General Market Analysis

General Market Analysis contains charts and commentary relating to all aspects of the financial markets including: US and Global stock and bond markets; gold & commodities; bonds & currencies; key market moving stocks; etc…

Jul 282014
 

CORN (Corn ETF) offers a somewhat aggressive entry here on the break above this 60 minute bullish falling wedge pattern. CORN will also offer a second objective entry or add-on to an existing position taken here if & when prices move solidly (5 cents+) above the top of the July 21st gap (26.67). I refer to this current entry as somewhat aggressive for two reasons: First, that July 21st sizable gap is not too far overhead. Gaps, particularly large gaps, often act as support & resistance, especially on the initial tests of those gaps following their creation. Therefore, taking a long-side breakout in relatively close proximity to resistance may limit the upside potential on this trade, should prices ultimately fail to surmount the 26.67 level.

The other reason that an entry here is somewhat aggressive is due to the fact that CORN might go on to backtest this 60 minute falling wedge at lower levels. As the weekly chart below highlights, $CORN (spot corn price) has been in a very powerful downtrend (actually, a third reason this is an aggressive entry) and is currently trading in what I call No-man’s Land, which is when a stock is trading in an area well above & well below any decent support and resistance levels. When trading these “catch a falling knife” trades, where a stock is in free-fall mode yet I believe a powerful trend reversal is imminent, I prefer the stock to be approaching a key support level on the weekly chart while setting up in a bullish chart formation on the daily and/or intraday charts. In the case of $CORN, the next solid support level (340ish) is about 8% below current levels.

With that being said, I still see enough potential for a possible trend reversal from current levels to initiate a starter position in CORN (CORN ETF). An ideal scenario in the upcoming days would be a gap above the top of the July 21st gap (26.67), to put in place an Island Cluster Reversal bottom, with the “island cluster” being the group of candlesticks that were formed over the last week or so. That would be a very bullish technical event & one in which I would bring CORN to a fully position. As of now, my plan is to establish a partial position on the breakout of this 60 minute falling wedge, adding if and only if price move above the top of that July 21st gap (by at least 5 cents, to help avoid a false breakout). I plan to use a stop below 25.60 in case $CORN does want to go on to test that 340 weekly support level.

CORN is being added a both a typically swing trade entry & setup as well as a Long-Term Trade Idea & Setup, as this trade is based largely off the weekly time frame and has the potential to morph into a long-term trend trade with additional targets likely to be added, should we get some decent technical evidence of a likely trend reversal in the upcoming weeks. Long-term traders & investors might consider a wider stop that that suggested above for typical swing traders. A stop somewhat below the 340 level on the $CORN weekly chart would still provide an attractive R/R if target the top of the R2 zone which comes in around 550.

Jul 252014
 
WEAT daily July 25th

WEAT daily July 25th

WEAT (Wheat ETF) will trigger a long entry on a break above this steep downtrend line. For a large part, commodities have been my bread & butter so far this year (pun intended) with a long-side trade on WEAT earlier this year (not posted on the site) following the break above that previous downtrend line as well some very lucrative trades in the miners, catching the bulk of both of the major rips in the gold & silver mining stocks this year (which are once again starting to look interesting as the pullback/consolidation that I was looking for to help work off off the recent divergences & overbought conditions may be complete…more on the miners soon).  Copper, including the Copper ETF, JJC, may also be setting up for a nice long-side swing trade (thanks for bringing that to my attention B.G.) in addition to some other commodities as well.

Stops on WEAT should be dependent on one’s preferred price target(s) although a relatively tight stop, should WEAT breakout soon, could be placed slightly below the recent lows. There’s also a good chance that I may adjust the price targets depending on the chart of $WHEAT (spot wheat prices). Additional profit targets may be added as well.

click here to view the live, annotated chart of WEAT

Jul 252014
 

Both the SPY & QQQ bounced off support at the lows today as shown on these updated 60 minute charts. Based on the strong bearish divergences in place, a break below these support levels is likely to occurs the next time they are tested from above. The previous break below the 60 minute rising wedge on the SPY that I highlighted last week proved to be a whipsaw, i.e- a false sell signal with prices immediately snapping back inside of the pattern. Since then prices have continue to wedge higher on waning momentum, as evidenced by the lower highs on the MACD (a momentum oscillator) as priced pushed to marginal new highs. Based on my current read of the charts, I would venture to guess that the next test of the bottom of the wedge on the SPY, as well as the minor support level on the Q’s that was successfully tested at the lows today, will result in a break below those levels, with prices dropping to the next highlighted support levels. Note: the bounce off the bottom of the wedge on the SPY today also corresponded to a bounce off the dashed black horizontal support line which is connects the top & bottom of several recent gaps (that line has been extended in the live charts but not the static charts below).

*click to view the live, annotated 60 minute chart of SPY                                    *click view the live, annotated 60 minute chart of QQQ

*intraday charts are typically only viewable with a stockcharts.com subscription although non-stockcharts subscribers might be able to view these intraday charts by cutting & pasting the following url’s into the address field on their web browser (paste url & hit “enter”):

http://stockcharts.com/c-sc/sc?s=SPY&p=60&yr=0&mn=4&dy=0&i=p62784488955&a=359792442&r=1406306920112

http://stockcharts.com/c-sc/sc?s=QQQ&p=60&yr=0&mn=4&dy=0&i=p88050225330&a=360945467&r=1406305569722

Jul 212014
 
KBE daily July 21st

KBE daily July 21st

Nearly identical to the recent KRE (regional banking sector ETF) short trade idea, the KBE (KBW Bank ETF) has two distinct but not unrelated bearish pattern formations: The blue lines show a breakdown & backtest of the primary uptrend line/bearish rising wedge pattern (complete with a divergent top) while the black annotations show a Head & Shoulders topping pattern with prices currently forming the right shoulder.

The fact that all of the recent short trade ideas are financial stocks (all regional banks plus one REIT) coupled with the warning signs that I’ve been pointing out in the credit markets is most likely not a coincidence. Although I only posted the recent bank & REIT short trade ideas based on their bearish technical patterns, if there are problems brewing in the credit markets, many of the financial related stocks (banks, brokers, REITs, insurance co’s, credit card companies, etc…) will most likely come under selling pressure.

I still plan to add a few more individual regional banks as short trade ideas although I’m still narrowing down my short-list of the most attractive names in the sector. While I’ve been focusing on the regional banking sector, the banking sector as a whole, including the some of the mega-cap TBTF institutions, are starting to look precarious from a technical perspective. As such, I’m going to go ahead and add KBE as an Active Short Trade at current levels with a sole profit target of 27.60 and a suggested stop above 34.00, which is the top of the right shoulder on this potential H&S pattern.

As with the recent KRE (Regional Bank ETF) short, this is only a potential H&S pattern as the right shoulder has yet to be fully formed. Therefore, more conservative or conventional traders might wait to see prices break below the neckline, assuming that the pattern fully develops. Although KBE holds multinational, mega-cap banks in addition to regional banks, the charts of KRE & KBE are nearly identical as there is a large overlap of holdings. Keep this in mind regarding portfolio or position diversification if already short KRE one or more of the regional banking stocks.

On a final note, the popular XLF (Financial Sector ETF) is also on my radar as one of the more promising swing-short candidates. I haven’t pulled the trigger yet but there are several large financial companies, in fact many of the largest components of the XLF, including banks, credit card companies, insurance companies, & even the almighty BRK-B (Berkshire Hathaway cl.B) that although not ready yet, may be setting up as potentially lucrative swing-short trades.

Jul 212014
 

Since the May 30th post titled Junk Bond Spreads Flashing a Warning Sign for Equities, the divergences between the normal (inverse) correlation between equities and junk bond credit spreads has continued to build. This first chart plots the BofA Merrill Lynch US High Yield CCC or below (aka- junk bonds) Option-Adjust Spread vs. the S&P 500. The nearly lock-step inverse correlation between the two began disconnecting shortly before that previous post about 7 weeks ago with the SPX continuing to move higher along with a sharp rise in junk bond OAS’s (as well as a sharp drop in junk bond prices).

Junk Bond OAS vs $SPX July 21st

Junk Bond OAS vs $SPX July 21st

Obviously, as the perceived credit risk of high-yield bond issues increases, so do the yields on the underlying bonds. High-yield (aka “junk bonds”) bond prices have typically had a very strong correlation with stock prices as the credit quality, or ability to make interest & principal payments on those bonds, is largely dependent on the business cycle. Default rates on junk bonds Continue reading »

Jul 182014
 

Those who checked the links to the recently posted 60 minute live chart of the SPY & QQQ might have noticed some resistance levels that I added earlier today. With this being an OpEx day (options expiration), I typically don’t place much consideration into what the market does as OpEx days are often driven more by position squaring due to all of the expiring options than by the true underlying forces of supply & demand. Regardless, I figured that I would go ahead & point out those resistance levels out as prices are current challenging them at this time. We’ve also seen prices on the SPY regain the wedge today, something that definitely warrants monitoring into next week as if we don’t see prices move back below the wedge by early next week, along with a break of the support level that the Q’s bounced off of yesterday, then the odds that the markets will take out the recent highs will rise sharply.

Continue reading »

Jul 172014
 
QQQ 60 minute July 17th

QQQ 60 minute July 17th

The Q’s hammered off the S1 support level shortly before the close today (hammer was printed on this 60 min time frame, not on the daily frame). If & when the S1 uptrend line is taken out, the next support comes in at the blue R2 uptrend line, where another reaction is likely. However, based on today’s breakdown on the SPY in addition to the double negative divergences (60 minute) & the recent extreme overbought readings on the QQQ daily time frame, my expectation at this time is for continue downside in the coming days/weeks to at least the T1 level (91.38) before any significant bounce and/or resumption of the primary uptrend.

click here to view the live, annotated 60 minute chart of the QQQ (intraday time periods are viewable only by stockcharts.com subscribers)

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