Heaps of action for the upcoming week.
There was a heavy and convincing sell off on Friday as the main indices tailed away from overhead resistance. The tech sector has been hit hardest, with GOOG and AAPL feeling particularly vulnerable. XLK has not had a good time of things lately, with earnings across the sector largely disappointing thus far.
ES and SPY are at the lows of their rectangular consolidation range. We are exactly where we were last weekend, with the contract closing out the week at the key 1420 area.
Last week I was looking for the upside before a reversal. This week, although we are at the same level, my sentiment has a bearish skew. I will be watching 1420 with interest as we head in to next week.
The Nasdaq was out of sorts last week. Having failed relative lateral the week before, it has continued to sell from the technical topping formation. It now has three levels of overhead resistance compared to the singular levels in both the Dow and 500.
However, it closed the week a little north of its next major support area at 2660. Even with the nature of Fridays distribution, I am anticipating a very small reflex bounce back up early in the next week.
I do not expect a great deal of lateral movement until Thursday, when AAPL releases earnings. Given where the markets are currently trading, I am expecting the move from this announcement to provide the medium term directional bias.
Part of me feels the market is being driven down ahead of good earnings in AAPL. This allows weaker hands to get shaken out and provides a chance for larger players to reduce their cost basis. The other part of me thinks that poor AAPL earnings have been priced in, and the numbers may not have such a strong impact on the overall market as I expect.
The Dow has shown good strength this week and it too closed out Friday at a key support level. If I were to open up a long right now in any index it would be this contract at this price.
Market internals; past 20 sessions breadth
Before I move on, above is a chart of the NYSE market breadth from the past month. If you were in any doubt as to the strength of the selling on Friday, check it out compared to the other down days we’ve had lately. At lunchtime on Friday, breadth was -15:1.
VIX and the VXX ETF
Having based out in the 14s, there was a big volatility expansion at the end of the week as the VIX advanced over 2 percentage points.
This chart is providing the first technical trade setup for next week; long VXX. There has been a huge increase in volume on the contract which to me reflects a short bias. I like the wedge formation too.
Although I believe moving averages are a load of tripe/hogwash/shite, this chart offers an interesting insight into how algorithms are positioning themselves around this trade. After hedging with TZA and FAZ last week, this is the best looking technical hedge out there for me at the moment.
Intermarket & Commodity Analysis
Crude – CL hourly chart
A look now at oil which has had a very volatile few sessions. There is a lot of rejection at 93 at the moment, and it looks set to continue to the downside on most of the timeframes I’m looking at.
CL is at mid range at the moment, and I’d like it to retest the 93 area for an opportunity to scale in short. The dollar is setting up for upside this week which may have an impact here.
Gold – GC daily
Gold is looking top-heavy at 1800 and is breaking down a little bit here. An hourly bear flag also points to continued selling pressure. I don’t see a great deal of lateral support here until 1675.
I will be looking to short gold this week on any kind of weak bounce. I would not be a buyer until 1550.
US Dollar – DX daily
Although the short term technical pattern looks like bearish consolidation to me, it looks like USD could catch some upside action this week. This bounce will not change my long-term outlook, but may provide some nice short to medium term trade options.
80.25/30 is the line in the sand here. There is a bull flag on the hourly chart here which also points to further advances.
30 Year Bonds – ZB daily
I’ve cast a keen eye on TBT and TLT lately, and now here’s a look at the ZB contract. To me, it looks to have formed a higher low with a decent (although imperfect) morning star reversal formation.
I’d be looking for long exposure here through TLT with an eye to offload half or close all should this reach 150′.
With bonds and the dollar looking for upside while the main indices are at support, next week should be very interesting from a technical perspective. Given what I have in front of me, my gut-shot is bearish consolidation throughout Monday-Wednesday, before continuation to the downside on an AAPL miss.
Sector Watch; Refineries
This week, a look at a composite chart of TSO, VLO & WNR
These tickers have had a strong 6 months or so and were due a sell off. I was a little early a few weeks ago with the short forecast. This week offers a nice and clean continuation formation on the composite as each stock offers similar setups on an individual basis.
I will talk about TSO later, but I don’t see any support levels for quite some time in any of these names. From a technical viewpoint, the measured move on the flag will bring this chart back in to a demand area.
Now, a look at some stock specific plays
ACN prior resistance retest and gap fill long
Short and sweet; I like ACN at 66 on a gap fill of a previous resistance area. 1 point of risk offers 4:1 upside. Clean and simple setup in a name that has shown good strength recently.
Marathon Oil daily
Not so much an explicit trade setup, more a “one to watch”. MRO is about the only oil stock with a clean, non confrontational chart. I like the recent advances – but I don’t like this evening star pulling back from a prior resistance level.
I feel this may pullback this week before providing a long entry point perhaps in the low 28s. Although I anticipate some selling, I am not looking to short this – I want the sell off to give my upside bias an entry location.
NUE – Which way?
Closed the week at ascending triangle resistance area. Also has longer term resistance level a few points ahead. I like the base should this breakout.
Look for volume and expansion over 41 (confirmed at close). A possible scenario (Ok.. the one I am planning on) is a high volume breakout above 41 which runs into selling at 43 before pulling back on light volume back into 41 to provide a chance to buy.
I am a fan of charts like these. A handful of other major steel/iron charts are also trading at key resistance levels having shown great relative strength over recent sessions. I have also added X to my watchlist for the week ahead.
PCLN. ‘Nuff said. Did I mention I pulled my 555.55 limit order on Friday? The low was literally a few pennies below that.
Another one to keep an eye on. My bias is bearish given the 2 day rejection from this key 18 level. I see continued distribution down to 15 – a point I would consider buying.
I will re-evaluate the chart should it close north of 18 on good volume. Volume has been light lately which is another reason I favour the short here.
Neutrality on TMO
TMO seems to love a reversion to the mean. This is a truly neutral chart for me and one that will offer a good setup either long or short whenever the market decides where it wants to go.
With clearly defined risk parameters, this is a nice easy setup to scale into on market weakness or strength. My gut says down here though.
The refineries are in play this week, and here’s a closer look at TSO. The pattern is obviously very similar to the composite from above, but compare the volume ratios in TSO during this consolidation phase.
With such thin horizontal support levels until 30 here, this looks like an implied short. I’d be a seller right here. My stop would be a little loose here (so smaller size) on the entry (~46) but if this does get downside momentum I would be quick to move it to a break-even stop-loss.
I like the daily on VMED and I’ve been waiting patiently for a long entry here. It may come soon as I look at this weekly chart. A slight rejection of this 31 region and a move back to 28 will definitely spark my interest.
A good number of support levels beneath this area provides a good base.
Another weekly chart. FLIR looks set for more selling here. I do like this long at 18 with a relatively tight stop. The fact that it is approaching a multi-year support/resistance level within a descending wedge makes me bullish in the longer term.
The above is a log scale chart which makes the downside look more than it is. Should that trade not work out and get stopped, I would be inclined to set an alert in the 11 region which would also offer a value long.