Will news out of Euro-ville drive the markets higher next week? Or lower? Will earnings season rocket markets higher? Or lower?
September is generally not considered to be a good month for markets. Historically, returns in September run from flat to negative but this September the $SPX climbed 34pts & 2.42%, even after dropping 25pts and 1.71% in the last two weeks. That’s a pretty good return and much better than I had expected for the month, which I thought would give us pull back and buying op. I’m now looking for that buying op to come sometime in October, but I don’t know if that’s going to happen. I think it all depends on what happens to AAPL, the Q’s, and big tech in general as we head into earnings.
Q’s have been the lead dog in this rally and that’s all because of AAPL. If AAPL doesn’t come back to life soon, this stock and this key sector will drag the markets lower. As I’ve noted several times over the past few weeks, I’ve been watching the ADX for a sign that the rising trend is over, and it looks like that is what the ADX is now indicating.
The ADX rose to 33 and now at 25 has taken out the 28 low that was generated on 9/12. If you pull up a chart of the Q’s with Wilder’s ADX and look back at the June period, you will notice that during the down trend the ADX rose to 34 and then rolled. This marked the end of the down trend. Now the ADX is rolling once again. Will the ADX’s magic work now as it did in June? I don’t know, but what I do know is that the ADX only gives signals 2-3 times a year so when it does give a signal it and the index, stock, or ETF that it is tracking need to be watched very closely.
On the chart, I’ve drawn in a potential Bull Flag within the confines of the very large rising price channel that is rooted on the July lows. For now this is a Bull Flag and Q’s can break out of the formation at any time; however, if Q’s should drop below and close below 67.23 before breaking out to the topside, then this would add weight to the argument that the formation is actually a new falling price channel rather than a Bull Flag. And the first break to the top side may be a false break so it will take a couple of days to confirm the break, should we get one at all.
The 9EMA is sitting on the 20MA but the 9EMA has not yet clearly crossed down through the 20MA so per the 9/20 method the Q’s are not a sell, yet. Q’s are, however, extended above both the 50MA and the lower trend line, which has not been tested since July. Q’s may need to move back to the 50MA or lower trend. This would take them down near 67 and is nothing more than pure speculation at this time unless, of course, the ADX is giving a valid warning.
Breadth indicators are all giving neutral readings at this time but $NYSI has just given a fresh ‘sell’ signal as the 5EMA has just crossed down through the 10EMA and $NYSI dropped below the 20EMA on Friday. (The chart is on the Breadth Indicators page.) This is a warning that market strength is morphing into market weakness and this kind of weakness always precedes market declines. For the moment let’s just say that $NYSI is reflecting the weakness that we’ve seen over the past two weeks, and nothing more. But, if the market should begin to move up next week and if $NYSI does not follow along, then you can expect that the deterioration $NYSI reports will eventually take its toll.
If you don’t have a futures account, then you’ll want to look at the post below this one and specifically at the link I posted there near the bottom of the post. That link will give you a play-by-play window on the mini-Dow contract, among others. What you’ll want to look for is the size of the transactions so you can determine who’s playing. Transactions in the 1-10 contract range are most likely small-time traders like myself. As transaction amounts increase, then that indicates professional traders and when they get up in the 60-80 range and higher that indicates the big boys, institutions, etc. Further, you will notice that trading begins hot and heavy just before or right at the open of the cash markets and then dies down at noon and stays that way through lunch, or even longer. The big boys will enter the market sometimes around 3:00pm as by that time they know just how much new money they have from clients or just how many clients want to sell. You can watch them push the market around with 150-200 contracts at a time.
Thanks for stopping by and I just want to point out that my work on this blog is just about done and that at some point in the future I’m going to stop posting on any kind of regular basis. From that point on, you’ll be able to use this blog for reference and feel free to incorporate as much of what I’ve posted here into your own blog if you find it of any value, at all. To that end, I’m going to open up the blog to comments, something I haven’t done until now because I just don’t have the time to monitor. If you have a question about anything I’ve put up here, then now would be the time to ask.
When you make a comment, you won’t see anything until I approve the comment. This is how I keep the spammers away. Once you’re first comment is approved, any others will show up immediately.
And never forget that only the paranoid survive.
GL in the week ahead.