OPTIONS MANIPULATION

For an options expiration week, volume was quite light. Any time volume is light, the threat of market manipulation grows. As we headed into last week, max pain suggested a potential 2.5%-3.5% move lower in equity prices, depending on the index. With hindsight now, we see the major indices fell in the 3.0%-4.0% range last week. Coincidence? I have my own personal feelings, so you be the judge. One stock that was DEEP in terms of in-the-money puts was Green Mountain Coffee (GMCR). Take a look at this chart BEFORE last week's options manipulation:
 
GMCR 11.11.11

It was clearly in the market makers' best interest to steer prices higher, but who would have thought that max pain at 55.00 would be a possible destination? Well, here's how the week unfolded for GMCR longs:
 
GMCR 11.18.11

This was a perfect example of what happens during options expiration week. Obviously, they don't all work out like GMCR, but remaining on the short side heading into options expiration week was a HUGE risk. In addition to all the in-the-money puts, GMCR was oversold and had printed a reversing hammer candlestick on massive volume - not exactly the recipe for more gains on the short side. Notice also that 55.00 wasn't just the max pain number. It also was significant price resistance. Failure at that level was to be expected based on overhead supply.
 
The study of price support and resistance is the topic in this month's Online Traders Series event, scheduled for Tuesday, November 22, 2011 at 4:30pm EST. If you'd like to attend, please check out our holiday special offer to all ChartWatchers' readers HERE .
 
GMCR was a specific stock example of options manipulation, but I see this type of manipulation on the overall indices frequently, which is why I check out max pain heading into the third week of every calendar month (options expire the third Friday of each month).

Given the extent of last week's selling, there are a couple of charts that I'd pay particular attention to. Semiconductors, which looked great just a few days earlier, really struggled late in the week and are on the verge of a major breakdown. Take a look:
 
SOX 11.18.11

Finally, Europe continues to be the dog and the U.S. is the tail. If the major indices in Europe begin to lose major price support, it's very unlikely support will hold on the S&P 500. Here are the levels you need to be aware of on the German DAX and S&P 500 as a new trading week unfolds:
 
DAX 11.18.11

Happy Thanksgiving and happy trading!

Russell 2000 ETF Hits Big Resistance

A number of bearish developments have emerged on the weekly chart for the Russell 2000 ETF (IWM). This weekly chart extends two and a half years to cover the long-term situation. First, the ETF broke support with a sharp decline in August and then exceeded the July 2009 trendline. Second, the subsequent bounce met resistance near broken support and the 61.80% retracement. This is what would be expected from a counter trend advance within a bigger downtrend. Third, RSI broke below 40 for the first time since the rally began 2009. The 50-60 zone now becomes resistance.

111118iwmw
Click this image for a live chart.

Despite potentially bearish developments on long-term chart, IWM remains in an uptrend on the daily chart, which captures the medium-term trend. The next chart shows IWM breaking above its resistance zone with the late October surge. The ETF became quite overbought with this surge and then consolidated the last four weeks. The break from this consolidation holds the next key. An upside breakout would signal a continuation of the October advance and target a move to the summer highs. Conversely, a break below consolidation support would have medium and long term implications. First, resistance on the weekly chart would be reinforced. Second, a reversal of the October-November advance would signal a continuation of the long-term downtrend. This would target a move below the October low.

111118iwmd
Click this image for a live chart.

Good trading,

Arthur Hill CMT

Lets zoom in on the $SPX, $COMPQ and the $TSX

Here are 6 Pacific rim Markets.

The blue vertical lines are the approximate options expiration weeks. Options expiration dates during earnings season (January, April, July, and October) are pretty pivotal.

Notice how the markets ran up for one more week after OE. If you look at a daily chart, you'll notice the following Monday was a large downward candle. We have been making lower weekly highs and lower weekly lows since then.The little red lines on each price chart mark where the markets closed 6 weeks ago. Why 6 weeks ago? Just marking the week before OE. So since the earnings season has wound down, we haven't had anything pushing the markets higher.

Once again, we rallied into the OE, we had one more week pushing higher and have pulled back since. It hasn't been an aggressive pullback, but we definitely have not made any headway yet. The $COMPQ has been trading with lower highs and lower lows for three weeks. I think of this market as the 'RISK on" market. We are trading below where the market closed just 2 weeks after the October low.

Lastly, notice how important the 20 Week moving average is on every chart. This morning the $SPX was within ticks of this line. I'll be keeping my eye on it.

THe $HSI (Hang Seng), $SSEC (Shanghai Composite) and the Nikkei will update later today, But they closed below the red lines as well. On this chart, at this time, every market except the $SPX is back below the 20 Week.The lower BB is at 1085. That would be 'support' on this chart for me.

 

$SPX Weekly

Here is the SPX daily. Bear market signal is still in play on the daily. The main concern I have is the test of the 200 DMA was pretty much rejected. We still have support of the 50 DMA and the lower BB.

More importantly, The Neckline of the H/S Pattern was tested and failed.

The overhead resistance shows up like a villian. The H/S neckline, the Downsloping 200 DMA, The rest of the world markets are capped by the 20 MA on the weekly. Backtesting (Testing from the bottom) and not getting through sets us up for a tough November. The real questions shart to show up for December. Are we going to continue to make lower highs and lower lows for another month? Then we'll start a rally into January Earnings?

I draw that out as a scenario. It really is amazing how things track. Look at where the lower Weekly BB level shows up on the daily chart. Between the Sept low and the October low. My daughter ran a campaign at school calling it "Awktober".. Well so far, our Awktober is the up month in the down trend.

Between the Asian markets slowing, the Europeans appointing country leaders, and the American markets awaiting the nth Super committee to get the debt on track, there does not feel like a large level of upside momentum.

But every day marks the opportunity for a change in sentiment. So we wait.

 

$SPX 111811

 

Here is the chart showing the H/S Top.

$SPX Daily H_S closeup

 

Here is my $TSX Chart.

$TSX monthly

TSX Weekly

$TSX Weekly

$TSX Long Term

$TSX 6 Year

Have a great weekend.

You can click on every chart to go get a larger view.

To subscribe to this blog, follow the link and click top right.

The Canadian Technician.

Good Trading,

 

 

Greg Schnell, CMT

 

Bollinger Bands Narrow for Procter & Gamble

After a sharp decline and gap down, Procter & Gamble (PG) moved into a tight trading range the last three weeks. The pink lines show a pennant or small triangle taking shape. The blue lines show Bollinger Bands (10,2) narrowing as well. A break below the lower band would be bearish, while a break below the upper band would be bullish.

111118pg
Click this chart for a live image

What’s the quickest way to scroll through a chart list?

Scrolling through 100's of charts is easy using the CandleGlance charts at StockCharts.com. It all starts with a favorites list ( basic subscription required ). For those without a basic subscription, pre-defined CandleGlance groups can be found on the Free Charts page . In the example below, I am using my favorites list with the stocks in the Nasdaq 100. The first step is to choose your chart list. The second step is to click "view all", which is just to the right of the chart.

111118mail1

Clicking "view all" will show 10 full size charts per page. The page will refresh and users can now use the drop down menu to select CandleGlance charts.

111118mail2

After selecting CandleGlance, the page will refresh to show 30 small charts per page. This makes it easy to scroll through 100's of charts looking for specific patterns or indicator signals. Notice that there are two drop down menus at the top. These can be used to change the duration of the chart or even change to P&F charts. The second menu offers 22 different indicators at a glance. This makes it easy to spot MACD signal line crossovers, divergences and many other signals. Enjoy!

111118mail3

The what to do about oil? love oil… come on in.

Here were some of my comments in the blog two days ago.

6) We have hit the fib levels on the index and on crude. Gold made moves above the fib levels, but the gold stocks have not.

7) Gold and oil opened higher today but the TSX opened weak. That is a simple piece of news that has been going on for a few weeks now.

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++

Below are my introductory remarks about crude at $100. My biggest concern was that oil stocks were not following oil higher.

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11/13/2011

There's something strange going on around here.. Crude Oil

Well, that was a very interesting week in the oil and oil stocks market.

First of all, let's review crude oil and where it is priced.

In the blog a few weeks ago, we suggested a good upside target for oil would be arond $99. How did we come up with that? At the time oil was in the $93-$94 level.

1) The 61.8% fib level is shown in gray on the chart. It was $99

2) The top of the BB has moved up slightly this week to $101. A few weeks ago, it was close to the same level as the BB. Remember, you can read the actual values in the top left of the chart.

So here we sit with a substantial move higher in crude. From October 4th to November 14 Crude has moved over 30% in under 6 weeks. Who would have called that? Great Question...

Let's stare at the chart.

A few things I notice.

1) We have previous weekly highs here at $103 and $100. We have the BB at $101 and we have the fib level at $99.

2) The enthusiasm for crude to run up from here will be muted in that a crude price above $100 really cuts into consumer spending as they allocate more towards gasoline and home heating oil.

3) In order for $WTIC crude to go lower, it first has to have some of it's momentum slow. For the last 6 weeks, we have closed near the highs of each week.

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++

Now, blogs always prove that we are seldom right. The reality is in the market, we don't know when the psychology of the masses will finally change from bullish to bearish or visa versa. But we keeping reading the charts, looking for volume and price clues to explain what is going on. EACH and EVERY DAY!

Being right today, doesn't mean it will hold. The charting data plots the psychology of the masses towards owning a certain stock. The charts only increase the probability we are right. I have found (usually when the brick hits me over the head), I can be wrong!

Events change every day which changes the popular view. So, lets focus on the oil stocks dashboards today.

Here is a simple dashboard with just a few charts to identify what we are doing with these dashboards.

THe dashboards allow us to not only see how the individual chart looks, it allows us to quickly compare it to the other charts that affect the stock or other similar charts.

So here we have $NATGAS...Wow, this thing is so unloved, it could be a European leader public opinion poll chart.

Then we have $WTIC. this thing is so loved currently, it looks like a Leafs fan planning the Lord Stanley parade since the season started. OK, it is still pointed higher.

Then we have $SPTEN, This is on a major downtilt....what's going on? I wonder what is affecting it?

Then we have CNQ.TO which is CNRL. Historically a great stock market darling, but not since March.It has received some recent investing but it is clearly rolling over. What I do know is that CNQ has a lot of Oil and Gas.

Then we have Talisman. Is this just the spouse of the unloved European leader? I do not know the % of Oil or Gas for Talisman.

Now, let's compare them to each other.

$NATGAS has been in a down trend along with everything else since May.

$WTIC has been in a downtrend since April 30. The recent push up to $100 continues like a golf ball off a nine iron! $weet!

$SPTEN has been rolling over for about 4 weeks already. That's odd relative to oil.

CNQ has had a nice push, but it has clearly stopped following oil higher. Behaving like $SPTEN but slower to turn down It seems to be only about 2 weeks. (just eyeballing it)

TLM has barely got above the 10 MA. Either it is a company loaded with Natural gas, or it is really underperforming, but it has barely been able to climb above the 10 week MA. I won't be buying that one. It was one of the last to climb above the 10 MA, and it rolled over as soon as the $SPTEN did. very average at best. It is already below it's 10 week. Wow, compared to CNQ, it is weak. I would rather buy CNQ on a pullback as it seems stronger than average.

More importantly,  CNQ a relatively good stock, and TLM a stock 'out of favour', as well as the $SPTEN are all heading south but Crude is still going north...this should start sending alarm bells. Go back and review 2008 oil peak.

Notice at the blue vertical line, oil stocks continued higher as oil paused. This time, the stocks have rolled over before the oil....hummm.

Oil Industry Dashboard

 

Here is the 2008 Version of the Oil Top. Notice how the sector and the stocks had let go before the commodity did.

2008 Oil price collapse

OK. That was an indepth view of why and how we can use the dashboard for a little bit of cross market analysis. John Murphy is the absolute doctor on intermarket analysis. Some of the best clues come by looking at things that normally correlate and keep track when that changes. Think the $BRENT and $WTIC spread. Collapsing by 70% in a few weeks....HUMMM something strange going on ..It just makes us put our rabbit ears up.

 

Below are just some example dashboards. you can do the same exercise as above.

Here are some oil producers. CPG and PBN are in the Bakken and the others are oilsands.

Oil Pro Dash

Here are some I think are Natural Gas. Does POU.TO belong here. At least we have a reason to go look.

Natgas producers ECA

Drillers

Drillers

Fracing and service companies (This is Fracturing companies)

Fracing

Lastly for this group, here are some high growth EP companies. (Fast little ones, can you tell by the charts which might be having trouble). Send me other ones to be included. Always happy to share some strong stocks.

Hopefully they can make us some money in the next upturn.

High Growth EP

Lastly,

Here is a sell signal on my $BPENER chart. This is the number of stocks above the 50 DMA. When it crosses the 3 week MA its another signal. I never use it alone, but I sure like it when it confirms either way!

$BPENER

Without reference to oil....but popular to Canadians.

As an aside, GLD is testing it's 50 DMA today... ROC never got above zero...interesting times for this one.

GLD

 

One Final Piece. I got a great email from a fellow Canadian. He pointed me to his public chartlist on stockcharts.com that lists all the stocks in each industry sector. So rather than screen paste them in, I encourage you to go visit his blog. ALWAYS try to find time to go through the gems in the Public chartlist. More education there than any one text book.

Here is the link.

Canadian Public Chartlist All star!

Good Trading,

 

 

Greg Schnell, CMT

 

 

 

 

 

 

Techs and Finance Lead Lower in Market Carpet

The Market Carpet is a sea of red on Thursday with the technology and finance sectors leading the way lower. Notice the numbers in the top box of each sector. The average tech stock is down 2.8% and the average finance stock is down 2.2% (just before the close).

111117carpet
Click here for a live Market Carpet.

A Hanging Man and a Harami for XLK

The Technology SPDR (XLK) is hitting resistance from the late October high with a Hanging Man last week and a Harami this week. Both candlesticks are bearish reversal patterns. The Hanging Man was confirmed with a gap down and long black candlestick, but the ETF quickly bounced back above 26. The current Harami shows more indecision at resistance. A move lower from here would confirm this short-term reversal pattern. Medium-term support remains in the 25 area.

111116xlk
Click this chart for a live image

Put some SPURS on your sectors! Put some SPURS on your Stocks!

Today we want to investigate which sectors are leading and following.

The easiest way to do that is: a dashboard view.

The Canadian Sectors outside of Energy, Finance, Gold and Materials are incredibly thin. Like 10 stocks in each sector, some with even less. I have listed some of the sectors below.

So here are the sector charts.

Sector 1

 

Sector 2

This is interesting, but it doesn't tell us what is outperforming. If you use the charts above with the charts below, you have a better chance of outperforming. Now these charts below, they help us see what is outperforming the $SPX.

Why the SP 500 as a reference? It is one of the widest strongest indexes in the world. We could use the Wilshire 5000 or some other, but the SP500 is a good standard. If you can outperform the SP500, that is great for most fund managers.Remember the SP500 is represented by $SPX here at Stockcharts.com.  I use the names interchangeably to explain things.

When I compare something to the SP500 I have nicknamed it the SPURS. SP 500 Relative Strength. I always shade it purple. So these charts have a shaded background, in Purple! They are the relative strength of each sector compared to the SP500.

Only three of these are outperforming their 10 week MA. Energy, Materials and Mining. That does not mean they are going up, they are just better than the SP500 over the last 10 weeks. That's important. If the stock market loses 255 SP 500 points, these just have to lose less on a percentage basis to go higher.. 

You can see the Consumer staples have outperformed the $SPX and outperformed the consumer discretionary sector as the ratio line (the 'price line' , not referring to the Moving Average) is trending higher over the last while. During the same time frame the $SPTCD is trending lower. Well, that is hindsight.

How can I find an entry point I like? Now look at the slope of the 10 week moving average back in March, April, May. It was changing to a positive slope from a downslope in March, April May. These can be good indicators. It was also changing from a positive to a negative slope in Energy, so that could be a signal to sell. To get a faster signal, draw a trendline under the upslope in Energy and when that trendline is broken, exit or tighten stops.

You can use these relative strength lines against the SP500 then look and compare sectors to sectors quickly and visually. So Staples, Utilities, Telecom and real estate are trending higher since May. Consumer discretionary and financials are trending lower...

Sector 1 SPURS

Sector 2 SPURS

Homework alert. Did you notice that currently none of our sectors have a positive slope on the MA? That, my fellow traders, is a problem. What should we rotate into? Currently, nothing is saying pick me. Our next best is to say, what is above the Relative strength moving average lines. A few sectors are. That might be where to look.

So you can find sector lists on globeinvestor.com or ft.com but you have to get them into chartlists to be effective. Here are some lists of sector stocks as screen shots of my chartlists. These won't link to any stocks as they are screenshots. But it may help you organize your charts. As you can imagine the oil and gold lists are longer so I have not posted them here.

Financials

Screen Shot 2011-11-16 at 7.55.12 AM

Consumer Discretionary
Screen Shot 2011-11-16 at 7.56.06 AM

Consumer Staples

Screen Shot 2011-11-16 at 7.56.23 AM

Healthcare

Screen Shot 2011-11-16 at 7.57.55 AM

Industrials

Screen Shot 2011-11-16 at 7.58.13 AM

Metal and Mining Sector

Screen Shot 2011-11-16 at 7.58.33 AM

Materials

Screen Shot 2011-11-16 at 7.58.50 AM

Real Estate

Screen Shot 2011-11-16 at 7.59.02 AM

Utilities

Screen Shot 2011-11-16 at 7.59.15 AM

Technology

Screen Shot 2011-11-16 at 7.59.26 AM

Telecom

Screen Shot 2011-11-16 at 7.59.36 AM

This is not a formal sector but it is the list of drillers and fracing companies. That fracing word is the real way to spell as it is short for fracturing the rock. Notice no 'k' in fracing.

 

Screen Shot 2011-11-16 at 8.00.47 AM

So there you have it. Almost every sector is trading weaker than the $SPX index looking at the 10 week MA currently. Some traders feel you need to look 180 periods (think daily) back for SPURS depending on your investing timeline. So to do that we could use a different MA line. For daily, 180 divided by 5 would be 38. With holidays maybe  39 weeks. Each trader is different.

That makes it hard for Canadians to outperform when in general all our sectors are currently under performing.

Within each sector, some stocks may outperform. As an example, THI.TO or THI is a strong stock in the Consumer Discretionary.

You can only outperform the market if your stock outperforms the index. So looking at relative strength is very important. So put some SPURS on your stocks and make sure you are buying stocks that outperform!

Let me know if these lists help. I can post the Gold and oil lists if you would like. Notice by using numbers at the front of the stock name, you can control the order they show up on your chartlist. So as an example, all of my drillers and oilfield service companies have a chartname that starts in the 500 level. This groups them together. Same with lumber stocks farther up in a different chartlist.

Tune in tomorrow...I put some nice oil dashboards together for Canadian stocks and will share them here.

 

Lastly, I continue to keep watching the FXE. I think the world has both eyes on this chart. Should it get to 131 we need to get support there. IF it does not hold there, it will probably demarcate a major transition point for the market. Cramer suggests it may mark the point where European banks start to fail as they are currently unable to raise capital. The world is trading off the 131 line. On the upside for the markets, we still see the 200 MA on the SPX as a ceiling. If the Euro can get support, we should break through the 200 DMA. Notice how intraday, the FXE opened near its low. As it rallies up, so does the US market. The converse is also true. This is why I feel our Canadian stocks are trading like European bank stocks. The indexes are all tracking this FXE.

FXE

Here is the SPX.

SPX 111116

To Subscribe to this blog, follow the link and click top right on the page.

The Canadian Technician.

 

Good Trading,

 

Greg Schnell, CMT

 

We’re talking Looney tunes…actually loonies and toonies.

Is this a market of opportunity or a quiet market like a canoe on a still lake above water falls?

I don't know but I'll share my observations. You'll have to decide.

For all the non-canucks reading the blog today, maybe we better explain the title.

Canada moved to a coin to replace the dollar bill. When they did, the coin came out with a bird called a 'Loon' on the back. Well it quickly became known as a 'Loonie'.

In a desire to not carry so many Loonies, Canada came out with a two dollar coin with a bear on it's back. Many thought the nickname might be a Beary or Berry. Well, once again the Canadians' quiet sense of humour (Canadian Spelling) was on display. Rather than calling it a beary, the nickname 'Two-nee' stuck. Of course the the spelling changed to match the loonie and we now have a toonie.

So when the currency markets are trading the loonie tunes, they are probably referring to our currency. Most americans call our coloured bills Monopoly money anyway! We launched a see through $100 bill yesterday. It will probably develop some sense of humour 'notation' soon. It's a Canadian thing!

Here is the Loonie/Dollar Cross.

$CDW

My Biggest note on this chart is the 10 week / 40 week Moving average cross. This is very bearish and not good! Well we bounced down to support which is the yellow pool on the chart. We bounced off there and surged to the same area where the Cdn dollar found resistance on the way up. Right around par at $101.00. It was also the resistance of the 40 Week overhead. We have significant downside momentum currently in the currency.

I recognize our currency follows global money flows, but our country is not viewed as strong as I would expect. We are small so big money flows can't move here....yeah whatever...look what happened to Switzerland. There is a problem in our country and these charts better kick out some answers.

OK, The Canadian Looney Tunes are rolling down the hill.

Let's look at the $TSX. First Monthly. This chart worries me the most. Every market in the world that I look at which is about 18 are all on the bottom of the 20 month. The US is the only market above. Can it float it's own boat independent of the world? You be the judge of that. I have included my charts of the major markets for you to view below the $TSX monthly. THen I'll go back to the weekly $TSX.

$TSX monthly

World Monthly 1

The European charts are tucked in this one.

World Monthly 2

Notice how every market in the world has moved under the 20 month moving average. In 2010 everything got support at the moving average, this year everything went below. You can see the CHinese markets made highs over a year ago. I don't disagree that the US market is the most resilient in the world. But it is not on an island either. So I expect the global weakness to affect the US markets. What are your thoughts?

Here is the $TSX weekly.

$TSX Weekly

Lets look at the $TSX with the Fibonacci lines. The blue lines mark the move from the bottom of 2009 to the high of 2011. When you start looking for a pullback, you would expect a minimum of 38.2% retracement of the entire move, with a potential to go to 50% or 61.8% retracement. Obviously a retracement at that level is considered massive. Well, we retraced 50 % of the move ALMOST EXACTLY. Close enough to scare most investors. Then the next set of FIb lines are drawn, once we have a strong bottom. How high can it bounce? Well, lets draw the fib lines and use those for a guide as the market moves higher. Notice our high is within 100 points of the 50% fib lines. Pretty good I think... Now it's a real struggle. We pulled back below 12142 which was the lower fib line. We are presently stuck between the two. We'll break out, the question is which way. 12972 is the next fib line.  Notice the 40 Week MA just above the fib level at 13038.

TSX Fib Lines

Now the $TSX SPURS. Lets compare the relative performance of the $TSX compared to the $SPX. This is showing the $TSX has underperformed the US market for a couple of years and then surges up to catch up. What I am very concerned by is that the financial markets aren't more in love with our stock market either. They can invest through the US markets in 260 of our stocks. Our Canadian tickers on the $TSX  will track the US market performance for the same company as the arbitrage traders will take any profit available and lift that out of the market. This concerns me that the investors aren't migrating here for safety, or value or currency strength....hummm.

I have put purple trendlines to show the trends of the relative strength. The trendline on the top is marking the same trend as the purple line in the main price box. I have made the price more opaque so you can see the SPURS line clearer. Lots of data here, but note the red circles marking weak volume after a prolonged move up. You can click on any chart to see a large version. The trend is definitely top left to lower right.

$TSX SPURS

 

The declining volume recently is a HUGE RED FLAG... noted by the circles above and the flag below..

Canadian flag

 

Oops ... wrong one... This is the right one...  Remember what happens to the bull...I am weary with this volume weakness.

Bullfight photo

Next up is the $TSX in a shorter term. Close up analysis.Let's start at the top in the RSI box. You'll see we got a bear market warning and a bear market signal early in the trend. Once we got the bear market signal on the RSI, you can draw a red line back to the last time the RSI touched at 70. The bear market has been underway for a while. Remember that the $HSI Hang Seng index (China) has been in a bear market for 13 months....! Comparing the $TSX to the $HSI illustrates what is putting pressure on the Cdn market. I have not done that here so that I don't create a one day novel!

Price - We are making lower highs and lower lows. During the massive market breakdown in 2008, these huge oscillations happened in that downdraft as well. There were 3 rallies greater than 10% on the way down. Below is the current market downdraft.

 

$TSX Trendlines

The price has rallied up to the 50% retracement level. It may run up to 61.8% just to get us all fully invested. The Fib levels are so interesting. You saw up above on the weekly chart how we retraced to a fib level before we turned higher. Now, we are looking at a 50% retracement of the move down off the highs of the year. The fib levels are more accurate on this chart as I have limited the number of months. That is why the Fib levels do not match exactly to the weekly list above. On the weekly chart it is hard to get number increments closer than 25 points marking the top and bottom which makes the fib lines best fit.  The MACD made it above zero, but not by much. It is pulling back. What we'll hope for is a pullback and the MACD gets support at the zero line. 

Looking at the force it has been getting stronger to the downside and less strong to the upside in the last few weeks. Not a good sign.

The ROC indicator is weak.When all three lines are above zero and it is moving higher together that is a good thing. Well, the green can't seem to get above zero, and the short term indicators are losing all their energy to go higher. They are sloping down.

Here is the TSX with just the BB, 50 and 200 DMA. Note the low volume circles.

$TSX BB 20

Last chart (maybe)! CDNX. Chart for grade 1 technical analysis. Price going from top left to bottom right.

Lower highs and lower lows.

Downtrend is continuous. The SPURS shows declining strength. Very weak. At some point its a buy. Not now in my book. We could put the 50 DMA and the 200 DMA on this chart. We would be trading below both. It's easier to make money trading with the trend.

$CDNX Daily

General overview to close todays blog.

OK. All this tells me is that we have clearly lost upside momentum.

1) The trend is down and is down until it is changed to up.

2) we have 6 lower highs.

3) It is not an uptrend until we make a higher high and a higher low.

4) Bear market rallies are the most powerful rallies.

5) The 20 DMA is clearly becoming resistance after this move up. Stuck there for a week.

6) We have hit the fib levels on the index and on crude. Gold made moves above the fib levels, but the gold stocks have not.

7) Gold and oil opened higher today but the TSX opened weak. That is a simple piece of news that has been going on for a few weeks now.

8) When the commodity stocks don't follow the commodity, it is time to tighten stops. (Tightening a stop with 5% swings in 2 days is guaranteeing a lower price on exit)

9) Lighter volume after a runup does not usually end well. We have 2 examples this year already. See red circles above on the volume.

10) Our market is trading more like the rest of the world than like America based on the monthly charts. We are on the bottom side of the 20 month MA.

11) The Ultimate Oscillator has given a sell signal on the daily about a week ago.

12) The credit markets continue to be more worried. BlackRock's leader was on CNBC today saying liquidity is drying up in Europe.

13) Equity watchers don't get good charts on bonds in Europe. Try to get the data through different news programs like Marketwatch, BNN, CNBC, Bloomberg, zerohedge.com.

14) Mark Carney, Jim Flaherty, Larry Summers, David Rosenberg, Warren Buffet, Lloyd Blankfein, Angela Merkel have all told us that the Eurozone is near imploding if something is not done immediately within the next few weeks.

15) I haven't heard of any more emergency meetings that Mrs. Merkel is attending after she was in some almost every week for six months. Are they waiting for the unwind?

16) Spanish, French and the Netherlands bond yields are starting to spike up. This is really problematic.

17) The EFSF seems to have failed.

18) The market is waiting for one thing. The ECB to start printing money to stop the disaster. All 17 nations would have to agree.

There are a lot of ducks lining up here.

The Monk Debates were last night and will be replayed on Thursday on BNN. Try to catch them or go to BNN.CA and watch a replay.

Tomorrow, I'll do a sector breakdown to see where the weakness is inside the TSX.

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The Canadian Technician.

 

Good Trading,

 

 

Greg Schnell, CMT

 

 

 

 

Lots of Red in the European Market Carpet

StockCharts.com offers a Market Carpet covering component stocks for seven European Indices. Chartists can look at all seven or click the title bar to focus on one. The image below focuses on the Euronext 100. There is a lot of red today with banks representing three of the five weakest components.

111115eurocarp
Click this chart for a live image

Altera Forms Falling Wedge on Lower Volume

After a surge with good volume in October, Altera (ALTR) corrected with a falling wedge the last 2-3 weeks. Also notice that the stock exceeded its September high with the October surge. The falling wedge looks corrective and a break above last week's high would signal a continuation higher.

111114altr
Click this chart for a live image

Food Commodities – TIme to buy Ag?

Good Day,

Lets just briefly check the dashboards. All of the symbols for the charts are just farther out months on the futures. So each chart has the nearest month first, then progressing to the longer months.Usually a year out.

Here is Corn. Trading below the 10 week.

Corn

Soybeans - trading below the 10 week

Soybeans

 

Sugar - trading below 10 week

Sugar

Wheat - Trading below 10 week

Wheat

Goldman Sachs Commodity Index (GSCI) Agriculture trading below the 10 and 40 week.

As an aside, anything purple on any of my charts is SPURS (My Acronym) - SP 500 relative strength. Usually it would appear either behind the RSI or  behind the price chart or usually both on my daily charts. On this chart it is just behind the RSI as an area chart.

$GKX

Viterra - trading below the 10 week / 40 week.

VT

Potash Corp - trading below the 10 Week / 40 Week

Potash

Agrium Trading above 10 week , below the 40 week.

Agrium

Here is one segment of Agriculture going higher... Livestock.

$GVX

OK. Everything is still below the 10 week except livestock and Agrium. Let's keep watching, but it's not here yet! Let's hunt elsewhere for opportunities.

There are just so many interesting charts to share...I'll try to share more dashboards this week.Everything is at resistance, trying to stay above support. Interesting times! Feel free to comment, as I enjoy getting positive feedback and other thoughts. One of the comments on the crude discussion was a rising wedge which I failed to mention...thanks to all who take the time to dialogue.

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The Canadian Technician

Good Trading,

 

Greg Schnell, CMT

 

There’s something strange going on around here.. Crude Oil

Well, that was a very interesting week in the oil and oil stocks market.

First of all, let's review crude oil and where it is priced.

In the blog a few weeks ago, we suggested a good upside target for oil would be arond $99. How did we come up with that? At the time oil was in the $93-$94 level.

1) The 61.8% fib level is shown in gray on the chart. It was $99

2) The top of the BB has moved up slightly this week to $101. A few weeks ago, it was close to the same level as the BB. Remember, you can read the actual values in the top left of the chart.

So here we sit with a substantial move higher in crude. From October 4th to November 14 Crude has moved over 30% in under 6 weeks. Who would have called that? Great Question...

Let's stare at the chart.

A few things I notice.

1) We have previous weekly highs here at $103 and $100. We have the BB at $101 and we have the fib level at $99.

2) The enthusiasm for crude to run up from here will be muted in that a crude price above $100 really cuts into consumer spending as they allocate more towards gasoline and home heating oil.

3) In order for $WTIC crude to go lower, it first has to have some of it's momentum slow. For the last 6 weeks, we have closed near the highs of each week.

$WTIC Weekly

The price of oil reflects a lot of currents in the world. Some traders believe energy or food like grains will be the actual store of value in the world. Here we have crude soaring almost $5 this week again, as the debt crisis becomes more paramount. One of the arguments against the belief that gold is the primary store of value is that it serves no real purpose. Every ounce that was on this earth still is. Another point of view is the modern world does not need gold for money as so much is electronic rather than manual exchange. So, let's keep our peripheral view watching to see how oil behaves as sovereign debt continually becomes a problem. I recognize it also reflects the Iran nuclear discussion.  So let's look at Brent to see what happened there.

$BRENT

The Brent price went up to the 61.8% retracement and retreated to close right at the 200 DMA. Brent also closed right near the bottom of the candle. How do people trade these markets without technical analysis..I have no idea!  The price reversed a long way away from the top of the BB. So Brent did not seem to care about Iran or Debt!

The bottom line here is :  $WTIC traded significantly different than Brent this week. A spread that was as wide as $28  a few weeks ago has shrunk to $14 this week....It's the wild wild west!

Let's compare the price action in Brent and $WTIC to the price action in our energy stocks.

XEG.TO Weekly

Wow what a difference again. This chart has not reached up and challenged the 50% retracement let alone the 61.8% retracement. It seems stuck at the 38.2% retracement.

We can also use the Index chart. $SPTEN.Same information. No real push higher like the oils.

This can be partially attributed to the $Natgas chart hitting new recent lows this week.

$SPTEN

Here is $Natgas

$NATGAS

OK, that might explain some of it, but lets look at some heavyweights like CVE.TO, CNQ.TO and SU.TO

Remember Suncor has a lot of refinery or 'integrated' composition so it may look different.

Here is Cenovus. This is a pure oil play. SAY WHAT? This failed at the 40 Week DMA, failed the 10 Week DMA and closed at the lowest close in 6 weeks. The close this week was lower than the close of the bounce off the October lows. That's a train wreck relative to the oil commodity charts.

CVE.TO

Here is CNQ.TO  This chart traded much closer to the Brent chart. Up 5 weeks in a row, close to flat week on week and trying to reach up to the 200 DMA.

CNQ

Lets go see Suncor. This one has its lowest close in the last three weeks. It tested higher this week, but closed lower than the last 2 weeks. Crude oil up in North America, Brent up on the week in Europe. Suncor has some International operations but they are dominated here in North America with the Petro Canada Refinery network, the Oilsands production. Very confusing. Suncor

Well, all that to say it's a wild wild west out there. Brent closed well off the highs but still finds support at the  40 Week, $WTIC soaring right through the 40 Week, The spread between Brent and $WTIC was cut in half, Cenovus getting crushed, Suncor price action following Brent more than $wtic, and CNQ following  Brent even though they have substantial North American operations. $wtic at new 2 month highs, Brent failing at fib resistance, Natgas at new recent lows with high inventory, Cenovus losing support at both the 10 week and 40 week to make the lowest close in 6 weeks, Suncor making the lowest close in 3 weeks and CNQ closing almost as high as last week which was a fresh high.

None of the oil stocks have made it back to their 40 week, but both the oils are at or above the 40 week, as $Natgas makes lower lows.

We'll need this week to start demonstrating some trends. With the oils trying to break through overhead Fib resistance they may struggle to keep going higher unless the stocks start to agree.  The  stocks are not anywhere near their 40 Week lines, it seems bizarre.

The map looks like a dartboard currently!

 

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The Canadian Technician

 

Good trading,

 

 

Greg Schnell

 

How Can I Filter Volatility on Price Charts?

Volatility is picking up once again as the Dow produced at least three swings greater than 350 points in the last three weeks. The Dow surged from 11700 to 12231 in three days at the end of October. The senior Average then fell back below 11700 the two days ending November 1st and surged back above 12150 early this week. Not to be outdone, the Dow then plunged below 11800 with a sharp decline this past Wednesday. While volatility is not at the August-September levels, it is certainly heating up again.

111111dowbar
Click this image for a live chart.

While we cannot eliminate volatility, chartists can use price-filtering charting styles to reduce its impact on the chart. StockCharts.com offers Kagi, Renko and P&F charts. The example below shows the Dow Industrials using Renko charts. Each box is 150 points, which means moves less than 150 points are ignored. The white boxes represent advances, while the black boxes represent declines. It takes a 300 point move to reverse direction. In other words a white box followed by a black box signals a 300 point price swing, just as a black box followed by a white box. Currently, the Renko chart marks a key support level at 11700.

111111dowrenko
Click this image for a live chart.

Resistance Turns Support Turns Resistance Again for the German DAX

Traditional technical analysis teaches us that broken resistance turns support and broken support turns resistance. This concept is alive and well on the German DAX Index ($DAX) chart. Using the Auto Support-Resistance Tool on Sharpcharts, a horizontal line at 6400 goes from red to green to red again as this level moves from resistance to support to resistance.

111111dax
Click this chart for a live image

Gold – HOT button – let’s go deeper..

Living in the city where BRE-X was born, I have seen the stock soar, scored, scarred, scared and scuttled.  Therefore my enthusiasm for the metal is always muted. My broker sent out BRE-X shares for Christmas after they went bust. So my concern is always where is my exit. So I start with a healthy dose of not wanting to own gold but maybe I need to. Let's go see.

So let's break the Gold trade down into parts.

1) $GOLD - gold (end of day) data only.

2) GLD - The ETF that tracks $GOLD intraday

3) GDX - The US version of the Gold Index

4) $BPGDM - The Bullish Percent Gold miners index.

$USD - US Dollar Chart

FXE - Euro Chart

 

Here was my weekly gold chart last authored on October 14th.

$GOLD weekly

So far that has worked out. What makes the charts so critical today? I actually saw this two nights ago working through the charts, so the behaviour Wednesday is interesting but my thoughts for the gold blog today was the Good Old Fibonacci levels.

As a footnote: I wanted to go see the statue of Fibonacci when I was in Pisa, Italy, but the family voted for the leaning tower instead.

For those of you not familiar with Fibonacci, may I point you to 8 pages of great information in the Chartschool, found here on this link - Fibonacci.

Lets go into $Gold daily and look at the Fib (onacci) levels.First here is a detailed chart I last annotated on October 14. Following it is a chart with the fib levels.

$GOLD daily

Keeping in mind the data on the chart above, here is my new labelling.

$GOLD daily 110911

Lets check GLD. I am not smitten by the bull run here. Look how orderly the move was from July 1 to Mid august. All candles about the same height. Compare the candle behaviour to the current run. Gaps, spurts, starts, not real smooth. The RSI is much slower on this run. I would say 'not impulsive' compared to July so that would make it corrective compared to the impulsive move down off the peak. The RSI in JULY was almost straight up and soared into overbought. We have not been able to jump into overbought on GLD after 6 weeks and a 61.8% retracement...

  GLD 110911

 

Lets go check GDX. What I like on this chart is that it currently has rising tops. What I don't like is the current peak on the right is exactly at the top from what could be a left shoulder, the highest peak and Wednesday we started a descent from the recent peak. I would also expect the Green ROC line to be in positive territory. That is particularly worrying. The RSI has bounced from 30 - 70 three times now. That is particularly unsettling. The price oscillations are getting higher and lower, and the RSI is banging 70 on the peaks every rally. So far not this rally. But one day does not make a correction.

GDX

$BPGDM - always a valuable chart. This chart measures what % of the gold miners are on a buy signal on a PnF chart. The higher the better. Well, it doesn't look like this is in danger of being stopped out on the Parabolic SAR or just a simple EMA crossover.

$BPGDM

Here is the $USD.

$USD Daily

This $USd chart does  not need a lot of annotation. THe ROC (44) is in bullish territory and didn't go negative on the pullback. The price action itself surged higher, pulled back and got support around the 200 DMA. From there it has surged. I would expect the surge in the $USD to push down the prices of commodities. Gold included.

Here is the FXE which is the Euro chart. What I notice the most on this chart is the fail at the 200 DMA, as well as the price following the 50 DMA for the most part. Currently that is pointed down. The next level of support for the currency is the bottom of the chart.

FXE Daily

 

Check out how the GDX index behaved at 2008.THe RSI failed at 50 and then it let go. The $400 move back then is dwarfed now by these high prices, but its a big deal when the commodity drops 40%.

GDX Weekly

In Summary, I am bearish Gold here.

The main reason is the currency direction. This won't be smooth. Notice the ATR of 1.5 cents/day on the FXE and 1.1 on the $USD !

The second reason is the megaphone pattern on the GDX. The most recent peak formed 2 days ago, appears to mark a head shoulders pattern. I am not impressed by the stark negative divergence on the MACD and the RSI compared to price on the weekly. This level of divergence on the weekly is very bearish.

PS. Some of the charts won't reflect todays trade, as I wrote most of this last night.

 Inverse etf's that track gold or the gold miners would be a method to execute this trade.

Examples include HBD.TO or HGD.TO   Its a volatile world out there.

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The Canadian Technician

 

Good Trading,

Greg Schnell, CMT

 

 

 

ADI Hits Support on Point & Figure Chart

After plunging along with the market early this week, Analog Devices (ADI is trading at support from the early November lows. On this P&F chart, each box represents a quarter percent price change (.25%) and price data is based on the close every 30 minutes. Yes, this is an intraday P&F chart. Support, which is easy to identify on P&F charts, is holding for now and the Double Top breakout remains in play. A break below support would forge a Triple Bottom Breakdown and target lower prices. You can read more on P&F patterns in our ChartSchool .

111110adi
Click this chart for a live image

DIA Solidifies Resistance with Two Gaps

For the second time in three weeks, the Dow Industrials SPDR (DIA) moved above 121 and then gapped down. These two gaps indicate that DIA has stiff resistance in the 122 area. Key support is based on the prior trough at 116. Follow through below this level would reverse the October uptrend.

111109dia
Click this chart for a live image

Only 5 Downsloping 200 DMA averages in 22 years. How to trade with it!

Normally, I focus on the Canadian market, but today we need to explain what the dynamic currently in play is on the $SPX.

Recently, my blog of November 1st tried to explain bull and bear market cycles using the RSI.

RSI Bull Market Signals

1)In the article I explained how the market oscillates between intermediate term bull and bear markets. The RSI helps us spot those and stay in the trade.

However, one of the most important market signals for managing your investing style is the slope of the 200 DMA.

We need to understand how critical the market signals are once the 200 DMA starts to have a downward trajectory. This line gives you one significant clue that you can use with the intermediate RSI analysis. At the end we will summarize the four stages. Just how rare is this? Over the last 22 years, this is only the 5th time the slope has been negative for multiple months. We'll examine each of these conditions below.

Why is it important?

1) Conservative Mutual funds try to stay in growth sectors (Technology, Energy, Consumer Discretionary, Financials) when the $SPX price is above the 200 day moving average (DMA). As long as the 200 DMA has an upslope, the market has a positive trend. When the 200 DMA reverses to a downtrend, Conservative money managers try to protect capital by staying in slower growth , dividend paying defensive sectors like health care, consumer staples (toothbrushes, groceries) and Utilities. If the market can move above the 200 DMA, they start allocating money to more aggressive sectors.

2) So we are at the line in the sand for the second time in 7 days. Trying to get above the 200 DMA to make this market go positive.

3) We have the same issue on many charts where price action is hovering or testing the 200 DMA. Other example charts are the $USD, $WTIC etc.

First lets cover off the shape and trajectory of 200 DMA on the  2011  $SPX chart. 200 days trading is slightly less than 10 months. Lets look at where the line is currently, the slope of the line and compare to the previous years to see how it acted at that line when it had a similar profile.

$SPX 110911

 

 

I put the current chart at the top so we could quickly refer to it.From here let's investigate 22  years of data in a few minutes!

 

Here is the 1990 Market with the start of a downsloping 200 DMA. Notice around December 1st, it failed at the downsloping 200 DMA. Let's see how it responds from here.

1990 SPX

Here is 1991. Shortly after the failed 200 DMA test in 1990, the market fell down 10% but did not make new lows. The RSI at 30, was a pretty good place to buy the dips for a tradable rally. Well, on the next test of the 200 DMA it broke through. Notice how it paused there (Patch of green oscillations) at the 200 DMA. When it broke through it was a nice big move!

1991 SPX

This rally lasted all of 1991, 1992, 1993 and into 1994!

Here is the 1994 chart. Look at the trips across the upsloping 200 DMA and notice how it starts to flatten out and roll over with a gentle down slope.

Price was resisted at the first  and second test of the flat or sideways 200 DMA from the bottom in June.

Then, the 200 started sloping down. The price action oscillated above and below that line all year. For the last few months, the 50 DMA was above the 200 DMA. This was an incredibly hard market.

Price was supported in September and October at the 200 DMA, but it also broke below twice. TOUGH market.

There was one bull market signal on the RSI in 1994, and it was cancelled soon after with a bear market signal of a low 30's RSI in October.

Is the rally  in June more like our current rally or look at that beautiful December rally..what would it lead to?  One tested and stopped at the 200 DMA twice and one made it through for two weeks.

1994 SPX

What would 1995 Bring? An unbelievable Rally. But look what line demarcates the start. A break above the 200 DMA. A bull market signal on the RSI to kick off the year literally. January 1995, the price was able to get above the 200 DMA and stay there. The clue this was for real? A bull market signal on the RSI.

So how long will the rally last. At least until the 200 DMA slope starts to roll over. The slope was uphill for all of 1995,1996,1997,1998,1999, and it started to roll over in 2000. Wouldn't you like to be getting long the market as it starts that run?

 

1995 SPX

So the run continued with an upsloping 200 DMA till 2000! Nice clue to stay long the market!

Here is 2000. Notice the first test of 200 DMA from the bottom was rejected.

2000 SPX

This test and fail would mark the start of a three year bear market.

The 200 DMA was in a downtrend the whole time. Were there great tradable rallies? Absolutely. You just needed to know that you had to take profits early and often, rather than buy and hold. But the confirming start of this bear market was:

1) A bear market signal on the RSI.

2) A failed test trying to get back through the 200 DMA.

When it couldn't do that, you had to stay defensive. The market only rallied above the 200 DMA once in this 3 year period. It was in 2002. Yeah, the second test of the 200 DMA took almost 18 months to occur.

Here is a snippet from the chart. Screen Shot 2011-11-09 at 10.01.38 AM

Well. The market went on to lower lows for another YEAR! It finally tested the resistance of the 200 DMA again the following year. It tested it in January and failed, then it tried twice in March/April where it finally pushed through. Here is that 2003 SPX chart where it pushes above  the 200 DMA.

2003 SPX

 You may remember the 2003 bull market started a 5 year run. 2003, 2004, 2005, 2006, 2007 all had upsloping 200 DMA chart action!

Let's fast forward to 2008. Here is the 200 DMA rolling over. Remember the top of the market was in back in October 9 2007. We know this in hindsight, but we didn't know it then. I have extended this chart with some of 2007 so you can see the market top in October 2007. The market moved below the 200 DMA in November, tried and failed twice to get back above it in December and then failed in May once again.

Extended 2008 SPX

Well, that makes a rollover 200 DMA in 1990, 1994, 2000, 2008, 2011. It's funny how we think of the 200 DMA as a Moving average to be relevant. But here we sit testing one of the best indicators in the market today. Obviously a pullback from the 200 DMA again this morning, but its never over!

Once the RSI has given a bear market signal we have to watch the price action.

Here are some trading scenarios I have written down to help eliminate the noise.

1) Usually a safe buy point  is signalled by  dips in the low thirties on the RSI.

2)A trader does not have to trade in and out of each pullback when the 200 DMA is sloping up. A trader can also add when the market pulls back and will most likely have another exit higher up than the buy point.

3) When the 200 DMA is sloping down a trader should set targets and prepare to sell when the RSI is between 50 and 60. However it can stretch all the way to 68. That is a lot of profit between 50 and 68.

4) Should the market  climb convincingly above a down sloping 200 DMA, a trader wants to be on this train.

The whipsaws in 1994 were difficult. We could easily experience them again. But 3 whipsaws finished only to give you a 5 year run!

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The Canadian Technician

Thanks to all of you who have taken the time to send feedback! Its greatly appreciated.

Good Trading,

 

Greg Schnell, CMT