Charting – Equities Showing Cracks in the Armor

After a slightly bullish and shortened holiday week the equity markets are now once again positioned for a move lower. I say slightly bullish because despite 3.5% gains in the S&P, the move higher this week came on very light volume and considering the holiday upside bias, was really to be expected. That said I’m seeing multiple technical indicators that are signaling short term weakness in the equity markets and I’d like to share them here.

Let’s get right into it.

Note the higher sell volume over the last 10 sessions vs notably light buy volume

To the naked eye the move higher this week looks very promising but awareness of key technical levels tell us that this market is still very much under pressure until it can reclaim $313.30. The main takeaway from the SPY daily is that the failure to close back above the yellow March trendline and the rejection of gap window at $315.50 means that we are still in a short term downtrend. Note that the volume decreased significantly this week and is much lower than the recent sell side volume that we saw in the last 2 weeks. This tells us that institutional participation is not present on this move up. IE – the rally this week was more or less a typical holiday float on light volume.

Moving on to the 1hr time frame I’d like to point out the perfect chart symmetry here. Thursday we gapped higher on the jobs number then tagged gap fill at $315.50 before a quick fade, then consolidation, then another fade into the close. Notice how the yellow trendline which dates back to March converges with the master level of $313.30 as well as the upper blue trendline which goes back to the pivot high on the 16th. The fact that they couldn’t get this market close at the highs of the day after a blowout jobs number with holiday trading volume tells us that investors are nervous about holding into the weekend.

As we know, TX, FL, CA, AR, and other states have rolled back reopening and I predict that more rollbacks will happen over the weekend after people are out and about celebrating the holiday.

Let’s take a lot at some other indicators that are sending of red flags –

Note the inside bar pattern forming on WFC.

The old saying goes – “The market won’t sustain a rally without financials”.

To me, over the last 3 months WFC has been a key indicator to the overall strength of the market. The reason being is that Wells Fargo is one of the 4 largest money center banks in the US and if one of those banks is trading at near decade lows, it is not a good sign for the health of equities. When WFC threatened to make a fresh 9 year low back in May (which it eventually would shown above by the yellow and white support levels) I took it as a leading indicator that the S&P was going to face headwinds in the coming days.

Sure enough the market did dip lower shortly thereafter before making a low on 5/14. Since then, WFC has vastly under performed as has the XLF which is pictured below. Note that both of them are forming an inside bar on the daily charts.

That said, WFC and pretty much all banks have lagged the market and despite twice hitting key support at at $25.10 this week (and breaking through $25 at one point), the biggest bounce it could muster was a brief gap up to $26 on the jobs number before being immediately faded right back to support then sheepishly trading sideways for the rest of the session.

So next I’d like to rifle through a few more charts that I think are signaling underlying weaknesses.

IWM – iShares Russell 200 ETF

Despite a nice showing earlier in the week, the IWM diverged from the S&P and finished the week looking very soft. Again, this may coincide with the notion that the market is concerned about what Governors have and will continue to do about the numbers of Covid spikes. Simply put when the Russell out performs, it’s risk on, when it underperforms, it’s risk off.

BA – Boeing Airlines

BA had a news driven powerhouse move Monday that ultimately turned out to be a flash in the pan. It seems that after the positive news about the 737 comeback, traders realized that none of that matters if no one can fly on said planes. Yes, sometimes the market is reactionary like that and it just shows how jumpy and short term news driven this environment is. That said, the market (Esp the $INDU) isn’t likely to sustain any rally without the participation of BA. This is not unlike the case I’ve just made about financials and the Russell. Starting to see a pattern?

BA still managed to finish positive on the week but price action over the last 3 days has been very bearish. All 3 days it made a run at the key level of $188.66 in the first 10-30 minutes of trading but immediately rejected and formed insider bar patterns for the rest of the respective sessions.

That’s why confirmation on the daily chart is so important. BA was able to close above key resistance on Monday ($188.66), but it never confirmed the breakout. To add a little bit of education here, confirmation above resistance is a close on the daily chart above said resistance level, and then a secondary close above the high of the “breakout” candle”.

For example –

Notice how 3 days after confirmation is made GLD pierces back through what used to be resistance and now it serves as support

Also, if you look back to the 1st chart I posted (SPY daily) you’ll notice that we closed below the yellow trendline, paused for a day, and then confirmed below it a day later. That is why that trendline became resistance this week and why I’m still short term bearish.

Moving on. I want to quickly go over some of the large caps that overwhelmingly make up the majority of the SPY and QQQ weighting.

AMZN – Amazon

AMZN has made a massive rising wedge on the daily time frame. What may look like a breakout of a channel is actually just a typical exhaustion gap before rising wedge plays out.

Case and point –

Note how the SPY “breaks out” then forms an island reversal.

Via Twitter I have been saying since Thursday that AMZN was about to put in a blowoff top. I believe we will see someone downside action next week, possibly as early as Monday.

Speaking of rising wedges –

AAPL – Apple Computer

Now this is a beautiful chart pattern

Notice the breakdown of the rising wedge on Wednesday. Then on Thursday morning we had the gap higher off of the jobs number that brought AAPL right into a perfect neck-tie between both converging trendlines which then became resistance. Awesome symmetry and beautiful to look at.

Also note that the breakdown of the wedge was kicked off by the news that Apple would be closing more stores to combat covid. The charts almost always precede the news and this here is a perfect example.

TSLA -Tesla

This chart is a bit more of a stretch to call a rising wedge but I find the trendlines intriguing nonetheless. If nothing else this simply shows how unbelievably frothy this stock has become. I mean, when your CEO is bragging on Twitter and bashing short sellers as your stock is trading at all and all time high whilst being up 42% in the last 2 weeks and nearly 400% in 4 months, it generally lets you know that a top is very near. The valuation here really a microcosm of the Nasdaq right now. In any case I really liked it as a swing short Thursday with the absurd gap up to $1200 and hanging man candlestick pattern.

MSFT – Microsoft

MSFT isn’t as extended as TSLA or AMZN and there isn’t a rising wedge or any sort of bearish reversal pattern (which is to be expected as it’s not as sexy of a buy as either of them). However, I want to simply point out that it did kiss the upper trendline of the channel that it has been trading in and should respect that with a pullback in the near term.

And now last, but not least. In fact, this is what I believe ties everything together.

I have been waiting for the VIX to hit gap fill at 27.67 for the last couple of days and not only did it do that, but in the same day it tagged the 200 MA and then formed a hammer candle on a closing basis. This is super bearish for equities in the near term and it seems to coincide with some of the topping, inside bar, and/or reversals patterns that I’ve mentioned here. As we know, the VIX is like a powder keg and that gap fill level plus the 200 MA will act like lit fuses which is why I am notably bearish for the opening of the equity markets Monday morning.

Overall I am seeing multiple factors that tie this together and am positioned as such.

Full position disclosure –

Short – AMZN, TSLA, SPOT, SAVE, USO.

Long – GLD

Options Ex, A Repeat of February?

I haven’t had much time for blogging lately but I want to point out the similarities between this options expiry and last February’s.

Last February we were coming off of a long, big move higher and a week or so before options ex we saw a sharp move to the downside. Into options ex, we reversed higher and then pretty much pinned to about $333 before a micro selloff on Friday. This is significant because the market was basically ignoring the coronavirus only until options expired. Then on Monday, the selloff began.

$SPY has been pinned to my master level of $313.30 pretty much all week

Similarly, we are seeing the same sort of pattern play out thus far. Big overbought move, followed by a sharp correction, then a gap higher and a pinning to $313.30. So far today it looks like we may even get another micro fade into the close. Again, covid spikes are happening in NY, FL, and TX and economic data has been less than inspiring. Nevertheless, the market is ignoring this due to options ex. Also notably tomorrow is summer solstice which is a known cycle event for markets.

I’ve been touting this wedge pattern on GLD for a few weeks now

GLD is threatening a breakout of this bullish wedge pattern as well. This could be a leading indicator for some type of reversal as it has traded largely inverse to the equity markets over the last 3 months. Possible near term price target for a breakout could be around $180.

Overall, please be careful positioning yourself in this market. Signs are telling me that a big move is coming next week.

Gold and Bitcoin Threaten To Enter The Next Bull Market – FOMC – ZIRP Until 2022

Today equities closed lower even after Powell essentially pledged to keep interest rates low for the better part of the next 2 years. The SPY and DIA finished down .56% and 1.07% respectively while the QQQ managed to stay positive up 1.20% on the session.

Despite the interest rate suppression, as I predicted on Monday, Powell did not announce any new stimulus for the economy which I believe will trigger profit taking in the near term. Stocks behaved about as I expected after the announcement and ended the day fairly soft which should cause some headwinds as traders take profits and wait for new direction.

Notably financials and airliners have ran hard over the last 2 weeks and have been due for a correction. Today they led the market lower as the XLF finished down 3.74% with names like BA and AAL both down well over 6% each. During the session I used a common, but reliable chart pattern to buy put on BA and BAC which are both nicely in the money thus far.

I took advantage of the knee jerk reaction to the news and entered BA Jul $170 puts @ 7.65 during the 2:10 candle on the 10 min.

The classic inside bar on BA intraday sent bearish signals going into the FOMC announcement. This trade is ridiculously, and I mean… ridiculously crowded with retail. Once this thing catches downside momentum it will waterfall as newbie “investors” are forced into panic selling.

Price target for this trade is $190. We could easily get there tomorrow if the market gaps down in the morning.

Classic inside bar.

Another inside bar that caught my attention today was BAC. This is another stock that has had a crazy 2-3 week run but became very overbought in the short term and has been due for a pullback. Recognizing that the stock was underperforming and that the 10 min candles were showing a near perfect inside bar pattern, this was a trade I entered around 11:00 am in anticipation of more selling later in the day. The fact that it pushed lower and traded sideways while the rest of the market had since managed to stay off of the lows was a sign that the stock wanted to go lower. This coincided with my prediction that the market would sell the FOMC news as no new stimulus would be implemented in the near term.

Price targets for BAC are $26, $25.50, and $25. Again, a gap down tomorrow could easily get us to $26. I think this stock wants to retest $25 but the exact exit point will depend on the velocity of the move. I am comfortably up 20% on my position (Jul $25 P) so I won’t have any problem taking profits at $26 though if it looks like it wants to flush further, I may choose to just ride it. Another way to play it could be to sell at $26, then look for a potential reentry to the short side.

I am also still in the money on my SMH $150 puts. Semi’s were fairly strong today though as long as the topping tail stays intact in the daily this trade is still a hold.

GLD has regained the daily trendline that I have been intently watching. I believe it is a very strong buy and may be ready to make a run at $1800. With the Fed laying down the fundamentals by pledge low rates for the next 2 years as well as the overwhelmingly bullish technical position that gold is in, all of the stars may have finally aligned.

Also something noteworthy is that SLV seemed to decouple somewhat from the SPY today-

SLV has traded like an industrial metal and has mirrored the S&P for some time now. However today it got a huge bid off of the FOMC while the SPY struggled to stay above $320. It’s only one instance but it could mean that silver is ready to start trading like more of a monetary metal again as opposed to an industrial. The last time silver did this was during the bull market of 2009-2011 where it posted 6x gains in about 28 months from the 2008 low. Just something to keep an eye on.

Also trading higher off of the FOMC statement was bitcoin. Bitcoin bugs predict that this trendline that is now broken was the last area of resistance before the next bull market. The halfing just took place a few weeks ago and GBTC has a very strong cup and handle pattern on the daily chart which is a perfect setup for a confirmed break of that trendline.

If you are a novice to technical analysis – take notes because this pattern will make you money in the future. Notice how it has hammered on the red line 4 separate times in the last month or so. Each time it was rejected it made a higher low, then came back to attack it again. This is an extremely bullish signal that tells us that it is ready to violently thrust higher any day now.

In conclusion, I don’t want to sound like a pumper or anything but today may have been the last day we see sub $10,000 bitcoin. What confirms this even more-so is that the trade in gold also bears a striking resemblance to BTC both technically, and fundamentally. If gold and BTC both confirm above their respective daily trendlines , I am certain that we have seen the beginning of the next bull market for both assets.

If Gold can reclaim this trendline….

Last Friday I was very bearish on the price action of GLD based on the close well below the 3 month trendline. Today GLD showed some fight and close near the highs of the day at just under $160.

If it can reclaim this daily trendline then that would indicate a false breakdown which means that we should expect a large move in the opposite direction. In short, this could be the buying opportunity that gold bugs have been looking for.

To add to this, the VIX ended at the highs of the day as well despite the S&P pushing higher in the last half hour as well.

As they say, the more that technical analysis grows, the more common that false breakouts/breakdowns become. Keep an eye on GLD and VIX tomorrow. If the market runs higher again into Wednesday when the FOMC statement is due and both gold and the VIX are higher still, it will be a red flag to say the least.

No Blowoff Yet As Stocks Close Higher Again

The SPY closed up another 1.19% as that brings it’s total gain since the 5/14 low of $277 up to 14.5%. Intraday it had another push into the close which leads me to believe it wants to go to $325 tomorrow – possibly fueled by a positive jobs number in the morning.

It makes sense that the market would want to test gap window with it this close already.

The FOMC will make a statement Wednesday and Powell will speak after. My prediction is that the market will put in a short term top after no new stimulus is announced. The Fed has done so much for the market over the last 2 months including corporate bond buying and increasing the monetary base by 80%. Since then the SPY is up 33% off of the lows therefore new stimulus should not be needed as clearly things have been stabilized for now.

A few things could coincide with this such as airline stocks that are extended and coming into the resistance, and underperformance in tech and semiconductors which have been leading indicators in the last 2-3 months.

In the last 4 session BA has been up 11.5, 6, 10, and 12 percent respectively but appears to be running out of steam. It remained flat for the last 5 hours of trading despite the rest of the market punching higher once in the afternoon as well as into the close. A move into gap window tomorrow should be a good place for a swing short. Remember, a TON of retail money is in airliners right now and any sort of correction could actually cause an over-correction as the newly made Robinhood accounts will begin panic selling after the the stock is already well off of the highs.

FB was a leading indicator before the rally started as it had moved up 15% from the 5/14 low to as high as $240 by the 26th. Since then it has been range bound and has not made a challenge of the highs nor has it been able to stay above $231. I feel as if this is again a leading indicator and that the market will want to consolidate in the near future.

SMH printed a topping tail on Friday.

I got into SMH on Friday after the pierce of the double top at $152.52. The index ended up closing below the high and formed a topping tail on the daily. Today it was able to bounce off of the lows but still remained suppressed and could not catch a bid with the Q’s or the SPY. This tells me that any sort of selling pressure in the overall market will cause this to drop with much more velocity than the the rest of the broad market. In the near term, I expect it to retrace to around $140.

For tomorrow, the levels to watch are SPY $325 and NDX $10,000. A pierce of either of these can present us with opportunities on the short side. Many stocks are coming into the gap window area made on 2/25 and a tag of that level should coincide with the levels on the indices.

Market’s Correct, Precious Metals Show Weakness, Zoom Waterfall Looms

As predicted yesterday the markets pulled back the finish negative for just the 2nd time in the last 9 trading sessions. SPY was more or less flat finishing down just .26%. The DIA was up .06% on the back of the extended airline rally but the big story was the pierce of, and ultimately the rejection of the QQQ all time high intraday of $237.47. Nevertheless equities still showed signs of strength as they got a bid into the close and are trading significantly higher after hours.

To quickly touch on what’s happening in gold, if you have been following me, you know I have been harping about the lower trendline on the daily chart of GLD and that I had yet again entered a long on the most recent pierce of that trendline yesterday.

This trendline has been ignored by all of the technicians I’ve been in contact with yet it has been a no-brainer long entry since 4/21

During the last hour of trading today I reluctantly cashed out my GLD Jul $161 calls for a solid 18% gain in the last 2 trading sessions. I would have liked to see GLD punch higher in the last hour with a close at or around $162 which would have given me the green light to hold into tomorrow for a potential gap up. However, after the mid-day pop around 2:20, GLD seemed to decouple from it’s inverse SPY price action and from there on out it appeared to be soft and weak for the rest of the trading session. Cutting here was unfortunate but agreeable as holding into the close without any sort of conviction via price action would have been more or less the same as playing the roulette tables at a casino. In any case, gold remains in a up trend if it can stay above $158 on a daily closing basis though it is showing some signs of softness as of late which should be taken into consideration.

Note the weakness after the 2:20 pop. It’s as if the algo’s just take over and there is no confirmation of any sort of bullish price action

The Q’s were led lower by underperformance in AAPL (-.86%) and MSFT (-1.32%) as well as the large daily reversal on ZM (-6.04%). Thought the markets were able to show strength into the close and are currently trading well above the intraday highs I still think there is a chance for further selling in names like ZM specifically. The stock is up over 100% in the last 3 months, was up 29% in the last 4 days before their earnings announcement and though it was down about 6% today, it still never saw the waterfall selling that I had expected to see. ZM has thrived and has become a household name as ‘stay-at-home-stock’ during the lockdowns but now that their earnings are known and the economy is reopening, a decrease in demand for their service is inevitable. Not only this but based on the lack of volume and volatility, there hasn’t yet been massive profit taking yet on this stock which begs the question – when will that happen? I think there is a good chance tomorrow. It only takes one institution to move out of their position in order to create a rush to profit taking which then becomes a waterfall effect. If ZM does push lower tomorrow the support levels to watch are $205 and $200 respectively.

Big reversal pattern on the daily for ZM
This consistent grind lower intraday looked to precede a waterfall effect that never came

Bears Take Day off, QQQ Tags ATH, Gold hits key level

In the face of terrible news the US Equity markets were up again today and continuing with the trend it was on very light volume. The bears seemed to have given up on their daily failed takedown attempt and perhaps are looking to retool for tomorrow now that the market is fully extended. SPY was up 1.33% while the Q’s made more marginal gains at .45%. The DIA had much a more robust session thanks to stocks like BA (+12.95%), CVX (+2.63%), and MCD (+3.04%). The market now seems to be bullet proof as nationwide rioting, China/US tensions, terrible economic data, and the wake of coronavirus continue to dominate the headlines. Despite this, the S&P 500 is up 12.5% in the last 14 trading sessions. Let that digest briefly. If you had bought June 280 calls 14 days ago, you’d probably be up somewhere around 10x in just over 3 weeks.

Pundits point to economic optimism, the reopening of the economy, and foreign government stimulus as the reason for the market shaking off absolutely atrocious news. The truth is that this is nothing more than a liquidity rally. Price action here is more or less similar to much of the last 9-10 years – a major event causes a big move down which causes a liquidity crisis. The Fed then steps in and extends everyone’s credit limit. Markets remain uneasy for a month or two but once the liquidity begins to trickle in, things stabilize and the market becomes complacent. On a day to day basis, volume decreases, trading range tightens, and any move by the bears is quickly defeated. It’s not unlike watching a drug addict become indifferent to everything falling apart around them – so long as they get their high, they’re not concerned with the details.

Note the huge gap on 5/18 and 5/22. Also, the declining volume as price action move higher unabated.

I don’t mind trading a market that is irrational or a market that seems to have an upside bias. However, a market with no volume and a tight trading range that simply goes higher every day without any sort of retracement or even an attempt to fill the massive gaps left on the chart is concerning and is very difficult to navigate. As such, I think we are finally approaching some resistance here that could cause a much needed pullback.

QQQ tied it’s all time intraday high of 237.47

With the Q’s into all time high resistance and the SPY tagging a major pivot top at $313, it could finally be time for, I don’t know, a single negative trading session? Don’t forget, the Fed will be continuing their OMO into June so any short positions should be thought of as quick, in and out plays.

Onto Gold. Again pre-market I indicated the trendline on GLD was an area to watch.

I did end up taking Jul 161 calls on a pierce of my trendline at $159.75. GLD flushed further to below $159 before bouncing back above and remaining largely stable throughout the rest of the day. I would have liked to see it close above $160 but the fact that the someone stepped in and stopped the algo’s from taking it down twice intraday is promising for tomorrow. Add this to the SPY and QQQ hitting key daily levels and you could have a case for a short term reversal as gold has been somewhat inverse to equities lately.

Lower wicks on the intraday look like rejected algo takedowns
If gold reverses tomorrow expect a big move in the opposite direction after the failed breakdown

GLD has addtional support at $158 and $157 pivot low, and pivot top respectively though if it flushes below $158 I will likely move out of the trade. It is also possible that it gaps down below $159 tomorrow then reverses higher so that it something I’ll be watching for.

In any case, take care and be careful with your trades. This is a volatile trading environment, and not in a good way.

I’m Back And I’m Here To Stay – The World Is In Turmoil – Gold Is Showing Extremely Bullish Technicals

It’s early in the morning on the 31st of May. My city is burning in the aftermath of protests and civil unrest. Businesses and emergency vehicles are being looted and set to fire. People have become increasingly violent and with each minute that goes by the police scanner references to yet another shooting, stabbing, burglary, or act of aggression even as we had only just yesterday begun phase 2 of reopening here in Rochester NY. This civil unrest is of course spread throughout just about every major city in the Nation and it comes on the tail of coronavirus frenzy that has swept the world over the last 4 months.

In other news – this here will officially be my first blog post in nearly 9 years and it unironically comes on the eve of the birthday of none other than yours truly. What a day.

Oh, and there’s that thing where SpaceX made history with the first privately run manned shuttle into orbit. Kind of cool right?

Anyway, I don’t want to get into political discussions right now. If anyone wants to engage, I’d be fine taking it to Twitter or FB. Right now, this post is about the charts and about trading – which is what the goal of this blog has primarily been, and will continue to be about. In regards to my long hiatus – that too will be another discussion that I may or may not get too in the near future. The important thing is that I am here, and I’m here to stay.

So without further ado, I want to talk about the long term chart on gold.

This is the 30 yr weekly spot price for gold. It is also one of the biggest cup and handle patterns maybe ever. If you aren’t familiar with the pattern, a cup and handle is a bullish setup pattern that typically precedes a powerful breakout. -> /https://www.investopedia.com/terms/c/cupandhandle.asp

In some cases a breakout would be considered after confirmation above the initial peak (which in this case was over $1900) but in this case I see the breakout as confirmation above the 2012 high of $1800. The reason for this is because in 2011 the volatility and crowded nature of the trade caused the metal to briefly peak at over $1900 yet after the initial blowoff, $1800 was the level that was retested not once, not twice, but three times in the coming year afterward. It is my estimation the $1900 will be a mere psychological level and that $1800 will be where the real test lies at.

Pictured above is a chart of silver that I posted on this very blog to call the breakout back in Fed 2011. Same pattern, and not unironically, same asset class and same fundamental reason for the breakout -inflation, uncertainty etc. This is how the next 3 months went for Silver —

Roughly 60% gain from the breakout of $31 which I had called in February.

Of course, Silver went through a bear market shortly thereafter, one that I had warned about right before the peak of the hype.

In any case, I like Gold here as a long term play throughout the next 1-3 years. Based on this pattern my price target for the precious metal during that time is $2650 with an eclipse of $2700 as a brief peak during the bull run.

As far as an entry point is concerned, I did correctly call a buy on the bottom trendline of GLD last Wednesday though unfortunately I did not have long term capital to commit and thus I settled for a solid swing trade. This coiling pattern is extremely bullish and it looks like it wants to go higher sooner rather than later. If you are holding and have been looking to add to a long term position, now looks like the best time though I do not know if we will even get another pullback next week to do so. In any case, as long as that bottom trendline stays intact, GLD is still in bullish consolidation and is looking to spring higher.

If you like my analysis, or want to comment, positive or negative you can do so here or follow me on Twitter where I post my thoughts on trades more frequently throughout the day.

In any case, it’s good to be back.

Oil Divergence From Copper Points To Coming Contraction

The most recent post was a video on how commodities were leading the market lower and how oil had remained buoyant considering the volatility in the overall equity market.

Charted below is a divergence between the price of copper and the price of oil. Oil may be getting close to an area that will put pressure on both the consumer and the producer should copper prices remain weak.

Oil began diverging from copper at the beginning of October when all markets made a YTD low. It took oil just 3 weeks to eclipse the September highs while copper lagged both commodities and equities. At the end of the month, oil made another thrust higher that lasted throughout November. That month, copper was down 2%.

For the month of December, oil is flat and copper is slightly lower though copper is in a much weaker technical position and like the economy, copper is directly vulnerable to headwinds such further elevation of oil prices.

Commodities Are Leading The Market Lower

Gold, silver, and copper are lagging the market and could signal a downturn after the light volume holiday period comes to a close. Additionally, the NDX is also lagging the market which is telling us that investors are putting their money into less risky assets like DOW stocks.