July 2013 – Andrew Thrasher

Are Transports Weakening?

Posted on July 30, 2013 by Andrew Thrasher, CMT

Momentum and buying pressure appear to be weakening within transports ($IYT). This is the topic of my TraderPlanet post for this week.

Today we are going to look at the iShares Dow Jones Transportation ETF (IYT). As it’s been trekking higher during 2013, meeting the demands set by its big brother, the Industrial Average, the internals appear to weakening. In January we saw the Relative Strength Index, a momentum indicator, break above 70, then above 80, and almost touched 90 as buyers keep the momentum rolling.

Overbought momentum isn’t necessary a bad thing, it just tells us there is strong forces keeping prices elevated. Price can advance in the face of an overbought RSI indicator. What’s worrisome is when price continue to rise and momentum wanes.

Read the rest: Are Transports Weakening (TraderPlanet)

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+, Twitter, and StockTwits.

The Relationship between Stocks and Bonds Approaches Resistance

Posted on July 29, 2013 by Andrew Thrasher, CMT

The equity market has surpassed its 2007 peak already and the bullish cheerleaders are just jumping up and down for new record highs. However, there is one relationship that has yet to breakout – the S&P 500 and 10-year Treasury ratio. There is a falling trend line from the 2000 high to the 2007 high that we are slowly approaching.

Below is a monthly chart of the S&P 500 ($SPX) vs. the 10-year Treasury Note ($UST), this is comparing the price action of stocks vs. bonds (not bond yields!) going back to 2000. The falling trend line has yet to be tested and while we can speculate its importance, until we get there we can’t know. If things continue to shape out as they have been for the last couple of months with equities kicking the tail off of bonds then we will find out sooner rather than later what the reaction will be to this resistance and its implications for the capital markets. Until then we patiently wait.

Has Gold Recovered?

Posted on July 24, 2013 by Andrew Thrasher, CMT

It’s nice to see gold catching some bids lately. One of the first half of 2013 theme’s seems to have been “kick the crap out of gold bulls” as it continued the downtrend started in 2011. Don’t get me wrong, it’s still in a downtrend, but the recent price action has created an interesting setup.

Since the SPDR Gold Trust ETF ($GLD)’s last attempt to rally in late-2012 the 50-day moving average (green line) has acted as a solid form of resistance. With yesterday’s move, bulls were able to get a close above the moving average and are likely now praying that it flips from resistance to support.

In April and May of this year $GLD appeared to have been trying to put in some support at $130, but eventually lost out as bears forced it to gap down taking the commodity ETF $15 lower. Well we are now back at that support level but testing it from its underbelly. Pre-market it seems we will still be below $130, I’ll be watching to see if traders can collectively fight back above and hold this level.

Turning the attention to two indicators for gold, the Relative Strength Index (RSI) and On Balance Volume. RSI had been stuck in a bearish range for the last nine months. However, with this recent bout of upward movement we can see momentum has broken back above 55. Ideally we would like to see buyers keep the RSI above 50 to insure confidence in the current upswing. The On Balance Volume indicator simply adds volume of up days and subtracts volume on down days, giving us an idea of buying and selling pressure within the ETF. The downtrend in volume is still present but could be tested within the next week or so if we see some more high volume advances.

Overall, gold appears to be looking like it’s healing some of the gaping wounds that have been created over the last couple of years. Don’t get too excited, there is still much that has to improve for $GLD to regain its uptrend, but these are good short-term signs that gold bulls need to hang on to in order for us to see further price appreciation.

The Smart Money Has Been Buying Corn

Posted on July 23, 2013 by Andrew Thrasher, CMT

It hasn’t been a great year for $CORN prices, they have been in a steady decline since August of last year. This weekend I noticed an uptick in the net position of Commercial Traders in the latest round of COT data. This is a group that normally isn’t net-long corn, but they are considered the ‘smart money’ for a reason and maybe they see something the rest of the market doesn’t.

This is the topic of my latest TraderPlanet article:

Commitment of Traders data is a great resource for getting a good idea of how various groups of traders are positions in various markets. Typically I like to see how the Commercial Traders (‘smart money’) is positioned, whether that’s net-long or net-short and to what degree. Zooming in on corn we normally see Commercial Traders hold some degree of a net-short position, which makes sense as they try to hedge out some of the risk associated with rising corn prices. Since 2009 there are just four instances where Commercial Traders went net-long – most notably in late 2010 when prices went from $3.40 to $8 and again last year before corn jumped higher.

Read the rest to see the my thoughts on the chart and the levels I’ll be watching.

Source: The Smart Money Has Been Buying Corn: Should You? (TraderPlanet)

Is the Financial Sector’s Luck About to Change?

Posted on July 16, 2013 by Andrew Thrasher, CMT

While Healthcare ($XLV) has been the strongest sector for 2013, the financial sector ($XLF) has been leading the equity market since last August. Looking at the chart below we can see the strong up trend in the ratio between the Financials Select Sector SPDR ETF ($XLF) and the S&P 500 ($SPX). As the green line rises $XLF is outpacing the large cap equity index.

Looking at the top panel of the chart, we can see momentum based on the Relative Strength Index. From the August low RSI has been able to hold the 50 level as support outside of the period of weakness in March. This is a good sign that the trend has the potential to continue.

However, we are starting to see a slight divergence in momentum as the ratio between $XLF and $SPX rises, the RSI indicator has been making lower highs since May. This isn’t the first time we’ve seen this during the current up trend, the same thing occurred during the first three months of 2013 and Oct/Nov of last year. Each time the ratio was able to hold its trend line and regain support in momentum.

Going forward there are two trend lines that could come into play if financials begin to lose their grip. The first is off the August ’12 low and the second is off the April ’13 low. These need to be violated for the financial bears to gain any level of confidence. Looking back at the Relative Strength Index, we would need to see a break below 50 and resistance near the 50-60 level for momentum to confirm a potential shift in relative performance in favor of the S&P. We’ll see if $XLF can continue to lead or the sector’s luck is about to change.

XLF SPY