A Lot of Nothing

The S&P500 did a lot of nothing last week, continuing 2017’s trend of doing even more of absolutely nothing. That is unless you consider consolidating sideways and allowing the overbought, negative divergence to unwind something. As you can see below, the SP500 has been

sandwiched between 2,240 support and 2,280 resistance since the year started because traders are stubbornly sticking to their positions. Prices move when people change their mind and right now bulls are staying bullish and bears are staying bearish.  Headlines and economic data no longer matter when people stop trading them.

No matter what happens, we are within spitting distance of all-time highs and only the most stubborn bears are claiming the world is falling apart. The more times price tests a level the higher the likelihood it eventually breaks through. This, combined with the potential bull flag continuation pattern has me expecting higher prices in the near term. Markets tumble quickly from unsustainable levels and right now the market seems quite comfortable here. No matter what the market “should” be doing, when confident owners keep supply tight, prices continue creeping higher.

While I am optimistic, one thing does provide me pause, current sentiment.  As we know, sentiment is a contra-indicator and while advisors have reigned in some of their bullishness since the start of the year, it is still too high yet to be a tailwind to higher prices.

A Huge Disconnect

Since the election and into year end, the market has ripped higher. During this same time trailing earnings/share estimates have moved lower, creating the largest divergence during the past 10 years.

The question investors need to ponder is who is right?  Earnings estimates or the market? The larger the divergence the larger the potential correction so making sure you are on the right side of the next move is of critical importance. The good news is we will likely find out the answer to our question real soon as earnings season has already started but will be in full swing next week.

Regardless of what happens, are YOU ready?

I'm 95

Back on Sept 16, 2013, with major trepidation, I wrote my first blog post. As a member of a small worldwide community of exclusively trained Market Technicians (CMT), I wanted to get the word out and promote the craft. It seemed blogging was the simplest way to do it part time. While I can’t say it’s been a labor of love because I hate writing and it doesn’t come easy, ultimately I do hope it has helped readers. But because I struggle so with each and every post I often question whether it’s worth the hassle. I received something pretty cool over the weekend which gives me a whole lot of motivation to continue forward. My blog has been awarded one of the top 100 investment blogs for investors on the planet (http://blog.feedspot.com/investment_blogs/).

Ok, ok, so I am only #95 (it gives me something to shoot for) but I have to admit the recognition was a huge surprise and an honor to be mentioned among so many other bloggers I follow and respect. 

Thanks Feedspot.com for the recognition.

Will Amazon be the Next $1000 Stock

A Textbook Setup

Like the broader market, financial stocks have been in a funk since mid-2015, consolidating sideways forming a couple of interesting bullish patterns during this time. While not illustrated, if you look closely there is both an inverse head and shoulders and/or cup and handle that formed between the 2 red horizontal boundaries. The US market was looking for a catalyst and the elections triggered the move out of the consolidation.

A student who was looking for a close to ideal set up got it with the financial sector ETF, XLF, as you can see in the chart below. Firstly, notice how, during the consolidation, RSI momentum never reached oversold conditions which kept the door open for a big move to the upside. The week of the election price broke decisively above the upper red horizontal resistance on huge volume. It created the biggest white (upside) candle over the past 5 years. In addition, the following week gapped higher, again on the 3rd largest volume day in 5 years. XLF rose more than 20% in 5 short weeks. Also it should be obvious that moved pushed the momentum into overbought territory which, when it occurs, eventually requires the stock to take a breather and unwind the overbought condition as you eventually run out of buyers.

This is what a bull market looks like. It also shows how, unless you were already invested in the position it was virtually impossible to participate in this move because those waiting for a pullback (and who didn’t want to chase) stayed on the sidelines as the opportunity never arrived. Well, at least not until (possibly) now. Notice how price has once again consolidated over the past 4 weeks, going nowhere, but has allowed the overbought RSI to start unwinding.

If you are a believer like the market apparently does that Trump = higher interest rates which is bullish for bank stocks then it’s possible this may just be the beginning of a much bigger move. What has formed since the Trump election is the possibility of a high and tight bull flag signaling this recent move was a midpoint to its end target. Investors looking to capitalize would be looking for continued sideways chop and then a price moving out of the upper boundary of the flag. Ideally, like the initial move, greater than average volume would go a long ways to confirm the setup.