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 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)

Jul 172014
 
SPY 60 minute 2 July 17th

SPY 60 minute 2 July 17th

The SPY has now clearly & impulsively broken below the previously posted 60 minute bearish rising pattern, triggered the first decent sell signal for the broad market in a while. The targets posted earlier are still my current downside targets for the SPY, with T2 as my preferred target.  However, I am not adding the SPY as an official trade idea, preferring to short the most bearish looking individual stocks and/or sectors.

On a related note, all 5 of the recently posted short trade setups, BXS, CSGP, PNC, PACW, & KRE are all Active Short Trades now, having either triggered the previously posted entry criteria and/or added directly as an Active Trade at the time of the initial post. However, all of those trades also remain in the Short Setups category as they still offer objective entries around current levels. Only FRC remains as a potential short trade idea as I’m still waiting to see if it trades below the T1 support level again soon, plus I’d prefer to see it work off the extreme near-term overbought conditions as a result of the huge drop in the stock immediately following the breakdown yesterday. Also note that CSGP is not a regional banking stock, unlike the rest of the recently added short trade ideas. I do have a watch-list of other potential short trades in various sectors & I will post some of the more promising candidates later today.

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

Jul 172014
 
SPY 60 minute July 17th

SPY 60 minute July 17th

The SPY just hammered off the bottom of this 60 minute bearish rising wedge pattern. Assuming that prices break below the pattern before moving above the recent highs, my two downside targets are as shown here. If so, T2 is my preferred target, which is the bottom of the 5/27 gap as well as the 50% Fib retracement level. Should prices move above the recent highs, these targets may be revised.

As far as the recent short trade ideas, one should always keep one eye on the broad markets when timing entries & exits on your positions. Support is support until broken and as I pointed out in the previous email, the SPY had just fallen to the bottom of the rising wedge pattern, where at least a minor reaction (bounce or consolidation) was likely. So far, the SPY has hammered off the bottom of the wedge & with prices still in close proximity to that uptrend line, i.e. – support, it would be prudent to wait for prices to either break below the wedge or bounce back to a decent resistance level before adding any new short exposure.

For subscribers of stockcharts.com, the live, annotated version of this chart can be viewed by clicking here. Those who do not subscribe to stockcharts.com are not able to view intraday charts, such as this 60 minute chart, only daily & weekly charts. I am considering adding intraday charts of some of the major index tracking ETFs to the Live Charts section so drop me a line if you would be interested in having access to intraday charts on via the Live Charts section.

Jul 172014
 
PNC daily July 17th

PNC daily July 17th

The PNC (PNC Financial Services Group) short trade setup posted yesterday triggered an entry today on a solid move below the 84.52 level. T1 at 78.20 remains the sole profit target for now but I’ve also added a potential target zone which comes in around the 72-73 area (with the exact suggested buy-to-cover level to be added if/when that target is officially extended).

click here to view the live, annotated chart of PNC

Additional notes: The BXS short setup posted earlier today has also triggered an entry by crossing below the uptrend line. KRE is one of the largest declining sectors today, trading down over 2x the losses of the SPY & QQQ on above average volume, so far a good sign that a right shoulder may be forming but still too early to say with confidence.

The SPY just kissed the bottom of the bearish rising wedge pattern shown here in the last update on Wednesday. The SPY may or may not need one more thrust up back inside the pattern but is starting to approach the point within the pattern where breakdowns typically occur. Therefore, any significant move below today’s lows on the SPY would signal a breakdown of the pattern & likely usher in additional selling.