Friday, May 29th 2015
this week’s storylines (example)
mid-term trend: sideways
The stock market index and sector ETFs we follow ended flat to marginally lower this week. Nothing has changed. The market is poised to eventually continue its uptrend, but a larger sideways pattern remains likely first. Stay bullish but patient.
stock market overview (example)
dow industrial: -221.34 (-1.21%)
s&p 500: -18.67 (-0.88%)
nasdaq: -19.34 (-0.38%)
A move back down to March’s low would be the most logical thing for the indexes to do here. But it has been exceedingly difficult for the indexes to put together any type of move that lasts for more than a day or two, so it’s hard to be confident in any near-term expectation. We remain confident that the big ugly sideways pattern shown on the chart above is a countertrend move and that the trend will continue up – at some point. For that reason, we remain passively bullish on the near-term time frame.
I recently read that for the first five months of the year, we have been stuck in the 4th tightest range the Dow Jones has experienced for 115 years. The Dow’s range from this year’s high to this year’s low is 6.7%. Clearly, there isn’t a ton of movement taking place. That makes for a pretty darn boring market environment, but it doesn’t change the facts. The long-term trend has clearly been up, the long-term advancing pattern appears incomplete, and the weak efforts at any type of market pullback prove that the trend is still up. The only objective approach given these facts is to remain bullish on the long-term time frame.
recommended mid-term investments (example)
changes made this week
- We set up a new trading opportunity on USO (Oil)
- The stop level on our FXY (Yen) trade was improved
our current investments
*mobile users, view portfolio in landscape to see all information*
|position||etf||etf description||entry date||entry level||stop level||current price||current return|
our pending investments
|action||etf||etf description||entry price level||current price level||initial stop level|
a closer look at our investments (example)
our current investments
FXY (yen): Our patience has finally paid off on FXY. After spending the last half of a year trading sideways, things changed this week with a 2% decline that thrust this ETF to new multi-year lows. This means we can finally improve our stop level down to 80.50. As the decline continues, we will be able to improve this level even more.
IBB (biotech): IBB was one of only a few market-based ETFs to close in the green this week, ending 0.7% higher. IBB remains right at long-term highs and poised to give us another big up leg soon. Once it is clear that the countertrend pullback that began in March is over, we will improve our stop level here. For now, keep it at 320.00.
QQQ (nasdaq): QQQ was relatively strong this week, ending almost exactly where it began for a no-decision. Same story, different week. This ETF is in an uptrend that is not yet over. The only debate resides around whether the uptrend has already resumed, or if another move back into this yellow support is needed before it does. We’ll just keep holding tight and wait for higher prices to happen one way or the other. Keep the stop level at 103.00.
XLV (healthcare): XLV ended the week marginally higher, right below its long-term high. This ETF represents the strongest market sector out there, and it continues to be a must hold. Keep the stop level for this trade at 69.00.
our pending investments
USO (oil): new this week
We are in the business of identifying trendy price patterns and trading them. USO fits this bill. The big up leg off March’s low appears trendy by all measures. But the real kicker is the corrective look of May’s pullback – this is the move that makes us even more confident that USO has bigger upside plans. And by all means, we want to participate in additional strength. For that reason, we are going to buy USO once it trades above 22.25. The initial stop level will be placed at 22.25.
FXI (china): Last week we prefaced a strong week with the statement that a larger pullback off recent highs was likely. That bore fruit this week as FXI subtracted nearly 5% of its value. The current near-term pullback continues to look like a textbook countertrend move that is setting the stage for higher prices. We look forward to the opportunity to buy this ETF once it trades up to 53.00. The initial stop level will be placed at 46.00.
EWZ (brazil): The only ETF that was weaker than EWZ this week was FXI. Boy, I nailed them both. In reality, we have no problem with this weakness on EWZ – as long as it finds a low sometime soon. If instead EWZ continues much below the yellow support area shown on the chart, then we’d know that a new uptrend did NOT begin in March, and that instead a larger downtrend is going to form. Obviously we would no longer be interested in trading this ETF if that happens. But if it can find support in this area, we will happily purchase this ETF. We are improving the level where we will buy it down to 37.00. The initial stop level will be placed at 35.00.
ETF chart database (example)
*note that the color of each chart’s box indicates that ETF’s mid-term trend