My TA shows more evidence of LIKELY continued volatility this week and mostly sideways or downward movement in the market in general.
I think this again will shake out weak longs AND weak shorts. THEN,...I suspect we will see new highs later this month. See below for the TA reasons.
Daily Transport chart was posted above with evidence of a recent breakout to the upside. Below is an hourly chart of the Transports showing we are at the upper end of a up trend channel and MACD above ZERO and rising but there is a slight BEARISH divergence (Blue line on MACD) This suggests a slightly higher move before a downward retracement of Transports and that the daily trend is not really in jeopardy unless this HOURLY trend channel is broken. So transports can drop ~2% to 9480ish without much chart damage to the trend. This is bullish for the overall market as transports are LIKELY to continue HIGHER.
S&P HOURLY chart below shows the recent down ward move was noted by the BEARISH Divergence in MACD (falling Blue line starting back on June 5 while price went HIGHER until June 19). Notice now we have an early BULLISH divergence of the MACD line (small blue line rising since the lows of June 29). This is forming a narrowing wedge with the upper MACD falling blue trendline. This is suggesting there will be price compression in the coming week. HOWEVER, looking at the trendline (Green/Red channels) you can see price is on a downtrend recently since the recent high of 2450 on June 26. We are at the right edge of the downtrendline and would reasonably expect a drop from here or just above these levels with the Red and Blue trendlines on the price chart suggesting possible resistance (Red) and support levels (Blue). This matches the MACD price compression described above and what I think will likely happen this week,...price compression and volatility ranging from 2407 to 2428 or so. Price could also drop as low as 2390 and still maintain the downtrend.
But I think we need a convincing break below 2390 for there to be any real damage to Daily and in particular weekly charts I follow. Otherwise I will consider such drops to be BUYING opportunities before breaking higher. I know many think the market has topped but I think there is an important rotation going on. I think we are getting a rotation out of high flying tech to value and financials and transports and many commodities except precious metals. Jury is still out on steel and copper in my opinion. IMHO, that's the reason for the sell off in tech/Nasdaq.
I do NOT follow fundamentals or news BUT I think you would have to be a complete idiot to not recognize that interest rates are at near all time lows and are starting to rise. We have to see how these issues will impact our trading. Lets look at Bonds, and Interest rates,...
TLT DAILY chart below shows a recent downtrend since the latter half of 2016 to Dec 2016. Then sideways action until March 2017 where an uptrend started up to a recent high of 128.31 on June 26 2017. Now notice that the uptrend has been broken. Also notice that the MACD line shows a trendline break JUST AFTER the recent high on June 26 and MACD is pointing down and about to break through ZERO. I have used this analogy in the past but this resembles a needle popping a ballon. If it is pointing directly at the ZERO line it is almost bound to POP the barrier (ZERO line) and when it approaches the ZERO line at a more shallow angle it often bounces and does not penetrate suggesting a good BUY. Here we have a POP setting up. My bet would be that TLT continues DOWN and below ZERO on MACD. It may have a slight retracement but I suspect we continue lower. This makes the most sense given RISING INTEREST rates. Also notice that the WEEKLY chart shows TLT MACD rolling over and about to also break below ZERO. This suggests a continuation of the weekly downtrend that started in July 2016 and momentum picking up to the downside and a downside target of TLT of about 115.
$TNX and BAC are charts of the 10 year treasury Interest rates and Bank Of America. Notice that the MACD and price of each of these charts almost MIMICS one another. As interest rates are rising Banks are coming more in favor,...obvious synergistic relationship. This also MIRRORS almost EXACTLY the TLT chart over the last 12 months. As the TLT chart shows its curling and breaking DOWN on MACD and price was rising and now breaking down this is exactly opposite to the $TNX and BAC. (Yields are rising as Bond prices fall)
Also notice that BAC has ALREADY BROKENOUT on WEEKLY chart. This suggests that TLT and $TNX are a little behind BAC chart but this adds more weight to my TA of the TLT and $TNX as being correct.
Putting it all together,....as the bond bubble breaks down further interest rates rise. As interest rates rise BANKS come into favor. Rising interest rates also signal some inflation is starting,....inflation means rising prices in COMMODITIES. Transports are also breaking out. Stocks will rise as bonds break down. So there is not as much of a need for safe havens like Utilities or precious metals. Stocks in general will go UP despite the recent selloff which I think is simply a rotation. I suspect it will NOT be the 5% drop everyone is calling for but more like a 2.5% or LESS move down on S&P. I will be buying when this happens and adding to shorts of GDX.
Trade what you see,
Eganon
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