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Sample of Weekly Premium Analysis

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Weekly premium reports include a market recap with commentary, performance of selected large cap stocks and ETFs, technical analysis with unique indicators and directional probabilities based on machine learning.

Weekly Market Recap (July 3  – July 7, 2017)

U.S. stocks were marginally higher in the holiday-shortened week. The S&P 500 rose 0.07%, NASDAQ gained 0.21% and the Russell 2000 added 0.03%. Industrial goods and conglomerates led advances. Utilities and basic materials led declines. The 10-Year Note yield rose nine basis points to 2.39%. Gold and crude oil were lower. The U.S. dollar index was higher on the week.

Commentary

Large caps have not developed overbought conditions in about two months according to the indicators we use in these weekly reports. This lack of overbought conditions is the result of continuous sector rotation. In this way a broader correction is avoided although there is profit taking in specific sectors with technology impacted the most at this point. As we wrote in the previous report:

“This switch to risk-on limits the potential of a tech market correction in triggering a broader decline, at least for now.”

In fact, the switch to risk-on two weeks ago did not change last week. The low volatility S&P 500 ETF (SPLV) fell 0.1% on the week while the high beta S&P 500 (SPHB) rose 0.35%.

Our expectation last week that “the action will reverse in the holiday shortened week ahead and low volatility large caps will gain momentum with a switch to risk-off” did not materialize. Unless this occurs, downside momentum may accelerate. But the correction is only affecting primarily the technology sector with QQQ down 4.05% from a 252-day high on a closing price basis while SPY is only down 1.04%, as shown in the chart below.

Dow 30 stocks with large gains last week include JPM (+2.7%) and MCD (+2%).

   

JPM rose to new all-time highs and it is now overbought. Note that JPM will report earnings this coming Friday, July 14, before then market open.

MCD also surged to new all-time highs but it is not yet overbought. This stock was overbought for 19 weeks according to average weekly RSI(3) before taking a breather.

Dow 30 stocks with bearish price action

   

AAPL tested support around 142.2 but closed about two points above it. Another test of this support level is highly probable.

CSCO could test support at 30.37. Price action in this stock is bearish.

ETF Performance (includes dividends)

ETF Week YTD
SPY +0.13% +9.3%
SPLV -0.07% +8.7%
SPHB +0.35% +2.7%
SPHD -0.82% +3.6%
QQQ +0.09% +16.8%
IWM +0.13% +4.5%
GLD -2.32% +5.2%
TLT -1.72% +4.3%
UUP +0.36% -6.1%
DBC  -1.38% -10.0%

Technology (QQQ) is still in first place with +16.8% YTD return. S&P 500 (SPY) is in second place with +9.3% YTD return followed by low volatility S&P 500 (SPLV) at third place with +8.7% YTD return. Gold (GLD) dropped and YTD return fell to +5.2%. Bonds (TLT) YTD performance also decreased to +4.3%. Commodities (DBC) reversed to the downside after taking a breather and the U.S. dollar index (UUP) posted moderate gains.

Click on images below to enlarge.

   

Gold (GLD) fell through support at 117.4 and is about to test the next support level around 114. Note that GLD is still not oversold.

The short-term correction in TLT that started right after the golden cross continued last week (daily chart.) Support is near 122.15.

Technical Analysis

DJIA Average RSI(14)

The average RSI(14) of the Dow Jones Industrial Average in the daily timeframe fell to 50.39. This indicator is the average of the RSI(14) values of all current constituents of the index and it now indicates neutral short-term momentum.

Correction Indicator (CI)

As mentioned in previous reports, there is similarity between the current indicator pattern and that of the 1990s top. In addition, CI has dropped to levels that in the past have occurred along bear markets. The caveat is that this is a small sample size. However, the probability of a reversal to the upside in CI is very small. According to this indicator, market upside is limited and at some point there should be a sizable correction.

SPY Expectation

The 200-day moving average of the percent error between expected and actual price stayed negative last week, indicating higher probability of a short-term rebound. As mentioned in previous reports: “It is possible that there will be several changes in sign before a short-term correction occurs as this is normal near top formations.”

Machine learning (P-indicator)

Notes

  • In p-indicator results, the Last Date of weekly bars is shown as the last date of the week. The Open, High, Low and Close of weekly bars are based on the actual weekly variation of prices.
  • The calculations are based on weekly adjusted data for Dow-30 stocks since 01/2000

The weekly results indicate positive short-term bias.

TS is the profit-target and stop-loss file,  P-long and P-short are the long and short probabilities for a position in the corresponding ticker, P-delta is the difference  (P-long – P-short), a measure of the directional bias and S is the significance of the result (for weekly data 0 means low or no significance.) In the results, the Last Date of weekly data is the first date of the week.

There are 21 stocks with positive directional bias and 9 stocks with negative. The ratio of positive to total is 0.70. A ratio above 0.7 indicates strong positive bias and a ratio below 0.50 indicates strong negative bias.

Overbought/Oversold conditions

  • Overbought (OB)/oversold (OS) conditions are based on the average of four indicators: Wilder’s RSI(3), Cutler’s RSI(3), Harris’ RSI(3) and GFI(3). Overbought conditions occur when the average is > 90 and oversold when < 10.
  • ETFs considered: SPY QQQ DIA GLD SLV TLT USO DBC IWM XLF EEM XLE EFA EWJ XLP XLV, XLY XRT XLU XLK XLB XLI UNG IBB IYR TAN GDX XHB XME MDY
  • Tickers in bold indicate OB/OS conditions also in the daily timeframe

ETFs

OB: –
OS: EWJ, XLP, XLU

Stocks

OB: AXP, JPM, UNH
OS: CVX, GE, IBM, KO, VZ, XOM

If you have any questions, you can email us at: premium@priceactionlab.com

Disclaimer:  No part of the analysis in this blog constitutes a trade recommendation. The past performance of any trading system or methodology is not necessarily indicative of future results. Read the full disclaimer here.

Charting program: Amibroker

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