Well, I have held a short position against the SPY for weeks and weeks now. It flashed profitable once or twice but has mostly sat there at a loss. It is a straight out short with no leverage, so it has been easy to hold. Today it’s actually pushing its way nicely into the green.
After discussing the potential that the Dow and S&P 500 bounces were just breakdown tests in a mid-day update on Friday, I decided to leverage up and buy the 3x inverse fund SPXS. I am now taking profit on that because the market has taught me that gains from the short side, especially when using leverage and they come on hype-filled events, should be respected, cherished and taken! I’ll continue to hold SPY short, however.
Here is the ugly SPY chart at a point that could be considered minor support. But we have better support for the S&P 500, which would still not threaten the bull, significantly lower. This chart says SPY 200 is doable if the current level is lost. But again, I don’t really trust this Greece hype as a bear motivator.
I am not here to promote the merits of Biotech or to claim it is or is not in a bubble. I am just a dumb macro fundamentals and technical guy. As such, I know that the macro has burped up all kinds of cheap, easy money that has flowed into speculative areas like the Biotech sector. There are solid entities in this space, like Gilead for one (ref. April 21 NFTRH+ highlight), which are real companies transforming real qualities of lives, and then there are a lot of hopes, dreams and promotions.
There is also a secular bull market in Biotech vs. the balance of the Tech sector. However, the post-2011 up cycle has now reached levels of leadership (and distance from the EMA 30) that have capped previous expressions of greed and momentum.
But it is not so clear as to just say ‘Bio’s are due for a correction’. Bloomberg is noting that the bears are gathering against the sector (IBB iShares), but the stock market has other leaders with higher measured targets and one of our ongoing scenarios is for a classic manic stock market blow off.
Look, I have been thinking a market correction could start by now and this correction has not yet come about. Most recently, market sentiment took a real lurch toward over bearish and as usual, that proved supportive. Now Bloomberg is highlighting the bubble in Biotech and the sharks are circling.
What’s a poor schlep to do? Keep an open mind and respect the charts. The monthly above shows that Biotech leadership is at a point that has triggered reversals, historically. The daily chart shows the iShares (IBB) above initial support and filling a little gap. Better support exists down to 360 or so. MACD and RSI are each constructive.
Below are charts of some US market leaders; some simply because of their price and momentum and others for those things and also fundamental reasons (like for example, the Banks w/ respect to interest rates and the Semi’s w/ respect to a booming ‘bookings’ situation’ in the Equipment segment).
A long-standing target for RUT is 1350-1375. That goes back about 2 years using monthly charts. Now the daily is pretty much in agreement as the pattern measures 1340 (assuming the breakout holds).
Unlike the RUT, BKX is nowhere near blue sky. But it has recently worked its way into a leadership role.
Despite a wobbling stock market, a key leader (the Semiconductor sector) is trying to find support and as such, remains constructive. Until I get cross referencing evidence (ex. from the Semi Equipment sector’s book-to-bill ratio, technicals, etc.) to the contrary, this is a still bullish sector. The SOX includes Equipment companies like AMAT, along with the actual chip makers like INTC.
Here is the very nice state (on balance) of my Semi sector holdings. They are all chip makers (Fab’d and Fabless), but I have interest in the Equipment guys too, again, as long as the b2b remains firm.
In the previous post Tom McClellan highlights Peter Eliades’ work on the cyclical top due in the S&P 500 this year. To add some color to it, here is the chart I produced for NFTRH subscribers several weeks ago after purchasing and reading an Eliades report myself. His work came to my attention by way of Robert Prechter.
Bear in mind that this big picture cycle is a blunt tool, much like market sentiment or other indicators that show risk, but for extended periods, little risk discovery. So as McClellan mentions, it takes much finer detail management to gauge a topping process. That is what makes market management interesting and sometimes even fun; adding details and color to big picture theses.
We should not look at one chart and its message without cross referencing other charts, data and indicators. The best risk vs. reward scenarios come about when multiple data points come to similar conclusions.
Anyway, staying on the big picture, here is another monthly chart of the S&P 500 we have been using in NFTRH that shows yes indeed, a top (of some kind) is indicated by the monthly MACD signal, but…
…that each of the last two major tops included a bearish MACD signal that preceded a drop to the monthly EMA 20, which turned out to be a pause to refresh prior to ultimate bull market highs in both cases.
Will it be different this time? Very possibly, but also very possibly not. The stock market cycle indicates that it will be different because the S&P is supposedly due for a major top. But the color and detail can only be painted in by doing the shorter-term work each week. Especially since this cycle has had a certain ‘rule breaker’ aspect to it, due in my opinion to historically aggressive policy maker inputs (and resulting distortions) from its birth in Q4 2008/Q1 2009 to today.
Per this chart created several months ago, the Semi index hit the first target of 750 on June 1. I had not even realized it. “Essentially in the books” is now IN the books. Way before the Semi’s recently started gaining the M&A hype in the media NFTRH highlighted the sector for a coming bullish phase (January 2013) for fundamental reasons, and then in early 2014 when the big breakout came we added technical oomph to the case.
Dutifully, SOX has been pulling back, which is a good thing since I did my selling and am without exposure. I have my eye on some buy targets for a few items, which were mentioned in NFTRH 346. They are stocks that have been mentioned here as well at various times. As for the sector, SOX is completely unbroken.
 courtesy of reader s.r., an explanation: “Charles Dow developed his famous theory to forecast the economy, not the stock market. Maybe you can explain this theory began to be used as a stock market forecasting indicator, and why this nonsense persists among supposedly educated financial professionals.” personally, i can’t explain it as i have never really paid much attention to it. but insofar as people are going to start making noise about it, i thought it was interesting.
It will be interesting to see what the Dow Transports do here. The breakdown in this supposedly key market was accompanied by little more than scattered weakness in certain markets. Some items, like the banks not at all surprisingly, have actually been strong.
But I have been wondering what is going to happen when the Trannies bounce and hit resistance. Further, what is going to happen if they hit resistance and fail? At the very least I guess we are going to find out if this old fashioned thing they call Dow Theory is worth paying attention to after all.
Last week it was Broadcom getting taken out and even more recently, Intel’s over payment for Altera. I hold INTC (for now) and got nicked on it. Today some mainstream financial media robots are speculating about 3 prime takeover candidates, Atmel, Lattice and Cavium. On a down day in the markets, all 3 sport similar pumps.
Well thank you media robot, for if not for you I’d have held on to LSCC (bought last week from the watch list, as advised in NFTRH 345) because I really do like the company and its segment. I hope to be able to buy it back. But usually hype does not stick, so playing odds here I’ll take the bird in hand, ever so reluctantly.
This does leave me very shy on Semiconductor stocks however, so I’ll keep several on watch, including Silicon Motion (SIMO, lower panel of the chart below), which tickled NFTRH+‘s target in the upper 30’s, on which I also took the profit.
In the previous post we tout a good call as we have done from time to time. There have been plenty of them. There have also been more bad trades than I’d care to mention, but will anyway.
I avoided taking a good profit in BCLI and instead took a loss. I tried to bottom feed FARO and it knifed me to a loss. I got smart with AMAT and took a loss on unexpectedly bad news. Luckily, none of these were NFTRH+ items; they were personal speculations. NFTRH+ is for setups, and low risk ones at that.
So this is the fair disclosure website that is not trying to sell you on anything other than that its (and NFTRH’s) owner is a hard working, honest market manager and that this is a genius free zone.
So on to DEPO. I have traded it very successfully over the last couple of years (hat tip to a subscriber who is very well up on it fundamentally). This time, I decided not to take profit prior to earnings and got hammered. It’s a modest position so now I am an investor and looking to add. The question the weekly chart asks is ‘will it bottom at the dotted channel or major support and the solid channel?’ Good question. Weekly log scale chart…
As previously noted, I have the potential to become distracted and busy elsewhere this week. So for that and market related reasons I am very lightly positioned (heavy cash).
But one position I hold is an NFTRH+ trade idea on Gilead. The ‘+’ update was produced before GILD reported its good earnings. It was based solely on the chart. It’s got a theoretical target up higher if this pattern is any good. I may take the profit at any time (or limit the loss if that becomes the play). GILD held up during the recent hard hit in Biotech, weekly MACD is triggering up and RSI is above 50. So technically, this thing looks pretty decent when viewed in a vacuum.
The ‘Apples to Apples’ European equities ‘credit spread’ (daily) chart (Euro unhedged Spain vs. Euro unhedged Germany) continues to sport a bullish pattern and so, I continue to have interest in Europe for when the current correction ends. I would like to see one more upside burst in the Euro (which remains bearish on the big picture), which could drive down QE-stoked European stocks to a theoretical buying opportunity. If the chart below is still intact at such time, it would be a positive divergence indicating that risk is still ‘ON’ in Europe.
The China short (via the leveraged YANG) is now covered (ref. May 5 post) not because I think it is not going to go up more, but because I am a chicken. I have never claimed to be anything other than a cash valuing risk manager. The heroic shorting is for others until I can get new longer-term trends. China’s trend, along with the US and others, is still up. Not talking about secular trends, but rather intermediate ones, defined here as multi-month.
In reviewing the chart of FXI, I see something similar to the European Euro hedged ETF and several other items (incl. a favored Japanese machine tool and robotics manufacturer that NFTRH subscribers know about) that may make good cases for re-buying, not shorting, eventually. There is some of this going on in US stocks as well. Think healthcare/biotech.
I don’t think the corrections are over with, but I am not ready to become a bear because I don’t see an intermediate term reason to yet. So it’s swing trading and cash defaulting for this chicken until trends change.
Back on the China 25 ETF above, it is not over sold yet but down the road, pending the view on the broad global markets, I am watching the area from which we charted the breakout in NFTRH. That would be around 42-44.