Weekend Update, Transports, July 31st, 2010

(Added at 3:00pm ET, August 1st. Lance Jepson, the guerilla trader, has an interesting opinion about FDX and the general market. Fits in with this weekend’s look at $TRAN. Video here.

For those of you who have been visiting this site for a while, you know what I think about the Mystery BB’s and Oscar’s special MA. If you haven’t already, head over to Oscar’s Youtube page, set up your charts with the 52,0.618 BB’s and see how they match with Oscar’s MA on his video for 7/30/10. Just interesting.)

The transportation index is extremely important to the markets and is considered by many to be ‘The’ market leader so I wanted to take a closer look at this key index in multiple time frames, starting with a 15min chart and ending with a monthly.

Transports were up 414pts or 10.3% for the month. While they closed the week up 53pts or 1.22% that was more than 90pts off the weekly high.

Next week EXPD and YRCW will report earnings and they both do that before the bell Tuesday. YRCW may have already had its day in the sun this past week and EXPD has been totally pumped to the moon lately and has just made a new recovery high. Will it be sell the news for EXPD regardless of how well they report?

If the transports go to the moon because of YRCW’s or EXPD’s earnings on Tuesday, then how will they do as the week goes on considering that there aren’t any other transport stocks set to release earnings? Guess we’ll find out.

This 15min chart shows how volatile the transports have been this past week. Huge runs up and down as the transportation index tries to make up its mind about which way it wants to go. If it hadn’t been for the major pump job this past Monday when FDX raised guidance, $TRAN most likely would have closed negative for the week.

(Right click on any of the following charts to see full size.)

Here on the 60min chart you can see that the transports are locked in a down-sloping channel that formed after the big run up on the FDX news. It looks to me, based on how the MACD, RSI, and DI lines are doing plus the fact that the ADX line is below the DI lines, that the transports might be getting ready to break out of this sloping channel. But then again, all the potentially good stuff that’s showing near the right edge of the chart might just be the result of the pump into the close of Friday’s session. If it hadn’t been for those last two candles, this chart wouldn’t look so good, IMHO.

This daily chart doesn’t look as good as the 60min. While the trend line is well below the current price, those long legged doji’s make you wonder if maybe $TRAN is going to have to visit that trend line before going higher, especially with the loss of momentum evident in the MACD and the Sto. The previous grouping of similar doji’s marked a major turning point so that has to be kept in mind. Also notice how volume, up or down, has been trailing off since that last big volume spike on the 19th.

Another daily, this one with the Mystery BB’s, which are curling up. I have marked what appears to be a potential Bull Flag pattern and there is also a pretty clear inverse H&S pattern as well. The only real concern on this chart is the ADX line which is rolling over after having bottomed out in the week of July 19th. That shouldn’t be happening and it makes you wonder if the DI lines are going to have a Bearish X before the transports can break out of that Bull Flag, assuming that is a Bull Flag and not the start of a new down-trending channel.

This weekly chart looks positive and you can easily see a potential new up trend forming with the last four candles. The RSI looks strong, the Histo bars are getting shorter on the negative side of zero, the MACD is curling up, as is the Sto. Notice also that during the rally in July of 09′ the volume was strong and consistent compared to the volume pattern this July.

This next chart shows the transports back above the upper BB’s. Last week the transports closed 2.5% above the upper BB and this week they closed 3.4% above them. Everything looks good on this chart, except for this week’s spinning top candle. No question that that is a topping candle but it needs confirmation. For the moment it’s just a candle but it does reflect the fact that the transports closed out the week 90 some odd points off their weekly high.

Charts courtesy of StockCharts.com

The following monthly $TRAN chart clearly shows the transports breaking down and out of the longer term price channel that was formed after the March 09′ lows and that they are now in the process of either constructing a new down trending price channel or perhaps they’re forming a large Bull Flag. August malaise could keep $TRAN inside this channel even if it breaks out early this next week on YRCW’s or EXPD’s fabulouz earnings reports, which, of course, will smash lowered expectations.

The conclusion I draw from all of the above is that the transports are at a critical point in their own rally leg. There’s no doubt that they are in an uptrend and that the uptrend is currently under some pressure. The fact that they essentially failed to close near their weekly highs suggests profit taking by major players. Those long-legged doji’s on the daily chart signaled the June high and could be doing the same now and they further suggest that the transports might stay within the confines of that potential Bull Flag pattern a little longer. That trend line about 100pts lower is just begging to be tested and maybe that’s what’s in store in the week or weeks ahead. We will know in the fullness of time.

Switching gears, here is a chart of the SG for the $SPX. It shows a steep up trend that formed off the May 25th low. As noted on the chart, one of the four indicators that I use to calculate the # for the SG had a minor down tick on 7/30/10. This could be nothing. If by Tuesday, August 3rd, this does not reverse, then it becomes a red flag warning of a possible shift in momentum. This indicator has severed well as an early warning and can be as much as two weeks early. Back in the last two weeks of March 10′, this indicator put a lot of pressure on the SG calculations, which began to drop during the week ending March 19th and then really started dropping through the week ending March 26th. If you look at the spreadsheet, link to your right, you can see how the #’s dropped steadily through this period. The SG #’s aren’t dropping yet and if they do start to drop there should be plenty of time to prepare.

I just want to add that there has apparently been a change in market dynamics when compared to previous rally legs off the March 09′ lows. Rallies since those lows have V’d out of bottoms and essentially never looked back. This is clearly the case for the March 09′ bottom, July 09′, and February 10′. This time, however, the major indexes have been wallowing around near the bottom and instead of a V shape you could easily make the case, on the weekly chart of $SPX, that we’re in the process of forming a Cup & Handle pattern. This remains to be seen but one thing is for sure, this ain’t no V bottom. I have been trading with the expectation that the market would V on out and so I got slapped around a bit this week. Fortunately I sold some TNA early in the week above $47 and that saved my arse. The bottom line is that I grew somewhat complacent with the expectation that thundering herds of bulls would buy the markets up to the June highs and forgot the mantra of “Only the paranoid survive.”

Have a good weekend.

Lowry’s is updated.

BTW, your comments are welcome.

Weekend Update #2 July 18th, 2010

As I said in my Friday post, I expect some kind of bounce and that bounce should start some time Monday. This is based on extreme oversold readings from the various gauges I listed and from several of the ratios I also track. Not only that, but the $COMPQ had close to a 90% down day, more evidence that the markets got a bit too oversold and should adjust a bit.

Perhaps this bounce won’t materialize, but should it then it could last for a couple of sessions. If this bounce can take out some of the important swing highs that I’ve mentioned over the past few days, then maybe some upside momentum will build and the markets will go higher. Maybe.

Couple of the problems I see with a sustained bounce is that the $NASI went negative on Friday and the $NYSI is in danger of the same thing, all the various advance/decline lines are dropping and may soon put in new lows, and if you have looked at $NYA50, etc, you know that positive participation is waning.

One other problem in the market right now is that, with the exception of GLD/SLV, IYR/$DJUSRE, $SOX, XAL, $DJUSRR, $DJUSIT, & $DJUSTK, all of the other key sectors and all of the major indexes that were above their 200MA’s lost those on Friday.

The dotted line on this chart is the 200MA.

Charts courtesy of FreeStockCharts.com

Of the sectors and indexes that I follow, XAL appears to be holding up the best. $SOX/SMH was looking pretty good there for a few days but it started to come under pressure last Wednesday.

This chart should read: “Important support in the 26.80 area, as the 200MA and the lower BB are there.”

Of the sectors and indexes that I track, the two weakest are RTH and $HGX/XHB. BTW, Direxion has just come out with two leveraged ETF’s that track retail, RETL & its inverse cousin RETS.

The retail sector, as represented by RTH, and the housing sector, as represented by XHB, are in Bear Markets, having dropped, on a closing basis, at least 20% from their late April highs. Below are a couple of charts of RTH and the charts of XHB look almost identical.

Charts courtesy of StockCharts.com

With consumer confidence rolling over, with the Fed talking about pulling out the stops to get the economy moving, and with a good case being made for a double dip recession, it isn’t likely that either retail or housing are going to get much love for a while.

The bottom line is that the upper trend lines and recent swing highs proved too much for the major indexes and most key sectors. The markets tried to stay above the 200MA but could not hold those levels. While I expect a bounce early in the week ahead, I expect that bounce to fail, but I reserve the right to change my outlook based on how the markets perform. Maybe a good earnings report by a major company will embolden the bulls and they’ll start buying. Or maybe not.

I am currently hedged, though I never get the hedging right, and will be looking to unload my very few long shares into any bounce. I will then be looking mostly at RTH/$RLX for signs of cracking and if that should happen then I’ll be taking on a few shares of RETS.

During the day, when I see something that might be of importance, I’ll note it in the Market Comments section at the upper right hand corner of the front page. You can get those comments by following me on Twitter.

Also, the spreadsheet for the SG for the $SPX has been updated. I’m not sure I’m going to update it for the $COMPQ. I will put up a chart of it one of these days but you can create your own charts of it in Google or by downloading it. Link to your right beneath Blogroll.

Brian Shannon made a video this weekend that you might want to watch here.

Good luck in the week ahead. Be careful. Let the market form your opinions, not the other way around. Never forget that only the paranoid survive in this game.

Adding the following charts about 6:00pm, ET

Got that bad mojo rising thing going on.

Update February 12th, 2010

As far as the SG’s go, everything looks good. Three out of four indicators on each oscillator had upticks today. So even though the market was iffy today, the SG says that strength is coming into the indexes.

Just wanted to show some charts of the $SOX Index because it is leading the pack out of this hole. It’s been years, or so it seems, since the $SOX was a leader and this actually might be a very good sign. But who the hell really knows?

Anywho, starting with the 60min chart. $SOX topped out on the 11th of January and then started falling creating a nice and almost predictable down channel. $SOX then bottomed with the rest of the market on February 5th and started moving up. It really just broke out of the down channel on Thursday, which would be easier to see if I had extended the upper blue line. However, while it was building strength to move up, it created a new up trend channel. This channel lacked authority but it may now have authority based on what happened in the daily time frame.

Here is the daily chart showing a break of a trend line, a rising RSI and rising Sto, but the most important thing about this chart, at least to me, is the MACD cross. The $SOX also closed above the 9EMA and the 20SMA today. Maybe we’ll get a 9/20 cross Tuesday or Wednesday.

This next daily chart just shows a couple of different indicators. Note how the $SOX bounced right off the 250EMA.

The Aroon Oscillator, which still hasn’t moved up, indicated last week that the ADX line could be so oversold that the ADX line would begin to roll sometime this week (See my post on QLD from Saturday, February 6th). It did that on Wednesday. Unless something untoward happens early next week, the DI lines should cross and that would further confirm that the down side is over for now and that a new leg up, beyond what we’ve already seen, is a possibility.

The biggest problem I see on this chart is that the 250 kinda looks like it wants to roll over. Wouldn’t want to see that.

All Stock Charts.com charts courtesy of StockCharts.com

P.S. If you want to see how powerful the 250EMA is, take a look at IYF.

If I don’t get back later this evening, then I’ll put up a chart of SG sometime tomorrow.

Weekend Update II, January 24th, 2010

Anatomy of a sell signal.

Since I am long SRS at the moment, I thought I would go through an analysis of IYR to show how the trend broke down and the warning signals that led to trend failure. This analysis is as much for me as it is for anyone esle as it creates a record that I and you can refer to in the future. You can also turn this analysis upside down and use it in determining long entries because this is all about MACD signals and trend line breaks, etc.

Also, I am sure the perma-bears believe that the markets are on the verge of a complete melt down, and they are idiots. No one knows what’s going to happen on Monday or next week, no one except the mad men at the helm (GS). If those bastages at GS decide to hit the ‘Buy’ button on Monday and all throughout next week, then the markets are going higher. Same thing in reverse. Our job is to be hyper vigilant and observant and to watch for clues as to which way those big computers are tilted. Right now it appears those big computers are tilted down, but don’t be surprised if those bastages don’t tilt them up to run the stops of all the shorts that have been put on since the middle of last week because remember it’s all about turnover: the more stocks that get bought or sold, the more those bastages make in fees, etc.

IYR with lots of charts. Hopefully they’re self explanatory.

This first chart is a short term daily chart showing the first hints of weakness in IYR.

This 60min chart shows one similar trend line failure, and then another on an earlier date.

This daily chart shows a trend line failure from the July lows that confirms the 2nd trend line failure from the 60min chart above.

This 60min chart shows when and why I entered SRS.

This longer term chart and trend line show two failures to hold above the trend lines. The breaks are slightly different than those on the 60min charts.

This 60min chart shows the current, steep, down-trending price channel. It’s too early to draw a similar channel on the daily chart.

This daily chart shows a long term price channel that is in jeopardy of failing. The lower line is a clone of the upper line so that the angles match.

This next chart shows a 9/20 mini death cross.

This next chart uses those special BB’s and a 250EMA. Note the Aroon bearish cross, which surprised me. There are also Aroon bearish crosses on the $TRAN, $NYA, $SOX & $SPX.

When a stock is breaking down in the 60min and daily time frames, then it’s important to get confirmation of that weakness in the longer term, weekly charts. This weekly chart doesn’t look that bad but if IYR continues lower, then the weekly will deteriorate further.

All StockCharts.com charts courtesy of StockCharts.com

Weekend Update & Trend Analysis, January 17th, 2010

Though not as important as the $TRAN, $CYC, $SOX, or $NDX, RTH is still important as it reflects the strength or weakness in the retail sector. Retail sales were reported this past Thursday and they came in at -.30%, which was lower than the expected +.40%. This should have come as no surprise as consumers cut back on credit spending to the tune of $17 billion dollars in the month of November, which is the steepest drop in more than 50 years. This is impacting the big retailers like WMT, HD, LOW, COST, & AMZN and it shows up in the performance of RTH.

The following charts and analysis of RTH show that RTH is breaking down in multiple time frames. Use the analysis as a template for other stocks or sectors to identify stocks or ETF’s that might be ‘avoids,’ ‘sells,’ or potential short candidates.

The 60min chart below shows that RTH is below my favorite MA’s and has been below these MA’s for two weeks. During these two weeks, RTH has broken down through two trend lines and is fast approaching a more important trend line off the November 2nd lows. RTH is already under pressure and a break of this third trend line will increase that pressure.

This next 60min chart shows that RTH is now in a down sloping trend channel in the 60min time frame. This could be a bull flag but confirmation of that would come only when RTH breaks through the upper trend line and then doesn’t look back. Until then, and based on what’s happening in the daily time frame, this remains a down channel.

A lot of people will consider shorting a stock or sector ETF when there is a bearish MACD cross. On this daily chart of RTH you can see that the MACD had a bearish cross in October, but this reversed in November. Then later in November there was another MACD bearish cross, but this one was different because it was accompanied by a break of a long term trend line off the March lows. If you were long RTH at the time, then this would be the time to think about protecting profits, and if you were inclined to short RTH, then the break of that trend line would increase your chances for success, especially with confirmation from a falling RSI. Then in late December, after failing to put in a new rally high, RTH broke a second trend line and this time the Stochastic dropped below 80. At this point the bears assumed control and remain in control today.

This next chart shows how RTH has broken below the 9/20 and 50MA with what looks to me to be a gravestone doji from last Friday. And look at the green volume columns on the up days compared to the larger red volume columns on the down days. Few people are buying the up moves but they are selling the hell out of the down moves.

On this next chart, notice how those Bollinger Bands are not just in the process of rolling over but are also squeezing together. Should RTH close below and stay below that lower BB, then in three or four sessions after that, those BB’s will roll. Unless there’s a miracle on Tuesday or Wednesday, then the Aroon will have a bearish cross. The ADX appears to be bottoming and if it starts to move up with the red DI line on top, then the down move could accelerate.

And finally the weekly chart which further confirms weakness and hints that there are significant risks of further down side for RTH. RTH has closed below the 13MA, which is starting to roll over, the RSI is in a down trend, and the MACD has had a bearish cross and the Stochastic has dropped below 80. It doesn’t look good for RTH in the days and perhaps weeks ahead.

Now for a couple of charts of the $SPX.

This first chart is a 60min chart and it shows that in the 60min time frame the $SPX has taken out one trend line and that $SPX is resting on a second trend line drawn from the November 2nd, 2009 lows. Where RTH has been below the short term MA’s on the 60min chart for a couple of weeks, $SPX just broke below those MA’s on Friday. This is a red flag, but it is not a license to short the $SPX. $SPX can easily bounce back on Tuesday or anytime next week. Based on the 60min chart, $SPX is no where near being a short candidate and won’t be until the charts of $SPX begin to match those of RTH.

Finally, a one year chart of $SPX showing the trend line off the November, 2009 lows and a trend channel. The trend line off the November lows is so new that is doesn’t have much authority and so it may not hold through the coming week. A break of it could mean a decline to the lower channel line, maybe, but there are so many other support areas in between where the $SPX is now and that lower trend line. And first and foremost, if $SPX is going lower then it has to close below the most recent swing low from 1/12/2010 at 1131.77 before it closes above the most recent swing high from this past Thursday at 1150.41.

To see other areas of potential support, should $SPX decide to go lower, go to Stock Charts, set your BB’s to 52,0.618 and look at the daily chart and compare where that lower BB is in relation to the trend channel.

And while you’re at it, using those same BB’s, take a look at $USD or UUP and then at UDN.

All StockCharts.com charts courtesy of StockCharts.com

What? No weekly $SPX chart? I don’t see the need. The weekly looks very strong and even if $SPX should pull back to the lower trend channel on the daily, such a move probably isn’t going to do much damage to $SPX in the weekly time frame.