Bearish Technicals For The U.S. Dollar

Above is a daily chart of the U.S. Dollar and as you can see the greenback is coming very close to testing its uptrend line. You'll notice in the lower panel that the MACD is now showing bearish divergence which could spell trouble for our currency.

As of now the bull trend in the dollar is still intact and there are no sell signals. What I am watching is to see how the dollar handles it's uptrend line. Two consecutive closes below the trendline would be bearish in my opinion especially given the fact that the MACD is showing a very clear and obvious bearish divergence.

Bullish Formation In Gold?

Gold appears to have formed an inverted head and shoulders pattern which is a bullish formation. A close above the neckline (111.50) might prove to be bullish for this metal in the days and weeks to come.

Bonds Make New Lows For The Year

The bond market (TLT) was down 1.66% today making new lows for the year. This market has been consolidating for the past 3 months and finally has broken out of its trading range. If you double the width of the trading range, you will get a downside target of roughly 84.50.

NASDAQ - Bearish Engulfment

The NASDAQ has had a nice bullish run over the last 6 weeks along with the rest of the major indices. Today the NASDAQ put in what is called a bearish engulfing pattern. This pattern is a reversal pattern which may be an indication that stocks are about to pause or maybe even sell off.

I usually like to see other factors come into play to help confirm the bearish engulfment formation but as of right now I do not see any other bearish technical signals.

Given the fact that the market is somewhat overbought and we are now getting a bearish candlestick reversal pattern, it might be wise for the longs to at least tighten up their trailing stops to lock in any gains that they may have.

The Swiss Franc - Bearish Technicals

Since last November, The Swiss Franc has been making a series of lower highs and lower lows which means the trend on this time frame is down. It appears to me that the Swiss franc is in the process of establishing a short term top based on the way I interpret the current technicals.

In the above chart you'll notice this currency tested a very significant resistance level and was unable to break through. The stochastics are also in the overbought area which means we should be looking for sell signals.

In my opinion, if the Swiss franc can take out the low of the past 5 trading days, that would confirm a sell signal and we should expect lower prices for this currency in the coming days. A move above the resistance zone would negate the bearish forecast.

Watch The Bank Index For A Breakout

Above is a weekly chart of the Bank index symbol($BKX) and as you can see this particular group of stocks have been relatively quiet since last fall. The BKX has been in a trading range with a low of approximately 40 and a high of 50.

The Bollinger Bands which track volatility are contracting and are the tightest we have seen in many many months. Usually such a tight contraction often leads to a significant breakout which is why I suggest we keep an eye on this index.

What I am waiting for is a weekly close outside of the trading range. So a weekly close below 40 or above 50 may suggest which way this index will trend next.

What's Next For Stocks

A few weeks ago I posted about how stocks turned the corner and since then we've seen the stock market sell off. The most likely downside target over the short term would be a test of the 200 day moving average which is rising daily but currently is at 101.50.

This moving average also coincides with the low from November which is at 102.50. So the first downside target to watch for would be the 101.50 to 102.50 area. How the market reacts once this level is tested will help determine what's next for the market but for now let's simply take one day at a time and see what happens.

Stocks Start The Year On A Positive Note

First of all, I'd like to say Happy New Year to all of my readers. The stock market began the year on a positive note today with many of the major indices up over 1.5% from last Thursday's close. Since 1973, a big advance on the first trading day of January has been a strong sign stocks will post robust gains for the rest of the year. Schaeffer's Investment Research reports that when the S&P 500 has gained more than 1 percent on the first day of trading, the index has ended the year higher 86 percent of the time. Whether or not that happens this year remains to be seen.

As you can see in the above chart of the Dow Jones Industrials, the stock market is clearly holding is uptrend line that began in March of 2009. As long as this trendline continues to support the market, the uptrend will remain very much alive.

Stock Market - Four Weeks Of Choppy Trading

These past four weeks in the stock market have been extremely choppy and I think the above chart tells the story. Above is a 60 minute chart of the S&P (SPY) and as you can see this has been a trendless choppy market. Whether you were bullish or bearish it didn't matter because the market found a way to take you out of your trade assuming you are a swing trader who is holding overnight.

I placed circles where large gaps have taken place from the close to the next day's open and as you can see we get one of these large gaps about once every 3 days. Today we saw stocks gap open substantially higher only to fall and go negative on the day. By the close stocks were back up slightly but only after whipsawing many traders.

When I see this type of trading I usually cut back on my trading size which I have already done but I am still short this market but not to the same extent as I was two weeks ago. I have lessened my share size considerably but have no problem stepping up to the plate and adding to my short position once a clear trend to the downside develops.

Strong Health Care Means Weak Stock Market

In the above chart you can easily see that the healthcare stocks were one of the strongest groups for the month of November. In the lower panel is a ratio chart of the healthcare stocks vs. the S&P500. Notice how this ratio line has turned up indicating that healthcare is stronger than the S&P. The downtrend line has also been broken suggesting that healthcare stocks should continue to outperform the S&P500.

The question that comes to mind is what does it mean for the stock market when healthcare stocks are stonger than the S&P? Well the answer can be seen in the chart below.

In the top panel is a 10 year weekly chart of the S&P and in the lower panel is a ratio line of healthcare vs. the S&P500. Notice whenever we have a rising ratio line (healthcare outperforming the S&P500) it almost always precedes or coincides with a falling stock market. We saw this happen in 2000-2002 and in 2008-2009.

So here we are at the end of the year and what is leading the market higher on this last push up to new highs? Healthcare! This can't be good for the market.

Stock Market Update

Stocks were up today with the Dow and S&P making another test of the recent highs. As you can see in the above chart, not all indices are near their recent highs. The NASDAQ and Small caps are still diverging and as long as they continue to make lower highs, I will stay with my short positions.

Not all stocks were up today. Some of the major stocks such as GS and several of the banks were actually down. As I said before, this rally has no legs behind it but I must admit being short these past 2 weeks has been very difficult. Even though I am pretty much flat on most of my positions (up small down small) it's been very challenging to remain short with such a weak dollar. Seems like every night I check on the dollar around 1:00 am find that it's up a bit. I then go to bed and wake up in the morning to find that the S&P futures are sharply higher with stocks indicated to gap up at the open. That's happened a few times to me these past 2 weeks. Not a good feeling to say the least!

Given the fact that their are so many stocks not near their recent highs, I will remain short with my protective stops in the market. Enough said.

Natural Gas Looking Bullish

I've been patiently waiting and watching natural gas for an entry to buy as I feel this market has bottomed. If you look at the above chart of natural gas futures, you will see that a very important support level has been tested last week and appears to have held. The 4.50 area which was once resistance has now become support as you can clearly see.

In the lower pane is the MACD indicator which has given a buy signal indicating that momentum is now coming into this market on the upside.

The question that comes to mind is how to play this market. Well the best way is to simply buy natural gas futures. Being that I no longer trade futures markets due to the many ETFs that make participating in commodity markets much easier, I chose to buy a natural gas ETF.

The two ETFs that come to mind are UNG and GAZ. The problem with these two ETFs is that they sometimes do a poor job at tracking natural gas futures due to the spread differential between the spot month and the next month out. Being that I am not willing to trade natural gas futures, I decided to go ahead and buy GAZ anyway. The reason I chose GAZ over UNG is because GAZ seems to be slightly stronger than UNG. You'll notice in the chart below that UNG actually broke to a new swing low while GAZ did not.

I bought GAZ in the morning today on the gap down and have place my protective stop right below last week's low. If I am right, I think we'll see natural gas futures move well above last month's high which makes the reward to risk ratio quite favorable. The only problem I have with this trade is that if natural gas futures does indeed rally well above the last month's high, there is no guarantee that UNG and GAZ will do the same. I'm sure these two ETFs will underperform the futures but should still move higher which is why I think it's worth buying right here.

Stocks Turn Lower

Today stocks gapped down sharply across the board with one of the largest gaps we've seen in quite awhile. By the time the market closed, some of the indices were able to cut their losses in half.

The Dow, S&P and NASDAQ were all down today about 1.5% from yesterday's close but the small caps got hit the hardest down almost 3%. You'll recall on November 12th I pointed out the weakness in the small caps and as of today they are clearly the weakest of the major indices.

Stocks Rally But Lack Of Confirmation Continues

Well, we can now add the NASDAQ to the growing list of markets not making new highs with the Dow and S&P. Today stocks gapped open higher with the dow once again being the strongest of the major indices and making new highs.

Historically stocks have rallied around Thanksgiving and maybe this is what we saw today but the growing number of stocks not making new highs with the dow just reinforces my bearish outlook on the stock market. Lets see what happens tomorrow.

Stock Market - What To Expect This Week

An interesting pattern has been developing over the past few months in the stock market which I'd like to share with you. You'll notice in the above chart of the S&P that there has been a tendency for stocks to sell off towards the end of the month and then rally at the beginning of the month.

What I find interesting is that each of the sell offs have been gaining downside momentum. In other words, each down move has been larger than the previous month's down move. Having said that, if the pattern continues to work, stocks could be in for a very negative week as we close out the month. As always, there are no sure things in the market so lets just see what happens.

Stocks Head Lower

As all of you know, I have been bearish on the stock market since last week and today I added to some of my short positions. For now lets just focus on the S&P but in my next post I'll write about some of the groups I like on the short side.

Above is a daily chart of the S&P and as you can see the top of the channel appears to have halted this month's rally. Today stocks were down on an increase in volume which I consider to be bearish and helps confirm my bearish outlook on the stock market.

One thing I've learned about the market is that it can be very symmetrical in both price and time. If you look at the last 3 rallies, you will see that the price magnitude of all 3 rallies is roughly 80 points (ex:1020-1100). In addition to that we also see that all 3 rallies lasted about 12 trading days (measured from low to highest close). Having said that, I feel that the upside objectitves have been met and that a downmove in the market is about to take place. My downside objective for the S&P is a retest of the November lows. Keep in mind I am not shorting the S&P, I am short the groups that are showing relative weakness. I'll talk more about these groups a little later.

Stocks Continue To Make New Highs

Stocks moved higher today with the Dow, S&P and NASDAQ all making new highs for the year. In the above chart of the Dow Jones Industrials you'll notice that the previous rallies were 665 and 689 points. Now we are seeing a rally of more than 700 points. The previous two rallies lasted exactly 13 days. The current rally is in its 10th day.

I still feel that the market is vulnerable to a sell off based on the fact that many key groups are not breaking high with the market. I came across a very interesting article that does a great job of expressing my exact view on the stock market. Here's the link:
"Stocks Are Up - But For Some Key Sectors The Bear Market Has Already Begun"

Have Stocks Turned The Corner?

On Wednesday we saw all 3 major indices break to a new swing high with the Dow Jones Industrials being the strongest of the three. When we take a closer look at what is really going on, I think you might agree with me that yesterday's breakout to new highs was a false move and that the market is about to head south.




Above we have a chart of the Banks, Homebuilders and Brokers. Notice how all 3 of these groups did not break high with the market yesterday. In fact, these groups are so weak they couldn't even rally above their 50 day moving averages. This is a bearish divergence and could spell trouble for the stock market.



Above is a chart that shows what the oil stocks have been doing. You'll notice that all 3 of these groups did not break high with the market. Those of you with a keen eye for technical analysis should be able to spot the potential head and shoulders pattern that is beginning to form on all 3 of these oil groups.



Above is a chart of the Russell Small Cap index which to me is the best short on the board. This index did not break to a new swing high yesterday. In the lower pane is the ratio line which compares the small caps to the S&P500 and as you can see this ratio line is literally falling out of bed. This tells me that money is leaving the small cap stocks in a very big way.




Last but not least is a chart of the NASDAQ and as you can see there is a rather large bearish divergence between the index and what the advance decline line is doing. The NASDAQ actually made a new swing high today but the A/D line is diverging.

Given all the bearish divergences we are seeing at a time when the market has broken out to a new swing high leads me to believe that the market is about to head lower. I know it's very bold to say that stocks are about to head south especially when all 3 indices have just broken out to a new high, but I must act upon what I am seeing. Only time will tell if I am right about the market going lower but for now I just wanted to share with all of you what I am seeing in the market place as it is happening not after the fact. As always we'll see what happens.

Stocks Close The Week On Their Low

The stock market had a rough week with the S&P down 4.18% from last Friday's close and closing the month at a loss. In the above chart you'll notice the increase in volume. This is the largest weekly volume we've seen in 22 weeks. The major trendline which began last March was broken as well.

As you know I've been bearish on the market as of last week based on the weakness I was seeing in the banks, small caps and housing stocks. You can read that post by clicking here.

A Level To Watch In Gold

Gold has been selling off over the past few trading sessions and is rapidly approaching a very significant level. If you look at the above chart of GLD you'll notice the psychological $100 level was resistance last month and may now act as support.

I personally don't think the $100 level will hold because silver has been very weak and it may pull down gold even further. We'll see how things unfold.