Heavy Selling Shifts Sentiment

Jan 27 2014, 11:14am CST | by

The close last Friday could not come soon enough for most investors while traders bailed after the New York close, knocking the futures five points lower on the heaviest volume of the day.

The technical and sentiment readings have been in the moderately high-risk zone since before Christmas. Some of the bulls became disillusioned in early 2014 as the market moved sideways (Souring Sentiment Will Help Stocks), which made the market even more vulnerable.

The sentiment has shifted since last week as the selling was the heaviest in some time, with the declining stocks leading the advancing issues Friday by a 6.4 to 1 margin. The ARMs Index or TRIN, a measure of overbought/oversold market condition closed at 1.75 on Friday with its 10-day MA at the highest level since the late February 2013 lows.

On a short-term basis, this favors a decent rebound this week that could last a couple of days as many did not succumb to the panic selling in reaction to China’s manufacturing data. As discussed in Friday’s Weak Ahead column, I reviewed some of the past China-inspired market declines that eventually set up good buying opportunities. The overseas markets were lower early Monday but the futures are higher.

This market correction should not only eventually provide a buying opportunity in the US markets but also overseas some potential buy zones are evident on the weekly charts.


Click to Enlarge/>

Chart Analysis: The % of S&P 500 stocks above their 50-day MAs was just over 79% at the end of 2013.

  • As I have noted over the past few months, it has formed lower highs since May, line 1.
  • The % dropped sharply from just over 70% last Wednesday to 36.6% on Friday.
  • At the June 2012 lows, the % dropped to well under 15%, point a.
  • At the November 2012 lows (point d), the % dropped below 25%, which was more than 2 SD (standard deviations) below the mean of 64.59%.
  • At the June 2013 lows, the % was also below 29%, point c.
  • The five-day WMA more clearly identifies the turns as it did last June.
  • It dropped to around 35% twice in 2013 and is still relatively high at 57.4%.


Click to Enlarge/>

The chart of the German Dax (also from IndexIndicators) shows the five-day MA over the past two years.

  • The MA dropped to an extreme in June and July of 2012, line d.
  • It rose for the next three months to over 90%.
  • A strong surge into overbought territory like this is a sign of strength as the DAX rose from under 6000 to over 9750.
  • Since that low, drops in the five-day MA to the 40% area have often marked short-term lows.
  • Last summer, the MA dropped to 15% (point e), which was more than 2 SD below the mean.
  • The MA shows a pattern of higher lows, line f, with support in the 64 area.
  • The five-day MA is currently at 84.67% as the % dropped to 60% on Friday.
  • On a one-day basis, the % dropped to below 10% last summer.


Click to Enlarge/>

The Spyder Trust (SPY) shows the weekly LCD sell signal last week with the 20-week EMA at $177.56, which is just below the quarterly pivot at $177.84.

  • The weekly starc - band is at $175.52 with the September high, line a, at $173.60.
  • The weekly uptrend, line a, is just slightly lower.
  • The weekly on-balance volume (OBV) did make a slightly new high two weeks ago and is not testing its rising WMA.
  • The longer-term OBV support is much lower at line c.
  • Aspray’s OBV Trigger (AOT) peaked in November and has been forming lower highs, line d.
  • The fact that the OBV did confirm the highs makes the current OBV decline look like a buying opportunity and the AOT could give a bullish trigger in the next few weeks.
  • There is resistance now at $180.50-$181.32 and stronger at $182.76.

The SPDR Euro STOXX 50 (FEZ) is made up of the largest Eurozone companies. It has 38% in the top ten holdings with a yield of 2.75% and an expense ratio of 0.29%.

  • FEZ is currently 5% below the highs at $42.43 as it closed last week below the quarterly pivot at $40.99.
  • The 20-day EMA is at $39.96 with the quarterly projected pivot support at $39.54.
  • The weekly starc- band is at $38.73 with more important weekly chart support at $36.90, line e.
  • From the June 2012 lows, the FEZ was much stronger than the S&P 500.
  • That was also the case from June 2013 through November.
  • Recently it has kept pace with the S&P 500 (see circle).
  • The weekly OBV peaked in October and has since formed lower highs, line h.
  • The OBV dropped below its WMA, which has started to flatten out.
  • The OBV shows a long-term bullish pattern.
  • There is strong resistance and a gap in the $41.16 to $42.00

What It Means: The strength or weakness of a rally this week may help us determine how long the market decline or correction may last. I would recommend you keep an eye on the quarterly pivot levels for the key ETFs (see table) as those that hold these pivots on a weekly closing level may be the new leaders.

Some of the country ETFs that are looking the best are the iShares MSCI Austria (EWO), iShares MSCI Spain (EWP) and iShares MSCI Italy (EWI). I think the SPDR Euro STOXX 50 (FEZ) could drop down to the $38.50-$37.00 area.

How to Profit: No new recommendation for now but watch my Twitter feed for intra-day market updates.

Editor’s Note: If you’d like to learn more about technical analysis, attend Tom Aspray’s workshop at The Trader’s Expo New York, February 17-19, 2014. You can sign up here, it’s free.

Source: Forbes Business

 
 

Don't miss ...

 

<a href="/latest_stories/all/all/30" rel="author">Forbes</a>
Forbes is among the most trusted resources for the world's business and investment leaders, providing them the uncompromising commentary, concise analysis, relevant tools and real-time reporting they need to succeed at work, profit from investing and have fun with the rewards of winning.

 

blog comments powered by Disqus

Latest stories

Young Europeans less informed about 'legal highs': Survey
Brussels, Aug 22 (IANS) Young Europeans are less informed about "legal highs" and the effects of drugs compared to a few years ago, a survey said.
 
 
Two US Ebola patients released from hospital
Washington, Aug 22 (IANS) Two US aid workers who contracted the Ebola virus while treating patients in west Africa have been discharged from the Emory University Hospital in Atlanta, the hospital said Thursday.
 
 
US doctor with Ebola to be released from hospital
Washington, Aug 21 (IANS) An American doctor who contracted the Ebola virus disease while treating patients in West Africa will be discharged from a US hospital Thursday, the aid group he worked for said.
 
 
Bengal, Singapore to work on study paper on business: Mamata
Singapore, Aug 21 (IANS) The West Bengal government, in association with the National University of Singapore, will create a study paper with focus parameters to facilitate entrepreneurs, Chief Minister Mamata Banerjee said Thursday.
 
 
 

Latest from the Network

Red carpets make Ariana Grande 'anxious'
Los Angeles, Aug 22 (IANS) Singer Ariana Grande, who is due to attend the MTV Video Music Awards (VMAs) Sunday, gets nervous before such events. She says she is "working on" becoming the "best on the red carpet". "I'm...
Read more on Celebrity Balla
 
Hurley wants to keep son away from 'The Royals'
Los Angeles, Aug 22 (IANS) Actress Elizabeth Hurley says her new TV show "The Royals" is too racy for her 12-year-old son Damian to watch. The 49-year-old portrays British monarch Queen Helena in "The Royals" and...
Read more on Celebrity Balla
 
Adele to perform on 'The X Factor'?
London, Aug 22 (IANS) If all goes as "The X Factor" bosses are planning, award winning songstress Adele could be a major attraction of the live shows of the British version of the music reality show later this year. "...
Read more on Celebrity Balla
 
Syrian army kills 140 IS fighters
Damascus, Aug 22 (IANS) At least 140 fighters of the Islamic State (IS) were killed Thursday in an ambush by the Syrian army near an airbase in al-Raqqa province, a media report said. The Syrian army ambushed the...
Read more on Politics Balla
 
Daniel Radcliffe is learning Japanese
Daniel Radcliffe is learning Japanese. The 25-year-old actor has been taking lessons in order to speak the East Asian language fluently but he admits he is struggling with it at the moment. He said: ''I just started...
Read more on Celebrity Balla
 
Karrueche Tran not 'ready' for baby?
Karrueche Tran reportedly doesn't feel ''ready'' to have children with Chris Brown. The 25-year-old singer sparked rumors earlier this week he and his on/off girlfriend were trying for a baby, but friends of the 26-year...
Read more on Celebrity Balla
 
Wilmer Valderrama sends Demi Lovato romantic birthday message
Wilmer Valderrama sent Demi Lovato a romantic birthday message on Instagram yesterday (08.20.14). The 34-year-old actor, who likes to keep his relationship private, took to the social networking site in a rare show of...
Read more on Celebrity Balla
 
Taylor Swift and John Mayer ignored each other at restaurant
Taylor Swift and John Mayer reportedly ignored one another as they dined separately at the same restaurant last night (08.20.14). The former couple - who dated five years ago - allegedly avoided eye contact as they...
Read more on Celebrity Balla
 
Defeated Indonesian presidential candidate accepts court ruling
Jakarta, Aug 22 (IANS) Former general Prabowo Subianto accepted the final ruling of the Constitutional Court that has summarily rejected all his allegations that challenged the result of Indonesia's presidential race,...
Read more on Politics Balla
 
Local polls announced in Taiwan
Taipei, Aug 22 (IANS) Electoral authorities in Taiwan Thursday announced the island's local polls in which over 10,000 public officials will be elected Nov 29. The island, for the first time, will be concurrently...
Read more on Politics Balla