The pause that refreshes

November 28, 20169 Comments

It’s time for an overbought pullback on the S&P 500. Seasonal influences suggest that the markets should pull back a bit after the US Thanksgiving weekend, and pick back up again into December. Traditional momentum indicators such as RSI and stochastics are overbought – as well as some of the less traditional momentum readings like the level of the new high/new low ratio. Note that this indicator is above my “high” line – an overbought signal.

new-high-low

Meanwhile, the NYSE composite average of all listed stocks shows no new highs – diverging from the new highs on the more concentrated S&P 500 and DJIA indices. This suggests unfavorable breadth – i.e. a more concentrated market. I discussed this tendency towards a concentrated number of rising sectors rising after the recent election here.

nya

My short termed S&P 500 timing system, which I have referred to in many past blogs, is nearing a sell point. All three conditions are on the verge of signalling a short termed sell signal. RSI and stochastics are firmly overbought and Bollinger Bands show the market riding the high band. However, a sell signal will become official only when all three loop down – which will occur upon 1 or two down days on the market – should that likely event occur.

sp-timing

The conditions are ripe for some profit taking on the market. This trading system is a short termed system – it is not projecting a prolonged selloff. Use a selloff, assuming there is one, as a buying opportunity. Near-termed support lies between 2050 and 2080 on this index. At or near that zone might provide the opportunity to enter the market with any cash you’ve been holding in reserve.

 

9 Comments

  • Keith a question related to your Nov 17 posting on natural gas.
    You mentioned you traded UNG. I have held this holding since 2015 (yes I know I did not trade but lets park that failure of mine). I forecasted nat gas price to rise from where it was in Sept 2015, and I was correct by 26%.
    The question I have is related to UNG correlation to the price of Nat gas (ie $natgas in stockcharts).
    Sept 2015 when I purchased UNG at $12.55 $natgas was $2.65
    Today Nov 28 2016 UNG is only $8.43 while $natgas is $3.35.
    I understand they invest mainly in futures contracts but what I don’t understand is where the price erosion comes from. Why is UNG not well above my purchase price of $12.55 given $natgas is well above $2.65?
    Thanks

    Reply
    • UNG is very good at tracking the relative price of gas if held for less than a year. So too are most non leveraged commodity ETF’s. But you do have minor erosion over time due to rolling the contract with all of these ETF’s–it is inefficient when held long term given associated costs of rolling contracts and contango. Also the inherent MER–no matter how small–subtracts some of the price over time.
      I ditched my UNG a few weeks ago at a loss–I moved into tech stocks with the capital on the Trump-tech selloff –so sometimes you have to accept a loss like I did, and buy a faster race horse. Even if gas could rally, I try to evaluate if it can rally as much as something else could gain–and if one looks better, I want to be in the one with the greatest potential.

      Reply
  • Hi Keith,
    With reference to your recent blog on five commodities (copper in particular) , is this possible pause a good time to buy a good copper stock? Lundin and Hudbay which I have been watching, have pulled back quite a bit during the past few days as has the price of copper. I realize you don’t comment on specific stocks. I just would like you to comment on the copper miners as a group in terms of technicals and seasonality.
    Thanks as always,
    Joe

    Reply
    • Its hard to finesse it too much – they may fall a bit more given the overbought levels we recently saw. But the stocks in that sector are certainly looking attractive again – you could ‘leg in” –ie buy one now, and another in a week or so. If they go up, you own at least one. If they drop a bit more, you buy the second stock a little cheaper making your average entry better.

      Reply
  • keith…great work as usual…I hold a 1/2 position in pipelines and financials..would this pull back be a good time to fill these in your opinion or do you think these are crowded trades…thanks gene

    Reply
    • If you hold CDN financials I would play the spike on oil, but take a look at my blog today–which is on oil. CDN financials will move to some degree as oil moves. If oil fails at $52, sell the financials as they are exiting their seasonal period of strength by around the end of December. If oil breaks $52 and holds, they will likely prosper.

      US financials look really quite good–although a pullback is possible – not a concern if you are thinking in terms of holding for a few more months IMO. Pipelines are getting a new lifeline given the recent Gov’t approvals–and I will give our Fed a thumbs up on that decision (you may know how critical I am on their fiscal policies, but I will give them credit where it is due). So no, I would hold the pipes–despite any neartermed noise. I am mainly using any pullback as an opportunity to buy, and don’t have any inspiration to sell into the current rally, despite a potential for a short termed pullback.

      Reply
  • One of Trump’s seemingly preposterous election promises was to eliminate the national debt in 8 years. He has promised an audit of the fed in the first one hundred days. One candidate for the treasury (not the one he chose) was publicly in favour of abolishing the fed. One of best explanations I have found of how this corrupt institution operates is a video on youtube called moneymasters(3.5hours long) by Bill Still. He explains how debt repayment is plausible and is a must see for any one investing in banks. BKX is breaking out right now. A Trump presidency puts banks in the crosshairs because it the creation of money is based on debt. He could fundamentally change their business model and profits. I think this sector should have a sell strategy for that reason. A blog along this line would be helpful.

    Reply
    • That’s a topic that is probably out of my realm of expertise Bert–but its interesting that you bring it up. I cannot recall the name of the book that I read a few years ago–but it was essentially on that very topic–that is–the Fed is a controlling entity with a high level of power that some people do believe must be eliminated.
      –and yes the banks are breaking out (BAC looks fantastic). A sell strategy on this sector would be a failure to maintain above the neckline –if/as/when the sector continues to move, watch your peaks and troughs. It will be the first drop below the prior trough that causes a sell once a trend is established.

      Reply
      • Bill Still has been consulted by the team Trump. His wife was photographed with Trump confidante Sen. Sessions a couple of weeks ago. I remains to be seen if his opinion carries any weight. The perspective should be known from a risk management perspective. Still’s youtube channel was a good blarney buster during the election. He posted a video this morning about legal action in the Supreme Court of Canada about the Bank of Canada that I was not aware of. The media narrative will likely for a while be that interest rate differentials are going up BUY! They make most of their money on leverage. It is not something you want to see destroyed. He is a link about the story. https://www.youtube.com/watch?v=LJBvwm9dGXY

        Reply

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