Published on August 12, 2019 @ 9:26am
Major averages move lower to kick off the week - more downside still in the cards. Various sectors technically point to lower levels. It's all about the close over the next few days. Commodities updated - gold, bitcoin, oil and the dollar.
Volatility Likely to Continue for Major Averages - Major Index Levels to Eye
There's no question we've had a lot of ifs and either or scenarios lately when it comes to all of the major averages and the sectors associated with them, and that isn't likely to change anytime soon. Although there were a few encouraging days for market bulls late last week, the major averages have put themselves yet again right back into another key either or scenario.
First, although there was a point a little over a week ago biotech, pharma, small caps, retail and semis were starting to look technically attractive again, that notion quickly shifted to more of a negative bias, and are now still suggesting the good possibility of more downside ahead.
At this point, should the major averages close below certain levels as soon as today or tomorrow, it does appear these markets aren't done moving lower. However, if they can find significant strength over the next few days there is still the possibility of last week's low having been a bottom that could last for a while.
Fundamentally, stocks still aren't all that expensive. As a matter of opinion, a declining rate environment may even add further fundamental context for stocks to go higher. Why? Considering there aren't many places other than equities professional money and large institutions can put their money right now for decent enough gains, there's enough of a backdrop there to suggest higher levels ahead for stocks.
Technically, however, this is where we have to determine if there's more downside ahead before the major averages will be ready to move higher again, or if last week's lows were good enough to take these markets higher now.
Provided here are daily charts of both the NASDAQ Composite and the S&P 500. As you can see, both indices found their way back above their 3X3 DMAs (blue lines) Thursday and Friday. That was no doubt encouraging. However, the fact that both indices had spent six days below those key displaced moving averages first is still definitely a concern. Meaning, even though the major averages staged a sharp reversal back to the upside late last week, they merely put themselves back into a position to resume their recent trends lower.
The bottom line is if the NASDAQ Composite and the S&P 500 close below 7,807 and 2,870 respectively as soon as today or tomorrow, we'll likely see a resumption of the bearish trend that was confirmed a little over a week ago. Should that not happen, we'll simply have to wait and see how things unfold over the next few days.
It's clearly a bit of a dicey environment right now, so we'll continue to exploit new bullish ideas sparingly, take advantage of any developing strength in TZA, and possibly even suggest a few more bearish leveraged index or sector based ETFs. However, if the major averages can convincingly build on last week's strength over the next several days, we'll have to cut TZA and look to potentially enter into at least one bullish leveraged index ETF.
Commodities and Currencies Updated - Gold, Bitcoin, Oil and the Dollar
Following a breakout week for the dollar two weeks ago, it did finally settle a bit last week and move lower - likely on the fundamental event of China stepping in and supporting its currency and other countries around the world cutting rates. One week though does not a trend make when it comes to the dollar lately, so it's probably not a good idea at this point to expect a breakdown in the dollar anytime soon.
Gold sure hasn't cared - moving dramatically higher in recent weeks. Provided here is a monthly chart of GLD, and as you can see, the complete 5/8th's retracement level from its 2012 high to its 2015 low sits at $145 and change. Therefore, despite any short-term volatility associated with the metal it still appears the primary ETF tracking gold is headed toward $145 before it should finally hit significant resistance on at least a short-term basis.
The bitcoin ETF in GBTC is finally starting to give us enough technical data to suggest at least the possibility of another sharp move higher developing. However, we don't want to jump the gun just yet. Although we did mention bullish bitcoin traders could take a shot around the $14.25 level in GBTC last week, we'd prefer to see a break and close above its 3X3 DMA (blue line), which sits at $14.78 on this daily chart here, before we'll potentially add it to our current open list again.
As for oil, the commodity is having a surprisingly good day despite the major averages struggling. Not something one would have expected considering oil is the one commodity tied to economic sentiment and other more market driven instruments. In other words, unlike gold and bitcoin oil isn't a hedge against a major market downturn.
Nevertheless, the markets are always right and oil is having a good day so far. However, much like the major averages it too has now only spent a few days above its 3X3 DMA (blue line), so it's still in a position over the next few days to resume its recently developing bearish trend lower.
Just like with everything else in the markets nothing is ever a guarantee, but for those who haven't participated in an oil trade over the last few weeks, now wouldn't be a bad time to add some SCO, the primary bearish leveraged ETF tracking the price of oil.
Obviously we already added it to our open list back on August 6th. We were up as much as 12% in the idea when it appeared oil was going to move substantially lower, so considering SCO is right around a break even now since adding it to our list, it's just another example of how a 10% gain in anything isn't a bad time to cut something when it comes to short-term trading these markets right now.