StockCharts Blogs - The Canadian Technician

Monitoring the Ms. Merkel Market Mood

It has been a few days since the EU summit.

Let's check in on some places for strength to show up.

1) Let's look at some US banks to see if they are going vertical.

While JPM may be stronger, let's look at BAC.

I don't get any courage looking at these. Let's go look at a Canadian Bank. RY.TO is big, so lets go there.

Doesn't look like it is accelerating much since the European decision.The short term ones are flat.

Let's go into the storm. Europe.

This looks particularly weak to me. Let's try London. Here's Barcley's.

Here are some French banks.

Another one.

I could use some grouped ETF's to demonstrate this by region, but I see no real surge higher with investors clamouring to get in on this train.It doesn't seem to matter if we look at the strong or the weak.

Italy bonds continue to trade above 6% which is higher than where they traded before the announcement.

My bias for the overall market is that it desperately wants to go higher. A pause after this fantastic move is not unexpected.

Usually a late bull market run will be dominated by commodities (read Ag and Energy). These are late cycle sectors that should emerge. In Canada, the Potash and Agrium names have excellent earnings momentum. It really comes down to whether or not we can move with this European situation still stalling.

I went back and looked at the SP500 since 1990. This rally is truly exceptional in scale. The last time the $NYMO oscillator surged into overbought so many times so quickly, it was coming off the 2009 lows.

My indicators of stocks above their 50 day compared to 200 day screams buy.

A group of indicators I use together to help me with market timing scream buy.

The late bull market cycle screams buy.

The seasonality screams buy.

The GDP at 2.5% was strong enough to scream buy. Last year it was the upgrading of analyst expectations that made the market expect higher GDP (up to 4 or 4.5%) but the GDP never really changed. When did the market start to slow...right after everyone realized that Q2 wasn't going to get there and the analysts started a downgrade growth cycle.

The bottom line...everything is bullish and trying to move higher... I'll stay focused on the financials for signs of reversal. If they start to break down from here, all this could momentum could quickly reverse.

The OECD announced Europe to have a .3% GDP for 2012. That isn't good.

The Euro is breaking down a bit today. Still seems to be a RISK on/ RISK off machine. When the Euro is up, so are the indexes. When the Euro is down, so are the indexes.

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MOST IMPORTANTLY!

Tom Bowley of InvestED Central out of Washington is coming to Calgary next week. He will be presenting Saturday November 5 from 9:00 AM till Noon, He will also be presenting Tuesday night from 6:30 till 9:00. Space is limited but let's pack the house! Same presentation both days!

Follow this link to the CSTA  website.Register for FREE online on the Right hand side farther down the page.

www.csta.org

 

Good trading,

 

Greg Schnell, CMT

 

 

High volume After Earnings....what does it mean to you?

Well, that was some rally!

I float between BNN and CNBC during the trading day. Most of the time with the volume off! At the end of yesterday,with the volume on, I heard Bob Pisani enthusiastically say something about volume. Paraphrasing ~ Did you see that volume today.... it was ### billion shares. That's Big Volume.

My memory flickers and I remember Mr. Pisani ranting for a few days in a row a while back how exceptional the volume was again. Shortly after, the market turned down. How could you have so many buyers and then the market falls?

Well, let's try looking at it this way. The rally yesterday was euphoric. Were there any retail investors selling their long positions in the morning? So who was selling into the rally? A lot of selling in fact. By the end of the day 5 Billion shares traded. It can only be institutions making big moves. We are also sitting up 15 % in 18 days. Who wanted to let go of so many shares when everything looks so good? We can have up days on low volume and we can be concerned it's a sign of weakness. Or is it a sign of comfort? If the trade is going your way, and you see no reason to sell, you stay in the trade. So long up periods may be accompanied by low volume. When you have a large position in a stock, the easiest days to sell some are strong up days.

On the chart below. I marked the "above average" volume days that were significantly above the previous days AFTER earnings Options Expiration Day. The vertical dotted blue line is placed the day before. Not so you can be predictive, just so the line is out of the way so you can see what happened following. It's tiny to see on these blog screens, so click on the chart, change the size to 1600, click update and take a look.

This week, we have had 3 above average volume days out of 4. When I did this simple experiment this morning, I noticed the volume pattern around the April OE period was similar to this week, with the exception of the euphoric day like yesterday. Yesterday (October 27) was truly big volume when we remember that Citi used to trade 800 Million a day and  since the split the 50 EMA volume is now only 60 million a day.

Well, it was an interesting exercise. We learn every day in the markets, and I learned something about watching volume and what happens on a low volume option expiration day. The Nasdaq had a very low volume Friday OE day. So low it was below the previous day. Maybe the big funds were comfortable. Now they are up another 5%. Are they still comfortable holding?

Lets watch what happens now after a huge high volume day after OE.

Positives:

I am enthusiastic that things might be ready to roll for a longer period, as the MACD is up in positive territory at a level where historically it can ride for a while. Look left on the chart. As well, all the rate of change indicators have made it in to positive territory. That's BULLISH! They are also at a level where they might take a breather. Look left on the chart.

Negatives:

I am cautious to the upside as a bear market rally usually stops at 65 on the RSI. Perhaps we get a 50% pullback of the move and the RSI gets supported around 40.

Italian bond auction did not go so well today. I'll keep watching those credit pieces of data.

 

Good Trading,

 

Greg Schnell, CMT

 

Wow , a rally on a kozy, merky, situation!

Wow,

Who would have thought nothing concrete, promises for dates in the future, failed math, leveraged debt on debt, a letter about austerity, and voluntary losses could hold a 27 country project together under extreme tension.

Obviously they went to a different math class than the rest of us.

First of all, here is an article laying out the response from the July 21st Agreement. Great picture of them having coffee together.

Click!

Reuters July 21

Lets zoom in on the SP500 and the reaction after the July 21st agreement.

You'll notice this mornings rally rang the bell on the 200 DMA.

Well, the Jury is out on what happens now.

More general commentary below.

One of the things that I can not understand is how many bondholders are interested in taking a 50% haircut on a bond voluntarily? Sounds like the underground  was sent in to ask for the signatures.

Secondly, all of these entities bought insurance to protect them if the bonds are not repaid in full. So not only did they have the expense of the original purhcase of the bonds, they have paid an annual insurance policy to be repaid in full. That was getting more expensive each year. They all agree to wave those losses as well.

Thirdly, It's ok that the bonds bought by the ECB don't have to be discounted 50%. So on $350 Billion in bonds, only $200 Billion have to eat the haircut of 50% voluntarily but the ones who bought later when things were scarier and priced appropriately, don't have to. It's not really a haircut, because they are going to receive long dated bonds deep into the future. But Greece goes bankrupt in the meantime because it can't service existing commitments without more borrowing. If you own AAA rated bonds, you are lined up behind the central bank for getting paid back. You can't decide how much they hold, so if they fill the bank full of bonds up to the level that can be paid back, you get Zero on AAA that was insured. This apears to be where we are headed.

When I played Monopoly, and we kept doing Bizarro deals to keep the game going, eventually the players who were being hurt by the reengineering started a yelling match, or just quit. In Europe, everybody is fine. Europoly with real money. Zeuropoly.

All of the Greek Pension funds ( not to mention other funds) just lost 1/2 their investments in government bonds. As if the people expecting their pension from these funds would be willing to take 50% less pension, voluntarily, when they had insurance to protect them from the loss. Who agrees to underperform the market?

Lastly, if insurance under stress doesn't pay out, when would it? Does that mean the CDS portfolio is only payable after you take 50% haircuts on any Euro sovereign debt? So all of the Eurozone Triple AAA bonds insured are not really insured? Or they might be insured unless everyone is imploding, then it doesn't pay? Wow, that is a precedent!

I could go on, but this is too funny. You'll have to check out the CNBC tweets today for what the EFSF stands for in the minds of their viewers. One of them was '''Eewww, Feels Sorta Flimsy"

Here is a link to sovereign credit default swap prices. The little blurb at the bottom lays out how to understand this. Unfortunately, there are no charts attached. What I like to do, is print the page occassionally and then you can see how it moves. Compare it once a month.

Sovereign Credit Default Swaps Table

Here is the $LIBOR daily. This is the cost of borrowing money between banks. A day isn't enough, but we will find out if the banks feel better next week. If nothing else, this little rally, allows the banks to sell more shares at higher prices for recapitalization.

Still Rising.

As Steve Liesman said, at least they are going down fighting! I might add while enjoying coffee and red carpets! After 13 weeks of emergency meetings, it really is awkward.

This charade must stop. We'll need real valuations to move forward meaningfully. More importantly, they might damage the CDS market to such an extent as to make it meaningless. Why buy the CDS if it doesn't pay out?

Too much commentary here, but I'll keep watching what the credit market does. In the end, that will decide where we go from here.

Here is the Bond Dashboard. I don't like the short term turning lower.

 

Good Trading,

 

 

Greg Schnell, CMT

 

 

 

 

 

 

 

 

$WTIC Crude Oil in North America and $BRENT

Well, couple of things have really traded wildly leading up to the European Summit.

Here is a chart of West Texas Crude.

When people talk about retracement levels, some just throw it away as nonsense. Technicians use retracements. This chart is a classic so far.

First of all, Oil fell from it's high and made a low. We discussed that previously. But look at the Price action off the first low.

1)Bounced off the low right up to the 38.2% retracement and reversed. It then when all the way back down, tested the low and pushed higher. It paused at the 10 week MA, it stopped last week just shy of the 38.2% retracement, and has now surged up to test the 50 % retracement line. It was also the 40 week line. So where to from here.

Well, there is backwardation in the crude chain, which says they are paying more for the front month so that pulls inventory forward. This is supportive of price.

So lets examine if crude moves higher, where might it stop.

Well, the upper Bollinger band and the 61.8% retracement are just about on top of each other, so that would be a logical target if we get above the 40 week and the 50% retracement where we stalled today.

That $99 level being so close to the $100 number should be sufficient for a pause. Round numbers  like $100 can be meaningful resistance as well.To see an example of that you may wish to look at Netflix (NFLX). It spent 5 days trying to get through $300. I did, but could not stay up there. We all know where it went from there!

So if the Europeans can functionally put together a strategy and the world get temporary relief, we could expect to see $WTIC try to test $100.

For Brent

What is interesting here, is that brent has not fallen as hard. However, today, $BRENT and $WTIC both sit testing their 40 Week MA's from the bottom. Notice above, Brent has it's 61.8% retracement around $115 and the Bollinger band is closer to $120.

The energy sector has led in October so far. Let's hope solutions in the Euro zone can allow us to focus on companies in the market soon. If the Oil's can push higher, it is always good for our $TSX.

 

To execute this trade, you can use XEG.TO for oil stocks, or XIU.TO for the Canadian TSX 60 as it usually moves with oil. To play the oil price directly, you can use USO.

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The Canadian Technician.

Good Trading,

 

Greg Schnell.

$TSX really lagging the US markets

Well that was a bullish Monday, with almost 15 days straight up. This TSX market is really underperforming the US markets. On each chart, check the location of the price compared to the 10 week or 40 week MA (Moving Averages).

You can always click on a chart to make it larger, add your own settings and save it.

Here is the $TSX finally moving above the 10 week line. Notice the gap between the price and the black 40 week line. MACD is finally trying to cross.

Here is the SPX, COMPQ, INDU compared to the TSX. I have put the 40 week MA on each of the charts. Now you can see how much the TSX at the bottom is lagging under its 40 week MA. I would suggest this means our typical commodity markets are not being bought relative to the diversity of the US Indices.

Now let's compare this with the 2007 top briefly. We broke down through the support of the topping pattern, which was a head/shoulders pattern, and then bounced back up and tested the neckline. In 2007 the neckline was a little below the 40 week MA. It made it through the neckline but the 40 week MA became resistance. It is technically an important point on the chart. What is the answer, we don't know. Just use this space to be cautious.

Here is a very long term chart.. This is a monthly close line chart. Notice how  the lines are drawn at levels that have been difficult to get through from either direction. We are approaching this line in the US markets.At the same time we are approaching the 200 DMA or the 40 Week MA. When we get a confluence of technical resistance signals at a certain level, it makes it more difficult to break through. We could add Fibonacci patterns (the 61.8 retracement is at 1257 on the SPX), trend lines, BBands, etc. One other confluence is the pattern of the 2000 top, the 2007 top and this current top have been Head/Shoulders topping patterns. The lower side of the topping pattern that was support holding the market up. Now it is friction for going higher.

 

This doesn't make it a ceiling, but historically it can take months or minutes to push through these major resistance levels.

We can make a case that the $USD is breaking down so that is why everything is rallying. We are expecting more stock market nourishment from government officials  in some form of QE from  europeans, the brits and the american markets. That was pretty bullish stuff last fall. We want to be on the right side of the trade. Currently the sIgnal is bullish, with friction immediately above. Be prepared for big moves both directions. Why caution?

Check out the NYMO Oscillator. For more information on the Momentum Oscillator, check the stockcharts chartschool. It has only made a reading above the 80 level about 10 times in the last 5 years. Food for thought. Ignore the scribbles for today. Just check the extremes. There are a lot more of those overbought readings on many charts.

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The Canadian Technician

Good Trading,

 

Greg Schnell CMT

 

 

That Copper Dashboard

Shanghai Composite made 2.5 year lows this week and last week.

In the same week, Copper made new lows.

Every chart is at a decision point. They are all lined up.

Here is the Commodities dashboard again.

$WTIC is trying to rally above the 10 week. It's pretty important.

Europe isn't the only deal, but it is the one in the headlights. Asia isn't pointing higher yet, nor are the commodities. We'll keep watching.

Good Trading;

 

Greg Schnell CMT.

 

 

Earnings OED ....Different than other OED's.. here's why!

This post is in response to some verbal, some email questions that have come from my previous posts. In posting my last few blogs, I added caution that tomorrow, Friday was OED (Option's Expiration Day) but it is different because it is during earnings season. Is it really different? I think it's really different.

The first reason is my SPX graph below. I also showed this trend with the mining index and the NDX  a week ago.

This is the main reason for my caution. Notice how close the red arrows that mark intermediate tops are to the blue lines. They are almost on top of them or sit just after the blue line. Essentially, the market rallies into option expirations. It corrects after earnings season, and then starts to rally into earnings season again. Notice how the green arrows are usually near the middle of the gap between options expiration. My 'from the hip' reasoning is that the market starts to anticipate earnings season. Once Earnings are out (and even Apple missed this time), why stay long? Move out and sell to the next owner, then move back in on weakness. Repeat. It's not perfect, but the trend is pretty strong. Notice the exceptions have been with QE2, TARP, QE1, etc. Is Operation Twist enough? As Donald Dony of the Technical Speculator mentioned, the most recent data is the most relevant.

Here is the $SPX. I encourage you to click on the chart to see the larger version.

The second thing to consider, notice how we are on the bottom of the dotted line that runs through the chart. It is a strong area of support on the way up and resistance on the way down. If we look to the left on the chart and we see where the market broke down in 2007 and the RSI went down to 30 (Start of a bear market signal), it capped moving back up at an RSI less than 60 (under the red line).

Currently we have registered a 30 RSI. These are rare. About 7 of them in the last 20 years.  I encourage you to expand the chart to 20 years and look at the lows and how they proceeded. The one in 1994 took 6 months after the signal to start to rally. The question we must ask is " is this like 1994, 1997, 2001, 2007? In 2001, it was capped by the centre of the weekly BB. Is the 17 country Euro soveriegn debt crisis as big as the Tech wreck or the bank bust?

Here is $COPPER. It has struggled to get through the $3.70 resistance line on the chart. Every day adds data.

 

Here is Copper Daily:

 

The rate of change is still negative, and Copper has had 3 distribution days in the last 7.

Let's check the $USD. It has retraced exactly 50% of it's move up. It bounced off it's 10 week or 50dma recently. It is in bullish mode. The MACD is above zero. On the daily chart the rate of change indicator is in bullish mode.

Gold seems to be releasing. Will it get support at $1545 which is the 200 dma?

OIl has held up well.

I want to be bullish here. I am concerned that UNA, WMT, RDSA.EU, XOM, are strong which is hardly who we want to see making breakouts off a 20% bear market low. We would probably expect funds to flow away from these companies if RISK ON was the direction of money flow.

Lastly,

$LIBOR3 is still in bad shape. It continued to make new highs all through this rally. My understanding is this means banks that are lending to each other, are demanding higher rates as they are less sure of the counter party risk. Libor is above the 200 dma, and the 50 is above the 200. This would say we are in early days.

Does all this mean we are going lower? Well at lows, the charts always point lower. Currently we are up after a big 8% rally. So, I remain concerned and making sure the stops are tight.

It might take a few days to see how resilient the big money is in their positions.

One of the more bullish things (Maybe that's Sarcasm) is the number of cheerleaders that aren't very cheery. Mr. Carney, Bank of Canada Governor is very concerned of global systemic risk. That is not the type of commentary you would expect from one of the most respected bankers in the world. Flaherty (Canada's Finance Minsiter) wasn't at all bullish. The British finance minister as well as Merkel herself said the problems aren't going to be solved any time soon. One of her advisors said it would be next year before something final could happen. One of Obama's advisors said we are in early innings of this crisis today. Anthony Scaramucci was less positive than normal.There is a lot of ground to cover before this market will be excited but the charts will tell us first.

Lastly, I don't like when the growth market (the Nasdaq), was down 2.00% Wednesday and led the other indexes in terms of the size of decline. Both Monday and Wednesday were Distribution days.

Enough hurdles. Look for your shopping list, and hopefully we get to put it to work. But these earnings season OED's are very important in my mind.

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The Canadian Technician

BIG NEWS : Tom Bowley of InvestEd Central is coming to Calgary! Watch for free registration news on this blog in the next few days. Mark your calendars for either session, November 5th 9:00 am or Tuesday November 8, 6:30 PM.

Good Trading,

Greg Schnell, CMT.

 

 

Follow the European Banks on Stockcharts

One way to see when this might be breaking out or breaking down is to watch the centre of the storm.

In no particular order,

Barcley's.

BNP Paribas is one of the main French banks under pressure.

Deutsche Bank is from Germany (Obviously!)

Lastly, 2 Swiss banks at the centre of the continent.

Just to be clear, Germany and France are part of the Financial Euro, But England and Switzerland maintained their own currencies. At this point all these charts look the same. The reason is all of these banks backed each others soveriegn bond assets with CDS (Credit Default Swaps). The world is worried about a domino effect where one takes down another. 

They are trying to rally on all these plan rumours. When they do break out, it should be quick. Keep it in mind before you buy the financials. The Canadian bank charts don't look much different. It really is a global banking network. The Canadian banks are behaving like European banks.

Click on the pictures for a current chart you can work with that can be made larger. If you are in The Canadian Technician blog site, you can click on subscribe to get this message posted to your inbox, or use the RSS feed. You can also find it on stockcharts.com Facebook page.

Good Trading,

Greg Schnell, CMT

Energy Bullish % Index... New Buy Signal?

Well,

It's be a couple of weeks from the market bottom. A buy signal should be showing up on these charts. I want to caution about how things may fall apart after Options Expiration on Friday. But so far, things look solid.

 

We have moved well outside our oversold zone. This is currently above 50% so that is bullish.

Notice how when the MACD has a deep swoon, that is a great place to look for buys.

Lets zoom in on the recent months here.

Oil hardly pulled back even when the overall commodities were pulling back. The $USD reversed intraday and oil took off and soared higher. Gold moved up but was still down on the day. Seeing this strength in oil, points to some solid places to invest.

Trilogy, Tourmaline, Cenovus, Open Range, are all looking strong.

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Good Trading,

Greg Schnell, CMT

When should you move into the market after a meaningful low?

Nothng is ever 'A sure bet' but some indicators can really help.

This indicator and how it was displayed was on the Public Chartlist from Yong Pan or 'Cobra' years back.

I encourage you to make your own version of it.

Stockcharts.com has some excellent indicators. Sometimes the only way you find out about them is reading through the Public Chartlist under links on the home page. Here is one of my favorites. It won't mean anything till we put it into context.

I want to focus on the chartbox at the top.

You will see two different colours of Histograms.

1) $TSXA50R - the percentage of  TSX stocks trading above the 50 dma (Daily moving average) - Gold

2) $TSXA200R - The percentage of TSX stocks trading above the 200 dma. - Black

When you are seeing the gold bars declining, it means fewer and fewer stocks are trading above their 50 day moving average. When the black histograms start to show up behind the gold histograms, it means a higher percentage of stocks are trading above their 200 dma but below the 50 dma. In the area where both are present, it makes the gold histograms darker so that is the level of the 200 dma.  You can see the bright histograms on the top, stretching above the black.

In a bull market cycle high, they will start to trade below their 50 dma before the 200 dma. In a market cycle low, they will start to trade above their 50 dma before they start to trade above the 200 dma.

In July, more stocks traded above the 50 day then above the 200 day. could that be the buy signal?

Well obviously not, as the market made new lows. So how do we use this information.

Well lets pull up 9 years of data and see if there is a trend that could help us see how to use it.

You really must click on these charts to see the large view.

A couple of things are really important.

1) When the number of stocks trading above the 50 DMA gets lower than 25% on the right hand scale, look for a rally.

2) When the number of stocks above the 50 DMA takes off and far exceeds the number of stocks above their 200 DMA, that is very encouraging and you should be trying to participate with stops in place.(bright gold histograms following a major period of black histogram bars showing)

3) When the $TSXA50R stays above 50 % stay long.....Accelerate in the zone.

4) When the percentage of stocks on a rally can't get above 50%, exit.

5) When bull market rallies are interrupted and the percentage of stocks staying above the 50 dma gets less every time, you have to be prepared that a top is in. That is the black candles start to show through at lower levels each time. Also notice that the % of stocks staying above 50 DMA  gets less with each rally.

Also, if the MACD on the TSX (shown at the bottom) can not stay above zero....you are probably making lower lows. If the MACD is Nice and high, each subsequent rally will maintain that height or hold it above zero. When it starts rolling over near zero, and your % of stocks can't stay above 60% or 70%, it is time to get defensive.

 

Does this really work?

Well, the true "RISK ON" market is the Nasdaq.

Here is the short term, and currently $NDXA50R is over 80%. That is huge momentum. That bodes well for our TSX.

Look at the market peaks. The $NDXA50R topped out around 75%. At the final peak, it was barely 60%.

 

Here is the long term $NDXA50R. You can see we have had spires before that shot up and reversed immediately. It could happen again. What this chart tells you is the world is trying to get bullish on risk. The question is can it continue to support it? That is why we trade with stops. The MACD is in Positive Territory on the $NDX (Nasdaq 100) and is trying to go positive on the $TSX. That's about as bullish a signal as we can get historically speaking. We still need stops (Mental or hard stops). As I wrote in the Pedal to the Metal, It's Earnings season..., I am watching closely how the market behaves after option expiration this week into early next week. That will be very telling.

Good Trading,

 

Greg Schnell, CMT