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A Multi-Timeframe Look At Mid-Caps

September 14, 2014 by JC

Normally it’s either the Large-Cap Indexes like the S&P500 and Dow Industrials or the Small-Cap Russell2000 that get all of the attention. But there is a whole other universe of stocks that are stuck in the middle; not big enough to be a Large-Cap nor small enough to be a Small-Cap. These Jan Brady Mid-Caps are stocks with a market capitalization between $2B and $10B. Names like 3D Systems $DDD, Foot Locker $FL and Cheesecake Factory $CAKE fall into this category.

We start with a weekly logarithmic candlestick chart of $MDY for a more structural perspective and work our way down to the near term for execution and risk management. Here we can see that in July prices of the Mid-Cap ETF broke a major uptrend line from the 2009 lows. This broken uptrend line that had served as support for so long now appears to be turning into resistance:

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I would not want to own this as long as prices remain below that key uptrend line. At least not for now.

Next we are looking at a daily candlestick chart of $MDY with a 14-day relative strength index as a momentum reading. We can see that in early September Mid-Caps failed to exceed the July highs running into resistance and putting in what could potentially be a double top:

Another problem that I see here is that on this month’s highs, momentum put in a bearish divergence. This is not a good combination and suggests that the bears have the better risk/reward here. We would no longer want to be short above that 264 level that has been trouble over the last few months.

Over the short-term, that 254 level looks like it should serve as support. This level was resistance back in March and April, then turned into support during July. The bulls really need to step up and control that level, otherwise, things could get ugly.

A rising 200-day moving average also favors the bulls. It’s hard for markets to have steep corrections with upward sloping smoothing mechanisms like that. I would become much more neutral towards this market as we approach that moving average and support from August, then reevaluate the situation.

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Tags: $MDY $IWR $SCHM $JKG $IVOO $IJH

Short-term View of US Stock Market Averages

March 31, 2014 by JC

As we finish up the first quarter, let’s take a look at all of the major US Stock Market Averages. Some of them are showing more strength than others, but similar support and resistance levels can be seen across the board. I came into the year bearish about the US Stock Market, and that has worked well so far with all of them up or down 1% YTD. But as always, I’m trying my best to keep an open mind. You have to.

The first chart is the S&P500. We’ll use ETFs to keep things simple. Here is $SPY managing to stay above all of that January resistance. The bulls are still in control and there is nothing wrong with this chart until those levels are broken. Just below this critical 184-185 level is a 50 day moving average was well. One warning sign is the bearish momentum divergence at the recent highs. But price pays, so until this shaded area is broken, there is little to be overly concerned about.

Notice the difference between the S&P500 and Nasdaq100. In the $QQQ chart below, the Nasdaq100 is already below the January resistance. The exact same shaded area seen up above in the S&P500 is drawn in the Nasdaq100. The bearish divergence in momentum is actually even worse than in the S&P500. This is why we put out a sell short Nasdaq call a week ago as long as prices are below 89.

The Dow Jones Industrial Average is a bit of a difference story. The first thing that stands out is its inability to make a new high in March. While its counterparts were able to exceed their previous peaks, the Dow Industrials are still battling. This divergence has the Dow Theorists nervous (see here). Once again, it’s the shaded area that we’re watching here to signal more trouble ahead.

The next chart represents the Small-cap Russell 2000. This is another one that was able to make a new high into March and then failed quickly back below the January highs. We can put small-caps in the same category as the Nasdaq100. Bearish below the shaded line and more neutral/bullish above it.

The Mid-caps look a lot like the S&P500. Here is the $MDY representing the Midcap400. Like the S&P500, Mid-caps made new highs into March and have so far retested their January highs and former resistance levels successfully. As long as last week’s lows hold, which represent the January highs and 50-day moving average, then the bulls are fine. Below that and things get hairy.

There are a lot of if/then statements here, and that’s for a good reason. I’m not certain of anything and if someone tells you they are, you should run. I look at all of my charts with a very open mind. I always try to assume I’ll be wrong and try to find a level that would signal that to me. Sometimes those levels are less clear and in those cases I try to stay away. Up here we can easily see which indexes are stronger and which ones are weaker so far in 2014. Comparing the averages tells us a lot, especially when these January/March levels have been so universally relevant.

These are the levels we’re watching. I think they’re the most important right now. If/when that changes, we’ll readjust our strategy.

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Tags: $DJIA $DIA $DJI $QQQ $NDX $IWM $RUT $MDY $SPY $SPX $ES_F

Highlights From Weekend Charting

February 15, 2014 by JC

It was an ugly snowy Saturday in New York City so it was the perfect occasion for a long charting session. I really enjoy a nice weekend afternoon of coffee, classic rock and candlesticks. It’s the little things in life you know…

While I rip through all of my charts, I make my annotations and save everything to a hard drive so I can always reference them in the future. This way I can see what I got right, what I got wrong, and more importantly why. I’ve been doing this my entire career as a technician. Anyway, along the way I shared what I thought were some of the more interesting charts on Stocktwits. Here is a copy of my stream.

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Tags: $CAT $DJIA $DIA $DD $GS $GE $VIX $MDY $QQQ $NDX $IBM $MCD $MMM $MRK $UTX $VZ $XLE $SPY $OIH $TAN

Weekends With Allstarcharts and Pearls

October 6, 2013 by JC

I think we covered some pretty important topics today. Something that stands out to me is how much better Small-caps and Mid-caps look when compared to the Mega-cap Dow Jones Industrial Average. Also, the Euro is approaching significant resistance that brought out the sellers earlier this year. And with the amount of pessimism in the US Dollar, this makes perfect sense to me.

I hope you enjoy!

Tags: $EURUSD $DJIA $MDY $IWM $DX_F $UUP

The Dreaded Black Candles Are Appearing

September 16, 2013 by JC

It doesn’t get uglier than the infamous black candlestick. This is especially the case at or around important resistance. And we’re seeing them showing up in the S&P500, Russell2000, MidCap400, and even in the MSCI Emerging Markets. To make matters worse, the Nasdaq100 tried to put in a big black candlestick, but failed to stay positive putting in a long red one instead. Nasty….

For some of you newcomers, we like to use Japanese Candlestick charts because each individual candle tells a story. In the case of this evil black one, it indicates exhaustion, followed by some selling pressure. You see, after a nice advance (as has been the case in equities), a black candle like this can foreshadow a reversal or key turning point. Here’s what these guys look like: 9-16-13 qqq black The Japanese tell us that the longer the black candlestick, the worse the implications are for the security in question. So let’s think about the psychology for a minute. Forget today’s news, let’s just focus on price. The market gaps higher at the open, gets everyone excited, but then fizzles as the day goes on to close at or near the lows. After a nice advance, the market is just tired. The bulls saw their chance to sell and jumped all over it. Those who didn’t are caught holding the bag. And that’s why a candlestick like this appears at or near turning points. Think of it like an omen of sorts.

Last time I wrote a blog post about something like this was last summer. We started to see the black candlesticks showing up in both US Dollars and US Treasuries. At the time, it seemed like the entire world was bearish equities and using these “safe” assets as a hiding place. Well, as it turned out, the black candles did indeed provide us with a heads up that something was changing. Those black candles marked highs in both the US Dollar Index and US Treasury Bonds that we haven’t seen ever since.

Ignore the black candles if you want. But when they show up, I pay attention….

So how does this get worse? and How does this get better? These are the questions we should all be asking ourselves.

In my opinion, a gap lower Tuesday in these averages leaving this one black candle standing alone is probably the worst case scenario. This would create an island reversal of sorts, another bearish pattern, which would confirm Monday’s action and would probably lead to a fast and violent sell-off. How do we invalidate the black candle? I think if we have an inside day Tuesday and kind of chill out for a few days before eventually taking out Monday’s highs, that would be really constructive.

Careful out there….

Tags: $SPY $IWM $MDY $EEM $QQQ $UUP $DX_F $TLT

MidCaps Are At Huge Levels

June 13, 2013 by JC

It’s not just about the Dow and the S&P500 ladies and gentlemen. Let’s not ignore the legend that is the S&P MidCap 400 Index. Until just a few weeks ago, MidCaps were the best performers year-to-date of all of the major US averages. Through most of May, the MidCap 400 was still outperforming the Dow Jones Industrial Average, Nasdaq100, S&P Small-Cap 600 and the Russell2000. But now we’ve arrived at some critical levels.

We’ll use the $MDY – SPDR MidCap 400 ETF just to keep things simple. Here’s what I see: all throughout April and early May this 209-210 level was major resistance. We saw various tests which showed us huge evidence of overhead supply. Once that supply dried up, midcaps rallied a cool 6% in 3 weeks. That’s a big move:

Now, all in theory of course, former resistance should become support on the way down. Last week, this polarity proved itself to be valid as the buyers showed up nicely. But this week, we’re down here again. Will the buyers show up once more?

Here’s the problematic development that I see. When midcaps broke out to make new highs last month, the relative strength index never confirmed. We saw lower highs in RSI without any overbought conditions as prices went on to make new highs. We don’t like that very much.

So I would say that any break below those key lows and it would probably make sense to short against it. But for now, as long as prices remain above those 209-210, we need to give the bulls the benefit of the doubt. This looks like a big battle ground area from where I’m sitting. Take a look at the $MID Index itself and you’ll see the same thing.

The resolution here should be an important one. Stay tuned…

Tags: $MDY $MID $SPY $DJIA $DJI $IWM $SML $QQQ

S&P500 Holds Uptrend Line For Another Day

June 6, 2013 by JC

The big uptrend line from the November lows remains intact through Thursday. After flirting with it earlier in the day, S&Ps closed back above the support line on a closing basis. I think this is a big one.

And it also coincides with the 1600 level that we’ve been talking about for the last few months. That’s some important support as well.

Something interesting that I noticed today was the relative strength in mid-caps. While the Dow was off 100 points around the lunch lows on Thursday, Mid-caps were in the green the whole time. As it turns out, mid-caps are at huge former resistance levels. These are even more critical that S&Ps at 1600 because of how many times it was tested to the upside throughout March and April.

That’s what I see. What do you guys think? Do we hold or break?

Tags: $MDY $SPY $SPX

Nasdaq Composite Breaks 50 Day Moving Average

April 18, 2013 by JC

Normally I wouldn’t make too big a deal about a move above or below a specific moving average. In my opinion, the direction and even the slope of the smoothing mechanism is more important. But in this case, the Nasdaq hasn’t closed below this particular moving average all year. So like the Small-cap Russell2000, like the S&P Mid-cap 400, the Nasdaq Composite can now be added to the “below its 50-day list”. Remember, these 3 are the averages that led us during this bull market. It now seems that these are the ones leading us lower, as the S&P500 and Dow Industrials have yet to break.

As far as the consequences for the Nasdaq go, the news isn’t great. According to Sentiment Trader, the Nasdaq Composite just ended a steak of 73 trading days closing above its 50 day moving average. In the index’s 40-year history there have been 37 such streaks that lasted more than 3 months. But just 4 times has the streak ended after setting a new 52-week high within the past week. Over the next 3 weeks, the index lost value in all 4 of those occurrences. The losses resulted in at least a 4% decline each time. At its worst point over the next 6 months, the Composite lost at least 10% each time as well.