Next stop: 200 day moving average

 

I noted last week the news of the S&P500 cracking 1940. Shortly after that upside breakout, the bulls pushed that index to technical resistance at around 1990.

While I am not a Fibonacci follower, there may also be some significance to the fact that 1990 represents pretty close to a 50% retracement off of the lows (2135 high less 1820 low = 315. Half of that move is 158, added to the 1820 low = approx. 1980). I always attribute the significance of Fibonacci retracement levels to the fact that others believe in their significance—to me, there is no logic to it, but crowd and herd belief in these numbers make me mindful of their potential effects on the market. I am also mindful of the fact that the current area 1990-2000 represents both the old neckline of the summer double bottom, and the support levels from the late 2015 highpoints.

S&P nearterm

 

The market remains below its 200 day MA (which is sloping down), and below its old highs of 2135. As such, it remains in an intermediate bear market trend, with a near termed bullish bias – albeit an overbought one (stochastics). For the market to be considered in an intermediate uptrend, it will need to take out the 200 day MA, break the old high, and work off some of the currently overbought conditions. Can the S&P move above that moving average? The market often pauses whenever it approaches or hits the 200 day MA. My bet is that the US market will find some resistance as it nears or hits that MA – which currently lies around 2020.

 

This is not to say that you shouldn’t buy into this rally –but holding a bit of cash at this time remains a prudent strategy – given the intermediate termed bear market conditions discussed above.

 

Keith on BNN: Thursday March 10 at 6:00PM

 

 Tune in to BNN to catch me live on BNN’s premier call-in show this Thursday, where viewers like yourself can ask my technical opinion on the stocks you hold.

Call in with questions during the show’s live taping between 6:00 and 7:00 pm. The toll free number for questions is 1 855 326 6266. You can also email questions ahead of time to [email protected] – it’s important that you specify they are for me.

Nov 2012 sitting small

12 Comments

  • We are almost there the point where capitulation begins. I think you might be the only guy in Canada that is dialed in because of your excellent TA. Inverse ETF hedging time is NOW. There are going to be many mutual fund holders about to get crushed (again) and the highly paid fund managers stand idly by. Sorry to rant .William

    Reply
    • Capitulation typically falls in when markets are crashing. My thoughts are that one cannot dismiss the neartermed potentials, but the intermediate termed look is still not verifying a bull market. thus, I am cautious, but not outright bearish –an inverse ETF is excellent to hedge–but be careful to pull the trigger upon a roundover.

      Reply
  • Hello Keith,

    Was interested if you would consider another post on the TSX. From what I have been studying, this looks like a textbook vcp pattern breakout. Maybe a near termed pull back, but I feel the technicals look great

    Cody

    Reply
    • I will do that Cody–yes, TSX is setting up, and that is being led by the “3 biggies”–energy, metals, banks.

      Reply
  • at the first of January I was going to start trading bank of nova scotia, as I thought it looked like a really good prospect for a long and then a short. 52>56, 57 and then a short 57 4.00 profit targets each time. especially now when present price is about $60 heading up I guess that this teaches me that I should go with my own analysis and discount information received elsewhere !!!! very good lesson , thank you

    Reply
    • That’s right Kim–you have to do your own analysis. That’s why I wrote my books (and write this blog)–to teach you to fish, not to provide the fish to you- so to speak. Yes, you should be open to other ideas — but use OPO’s (Other Peoples Opinions) as a point of interest, not “the truth” – and then apply your own vigorous analysis to the idea to see if it stands up.

      Reply
      • Its seems that Canadian banks are still in a downtrend, when looking at, TSE:ZEB over 5 years. Dont want to get caught out again like just recently, plus seasonality is ending soon, I think.

        Reply
        • Yes, ZEB (bank ETF) is in a downtrend at this point – but is showing potential signs of basing

          Reply
  • In this mornings BNN morning newsletter was this following statement which I wonder if you will shed some clarification on? It states “Pimco is out with a “buy riskier debt” recommendation as high yield fund flows balloon (and the high yield funds HYG bounces big off the lows)”.
    1) who is PIMCO and why are they important enough to quote?
    2) “riskier debt” I presume is junk bonds. I see they referenced HYG and presume this is a mutual fund buying up a variety of junk bonds. Are there other and better funds covering this asset class, ideally cdn dollar hedged?
    3) Is this an asset class worth investing in this type of economy and market? It has dropped ~14% since end 2013.
    4) High yield bonds presumably pay high dividend. Do the funds like HYG pay a high dividend on top of the opportunity for capital appreciation?

    Thanks for whatever insight you might offer on this asset class.

    Reply
    • PIMCO is a very widely respected and very large bond fund company in the USA
      Yes, – Frances referred to riskier debt in reference to high yield bonds and / or junk bonds. HYG is a fund (ETF) holding such bonds
      We own a small (5%) weighting in a high yield bond ETF. We think they are a reasonable bet–but you will want to be confident of the manager behind the fund, or you can just buy an index ETF
      They pay interest flowing from the bonds –not dividends. If the sector, or the bonds selected by the manager appreciate, they can offer capital gains. They do offer non-correlation to investment grade bonds–think of them more like a small capped equity type of vehicle. Risk, reward.

      Reply
  • Hello Keith, I always enjoy your commentary. I am looking at the S&P 500 that has just bounced downward from it’s downward sloping trend line (resistance). Alternatively, in Canada I am looking at the SPTFS (financials) that have also bounced downward from it’s downward sloping trend line (resistance). So which way are the markets going?? I have heard one camp of thought (including Larry Berman) that think we have another lower low (lower than January) to put in before this is all over. Yet another camp thinks the lows are in. What’s your call?

    Reply
    • James if there is anything i have learned NOT to do is make predictions. A true technical analyst can look at POTENTIAL resistance or support zones that may be hit if a current trend continues–but I advise TA’s to avoid suggesting a “target”. At this point, the market is – from a weekly chart (intermediate termed perspective) in a bear–while from a daily chart (short termed) bull market. So to exit the intermediate termed bear and become bullish, we need to crack the 200 day MA (done), the 200 day MA should also start sloping up (not done), and a higher high needs to be put into place (2135–not done). So there is a potential for markets to reverse at current levels as they struggle around the 200 day MA point and former neckline resistance from the summer. If the market does not move on up in a few days, it may suggest that the January lows would be taken out. But its premature to target that to happen.
      You do note another point–the banks (US) are struggling here–and oil seems to be stalling too. Both are not adding to the bullish case!
      My prognosis is that we are – according to my rules–in an intermediate termed bear, and that won’t change until the above conditions are met.

      Reply

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