September 2013 – Andrew Thrasher

Where We Stand As We Close out September

Posted on September 30, 2013 by Andrew Thrasher, CMT

I don’t have a specific chart I wanted to focus on today but I did want to take a timeout and look at where we’ve come and where things stand as we finish up Q3.

For the first nine months of 2013 the best performing sectors have been the cyclicals ($XLY), health care ($XLV), and industrials ($XLI). With utilities ($XLU) and tech ($XLK) bringing up the rear. It seems when dividend paying stocks took their hit earlier this year, utilities were unable to climb back from the hole in which they fell.

Okay, so we know where the money has been flowing as far as sectors go, but what about the S&P 500 ($SPX) and the recent bout of weakness. While we saw stocks gap down this morning over the ~~Breaking Bad finale~~ fears of the government shutting down, will buyers step in? This was the question I addressed for MarketWatch, here’s what I said:

Also in the let’s-not-dive-in-now camp, Financial Enhancement Group’s Andrew Thrasher says it’s still “no-man’s land” for stocks until he sees some market internals getting overextended to the downside, such as the number of advancing and declining stocks, option activity, volume levels etc.

“In the dips we saw in June and August, the S&P 500 tested its 100-day moving average as support, I also was seeing signs of possible mean-reversion as traders became too over-positioned on the sell side. I’m not seeing that in stocks yet,” says Thrasher.

It’s not too much of a surprise to see bottom feeders step in as we test the 50-day moving average, but I’m not completely sold we’ve seen an extreme in selling quite yet… but maybe we did today, I’ll have a better grasp on that after the close when I can digest the price action and market internals. I’m not an intraday trader nor do I play one on TV.

Here’s what I see in the big picture… The up trend off (blue dotted line) the closing low from last November is still in tact. We almost got a break in late-August, but buyers were able to step in before the damage was done. Today the battle will be over the 50-day moving average (green line). During the past two dips we found support at the 100-MA (red line), it’ll be interesting to see if we get another test in the coming week(s). So from a trend trading perspective, things still look rosy, higher lows and higher highs and we’ll cal it a day. But I try to view things through multiple lenses, and I still can’t shake the comparison I wrote about concerning whether 2013 was shaping up to be like 2007. However, I’ll let price confirm the speculation before I take action.

So we prepare to close up September 2013 and with it, the third quarter. What do the history books say about October? As Josh Brown noted over the weekend, October is one of the most interesting months both for its increase in volatility and its historical importance from previous market tops and bottoms. The below chart is from CXO Advisory (h/t Josh) and shows the seasonal volatility going back to 1990. As you can see, October shapes up to be one of the more volatile months with the highest historical average daily $VIX reading.

Going forward we unfortunately must contend with the possible government shutdown and the debt ceiling. We’ll see if this is enough to finally break the up trend. Price will lead the way.

Sources: Shutdown showdown: Breaking bad for stocks or a buying opportunity? (MarketWatch) October: Into the Wild (The Reformed Broker)

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.

Small Caps Head Higher Against Large Caps

Posted on September 24, 2013 by Andrew Thrasher, CMT

My post this week for TraderPlanet this week takes a look at the relationship between small caps ($IWM) and large cap stocks ($SPY).

Here’s a piece:

A great example of this was in early 2013 as the chart below shows. We saw IWM outperforming SPY as the green line rose for the first three months of the year. However as the RSI indicator shows in the top panel, there was a divergence taking place in momentum. We eventually saw a slight correction in March and April with SPY strong-arming its small cap colleague as RSI broke through support around the same time the ratio between IWM and SPY broke its rising trend line.

Read the rest: Small Caps Head Higher Against Large Caps (TraderPlanet)

No Fed Taper….So Now What?

Posted on September 19, 2013 by Andrew Thrasher, CMT

This past week has been interesting. First we had the market almost guaranteeing get Larry Summers as the next Fed Chairman, I wasn’t convinced and thought Obama would be forced to take a ‘pass’ on Summers. We then got his withdrawal from being considered from the position. We saw a positive market reaction (kind of feel bad for the guy, seeing stocks rally that hard on him not getting a job) as the market assumed it dodged the bullet of the more hawkish candidate leaving the stage.

Next up we had the must-watch FOMC announcement. Again the market was all but convinced we would see a Fed taper. I pounded the table on twitter that it wouldn’t happen. Bernanke had done everything he could to increase Fed transparency and if we had gotten the taper this month then it would have been directly in the face of all he had been working to accomplish. Many money managers were likely betting on a bearish market reaction in equities which I would say is why we didn’t see the whipsaw intraday yesterday like we normally do on Fed days. Instead equities turned higher and didn’t look back until slightly giving back a few points in the last hour of trading.

So where do we go from here?

SentimenTrader put out a great piece this morning looking at past instances of the S&P 500 ($SPX) hitting a new 52-week high following an FOMC announcement. The chart Jason Gopfert shows is below, as you can see it’s slightly short-term bearish.

Jason goes on to look at the data going back to 1996 when the S&P put in a gain of at least 0.5% on FOMC announcement days before putting in a new high. Here’s what he found:

The table below [not shown] highlights the 9 other times since 1996 that the S&P 500 futures managed to gain at least 0.5% on a FOMC decision day, settling at a new 52-week high as well.

Looking at returns over the next 50 days (not shown in the table), there was only one positive occurrence, and that was just barely.

There were 6 times that the futures had gained more than 1% on the day, as happened on Wednesday. 50 days after those occurrences, the futures were negative every time, and all by at least -2.0%. Its average return 50 days later was -3.9%, with a maximum gain at the best point averaging +3.2% and a maximum loss averaging -8.0%.

This matches up with what I’m seeing as well. With yesterday’s move higher in equities some of the mean-reversion metrics I follow flipped negative, indicating we could see some weakness in the coming days. It wouldn’t be a huge surprise to see some profit taking at these lofty levels, however I think there could still be room to run going into the end of the year – sans any debt ceiling fiasco out of D.C. We’ll see what price action tells us and be prepared to swing at whatever the market pitches.

Source: Daily Sentiment Report (SentimenTrader)
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.

What I see for the Bond Market

Posted on September 17, 2013 by Andrew Thrasher, CMT

There’s been a lot of discussion on the bond market, mostly due to the Fed-induced anxiety as we get an FOMC announcement tomorrow. I’ve been asked a couple of times what I think of the bond market, and so I thought the topic was due for a post. So here we go…

I”m going to use the iShares Barclays Aggregate Bond ETF ($AGG). Could very well use iShares Barclays 20+ Year Treasury Bond ETF ($TLT), the charts are fairly similar. Since the bond market’s most recent peak in April of this year they have gotten destroyed. You’d have to look at the 1994 bond disaster to find similar total return destruction.

Can anything positive be said about bonds at current prices? I would say yes. First we have the latest bout of price action. $AGG seems to be finding support at the 38.2% Fibonacci retracement off the 2011 low which was just under $97. We’ve now had three tests of this retracement level with only a slight intraday break earlier this month. This needs to be the bond bulls line in the sand if they are to take a stand any time soon.

Next up is the positive divergence in momentum. In August as the Aggregate Bond ETF was testing the June low, the Relative Strength Index put in a higher low and repeated this pattern again in September with yet another higher low, this time above ‘oversold’ territory. As to be expected the RSI indicator has been hitting resistance at the upper end of the bearish channel around the 50-55 area. Bond bulls desperately need to get the strength to break above 55 and make a march to higher momentum levels for prices to have a chance to follow.

Turning our focus back to price we have the 50-day moving average. Twice during the multi-month descent have we found resistance at the 50-MA – most recently yesterday. While I see positive components of a bullish bond setup, I need to see a break of the moving average to the upside for the bond trade to gain favor.

The pieces are all there for bonds to rally, not to mention the extreme bearishness in the sentiment data. But I continue to let price guide my bias and will welcome higher prices if bonds begin to confirm the action we are seeing in momentum and turn higher. If not, then its back to the drawing board.

Is Oil Preparing to Head Lower?

Posted on September 17, 2013 by Andrew Thrasher, CMT

Sorry for the lack of posts in the last week, I’ve been staying pretty busy. Although apparently not as busy as Josh Brown and Phil Pearlman, props to both in their new endeavors. I wish Josh and Phil much success.

Today, via my TraderPlanet article, I want to take a look at the recent break down in crude oil ($CL_F).

Here’s a piece:

Well it seems the risk, for the time being, out of Syria has been diminished which has helped calm the oil market. While Syria only accounts for approximately 0.2% of the global oil production, any threat out of the Middle East tends to cause the oil market to spike. So does the resolution in Syria mean we are in for lower prices? Let’s see what the charts say….

The recent price action involves a momentum divergence, failed resistance and a breakdown of support. Put it all together and you have an interesting setup – sans any breaking news out of the Middle East.

Source: Is Oil Preparing To Head Lower? (TraderPlanet)