Market Thoughts – August 28th, 2016

Another week, another choppy range. I don’t see this changing and see more risk to the downside than upside at this point. This chart of pivot points on the SPY explains it perfectly. We have not been able to break above. We have had a few open gap ups to ATHs just to be sold off.

spy daily.png

The seasonality of August/September doesn’t help the situation either. Granted, we don’t want to act just on this factor alone but see whether the trend doesn’t stay true to history.

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Lastly, the extreme positioning in Long S&P and Short Volatility is just asking for a disaster.

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Otherwise this post is about a handful of charts I came across doing my weekend analysis that I thought were important, whether their bullish/bearish/neutral aspect. Lets begin.

Friday ended with a nice weekly breakout in the 10year yield. The action as of late has confirmed the breakdowns we are seeing in staples, reits, telecom, utilities and bonds. I think there is further upside to come. I am currently long TBF.

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In Biotech land, what looked like a bullish continuation of a bearish pattern may be a false break. Biotech is still one of the weakest sectors so any rallies in my mind have been taken with a grain of salt. Keeping an eye on this going forward – outperformance of biotech back again would be a huge sign for this market.

xbi.png

Speaking of, China has been very very quiet. Remember when China economic slowdown was the end of the world? Yeah look at it now CNBC.

china.png

We can’t ignore its ~50% haircut last summer, its been basing and doesn’t look half bad. This would be a huge factor towards future risk-on if we can get it.

In regards to foreign markets, until copper can get going I am skeptical of all rallies.

copper.png

This chart is the defintion of a bear market chart – lower highs and lower lows, and continual oversold relative strength. This trendline has been keeping any strength contained for a long time now.

Gold and silver took a hit. Admittingly, I sold out of the GDX rally too early so I am eagerly waiting to re-enter. I had been keeping an eye on the potential resistance shown in the chart below. This proved correct and I am not interested in GDX right now. Not until it gets up and over this area, or back down to 08/09 support.

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Silver broke back below 2008-2010 overhead resistance and 2013-2014 support. This is off limits for me now.

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To end, we have a few intermarket analysis charts that are very interesting with two themes: Midcap and Transport past, and potential future relative strength.

1) 6 year consolidation on the monthly chart holding strong. Midcaps to outperform if we breakout long term? I’d argue so.

mdy:spy.png

2) Monster Inverse Head & Shoulders in Dow Transports vs. Dow Industrial?

tran:indust.png

3) Down Transports relative to S&P – Monster in the making? Significant trendline going back to 2009 holding with a bullish divergence building. Looking at the space to the right – this could breakout could come in the Fall.

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As my friend JC Parets (@allstarcharts) pointed out, Transports peaked and bottomed before the S&P last year. It;s leadership is a good indicator for the overall market going forward.

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