August was a crazy month with huge volatility. The volatility is still not gone. No one knows which way the markets are going and fear is controlling the trader’s decision making process.
A couple of months ago, everyone was talking how the markets have not gone through a healthy pull back i.e. 10%+ correction. It was needed in order for the markets to continue to move higher throughout the year.
When we finally got the 10% correction everyone was asking for…now everyone is completely bearish. How? The markets gave everyone what they wanted. The correction is a small percentage of the huge movement we have undergone throughout the last couple of years.
Many people are judging the stock market from the Indices. The problem with the indices is that they are weighted. Couple of instruments can cause a “bias” for the indices. As a result, sector analysis should be performed in order to see what really is going on.
Here is a high level short term view of all the major sectors. The green shaded pie chart illustrates that majority of the sectors based on “weighting” are still in a short term bullish mode.
The data behind the pie chart is as follows:
Below is the complete research behind all the individual sectors. The research involved pure technical analysis….no fundamentals. We believe in the actions that people undertake instead of theories. Actions are what moves the price. Without the actions, theories are just words.
The research analyzes the monthly, weekly, and daily time frame. The monthly time frame gives a trader a 2 to 5 year projection. The weekly time frame gives a trader a 6 months to 2 years project. The daily timeframe gives a 1 to 6 month projection.
Please note, all the charts are from eSignal.
Below shows the eSignal monthly chart for the Healthcare SPDR ETF. The chart shows it is still in a strong bullish trend. In order to start a major pull back long term, the support at 64.50 has to be broken. To continue the bullish trend, the resistance at 71.92 has to be broken.
Below is the weekly chart. Since Dec of 2011, we have been above the cloud. This indicates that the sentiment has been bullish. With all the volatility within the last two weeks, we have maintained the bullish sentiment so far. If we close within the cloud, the sentiment will become neutral for the first time.
Below is the daily chart. The sentiment is bearish. However, it is in a major pull back mode bullish. As long as the support of 66.98 is held, the bullish pull back will continue to occur. The 66.98 level is the border condition between the sector being bullish vs. neutral long term.
In summary, XLV is bullish short term as long as the multiple time frame support of 66.98 is held. A trader may trade it bullish to retest the minor resistance of 71.92 and/or major resistance at 74.08. The 74.08 is the major resistance that controls the long term sentiment for the Healthcare sector. The lowest risk trade is waiting for XLV to retest the 66.98 level.
Below shows the eSignal monthly chart for the Consumer Discretionary SPDR ETF. The sector has been extremely bullish October 2011. Since October 2011, price has yet to break the 9 bar support (red). Right now, we are “flirting” around this support. Until we break the major support of 69.35, the Consumer Discretionary will not engage in a long term major pull back.
Below is the weekly chart. The major support controlling whether this instrument enters a major pull back is at 73.27. Two weeks ago, we went below the support but we closed above it at the end of the week. As a result, we didn’t break the support and still have not gone through a weekly major pull back. In order to continue the bullish trend, price has to break the resistance at 77.89.
Below is the daily chart. It is undergoing a major pull back to the cloud i.e. resistance of 77.89. The daily chart will continue to go through a bullish pull back as long as the major support at 73.27 is held.
In summary, Consumer Discretionary is bullish above the multiple time frame support of 73.27 until it reaches the major resistance of 77.89. If we break the support of 71.07, we will have a high probability of retesting the pivot low of 66.11.
Below shows the eSignal monthly chart for the Technology. The sector has been extremely bullish October 2012. Since October 2011, price has yet to break the 9 bar support (red). The support is now at 37.60 right now. Until we break this support, the Technology will not enter a major pull back.
Below is the weekly chart. We are at a “border” condition right at the support of 39.28. This is the boundary condition for the sentiment. The sentiment is neutral as long as we hold the support at 39.28. If we break it, the Technology sector sentiment will change to be bearish and price will have a high probability of testing the support at 37.60.
Below is the daily chart. The chart shows that we are in a bullish pull back trying to get to the cloud I.e. resistances at 41.41/42.32. The bullish pull back will continue as long as the support of 37.60 is held.
In summary, the Technology sector is bullish short term as long as the support at 37.60 is held. It will be bullish to the major resistance of 42.32. If it breaks that resistance, then the short term bullish will start to move long term.
Below shows the eSignal monthly chart for the Financial SPDR ETF. The sector has been bullish since Dec 2013. As long as we maintain the support at 22.05, the sector will not enter a major long term pull back. In order for the bullish trend to continue, the resistance at 24.32 has to be broken.
Below is the weekly chart. The sentiment is bearish but has not started the trend yet. There is high probability for price to retest the support at 22.05 as long as the resistance at 23.17 holds. If we break the multiple time frame support at 22.05, we will have a high probability of testing 18.57.
Below is the daily chart. It is going through a bullish major pull back as long as the support of 22.05 holds. As long as the support of 22.05 holds, there is high probability of getting to the resistance of 23.17.
In summary, the daily and the weekly are in a conflict. The daily is telling us that price is trying to go bullish but the weekly is trying to go bearish. Therefore, a trader should be neutral until both of them agree. This agreement will be resolved if price breaks the support at 22.05 or breaks the resistance at 23.17. Between these values, there is a “no trade zone”.
Below shows the eSignal monthly chart for the Consumer Staples SPDR ETF. Last month, the sector closed right at the major support of 47.34 . The counter trend levels are 47.34 and 45.00. If price holds 47.34 then the bullish trend can continue. If the support at 45.00 is broken then a major long term pull back can occur.
Below is the weekly chart. The sentiment is still neutral. The sentiment will turn bearish if we break below the cloud. If we break above the cloud, price will try to retest the pivot high. The support of the bottom of the cloud is changing for the next 5 weeks so it isn’t that strong.
Below is the daily chart. The daily is in a bearish trend. It held the pull back resistance at 47.33. Price now has a high probability of getting to the next support of 45.83. If the support breaks then it will have a high probability of getting to 43.77.
In summary, the daily and the weekly time frame are in conflict. The key support controlling the indecision is 46.35. If we break this support then the daily/weekly will become bearish and price can start a bearish trend to get to the monthly support of 45.00.
Below shows the eSignal monthly chart for the Industrials SPDR ETF. The monthly time frame is going through a pull back. It will not be a major pull back until we close below the green line support. Unfortunately, the green line support is moving so there is no stable value that can be given for it. Values are changing every month until it “settles” down. If we close below the green support, then a long term major pull back can occur. The pull back will be over if we break the resistance at 52.91
Below is the weekly chart. It is in a bearish trend. The trend will remain as long as the resistance at 51.17 holds. Last week, we tested this resistance and it held. There is high probability of reaching the support at 48.09.
Below is the daily chart. The chart is in a bearish trend and will remain in this trend as long as the multiple time frame resistance at 51.17 holds. However, the bearish trend can not resume until the support at 49.73 is broken.
In summary, price is ranging between 51.17 and 49.73. If we break the support, the bearish trend will resume to retest the pivot low at 48.00. If the resistance breaks then all the time frames will be in conflict causing a consolidation pattern.
Below shows the eSignal monthly chart for the Telecom SPDR ETF. The monthly sentiment is bullish but we can’t conclude much since we don’t have enough bars for all the Ichimoku indicators. However, it can be seen from the charts that price is consolidating above the support of 54.37 which is the same resistance it broke to start the “ugly” bullish trend.
Below is the weekly chart. Last week, we closed below the cloud since October 2014. Therefore, the sentiment is bearish as long as we hold the weekly resistance of 55.11. We now have a high probability of retesting the pivot low at 53.81.
The daily chart below is in a bearish trend. It retested the major resistance at 55.66 and held for now. However, it has to break the support at 54.37 in order for the bearish trend to continue.
In summary, the bearish trend can not continue until we break the support of 54.37. If we break the resistance at 55.66 then the bearish trend will move into a “ugly” consolidation pattern.
Below shows the eSignal monthly chart for the Utilities SPDR ETF. The monthly sentiment is bullish but going through a major pull back. We have to look at the lower time frames to get the supports since the top of the cloud is far away.
Below is the weekly chart. The sentiment is bearish but has not started a bearish trend yet. The support at 40.63 needs to be broken to start the bearish trend. There is high probability to break the support as long as the resistance at 43.69 holds.
Below is the daily chart. The sentiment is bearish. Price recently broke the pivot low and starting the bearish trend.
In summary, the Utilities sector is short term bearish to the support of 40.63. If it breaks this support, the short term bearish will move into long term.
Below shows the eSignal monthly chart for the Materials SPDR ETF. The monthly sentiment is bullish but is undergoing a major pull back. The top of the cloud is far away so we have to rely on the lower time frames for the supports.
Below is the weekly chart. The charts shows that it is in a bearish trend with minor pull backs that have occurred. Right now, we have a high probability of retesting the 40.55 support.
Below is the daily chart. The daily is in a strong bearish trend as long as it maintains the resistance at 42.93. In order to resume the bearish trend, the minor support at 41.56 has to be broken.
In summary, the Materials sector is bearish as long as the resistance at 43.69 is not broken. In order for the trend to resume, the support at 41.56 has to be broken.
I think everyone can predict the sentiment for this sector. All we have heard in the news is Energy…Energy….Energy. Some people are trying to pick bottoms and so aren’t…..
Below shows the eSignal monthly chart for the Energy SPDR ETF. Believe it or not, the sentiment is neutral….not bearish like everyone believes. Until we close below the cloud, the sentiment will be neutral. We have been maintaining on the monthly basis the monthly bottom cloud support. Is this the bottom?
Below is the weekly timeframe. It is in a strong bearish trend. Last week, it held the minor resistance at 66.78. The weekly timeframe is NOT indicating a bottom yet. Where price closes at this week can tell us a lot.
Below is the daily time frame. The trend is bearish but price is stuck between 65.09 and 62.80. If price breaks the resistance then the daily time frame will undergo a major bullish pull back to the weekly major resistance of 71.20. The 71.20 weekly resistance controls the Energy sector being bearish. Until we break the 71.20, the bottom of the Energy sector can not exist.
In summary, the Energy sector is bearish short term but not long term. Long term it is still neutral. If price breaks 62.80 then the long term sentiment can possible change at the end of the month.
EDUCATIONAL USE. Commodity Futures Trading Commission, Forex, Futures, Equity and Options Trading has large potential rewards, but also has large potential risk and may not be suitable for everyone. You must be aware of the risks and be willing to accept them in order to invest in these markets. Do not trade with money you can not afford to lose. This is neither a solicitation nor an offer to Buy/Sell. No representation is being made that any account will or is likely to achieve profits or losses similar to those discussed on this document. The past performance of any trading system or methodology is not necessarily indicative of future results