It’s all going to come down to the wire. (And by that I mean, today’s weekly closing bell). So can bears finally start pressing their advantage again? Or was yesterday’s action just a pause before bulls charge higher into the close?
Well, if futures are any indication, then this 8-day Dow Jones losing streak may come to an end. But we won’t know for sure until 4pm.
In the meantime, let’s quickly recap the market price action these past four days and plan for what might come next.
Trading Week in Review:
So far, this week has been an interesting one. Because as you can see on the SPY daily chart below, it’s been marked by opening gaps lower that are then bought up by bulls… until yesterday.
Unfortunately, bulls weren’t able to muster an intraday rally and are now hanging around the lows of weeks. So the question today is whether we breach this level or manage to bounce.
Now while it feels like the stakes are high, I also want to remind you of the bigger picture. Because from the weekly chart below you can clearly see the long-term uptrend is still higher. While we are below prior highs, I think bulls still have long and medium-term momentum at their backs. And unlike the last few months of 2017, the index ETF is far from overbought.
So while I’m looking for a higher low around the $272.50 area on the daily chart, the weekly timeframe helps provide the perspective that we wouldn’t start seeing more concerning medium-term technical damage until a drop into the $260-265 area. This buffer space gives me a little more confidence as a bull.
I’m also inclined to think bulls have the initiative in the short term. One indicator I like to reference in these cases is the % of SPY stocks above their 50-day moving average.
Even though this indicator has been coming down lately, it’s retreating from a 5-month high. And the measure is still comfortably around the 60% mark. So with the majority of stocks still in medium-term uptrends, I’m cautiously optimistic buyers will step up into the end of the week or early next.
Meanwhile, we may see some stabilization in commodities as OPEC reaches an agreement in principle. Let’s see if that crude uptrend can get going again too.
On the other hand…
The two trouble spots we’ve been watching are getting worse. While European financials are still hanging on by a thread, the heaviness in emerging markets is accelerating. Will it close the week at the lows?
One reason I’m a little nervous about this is because there’s also a compelling fundamental driver for this weakness, articulated well by the Reserve Bank of India Governor. In short, with lots of US debt being issued and the FED raising interest rates, there’s lots of strain on emerging market economies, currencies and balance sheets. This is in large part because of offshore US-dollar debt.
The reason I mention all of this is twofold…
First, it’s a good example of how fundamental and technical trends can align. In my experience, a strong fundamental narrative combined with compelling technical price action can lead to big and lasting moves. So it’s worth mentioning for that alone.
And then secondly, you may want to keep an eye on any emerging market allocations. If you’re even more active, I think this also looks like a good short.You could sell the new low, (or a retracemen)t, both using an ATR-based stop.
To sum up: I’m still leaning bullish on US stocks. But hopefully they don’t catch whatever’s weighing on overseas markets.
Now as for my own portfolio, it’s possible I’ll have something trigger at the close today. But in the meantime, here are some other charts I’m looking at…
Charts to Watch:
ROST – New high out of a multi-month consolidation. With retail overall acting strong this could keep running.
TUSK – An existing holding that looks like it’s trying to grind higher. I’m hoping it can finish the week at highs.
SUPN – On the cusp of breaking out, I’m also going to have an eye on this one into the end of the week to see if it can get going.
MU – I mentioned this one yesterday but I think it’s still worth watching for a breakout if the broad market can get going. Plus, it was upgraded again which give another catalyst
SPOT – This was a relatively strong name in a weak tape yesterday. With little overhead supply and after catching an upgrade it’s more interesting than ever.
Now before we wrap this up, here are a few more articles I thought you might like…
“A takeaway from that is that no matter what you’re doing, you should be comfortable with a lot of stuff not working. It’s normal. This is true for companies, which need to learn how to fail well. It’s true for investors” — Tails You Win
“In other words, the Fed is nowhere near “tight,” and the market is mis-pricing both growth and inflation risks to bond yields. Rates look far more likely to rise than fall.” — Bonds Misjudge The Future
“Dollar strength has wreaked havoc on the group of ETFs that many people use to gain exposure to global equity markets. One downside of many of these ETFs is that they own the assets of the country they represent in their local currency, and since the vehicle is unhedged, changes in the exchange rate play an important role in their pricing.” — Global ETF Carnage Continues
“Fantasy gave way to reality; no, I didn’t win the lottery, but I began playing regularly. It seemed one of the few things I could control and it sparked a bit of joy in me. Had I just put some of that money away and invested it, maybe the more fulfilling moments of my life would have arrived sooner. I’ll never know and I’ll never get back that time.” — The Misery Index
“If, in 1985, you went to any stockbroker worth his or her salt and asked for a portfolio of dependable blue-chip stocks, you can be sure GE would have made the cut. There’s an important point here for investors, and it’s that companies are dynamic entities. Things change.” — CWS Market Review
That’s all for today. Let’s see how things shake out today and I’ll be back at the same time tomorrow with another update.
Happy trading and have a great weekend.