Equities Get Healthy

The stock market finally took a hit. The S&P 500 ($SPX) was down as low as 32% from the recent highs this year. A dip that finally really mattered still found buyers and equities attempted to move higher last week. However, 2 weeks ago it the first time that a buying frenzy after a big dip did not result in a new high (a price higher than the previous high price). This is a technical signal that may foretell a move much lower can occur for the U.S. stock market ($SPX).

 

SP500 daily chart

Now before you starting getting hysterical about lower stock prices, your long-term perspective becomes so critical when assessing whether current price action should actually prompt a response in your portfolio. If you positioned in this blue area, then this recent dip probably doesn’t bother you. However, if you have new money to put to work, it is important to pay attention to where equities make their next move.

SP500 monthly chart

 

As the Federal Reserve welcomes a new chairman and the markets grapple with possible trade wars and a ballooning fiscal deficit, make a plan for what to do with a $SPX chart at much lower levels. Many fund managers and traders alike, myself included, have been waiting patiently for equities to get healthy again. But trying to catch a bottom in a correction this deep will feel scary. However, at the right levels, swing traders will be right back in these markets again. The buyers will return. Be healthy, and smart, enough to see the opportunities.

There are ebbs and flows to every market. Trade what you see. Invest with a pro. [sponsored]

Intermarket Action Showing 1st Signs of Concern

The $GBPJPY has a huge wedge on the weekly chart but it has been difficult to catch a move on this currency pair. Shorts at the top of the wedge just above 147.00 level had to contend with choppy price action. After a few weeks price finally broke down lower to the 144.00 support, and former resistance, level. The reason why I don’t think we’ve seen a huge correction is because we have been moving in such a way that allows momentum measured by the RSI to reset. With the measured move lower to the 144.00 support level. When the yen caught any kind of weakness, the $GBPJPY moved as high as 146.76, close to the former highs above 147.00 which are the former lows turned now resistance level. However, I think this one will just continue to grind lower. The price action has stair-stepped all the way down allowing momentum to progress naturally lower in the midst of this very measured move to the downside. Until this week.

GBPJPY WEEKLY CHART

If you look at U.S. equities, the major American stock indices have been making new all-time highs all summer. Equities just keep grinding higher despite the divergence in momentum between price and RSI. The divergence has been recently invalidated with momentum make a new high higher than the previous high. However, the other equity markets in Europe, Great Britain and Japan have all failed to make new highs in tandem with the U.S. markets. In fact, the $DAX has already broken below recent lows and the $NIK has failed to move higher. The weak dollar has clearly supported U.S. equities higher. In converse, the strong euro has been killing European equities as of late. The forex market has certainly been a factor behind the divergence in western stock markets.

DAX WEEKLY CHART

SPX DAILY CHART

And in steps North Korea. The geopolitical tension between North Korea and the United States has been building for months. But this week, the warring ideologies escalated to fighting words. The market closed today below the summer highs for the first time since trump took office this year. This looks to be a first, early signal that the market is starting to crack. Will it be 2007 all over again a decade later? Get ready.

Is This The TOP?

No. But I got you to click on the article so thank you. And hear me out.

SPX WEEKLY CHART

Two years ago, the S&P 500 ($SPX) soared to then new all-time highs. But at that time, those new highs did not have momentum behind them. In fact, price diverged with momentum, measured by the RSI, for all of 2013 and 2014. It was finally in 2015 where equities started to falter. And at this time last year in 2016, prices in the $SPX fell over 14%. Some started to predict another stock market crash.

Instead, a couple things happened with the technical indicators that I watch. First, momentum had worked itself into bearish territory. So there was plenty of room at that point in 2016 for bulls to push price and still remain now comfortably bullish at even higher prices. That has panned out.

Secondly, the lows at the 1800 support level was a major support level. Price had dipped to this support level before and had held above it.

Lastly, the lows at 1808 also found support in the zone of Fibonacci levels. In fact the low is a pip shy of the 50% Fibonacci level. This weakness in stock prices proved to be a mere correction of the tremendous rally after the 2013 lows.

I say all that to make clear a very important point about today’s new all-time highs. There is absolutely none of that happening now. Momentum is supporting these new highs. The RSI is well into bullish territory and edging into overbought territory. An overbought market will eventually dip lower but it will be met with so many buyers who either missed this rally or are adding to their current long positions that the $SPX will quickly move to new highs again.

Regardless of what we think of the 45th president of the United States, it is only price that pays.

 

I am a registered investment advisor with FM CAPITAL GROUP. Our vision is to manage capital with the intent of building client wealth in investments that positively impact our communities.

Patience Required

The S&P 500 ($SPX) is the U.S. equity index that I use to watch and gauge strength or weakness in the US stock markets. If we concentrate on just this year’s price action, the $SPX has put in a very impressive rally off the February lows. It is impressive for 2 reasons: 1) The lows were actually at a healthy Fibonacci retracement level of the monster rally in U.S. equities that occurred between 2013-2015; and 2) The rally has had 2 healthy corrections this year that have been largely supportive of the move to new highs at the 123% Fibonacci extension target of the 2013-2015 rally after the market fell in February.

But there has been something glaringly wrong with this rally even as it reached new highs. The momentum in this rally has not been supportive. As price moved higher, buying momentum was waning. A rally needs more, not less, buying momentum if it is to continue even higher. That is not what has been happening this year.

S&P 500 daily chart

That lack of buying strength manifested finally when the market moved lower last month in September. After this decline, the market then moved in a choppy, sideways grind for 3 weeks. There just hasn’t been a move to take advantage of in either direction with indecision from both buyers and sellers. These failed highs signal a move below the 2120-level. It took almost a month but this anticipated move lower finally got started yesterday when the $SPX broke support around the 2140-level.

S&P 500 4 hour chart

So, as anyone can observe, it has been a tough market to buy since making the new, all-time highs in August. If the market continues to move lower, the news media will start to get louder with pessimism and bad news. Be forewarned and understand that that will be the precise time to shut off the TV and revisit your investment plan. Because even after the 2008 financial crisis, there was a buying opportunity. And what a buy it was. Don’t get scared of the next financial crash. Get ready.

S&P 500 MONTHLY CHART

 

#TBT to #FuturesRadio

I made my debut with the famous Anthony Crudele on #FuturesRadio last month just ahead of the Junior Olympics. It was an extremely hectic time and I know all my fellow “soccer” [insert any sport] moms and dads can relate. So I never got the chance to share this great interview that I had the pleasure to do. It was great to meet Anthony. He has interviewed many of the great traders on Twitter that I follow and respect. So when he reached out to me, I was thrilled to be considered.

The feedback has been awesome. Thanks to everyone who listened and shared it. Thanks again to Anthony. THANK YOU!

ON AIR with Futures Radio

Subscribers receive my research on all major GBP pairs at the beginning of the week, including access to @faithmightfx on Twitter for intraweek updates on the pound. AVAILABLE NOW.

Is This The Bottom?

Last week, I was on the air live with Dale Pinkert, host of FXStreet’s Live Analysis Room. My episode is down below. It’s always fun talking GBP with Dale because he always has insights to share with me as I do with him. His experience in futures on top of the forex always leads to a good conversation. The interview never feels like an interview. Just good trading talk between friends.

The interview took place the day before the September non-farm payrolls dropped. You’ll hear us talk equities quite a bit. With the weakness in the $SPX, I explain why the $GBPJPY was actually looking to fall further to 174.86 and possibly even as low as 167.99. But the weakness in the NFP report may change everything. Apparently, Yellen and the $FED did know something we all didn’t know. The recent global malaise in China, Syria and Brazil are, in fact, starting to show ripple effects in the U.S. economy. And if this economic weakness becomes a trend, interest rate hikes out of the Federal Reserve are off the table. Probably completely. Definitely for 2015. The lack of wage growth and the less-than-expected jobs growth has finally convinced markets that the $FED is not moving on interest rates. In fact, whispers of QE4 are back. Expect that drum to beat louder if the U.S. economy starts to show more weakness in the months ahead.

Looking at the $GBPJPY as our equities proxy, the Friday close above the 181.00 support level is a bullish signal in light of the strong close in the S&P 500. Watch here:

That Crazy-Oct-2014 Candle

Stocktoberfest fever is hitting the streams and it has every reason to. Howard Lindzon and the team have built an incredible buzz around the conference over the years. The buzz is beating louder as we all get ready to head down to Coronado Island to open the last week of October trading. While I watch the equity markets, I (almost) never write about them. But this candle on the $SPX is as crazy as I’ve seen on this large a timeframe.

SPX monthly chart

After a such a sharp dip last week, price action in US equities did look good this week. The $SPX staged a very impressive rally that crushed resistance and Fibonacci levels. Now all eyes remain on the looming 50-day moving average. Next week, bulls and bears will duke it out right into the end of the month. Sentiment is riding hard on each.

S&P 500 index monthly chart
Who wins?

What I Wish I Said

I was honored today to be on @spz_trades’s last show on BFTD.tv with @NicTrades. @NicTrades is a superwoman who chatted markets in the middle of a power outage. She rocks. Some of her key observations for 2014 that I took away:

  • $AUDUSD to 0.9000 off the double bottom
  • $USDJPY to 112
  • USD lower and USD pairs higher
  • $EURUSD to 1.43
  • Correction in $SPX, $DAX and $FTSE
  • Stocks will have to rally on their own merit, not QE

I was clearly the student in the room and now in hindsight there are a number of thing I WISH I could say now. SMH. Face plant. So I’ll say them here.

  • I do see $EURGBP higher to 0.8600. I also still see heading lower in 2014 to 0.8000. It might happen way sooner than I imagined if current price action is any indication.
  • $GBPAUD is due a correction lower. Much lower. But if it were to correct to 1.7670 the 50% Fibonacci level, hold, and rip to new highs at 2.10, it would be the trade of the year.
  • Other great follows right now on Twitter for new traders that I didn’t mention: my traders list

I love that this blog gives me the opportunity to reflect on myself and remain true to who I am. I don’t know if it was nerves (Nic is a rock star!) or because I had company the night before, but I don’t feel like I came off myself today. Hopefully, you all can enjoy listening in on this chat about markets and trading for 2014.