October 2019 Technical Commentary

Originally published on our Trend Trading Signals Website


MA pullbacks list heavy in homebuilders and discount retailers.

The Fed cut rates for the third time in this cycle yesterday. The market’s reaction to news is always the best tell. SPX closed up, at 3046, a new all-time high, 10y UST yields closed at 1.79 and VIX closed down, at 12.33. The first move from the markets after a major news event is not always the major move, but that’s where they are for now.

Markets are making new highs globally, which is a very technically bullish sign, with such broad market strength. 3000 on SPX is now more of a key level of support as prices move away from it, and 2800 is still a key long-term level. In the shorter term, volatility is near the lows and sentiment is high.

I have long held the belief that markets are more liquidity driven than anything else. In Q4 2018, the Fed was hiking, QT was in effect, and not coincidentally, SPX had a 20% drawdown. In Q4 2019, the Fed has cut rates three time, and has been expanding it’s balance sheet, “not QE”, and the PBOC and ECB have adopted easy money stances as well.
The key groups of interest and showing high relative strength are home construction, semis, tech, home builders, REITS, financials and utilities. Health care is also breaking out and energy refiners have led the relative strength list for a few days. Eurozone banks and China internet names are improving as well and the energy ETF, XOP, recently held vs 2008 lows. The $20 level in that ETF is a key longer term support gauge.
Ample liquidity in the system, low rates and global market breakouts all present a positive technical picture for now. In the shorter-term, tariff news headlines, among others, can always present short term volatility spikes. My view remains unchanged, technically bullish, as long as SPX stays over 2800.

10-year U.S. Treasury yields closed today at 1.85, and over the 100 day moving average (sma) for the first time since November of 2018. For position traders who use moving averages, like myself, the longer a trend stays below a key moving average, the more significant the break above it is. The Fed FOMC meeting is over the next two days, and it is interesting to see the recent strength in yields with the Fed expected to cut rates. I don’t try to game the fundamentals of it all, I just trade what is on the charts. We will see over the next few days if yields hold above the 1.80 level or break back below.

SPY, QQQ and SMH all made new highs again today, and with market volatility contracting here at the highs, I would expect it to pick back up over the next 1 – 7 days.

On October 2, I posted three charts on Twitter that indicated markets were likely close to a shorter term low:
Put/call ratio at 1.27, McClellan Oscillator at -65, and S&P 500 breadth at 95% of issues down on the day. These statistics are often close to shorter term lows, and on October 3, markets did put in a reversal which was the reasoning behind my all-in QQQ long trade taken on October 3. Markets are at a slightly different level here, with Put/call ratio at .79, which is the lower end of it’s range, and many stocks and ETF’s at the highest end of their daily range. VIX also tested the lower end of it’s range over the last few days at 12.62. With FOMC over the next two days, and based on the technical readings, a pick up in volatility could be expected over the next 1 to 7 days.
The S&P 500 (SPX) closed the week +1.22% at 3022 and fell just short of an all-time high, while SPY and QQQ did touch new all-time highs. New highs are one of the strongest technical signals there is, yet the move was met with much doubt online and from many market pundits, calling it a “narrow” move. The following markets/industries are at or within 2% of 52 week, or longer, highs: S&P 500, Nasdaq, EAFE, Japan, Europe, Germany, Russia, semis, home builders, home construction, financials, high-yield corporate bonds, consumer staples, utilities, REIT’s, commercial trucking and industrials, among others, which is a broad move by most definitions.

That being said, markets can reverse course at any time, trends can reverse, and as much as some like to predict, current price action does not predict the future. For my time frame however, this broad market strength is technically bullish, and although pullbacks can happen at any time, the intermediate to longer term trend in equities is higher for now. As long as SPX stays above the 200 day moving average (sma) and 2800, then I am positioned to the long side.

Leaders such as AAPL, JPM, AMAT, HD, PG and TSM, traded at new all-time highs last week. The Top 10 technically ranked U.S. ETF’s that I track, based on weekly momentum are ITB, XHB, XLU, SMH, XLRE, XLK, XLP, QQQ, SPY and XLF. Semis continue to be the strongest tech sector on the screen, and financials have been moving up with new highs in JPM, BAC, C and PNC last week. Energy, XOP, did trade down to the 2008 lows, and is holding above that for now. $20 is a key longer-term level for this ETF to hold. XOP could be trying to put in a longer-term low, and this is a market that I am watching closely, although it’s longer-term momentum ranking is very low.
One of the leading REIT’s had it’s first close below the 100sma in a year last week, and that is something that I am watching for further weakness in the group. Application Software, SaaS, continues to be under pressure, with many bounces in the downtrend. For now, I have very little long term exposure in the group and would like to see the volatility subside there.

Europe and Eurozone financials have been strong recently, with DAX, VGK, and EWG at 52 week highs. The Eurozone financials are a top group of longer-term interest for me here, and they may be trying to put in some type of a longer-term low, as the 200 sma has recently turned higher in the ETF EUFN and many single name issues.

Russia, RSX, is 2% below a 6 1/2 year high breakout, Brazil is improving above the 200sma, China is weaker vs the others, but improving. China ASHR has held it’s rising 200sma and China Internets, KWEB, is the top focus group for me in this space, with the 20, 50, 100 and 200sma all having turned up recently and price testing above the 200d as well. $40 below, and $45 above, are key technical levels.

The key near term level here for 10 year U.S. Treasury yields (10s) is 1.81%, which represents the declining 100sma, that has capped this downtrend since December 2018. If yields close above and start to trade above the 100sma, that would put the intermediate to longer-term UST uptrend under pressure. TLT is also trading just above it’s rising 100sma. 10s recently held above the 1.50% level test in early October, and the major longer-term line in the sand is 2.00. For now, the 100sma is the key focus level to watch.

The key long-term level in Gold that I track is $1,400. Above that, I am long GLD. Gold closed the week at $1,505 and has been consolidating above it’s rising 100sma, which is bullish for now. Miners, GDX, have made 4 lower highs and lower lows, and tested below it’s rising 100sma, but has reclaimed it for now. $26 is a key level that needs to hold here. Longer-term, miners are still technically bullish above the rising 200sma.

WTI crude closed the week at $56.66, and has offered excellent shorter term opportunities for those trading in the $50 to $60 band. Noteworthy is that the 200sma has recently turned up, indicating improving longer-term momentum, and oil refiners PSX, VLO and MPC have been among the strongest of all large-cap stocks on my screen, up between 9% and 19% for the month. While crude oil is not a core trading market for me, I do monitor it closely and especially it’s relationship the refiners.

Markets have been very strong with many making new highs, the longer-term charts are bullish in leading industries like semis and homebuilders. As mentioned earlier in this post, markets can reverse at any time, but above 2800 in SPX is bullish longer-term. Many stocks and ETFs are at the very high end of their daily ranges and RSI levels for now, so while a pullback could happen at any time, the longer-term trend is equities is higher for now. U.S. Treasuries are also a key market of interest here vs the 1.81% level.
10/21/2019 DAILY RECAP
New highs today in JPM and BAC, two financial services leaders is a bullish signal. New highs also in Europe, Japan, REITS, homebuilders, AAPL, NKE, and HD, among others.
In U.S. Treasuries, TMF had it’s first close below the 100sma since December 2018, and TLT is getting close to a 100sma test. Volume has dried up in both ETFs over the last 5 days and it could be expected for volume to come in soon and likely lead the next move. 10 year yields are also close to testing the overhead 100sma. If the downtrend in yields is going to resume, this is a key level to watch. Gold and miners have been making a series of lower highs with 20 and 50 day ma rolling over.
10/20/2019 THE WEEK AHEAD
The S&P500 (SPX) closed the week +.54% at 2986. 10 year UST yields were -.29% to 1.74% and Gold was -.28%, and closed at 1494, so not much movement for the week in these markets.

SPX continues to be in a longer term uptrend, and for my time frame is buyable here and on pullbacks over 2800 and the rising 200 day moving average is at 2865. Shorter term momentum is at the higher end of the range in SPY, QQQ, and many equity ETFs that I track, so some technical consolidation would not surprise, thought I am not predicting this. U.S. Treasury bonds continue to be buyable on my time frame as long as 10-year yields stay below 2.00%. Gold is technically bullish above 1400.

The bear market calls and recession predictions continue to be prevalent online, and although any outcome is possible, for now, the signs from the markets are strong. As discussed last week, markets have made new highs in the past week in semis, trucking, home builders, home construction, discount retailers, consumer discretionary, railroads, and commercial vehicles, among other groups. This is very bullish price action and as long as these groups continue to lead, the market signal is bullish for future economic and growth expectations.
The 10 strongest core groups that I track, in order, are: 1. home construction, 2. home builders, 3. utilities, 4. REITs, 5. consumer staples, 6. semis, 7. discount variety stores, 8. technology, 9. Eurozone banks and 10. money center banks. These groups, in steady uptrends, are where I am continuing to focus my positions. I added to UST and Utilities positions in the last week.

On the other side of the spectrum, application software stocks continue to break down and many made new lows vs the October low last week. This is a bearish signal for this group, and I am continuing to avoid any of these pullback names as they are playing out as I discussed earlier this month, with new lows after the bounce. New recent lows were made by ADBE, AYX, NOW, PAYC, SNAP, TEAM, TWLO, WDAY and ZS this week, all former high flying momentum names. I have no prediction on how long this will continue, but I am still avoiding these pullback names. The Finviz database currently has 147 names listed in the “Application Software” category, 64 of them with a market cap over $2 billion. I am curious to see where those stats will stand in 12 months.

While semis and QQQ overall are in uptrends, and many new highs in semis last week, there are many downtrends and broken charts in tech and far too many uptrends outside of tech to not have the positions spread out correctly. While in the very short term, many stocks and ETFS are at the top end of their range, longer term, there are many bullish charts and a large number of markets and stocks with now rising 200 day moving averages.

Earnings reporting season could add some volatility, so I will monitor how this week plays out technically.

The recently inverted yield curve has received alot of press and online discussion, as many have predicted a very certain recession and associated bear market, but the stock market is the greatest predictor of future stock prices. There could always be an economic slowdown, recession or bear market, as these are a part of any normal economic and market cycle, but I will continue to take my clues from stock market action to keep me on alert, instead of economic data or predictions. Trading at or near 52 week or longer highs, and in some cases, all-time highs, this week, are names in semis SMH, KLAC, AMAT, TSM, home construction ITB, XHB, DHI, PHM, MAS, BLD, heavy construction JEC, commercial vehicles DE, trucking JBHT, banking JPM, railroads KSU, and retailers TGT, TJX, ROST, DG, and DLTR. The message of the market for now is very clear – these are not the price signals of a weakening economy. These stocks could top out at any time, and the trend could start to reverse. If and when they actually do, this will show up clearly in the charts. Until then, the markets are sending a very clear signal of strength.
U.S. Treasuries TLT and Utilities XLU, are the two most oversold groups in uptrends on my screen, both with rising moving average support below. If these longer term uptrends are going to continue, they should start to turn up in the next few days.

10/16/2019 AFTER THE CLOSE
Home builders and home construction continue to top the technical momentum list, with ITB, XHB and many stocks in the group making new 52 week highs. These continue to be a focus group for me, and while in the short term they could consolidate, the longer term strength is noteworthy.

SPY, QQQ, ASHR, FXI, and VGK are at the higher end of their daily range, and while I am not predicting any consolidation, some could be expected over the next week or two. I am technically bullish on U.S. stocks with SPX over 2800.

Many software stocks sold off sharply today, and that group still has many broken down charts, that now that they have had their technical bounce, as discussed in my 10/09/19 Macro note, will see if they can hold their recent lows. NOW failed exactly at the 275 level that I discussed online last week, as did SHOP at the 350 range, also into it’s 50d sma. I am monitoring this group for a pullback, but only in the stronger names.
Semis are still the strongest tech space on my screen, although after their new all-time high, could consolidate, which would be buyable for me.

I added Utilities to the oversold pullback best ideas list today, oversold above the rising 50d sma. The 100d sma is a key trend gauge here.

Eurozone banks have been showing new technical strength over the last week, and many of those are very high on the momentum list. They are at the top end of their daily range, but have cleared their 200d MA and are constructive here.

I dialed back some exposure in QQQ over 193, from the 182 buy point two weeks ago.

10/16/2019 PRE-MARKET NOTE
New 52 week or all-time highs yesterday in semis (SMH), home construction (ITB), homebuilders (XHB) and leading names JP Morgan, Home Depot, and Taiwan Semi. Bullish technical price action in leading industries and large cap leaders.

Two weeks ago, markets registered oversold, yet above the key 2800 SPX level and the rising 200sma. Markets are not yet technically overbought, but are closer to the higher end of their daily range. For now, any pullbacks above 2800 continue to be buyable, and key focus areas are still semis, software, home construction and REITs. Financials have been improving, Eurozone banks have had major rallies this week, and utilities are consolidating in their uptrend. Utilities (XLU) are in a continuation buy zone, nearly oversold and 1.1% above the 50d MA, and 3.6% above the longer term trend gauge, the 100d MA. The 200 day moving average has turned up in diverse groups including Eurozone banks, regional banks, and China internet names, among many others.

Price action and moving average trends in many sectors/industries continues to be bullish technically, and any consolidation over the next week or two would be constructive, though not necessary.

Gold miners (GDX) broke below the 100 day moving average today for the first time since the late May breakout and the group continues to be under pressure. I booked gains and closed out GDX and am still holding GLD.

Equity indices finished last week in the green, with SPY +.65% and QQQ +1.29%.
10y UST yields spiked up to 1.75%, TLT was -3.80% and Gold closed the week -1.64% at 1488.

The trend for now in the indices continues to be higher, with higher lows, above the rising 200 day moving average, and pullbacks continue to be buyable above the 200day MA. In tech, semis continue to be the strongest group, and application software had a few new highs last week as well, as that group is stabilizing for now.

The steadiest, low volatility uptrends for now on my screen, as a group, continue to be in REITs and Utilities. Home construction is acting well, as are many discount retailers, on the new 52 week high list. China is improving slightly with the 40 week MA in KWEB turning up and ASHR also turned up and holding the 200sma test last week.

USTs bounced sharply off 1.51 on the 10 year, and longer term 1.90 and 2.00 are key resistance levels. As long as yields stay under 2.00, the trend in bonds is higher. If 2.00 is breached, then the longer term trend higher in bonds will be under pressure.

Gold and miners have been weakening, with a bearish 20/50 sma cross down. Key levels for both are the rising 100sma and on Gold itself, 1400 is the key longer term support line for now.

Strongest groups of interest: Home construction/builders, semis, software, REITs, utilities, discount retailers, and consumer staples.
Current ETF positioning: Long QQQ, XLRE, ITB, ASHR, TLT, TMF, GLD, GDX, GBTC. Single stock positions are updated on the Twitter feed.

After reaching very oversold readings on 10/03, many tech names and QQQ turned higher for the last week, and are now no longer reading oversold. The daily momentum readings I track are now neutral to slighlty overbought. After an initial sharp range expansion sell off, a market or stock will often experience a technical bounce. What I look for after the technical bounce and coinciding momentum reversal spike up, is to see if another leg down starts to take hold. This is how I entered the max short QQQ position in early November 2018, which I closed on 12/21/18, which is all outlined on the Twitter timeline.

Many leading tech names, especially in SaaS, have bounced up into resistance, and are still in a rollover cycle of lower lows and highs. NOW is one of the best examples, with moving averages having rolled over and failing 5 times vs the now declining 100 day moving average over the last 70 days. Many tech stocks have this same price action of either a sharp drawdown, or lower lows and highs. A close above the recent trading range would help to neutralize these downtrends. Technically, although my position is long, I am neutral on tech here.

I am continuing to add exposure in lower volatility uptrends in home construction and REITS, and Utilities are next on the list. The longer term returns in REITs and Utilities have been very close to that of SPY, and they are the strongest uptrends on my screen right now, along with consumer staples and home construction. Tech, China and cyclicals have been very volatile and range bound the last few months, while low volatility/defensive names are still in very pronounced uptrends.

As stated last week on Twitter, I am treating tech as a shorter term trade for now, and only using the index ETF and not adding any longer term tech singles positions at all right now.

Regarding the trade tariff news flow 24/7. The media has a job to do, and I get that and respect it. Aside from that, from a trading perspective, other than creating short term volatility, there is zero trading value in following the trade tariff news, posting about it all day, and trying to game what every news release means or doesn’t.