The great thing about Technical Analysis is that it is dynamic. If you read my blog regularly, you will know that I really, really don’t like “thematic” opinion-orientated investment theories. Too many investors formulate a thesis on market directions – bullish or bearish. As I noted on Monday’s blog, you are better to be one with the market. In that way, you have no market theory that keeps you in or out of a trade. You go with the flow, baby!
Case in point. A couple of months ago, I blogged on potential sectors that investors might look at for tax loss selling purposes. One of the ETF’s I mentioned was the broad ranged Emerging Markets ETF. It was in a definitive downtrend. As, by the way, was the Emerging Markets bond index. .
My, how things can change! As you’ll note on the chart below – which is the iShares EEM equity chart – the Emerging Markets – as a collective- aren’t submerging any longer. In fact—they are very certainly basing. If you read my book Sideways, or look at this video that I produced a few years ago on formulating a buy/sell discipline, you will note that bases are indeed a wonderful thing. They set the stage for the ideal entry point for opportunistic investors like you and I.
On the EEM chart below, you will note that the current base is capped with a neartermed ceiling of around $41.50 –pretty close to where the ETF sits right now. Referring to my book or the video, you will note that a break through that base (count 3 days) could prove to be the beginning of a very bullish trend for EEM. Confirmation of the uptrend would come from a break through the 200 day SMA—and that might not take too long, given its current price point of just over $42. To me, this is a position that I am certainly watching for that potential entry point.
Take a look at the Emerging Markets Bond ETF, EMB. It’s even more attractive, having already broken out of its base. In fact, it’s already above the 200 day SMA. If anything, the ETF looks a little overbought at this moment. I’d bet that a short termed pullback is due on this ETF – which may provide an interesting entry point. Keep an eye open for that potential too!
Keith on Bloomberg/BNN TV Thursday January 24th, 2019 at 6:00pm
Keith appears regularly on BNN Bloomberg MarketCall to answer viewer questions on the technical analysis of stock trends, and to provide unique insights on the factors of technical analysis used in successful investment management. (Note: Times and Dates may be subject to change)
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15 Comments
HI Keith,
Great blog post.
I have been sitting in cash for several weeks and still have not bought a into this market. I know you have a 3 day up rule and the markets have been above 2580 for over a week now. Is know finally the time to jump in? I feel I missed a good rally from Dec. 24…..just watching and watching the markets keep moving higher pretty much every single day.
Right now the market is overbought–expect a pullback shortly. I expect to leg in as that develops, and see how the flow goes.
It’s quite amazing how this market went from the toilet to the penthouse on the flip of a dime. Do you think those comments from the Fed about slowing down rates is what boosted it or was it noise? I know when you look at a 1 hour chart, you can see the price take out the MA’s on Dec 28, hold the 50 day MA (on the TSX 1 hour chart) and then bounce off it on ~ Jan 3. The more I watch the market, the more confusing it gets! Lol
Its hard to read, for sure WS. We have to acknowledge the break through that 2580 level as bullish, but we have to also acknowledge the rapid move off of Dec 24 as rather parabolic and driving conditions into overbought territory (see my comment to Ray). So, I am playing the middle ground by raising some cash but not being too aggressive about that stance.
I would be cautious about trying to trade a range in the S&P now . I think what you will see is a slow melt up in prices. Those holding off trying to time the market and waiting for another pull back may be disappointed
The market can sometimes stay overbought for some time defying the overbought readings on stochastics and RSI. That’s what we may experience here. Especially now that we are entering earnings season and the seasonally strong period for stocks
Dave–absolutely true—short termed indicators like stochastics can remain overbought or oversold for a while – and markets can also run alongside a bollinger band (upper or lower) for days or even weeks (daily chart). Hence my comment to Ray–the timing system I use requires all three to go into overbought territory simultaneously. Right nw we have stochastics running very high along overbought lines, but RSI is not at all near the overbought level–while price is still perhaps a % or two from hitting the upper BB, let alone running alongside it. So, I am cautious and raising cash as individual stocks hit targets– but not running for the hills.
HI Keith,
FOMO (fear of missing out) is prevailing.
Fund managers ‘must’ buy into this market, they have no choice, otherwise they will lose their jobs. Even though a plethoria of companies have lowered forward guidance and have missed revenue expectations, the market keeps climbing higher. If only the masses people who’s retirement investments knew the true on how their money is being managed.
Ray–I’m with ya, man! We just sold another chunk of equity- crowd behavior combined with pressure on managers to stay with the market – its what makes TA so valuable at times like this -we are now at 22% cash in our model. My neartermed signal for the SPX system is not quite “there” for a sell signal, but its close enough to warrant some caution
Hi Keith,
Based on the volume and breadth of the market, it looks like the S&P 500 has plenty of momentum. Four weeks in a row now of positive markets. Volume growing bigger, and bigger each day. The S&P 500 will be at 2800 sooner than most think. Any dips are bought aggressively, as we saw yesterday. I think the smart money has been the biggest buyers over the last four weeks.
Stan, interesting you mention volume. From the low on Xmas eve until last monday (Jan. 14) volume was declining as markets rallied. Since then, however, you are correct in that it is moving up.That is positive.
Re smart money vs dumb money–Smart money was 76% bullish on Dec. 24 (bottom). It is now down to 55% bullish. That is a pretty big decline in confidence by that important group. Meanwhile, on Dec 24 only 11% of dumb money was on average bullish—they are now in dead-heat (53%) bullish–Conclusion….smart money is starting to get worried, dumb money is starting to regain confidence. At these current levels, there is no buy/sell signal…but you don’t want to see too much more bullishness on the dumb money side/ or too much more decline in smart money confidence (source: http://www.sentimentrader.com)
This is sure helpful.
I’m a bit of a bear and suspect that I’m not alone in saying that I froze because I didn’t trust the speed and power of this melt-up. Now I fear that I missed out. I’m wondering whether we’ll get a decent pullback. Are you wondering this too Keith, thus legging in?
I’d like to add that appreciate the discussion on managing momentum indicators. I’ve had difficulty trusting B-bands and RSIs for the reasons mentioned. You guys are good, thanks again.
Sally, its not a bad thing that the market has risen–although you are 100% correct that it has been head-spinning. Yes, I thin we will get a neartermed pullback quite likely this week. I sold a couple of positions late last week, and plan on rotating into new positions on a pullback, and yes, will leg in a bit at a time. There is always room for caution –this is not a clear cut bullish setup.
Hi Keith. You looked marvelous on BNN last evening. So, EEM is at $42.23. That’s the price point you talked about. Or do you wait a couple more days? You mentioned ZEM last evening. Its now at $19.54. Time to pick some up, as far as your analysis tells you?
Thanks Tom
I’m not in on ZEM yet–we need a few days of confirmation of a breakout to allow me to pull the trigger