Sorry I don’t have a full post this week like I normally do on Monday mornings. We have sold our house and are in the process of packing and I also had a BBQ competition this past weekend, so I wasn’t left with much time to write.
However, there are a few things I want to address as we start a new week, especially with futures higher at the time of this writing.
The importance of having a process is extremely helpful when selling begins to pick up in the major indices and the flood of mixed information begins to takeover your screen. Each week I look at the charts for Trend, Momentum, and Breadth. Not a lot changes from week-to-week but that’s the point. We set our levels of support and resistance and let price action dictate the bias.
With Friday’s close we remain above the 100-day Moving Average for the S&P 500 ($SPX) as well as the trend line I’ve highlighted off the June ’13 low.
While we look for divergences in Momentum, specifically the Relative Strength Index, the range that the indicator oscillates in can also be telling. During the currently rally we haven’t seen the RSI become ‘oversold’ once, yet it’s been finding support at 35 which is on the lower end of the bullish range for momentum. Last week we saw a slight dip under support but we finished the week back above, which is bullish.
Going into August we had a small divergence develop on the Common Stock-Only Advance-Decline Line, which I highlighted as a warning flag that price may be vulnerable. However, the A-D Line ended up finding support at its trend line and bounced on Friday, maintaining its up trend.
Two of the three worst performing sectors last week were from the defensive camp, Utilities ($XLU) and Health Care ($XLV). It appears investors did not run back to their safety blankets of lower beta sectors.
What I’m watching if things do rally is how the internals react. While we can’t forget the bearish seasonality that has been August, if we do rally back to the previous high I want to see if momentum and breadth can respond in-kind by getting back to their respective highs as well. But if the bulls are unable to take back control then 1900-ish will be an interesting place to look for support – we’ll see. We don’t want to get lost in the choppiness that seems to be clouding the markets as of late. Patience is key.
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.
