great post today looking at the relationship between emerging markets (EEM) and the S&P 500 (SPY) while incorporating Elliot wave analysis.

A short teaser from J.C.:

I’ve been writing allstarcharts.com for a few years now and I’ve mentioned elliott waves maybe two or three times. It’s rare that we discuss it, because it’s rare to see a pattern that I like enough to bring up. But today I’m looking at a sweet setup in Emerging Markets Stocks relative to US Equities that I can’t possibly keep to myself.

Elliott wave isn’t something I use very often but it’s nonetheless something we should not ignore. J.C. does some great work with intermarket relationships and technical analysis in general. Well worth the read.

Go read the rest: Interesting Elliott Wave Count Emerging (All Star Charts)

Bullish Divergence in Utilities

Posted on November 27, 2012 by Andrew Thrasher, CMT

Utilities have been taking a beating lately, being the worst performer of the S&P sectors over the last 6 months, down 1.59% while the S&P 500 is up over 7%.

These types of drops make for some interesting chart setups. Below we have a chart of the Utilities Select Sector SPDR ETF (XLU). On the top panel I’ve put the Relative Strength Indicator (RSI) which we can see had fallen to under 30, a sign that selling momentum has been extremely heavy.

On the bottom panel we can take a look at one of my favorite indicators, the Money Flow Index (MFI), which takes into account both price and volume in the form of an oscillator. Over the past 3 months we have seen three divergences take shape in the MFI. First we saw Money Flow diverge as price made lower lows, a sign that sellers could be losing their momentum to drive the ETF lower. We then saw a similar divergence in October but this time MFI was unable to hit new highs alongside price, which was followed by XLU dropping 10%.

Now we are seeing another bullish divergence take place like what we saw in September. First the MFI became ‘oversold’ as it broke below 20 and then began to rise while price continued to be depressed. One of the differences between now and September is we did not see momentum (via the Relative Strength Index) at such low levels.

I’ll be watching to see if this divergence continues to play out or if price begins to advance to potentially its 200-day moving average. Traders have not been a fan of XLU lately, time will tell if sentiment towards this ETF shifts.

What Holiday Shopping Means for Retail Stocks

Posted on November 26, 2012 by Andrew Thrasher, CMT

I hope everyone enjoyed their Thanksgiving holiday weekend. I spent time with family in Illinois that I don’t get to see nearly enough and avoided the Black Friday shopping madness.

When I was in high school I knew very little about the stock market or trading in general. I assumed a surefire strategy would be to buy Coca-Cola before the summer since a lot of people will probably drink Cokes in the hot summer months. I also thought there could be no way to lose money buying Wal-Mart or other retailers before the holidays since that’s where a large focus of spending occurs in a short amount of time.

A recent Wall Street Journal article looks into this notion of retail sector performance during the holidays and based on research by Strategas, the retail names struggle during the period between Black Friday and late-December.

From the WSJ:

Retail stocks typically struggle from Thanksgiving through Christmas amid lofty holiday expectations. On a longer time horizon, though, these stocks tend to bounce back once the holidays are over and the calendar flips to a new year.

Retail stocks have outperformed the S&P 500 during the first quarter in 14 of the last 18 years, according to Strategas Research Partners.

February and March, historically, are the best months of the year for this particular sector.

This is a perfect example of challenging what many people would assume is common-sense investing. We cannot always make assumptions that because consumers will act one way the benefiting stocks will act a certain way. Trading takes work and we must always challenge our thought process to improve.

Source: Don’t Bank on Retail Stocks Now, But Later… (Wall Street Journal)