Stock Market Gets Big News After Friday’s Close
by John Nyaradi - May 12th, 2013 7:23 am
Courtesy of John Nyaradi.
Stock market posts another record setting week, but the big news came after Friday’s close.
Courtesy of NASA
The stock market put on another record setting show with the Dow Jones Industrial Average (NYSEARCA:DIA) closing at a record high 15,118 and the S&P 500 (NYSEARCA:SPY) closing at 1633.70, another all time closing high.
For the week, the Dow Jones Industrial Average (NYSEARCA:DIA) gained 1%, the S&P 500 (NYSEARCA:SPY) climbed 1.2%, the Nasdaq Composite (NYSEARCA:QQQ) added 1.7% and the Russell 2000 (NYSEARCA:IWM) jumped 2.2%.
However, as exciting as the week’s stock market action was, the big news came after the close on Friday when Wall Street Journal reporter Jon Hilsenrath published an article detailing a new Federal Reserve strategy for unwinding its $85 billion/month in bond buying known as QE3.
This is big news, of course, because recent stock market action has been labeled “The Bernanke Rally” or “The Bernanke Put” as investors count on the Federal Reserve to support stock market prices and protect them from potential declines.
On My ETF Radar
chart courtesy of StockCharts.com
In the chart above, we see how the S&P 500 (NYSEARCA:SPY) has begun tracking a near parabolic ascent that began in January. The S&P 500 (NYSEARCA:SPY) is now 11% above its 200 day moving average, the greatest divergence seen since March, 2000, just before the beginning of the dot-com crash. Will history repeat or only rhyme and in Yogi Berra’s famous words, are you ready for “déjà vu all over again?”
Read Best ETFs for the Coming Blow Off Top
ETF News You Can Really Use
Based on the after market close Wall Street Journal article, it seems that the Fed is planning to take away the “punch bowl” of easy money, however, the timing and scope of the program is unknown.
As we all know, markets don’t like uncertainty, and this development, coming along with a steady stream of economic reports indicating a slowing global economy, is potentially significant, indeed.
The Fed finds itself in a tricky place as timing the exit will likely be difficult, at best. Leaving it in place too long could continue to stoke asset bubbles while too quick an exit could lead to significant…
 Email This Post
|
 Twitter
|
LinkedIn
|
 del.icio.us
|
Google+ |
Best ETFs for the Coming Blow Off Top
by John Nyaradi - May 11th, 2013 9:30 am
Courtesy of John Nyaradi.
As this year’s impressive rally continues, U.S. stock indexes and ETFs are either on track for historic annual gains or are reaching bubble levels with the growing possibility of an approaching blow off top.
At Wednesday’s closing bell, the S&P 500 (NYSEARCA:SPY) and its related ETF were 157 points (or almost 11 percent) above its 200-day moving average. The only time we have seen a wider gap between the S&P’s 200-day MA and its closing level was back in March of 2000, just before the dot-com crash. Will history repeat or only rhyme and in Yogi Berra’s famous words, “Are you ready for déjà vu all over again?”
The stock indices cannot keep going up forever (contrary to what you may have been told by your favorite television stock market commentator). At this point, multiple technical indicators are flashing warnings that markets are overbought and subject to a significant correction.
Beyond the fact that the S&P 500 (NYSEARCA:SPY) is closing at extreme levels above its 50-day and 200-day moving averages, its relative strength index is also near overbought conditions which begin at the threshold of 70. At Wednesday’s close, the S&P’s RSI had reached 68.58 – although after Thursday’s retreat, the RSI had eased back to 65.54. Investors respond to these signals which oftentimes make many stock market indicators self-fulfilling prophecies as other investors change their positions based on what they see on current charts.
chart courtesy of StockCharts.com
With the major stock indices at their current levels, investors remain concerned about the consequences of a blow off top and so many have their stops set high to preserve the maximum extent of the extreme gains they have realized so far. If the stock market swoons, multiple stops will get triggered and a cascade of stop loss orders can quickly lead to a waterfall descent in today’s world of high frequency, computer driven trading.
Overbought conditions exist across all of the U.S. major stock market indexes and so the entire U.S. market is subject to a swift correction should one get underway.
At Wednesday’s closing level of 15,082.62, the Dow Jones Industrial Average was 1,437 points or 10.5 percent above its 200-day moving average. The Russell 2000 closed at 966.26 on Wednesday which is 101…
| Email This Post
|
Twitter
|
LinkedIn
|
del.icio.us
|
Google+ |
Dow Jones Industrial Average Tries For 15,000 But Misses
by John Nyaradi - May 5th, 2013 2:03 pm
Courtesy of John Nyaradi.
Major U.S. stock indexes put on a fireworks display with the Dow Jones Industrial Average trying for 15,000 and the S&P 500 closing above 1600.
The Dow Jones Industrial Average (NYSEARCA:DIA) saw its first intra-day high above 15,000 on Friday but missed a close above this lofty level, settling at 14973. However, the S&P 500 (NYSEARCA:SPY) reached an all time closing high milestone of 1614.
Last week was all about central banks and headline news as the European Central Bank cut interest rates and Wall Street celebrated a better than expected Non Farm Payrolls report on Friday.
For the week, the Dow Jones Industrial Average (NYSEARCA:DIA) climbed 1.8%, the S&P 500 (NYSEARCA:SPY) gained 2% and the Nasdaq Composite (NYSEARCA:QQQ) gained 3%.
The Dow Jones Industrial Average (NYSEARCA:DIA) made headlines as it crossed the 15,000 level for the first time but then closed below it at yet another new record of 14, 9 73. The S&P 500 (NYSEARCA:SPY) managed to settle above the 1600 milestone for the first time. The last time the S&P 500 (NYSEARCA:SPY) crossed 1500, the last century landmark, was in March, 2000, just before the “dot-com” crash that started soon after.
On My ETF Radar
Major stock indexes, including the S&P 500 (NYSEARCA:SPY) and Dow Jones Industrial Average (NYSEARCA:DIA) remain overbought and overextended in spite of the new highs being made, seemingly on a daily basis.
chart courtesy of StockCharts.com
In the chart above, you can see how the percent of stocks in the S&P 100 above their 200 day moving average is at extreme high levels from which moderate to major declines have previously started. The top graph is of the weekly S&P 500 (NYSEARCA:SPY) and the lower graph highlights the rise and fall of the % of stocks above their 200 day moving average.
It’s easy to see how levels similar to the current level preceded significant declines in the S&P 500 (NYSEARCA:SPY) while a rising % is closely correlated to a rising S&P 500 (NYSEARCA:SPY) index. Current extreme highs have been in place since just after the start of 2013, and as these high peaks tend to last for just a few months, the most likely next move for the…
| Email This Post
|
Twitter
|
LinkedIn
|
del.icio.us
|
Google+ |
Stock Market Stuck Below Recent Highs
by John Nyaradi - April 28th, 2013 2:02 pm
Courtesy of John Nyaradi.
U.S. stock market indexes remain mired below recent highs as fundamental and technical headwinds grow.
The U.S. stock market and its major indexes had a good week, however, macro economic data continues to be glum while earnings reports beat
lowered expectations and technical resistance grows.
For the week, major stock market indexes like the S&P 500 (NYSEARCA:SPY) gained 1.7%, the Nasdaq Composite (NYSEARCA:QQQ) climbed 2.3% and the Dow Jones Industrial Average (NYSEARCA:DIA) added 1%.
All three major stock market indexes and their related ETFs remain below their recently recorded all time highs.
On My ETF Radar
In the chart of the S&P 500 (NYSEARCA:SPY) below, we can see how the stock market index is near overbought conditions with RSI at 66.79 and momentum is declining as MACD turns south. This sets up a divergence between momentum and the recent rally back to significant resistance levels and typically these divergences are resolved in one direction or other.
With major resistance at the 1600 level, just above current price, the most likely resolution is down as the S&P 500 (NYSEARCA:SPY) makes another stab at its all time high of 1593 set on April 11th. However, a sustained break above that level would likely trigger a further move higher as more money jumps aboard what will then look like an unstoppable train.
All three major stock market indexes are below their recent all time highs and find stiff resistance just above. Support for the S&P 500 (NYSEARCA:SPY) is found first at 1500, then at the 50 day moving average of 1439 and then 1400 where major support lies. Fibonacci retracement levels find support between 1530 and 1550 so the likely parameters for an initial correction fall between 5-12%.
chart courtesy of StockCharts.com
ETF News You Can Really Use
Macro economic news remained dismal with 1Q GDP growing 2.5% and missing expectations while consumer sentiment fell on Friday with April’s reading of 76.4 being the lowest for the year so far and down from March’s 78.6.
Read 1st Quarter GDP Stings Stocks
March durable goods fell more than expected with a decline of 5.7% compared to last month’s +4.3% and expectations of -3.2%. …
| Email This Post
|
Twitter
|
LinkedIn
|
del.icio.us
|
Google+ |
The Rise And Fall Of Apple Computer And The Tech Sector
by John Nyaradi - April 27th, 2013 5:02 pm
Courtesy of John Nyaradi.
A sea change is underway for Apple Computer and the tech sector and major dangers and opportunities will unfold as this tidal wave rolls ashore.
Long before Apple Computer (Nasdaq:AAPL) became the most watched stock in the world, a book called The Personal Computer Book by Peter McWilliams was published back in 1982.
Apple still makes headlines today but many of the exciting companies, which were introduced to us in The Personal Computer Book, have either died or they have been consumed by other corporations (in the manner that Compaq was cannibalized by Hewlett Packard). Kaypro Computer, the manufacturer of a metal-encased unit which was as portable as a sewing machine, filed for bankruptcy in 1992. Digital Equipment Corporation (or DEC) was consumed by Compaq in 1998 before Compaq was eaten by HP in 2002. Commodore International, which brought you the Commodore 64 and the Amiga, was laid to rest in 1994.
The central character of The Personal Computer Book was a little company in Seattle named Microsoft, which developed a “disk operating system” called MS-DOS at the request of IBM. IBM (NYSE:IBM) wanted to start manufacturing a product line called personal computers. Their entire PC line was built around computer chips called “central processing units” or CPUs which were manufactured by a company named Intel.
By 2013, Microsoft, IBM and Intel appear to be heading to the same – or similar – fate as the other companies mentioned in The Personal Computer Book. Worse yet, a company named Dell Computer, (Nasdaq:Dell) which developed a massive customer base by direct sales of PCs to customers through ads in such magazines as Computer Shopper and PC, now faces an uncertain fate after founder, Michael Dell first announced plans to take the company private, with the assistance of a private equity firm named Silver Lake Partners. As it turns out, the large-stake shareholders are not happy with the $13.65-per-share buyout price. On August 22, 2008 – just before the collapse of Lehman Brothers – Dell was trading at $25.50 per share. Dell hasn’t been traded for $18 per share since February 21, 2012.
The fate of the personal computer extends beyond the good – or bad – fortunes of any particular company. At this point in American history, the personal computer is headed for…
| Email This Post
|
Twitter
|
LinkedIn
|
del.icio.us
|
Google+ |
Bad Week For Stock Market, More Volatility Ahead
by John Nyaradi - April 21st, 2013 3:58 pm
Courtesy of John Nyaradi.
U.S. stock market has a bad week and faces more volatility ahead.
The U.S. stock market suffered its worst losses in five months as earnings reports look mediocre and economic reports disappoint.
For the week, major stock market indexes posted sharp declines as the Dow Jones Industrial Average (NYSEARCA:DIA) lost 2.1%, the S&P 500 declined (NYSEARCA:SPY) fell 2.1% and the Nasdaq 100 (NYSEARCA:QQQ) slid 2.7%. The Russell 2000 (NYSEARCA:IWM) fell 3.2%.
Major U.S. stock indexes are fading from recent record highs and now have broken significant support levels with the Russell 2000 (NYSEARCA:IWM) and Nasdaq Composite (NYSEARCA:QQQ) falling below their respective 50 day moving averages.
On My ETF Radar
The S&P 500 (NYSEARCA:SPY) which is a proxy for the U.S. stock market has fallen 2.4% from its recent record high and now rests at significant support levels.
chart courtesy of StockCharts.com
In the chart of the S&P 500 (NYSEARCA:SPY) above we can see how the major stock market index has fallen to its 50 day moving average and now rests on that level. Significant support rests at the 1540 level and momentum is negative as represented by the MACD display in the bottom of the chart. A sustained decline below the 50 day moving average would be bearish for the U.S. stock market and a break of the 1540 level would trigger a “sell” signal in point and figure methodology. Shorter term traders who watch the 20 day moving average have already seen that support level broken.
Further bearish action could probe the 1520, 1500 or 1480 level, according to Fibonacci retracement theory, which would represent a potential decline of between 1.3%-4.8% over the near term. Violation of those levels would set up the growing possibility for a decline to as low as 1400 for the S&P 500, (NYSEARCA:SPY)representing a potential decline of 10% from current levels for the S&P 500 (NYSERCA:SPY) and other broad stock market indexes.
ETF News You Can Really Use
For the week just ended, economic reports were mixed for the stock market as housing starts jumped sharply for March and the Fed Beige Book described moderate economic growth. However, weakness was displayed in the April Empire State Index which fell sharply and missed expectations…
| Email This Post
|
Twitter
|
LinkedIn
|
del.icio.us
|
Google+ |
Dow Jones Industrial Average Levitates Higher
by John Nyaradi - April 14th, 2013 5:18 am
Courtesy of John Nyaradi.
Dow Jones Industrial Average and other major U.S. stock indexes levitate higher in the face of weak economic news.
For the week, the Dow Jones Industrial Average (NYSEARCA:DIA) gained 2% while the S&P 500 (NYSEARCA:SPY) and Nasdaq (NYSEARCA:QQQ) also posted better than 2% weekly gains.
On My ETF Radar
In the chart of the Dow Jones Industrial Average (NYSEARCA:DIA) below, we can see how the index has now returned to overbought levels with RSI of greater than 70, however, momentum as represented by MACD has returned to positive ground. The Dow Jones Industrial Average (NYSEARCA:DIA) now approaches 15,000 as it continues setting all time highs.
chart courtesy of StockCharts.com
ETF News You Can Really Use
The advance of the Dow Jones Industrial Average (NYSEARCA:DIA) continues to outpace the Dow Jones Transports and Russell 2000 (NYSEARCA:IWM) which have yet to return to recent highs, and this action is seen as a warning by some analysts as these two major indexes are not confirming the recent move by the Dow Jones Industrial Average (NYSEARCA:DIA)
Economic reports were generally weak again last week with negative consumer sentiment and retail sales readings on Friday.
March retail sales dropped 0.4%, widely missing expectations of a 0.1% decline and consumer sentiment fell to levels seen last July as the April print was 72.3, a big drop from last month’s 78.6 and well below expectations.
Read “Retail Sales Decrease In March”
Read “Is This Why Bill Gross Is Buying Government Bonds?”
The NFIB small business index also declined, but on the good news side of the ledger, initial weekly unemployment claims fell.
Shipments of personal computers tumbled in the first quarter to post the worst quarterly decline on record and Thompson Reuter’s reports that so far more than 100 S&P 500 (NYSEARCA:SPY) companies have issued negative earnings previews versus positive forecasts from 23, making this the most negative quarter since late 2001.
In international news, Cyprus was reported to be selling its gold reserves to help pay for its bailout and the tense situations in Slovenia and Portugal continue to simmer. In the Pacific, North Korea continued rattling sabres and the region was on alert for a missile launch there and bird flu in China.
Commodities were slammed across…
| Email This Post
|
Twitter
|
LinkedIn
|
del.icio.us
|
Google+ |
Dow Jones Industrial Average About To Plunge?
by John Nyaradi - April 7th, 2013 8:09 am
Courtesy of John Nyaradi.
Is the Dow Jones Industrial Average past its peak after a record run?
After a steep climb to the top of the hill, major U.S. stock indexes including the Dow Jones Industrial Average (NYSEARCA:DIA) and the S&P 500 (NYSEARCA:SPY) have recently reached record highs. Will the climb continue or is the U.S. stock market at the top of the roller coaster and about to take a historic plunge?
More and more signs point to a plunge for the Dow Jones Industrial Average and major indexes rather than a continued climb.
Here’s why:
1. Excessively bullish sentiment: The Investment Company Institute reports that inflows to mutual funds from retail investors is running at high levels, with $1.05 billion coming in the week ending February 27 and a whopping $5.02 billion during the week of March 20th as mom and pop investors scramble to buy stocks after missing most of the recent rally.
The Investment Company Institute also reports that the total assets of all stock-based mutual funds climbed from $5.93 trillion in December of 2012 to $6.29 trillion in February of 2013 – and that was before the record setting highs.
2. Deteriorating economic fundamentals: The impact of the budget sequester is now being illustrated by the recent jump in unemployment claims, as well as the disappointing payrolls reports from ADP and – most recently – the closely-watched non-farm payrolls report from the Bureau of Labor Statistics on April 5th which was an unmitigated disaster.
The Institute for Supply Management’s March 2013 reading declined 2.9 percent from February’s 54.2 for a reading of 51.3 during March. The ISM also reported that its March Non Manufacturing Index fell in March, as well, missing expectations, to join previous disappointments in recent PMI reports.
3. Contrarian bullishness: Dr. Alan Greenspan, often called the “ultimate contrarian indicator” by many analysts, appeared on CNBC on March 15th to say that he would not use the term “irrational exuberance” to describe the current level of investor enthusiasm. Dr. Greenspan described stocks as “significantly undervalued”. This remark set off alarm bells with many commentators and investors and those bells continued as Meredith Whitney chimed in on CNBC, saying, “I have not been…
| Email This Post
|
Twitter
|
LinkedIn
|
del.icio.us
|
Google+ |
U.S. Stock Market Takes Weekly Loss
by John Nyaradi - April 7th, 2013 6:32 am
Courtesy of John Nyaradi.
U.S. stock market takes weekly loss on poor economic reports.
The U.S. stock market took a weekly loss as all major U.S. stock indexes posted red weekly numbers.
The Dow Jones Industrial Average (NYSEARCA:DIA) fell 41 points on Friday to post a negligible 0.1% decline for the week while the S&P 500 (NYSEARCA:SPY) dropped 0.43% on Friday and lost 1% for the week.
The Nasdaq Composite (NYSEARCA:QQQ) slipped 0.66% on friday and 2% for the week while the Russell 2000 (NYSEARCA:IWM) dropped 0.25% on Friday and 1.7% for the week.
On My ETF Radar
chart courtesy of StockCharts.com
In the chart of the S&P 500 (NYSEARCA:SPY) above, we can see how the index peaked at all time highs and now has slipped into a short term declining trend. Momentum as represented by MACD is in decline and on a “sell” signal and recent action has brought the index to major support levels at 1540. Further support rests at 1520-1530 and 1500.
Market internals continue to weaken and cross market indicators show further weakness as bonds (NYSEARCA:IEF) rally and “Dr. Copper,” (NYSEARCA:JJC) often viewed as a bell whether for future economic activity, continues its slump.
Read: Bond Market Flashes Warning To Stocks: Stocks Don’t Listen
chart courtesy of StockCharts.com
chart courtesy of StockCharts.com
ETF News You Can Really Use
It was a wild week in global markets as the Bank of Japan “doubled down” on its bond buying program as the debt ridden country continues tryint to shake off nearly two decades of deflation. The Japanese Yen (NYSEARCA:JPY) collapsed on the move, dropping 4% in two days while the Nikkei spiked 6.9%.
In Europe, Cyprus continues its recovery from the recent banking crisis and the continent looked towards Mario Draghi for more central bank support for the region. The Eurodollar (NYSEARCA:FXE) gained for the week.
Read: Euro Rebounds For Now: Weekly Currency Report
At home, the big news was Friday’s disastrous Non Farm Payrolls report which showed the U.S. economy adding a paltry 88,000 jobs in March, a huge miss on expectations of 190,000 and last month’s 268,000. Most analysts suggest that the U.S. economy needs to generate 100,000 new jobs/month just to keep unemployment steady and…
| Email This Post
|
Twitter
|
LinkedIn
|
del.icio.us
|
Google+ |
Bond Market Flashes Warning To Stocks: Stocks Don’t Listen
by John Nyaradi - April 5th, 2013 12:08 am
Courtesy of John Nyaradi.
Bond market flashes warning signal to stocks and only one of these asset classes can be right.
As everyone knows, the bond market and the stock market tend to move inversely to each other. As stocks rise, bond prices fall and bond yields rise.
As stock market prices fall, bond market prices rise and bond market yields falls.
This is simply a reflection of the flow of capital between “risk on” and “risk off” assets and tends to be reliable over long time frames.
However, in today’s central bank influenced, Wizard of Oz economy, interesting divergences are now taking place between the bond market and the stock market.
chart courtesy of StockCharts.com
In the chart above, its easy to see how 10 year bond yields (NYSEARCA:IEF) and the S&P 500 (NYSEARCA:SPY) tend to move in harmony. As the S&P 500 (NYSEARCA:SPY) rises in price, bond yields (NYSEARCA:IEF) tend to rise and as the S&P 500 falls in price, bond yields tend to fall and bond prices rise which is the natural flow of supply and demand in U.S. financial markets.
Now, however, we see a sharp divergence between these two asset classes as the S&P 500 continues to climb while the yield on the 10 year Treasury bond has entered a steep decline.
What this means is that the stock market as represented by the S&P 500 is bullish and continues to climb while the bond market is saying that money is migrating to the safety of bonds and so driving bond yields down and bond prices up. The bond market is saying that today’s environment is a “flight to quality” environment and that “risk on” assets are simply too risky.
A similar divergence occurred last May when bond yields started collapsing while the S&P 500 index (NYSEARCA:SPY) held steady, but soon the S&P 500 followed with a decline of nearly 9% between early May and early June.
In the chart below, recent activity in iShares 7-10 Year Treasury Bond ETF (NYSEARCA:IEF) is depicted:
It’s glaringly apparent that bond prices have spiked in spite of recent record closes by the S&P 500 (NYSEARCA:SPY) and Dow Jones Industrial Average. (NYSEARCA:DIA)
This chart is not indicative of a confident market, by any means, as 10 year bond prices…
| Email This Post
|
Twitter
|
LinkedIn
|
del.icio.us
|
Google+ |
German
Spanish
French
Italian
Portuguese
Japanese
Korean
Russian
Chinese
Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW. She manages the Favorites backup site
(
