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The market has continued to suck in its sideways chop fashion that leaves it barely in the green for the year as I write. Certainly the drama in Europe with Greece and a fear of rate hikes are taking their toll but since markets had barely made any gains this year on its own, it has little room to lose ground. A true correction would of course be a welcomed respite as it would allow for a future rally, but I am bracing myself for the possibility of something more ominous than just a healthy 5% correction. In reality, the market has been in a corrective state for the better part of this year, albeit a choppy, sideways one.
SPY is currently sitting just above $207 after having closed 2014 at $205.54 which is near the current 200 day SMA at 205.48. The index managed to bounce off of that 200 day which also culminates with a long term trend line from the 2009 bottom that touches the 2011 bottom and the 2014 bottom on a logarithmic chart. Although an Algorithmic chart allows for more room to the downside before losing support, this culmination of support levels with the 2014 close, the 200 sma and the trend line, tells me that this is a very important level...a do or die moment if you will. Should the index lose those levels, it will likely mean more downside for U.S stocks.
Now I keep in mind that this could be precisely where it recovers. It is common to see the bleakest moments turn on a dime in stock markets. Even more likely would be a loss of imperative levels just for a day or two to convince bears that their time has come to roar with gusto, only to be immediately followed by a strong recovery. Ms. Market makes it her priority to be fickle, so we will just have to wait and see. Should Greece make a deal, and with healthy numbers in the US economy, markets could get on the up train and ride gains to the end of 2015. Or we have a full 25% correction to the breakout level of 2007 highs.
Here is the weekly chart.
If you follow my website at all, you know I have talked for sometime about the need for wage inflation. But this is a country filled with small minded politicians who only see extremes with naive eyes. A raise of 60% over 5 years is crippling to small businesses. I am appalled by this move in LA.
I agree wholeheartedly that these companies need to be pushed to raise wages if they are not ethical enough to do so on their own but a sense of reason is in order. Let's raise everyone's mortgage/rent by 60% over the next 5 years. No? Why not? Oh yeah, IT'S CRIPPLING!
Walmart & McDonalds can and should afford it, but smaller companies will be destroyed by this. It's too much too fast. Based on the following video from Time, if at it's peak, $10.75 in 2014 dollars is enough to buy a basket full of a week's groceries, why does min wage now need to go to $15? Wouldn't $12 be reasonable? With maybe a plan to go to $15 in the following 5 years?? But you know, instead let's cripple companies so that half the workforce will get laid off - then when half the people are homeless and the other half are making $15 an hour we can feel good about wage equality. NOT!
Here is the article from Time with the video about wage and inflation.
My timer turned green last Thursday when I added STM to my portfolio. I remained cautious at that time, however, because the market was bumping up against resistance that it had been struggling to get through with whipsaw, range-bound action.
Today SPY has broken out of that resistance, confirming the bullish ascending triangle that I have been pointing out for some weeks. While I expect a pullback is in order after reaching a new all time high, I now have confidence that markets can continue to rally in the near future. As such, I have added four new positions to my portfolio. Here is the SPY chart.
I have had several conversations recently with swing traders, who use technical analysis, about the difficulty in trading this year. Most of us are at or near break even, that is assuming we have good risk mitigation. Those who do not, the cowboys, are not fairing as well. The following two charts give some insight into why this is so. The first chart shows the SPY this year to date with the price plotted with a line and the 50 day simple moving average plotted in light purple. The second chart covers summer and fall of 2014.
Note how the price has whipsawed up and down through the 50 sma every few days this year. SPY has struggled to hold even a 50 day trend. During April, price went through the 50 sma seven times! When you look at the chart for last year, you can see that price stayed above or below the 50 day moving average for several weeks at a time. The lack of trend in 2015 is chopping trend traders to pieces and support and resistance traders are chasing an ever consolidating lack of support and resistance. As a result, individual stocks are struggling to follow through on their technical patterns. I remind myself that this is temporary and we will revert to the norm at some point. I would welcome a good sell off so that we can get back to a trending market, but for now, I will stay mostly on the sidelines. Here are the charts.
Thank you to Ryan Mallory of Shareplanner.com for joining me today on this comprehensive discussion of current market conditions.
The chop continues and the market is still giving mixed messages day after day. This whipsaw action is testing all my indicators and is getting old. We still have an ascending triangle in SPY but as we continue to test the bottom side more than the top side, my confidence in it is waning. The topside has a mattress of resistance to get through.
Meanwhile, cyber security stocks are taking a beating on the heels of poor numbers from QLYS. As such, CYBR is on my chopping block for a loss. Other stocks in my port are sitting on support and I will likely give them another day despite their relative positions to the 8 ema. These support levels have been more significant than the 8 ema of late. Here is the SPY chart.
Action in today's SPY tells us that the recent drop to support was a healthy pull back in an otherwise continued trajectory to the upside. The pattern has created a bullish Ascending Triangle with an ascending trend-line below and a flat-line on top. I will be watching for a break of that top line to new highs. Meanwhile I have added three positions today that are showing good potential, LRCX, CYBR and FLO. Here is the SPY chart.