Economic and Technical Analysis 2015 Year End Wrap Up

S&P 500 August 2015 to January 2015 technical analysis torycapital

Stocks didn’t do much last year and it seemed like the big money managers had a hard time with several major hedge taking huge losses.  The S&P 500 rose .22 percent with a high but it was more than flat for most money managers. Oil continued to be a wealth taker and I was clear in my analysis which I followed up with later in the year reaffirming my prediction that oil would continue to go down.  The Dow Jones Industrial Average never came close to 20,000 as Dr. Seigel suggested and I predicted wouldn’t happen.

In a non-trending market – it pays to trade less and keep cash ready.  Buying on the dips became harder to justify after the sharp crash in August – which I predicted. I told friends on Facebook to watch out for a crash the day before the big drop to take credit for predicting it before anyone else- and I was right. The next trading day was the “August 2015 Flash Crash”.

Although stocks rebounded sharply, we ended the year flat and have begun the year right around the August low which many thought would NOT be retested.  The market appears directionless but a quarterly overview shows the S&P 500 is looking to break support and the current levels are key pivot points.

Stay tuned for my 2016 predictions, but in short I don’t see this year being much better than last year as the BRIC leveraging phenomenon continues to unravel and the economic data weakens globally.  The Fed needs to leave the door open to reverse course, even if they don’t – the window for raising rates had long since passed and it may be important for market participants to believe Yellen and company will be flexible rather than risk having Japan style growth for the next decade.  Some argue this may have already started because this is an extremely weak recovery characterized by bickering in Washington for the last 8 years.

If the data continues to show the U.S. Economy is weak and then the FED moves, it will invariably be too late. It may be time as I’ve suggested in the past to get rid of the terminology “data dependent” and start using better economic models to predict.

For example, Chinese economic data has been horrible for 3 years now and it’s been clear based on commodity prices that China was undergoing an economic contraction.  The numbers coming out of the region could not be trusted.

The Fed recently decided not to raise interest rates due to uncertainty in China which at the time some found slightly unusual.  Has China gotten any better?  And has the U.S. economy (which could be on the beginning of a double-dip recession…)?

I will be writing periodically at key levels I identify as important. I’m working closely with a couple of startups and can’t update my technical analysis too often.  In essence if you did nothing last year after my last post but sell or stay in cash- you are considerably better off.

The chart above shows a breakdown in early December when the 50 day moving average crossed back over the 200 day moving average which traders watch carefully but there was no follow through.  Other indicators I watch carefully showed a continuing decrease in appetites for equities during a seasonal period where rallies tend to occur in expansionary cycles.  My social media indicators confirmed this.

The market is currently at a level that may entice some new buying in the short-run and this may be an opportunity for buying on the dip, however, global sentiment is overwhelmingly negative which may call for allowing the dust to settle. Keeping cash as I suggested in August before the flash crash may be the best solution for preserving capital in this current volatile market with top companies like Apple taking a whopping of a loss in share price over the last 5 trading sessions.  I will revisit last year’s predictions and make new forecasts for 2016 in the next update.

August 2015 Stock Market Technical Analysis

The U.S. Stock market has been losing steam as of late with leading stocks like Apple steadily declining and once hyped recent IPOs like Alibaba continuing to descend.  I was the only economists/trader to disagree with Dr. Seigel that the Dow would hit 20,000 this year (that I know of), now that call seems more reasonable here in early August 2015.   Here’s an excerpt from that article,

“Will the Dow hit 20,000 this year as Dr. Siegel suggests?  It seems unlikely to me that this could occur in the next 6 months if current trends continue.  I expect to see the 2nd largest wealth transfer shift in history if oil prices continue to nosedive.  The recent rally of 8 percent shows the transparency of heightened volatility in the mature stages of a decline.”   read more here.

Oil continues to be a source of wealth deterioration and my call in 2013 that major commodities would fall steadily seems to be holding up quite well. Gold bulls have been hurting for the last few years without a serious bottom developing at this point.  And while the S&P 500 has breached critical technical analysis levels I follow closely,  I did not see the irrational exuberance that typifies a true market top. On Twitter a few days ago, I mentioned not participating in the stock market until I saw the movement of at least 2.5% in one direction or another for more assurance that we were not in a rangebound-accumulation or distribution phase.

Since then, a pattern has been confirmed with a highly negative bias.   It might be time to put cash on the sidelines and save capital to look for better equity price entry points that may be coming in the next few weeks.   Technology stocks and small-cap stocks or showing no leadership such as Tesla, yet I didn’t see the retail participation that would have called for being more defensive. The most hated rally never became the most beloved rally, but if current levels can’t hold for the major averages, it may signal further declines to come as patterns of lower lows and lower highs are developing on largely negative breadth.


The longer-term trend for the S&P 500 is still relatively bullish but market internals are weakening.  The Dow Jones Industrial average is down over 2% for the year while the S&P 500 barely up 1% for the year.   Small caps are relatively unchanged after eight months and the market is top-heavy now which might be a good time to stay on the sidelines or look for a short-term bounce.

March 2015 Stock Market Technical Analysis: A Few Bullish Charts To Consider

The U.S. Stock Market is bouncing back after the testimony from Janet Yellen last week that solidified assumptions the Fed will be holding off on raising rates this year.  Economic data has been weak for the last few weeks which is keeping the Fed from moving too soon.  Although the word “patience” was taken out of the statement, markets reacted positively after the Fed Chair skillfully took out a word but was able to signal to markets that they reserve the right to shift and could possibly hold an impromptu press conference.

Equities rose sharply but pulled back a day after.  The S&P 500 looks poised to hit new highs and follow the lead of a few other indices worth reviewing.

S&P 500 SPY Technical Analysis Chart March 2015

S&P 500 could be ready to rise further and follow the lead of the Nasdaq, IBB, and Russell 2000.  The strong dollar could be hurting large cap stocks but the sign of a true rally is when small cap stocks and tech remain resilient in a challenging environment.  The several weeks  of consolidation that started in November could result in a strong move upward and the parabolic movement in the ‘sweet spot’ of a rally hasn’t occurred for this index after a somewhat failed breakdown.

Russell 2000 IWM Technical Analysis Chart March 2015

The IWM, IBB and NASDAQ have all broken out of important ranges and it’s possible the SPY and XLF could have been failed moves to the downside which could result in sharp moves upward.  Facebook is another reason to believe institutions are still piling into stocks as it hit a new high and BABA is even showing some strength after a huge lockup expiration.  Tesla and Apple didn’t participate last week which isn’t cause for concern – yet.

IBB BIOTECH Technical Analysis Chart March 2015

QQQ NASDAQ Technical Analysis Chart March 2015

Watch volatility carefully and look at individual stocks you own for entry points.  It’s important to look at at the overall market suspiciously if the charts above can’t find follow-through this week.  Lastly, below the S&P 500 Midcap 400 shows the market isn’t necessarily waiting for the dollar to decline and there could be strength across the board.  The volatility I identified in my last update declined as oil fell and if it hits a new low in the next 2 weeks it could be the precursor to the parabolic move up for the overall market.  The economic gains from lower oil prices will begin hitting restaurants as soon as the weather on the gets warmer which should be good for the overall economy in the second half of the year.

midcap S&P 400 Technical Analysis Chart March 2015

Equities have had a good run but I would be buying on dips in the intermediate term and look for pullbacks to be opportunities until a major distribution day.  The S&P 500 is only up 2.35 percent for the year but the IWM is leading at 5.71% with over 60 percent of that gain in the past week.  Seems like bulls may stay in control until the NASDAQ hits an all-time high with 6,000 not too far behind if growth becomes more valuable in a strong dollar environment.

February 2015 Stock Market Rally Continues With Low Volatility But…..

spy 500 february 2015 technical analysis

The U.S. stock market has been on a tear recently and defied expectations of a pullback with increased strength this month.  Volatility declined sharply as traders gobbled up equity shares while the TLT faltered.  The current environment is bullish but the intermediate term could be a bit extended.  This doesn’t mean that holding cash is the best option but shorting doesn’t seem like a good strategy until several days of declines lead by a 2 percent down day.

The S&P 500 looks to continue making new highs and global concerns have declined with Greece reaching a temporary deal.  February 2015 has been marked by geopolitics and less focus on market internals which could be a bit frothy.  The longer-term trend is still bullish and now that the market has broken out of rangebound territory, traders may be looking to follow momentum for the next few sessions.

A healthy pullback would allow the market to consolidate and move higher but this hasn’t happened in the last few days.  There are several reasons to be bullish which include leading stocks like Facebook and Apple bouncing higher.  If the leaders can continue to attract new capital, the market is poised to continue rallying.

The Fed has shown an unwillingness to allow equities to have a viable investment alternative and if yields begin to rise with the TLT falling, the Fed could have less to worry about until equities correct somewhat.  I would continue buying on the dips but I’m cautious about the impact of falling oil prices on the overall market.  I don’t believe oil has bottomed and the second leg of the current downtrend could be near if current resistance levels hold.

I continue to watch the XLF and IWM carefully to see if they can generate clues to the overall market but midcaps (MDY) may tell a better story.  The XLF is still down 1.15 percent for the year while the S&P500 is up 2.75 percent and the NASDAQ is up a whopping 5.00 percent with a gain of nearly 8 percent this month.  Watch the financial carefully to see if a lower low isn’t possible – don’t fade on a knee-jerk reaction as the market is still dominated by buyers.   Midcaps have gained 5.00 percent YTD but are less volatile than tech stocks.  It’s time to wait for viable setups while the market tries to remain in rally mode.

The indicators in the graph above show the S&P 500 has had a nice rally that may not be too steep because of several weeks of consolidation.  The 50 week moving average is no longer downward trending and a possible near-term target could be 212.67 with 207.44 and  204.87 as support.  Yellen could be a momentum accelerator if a brief inflection point occurs.

Is That VIX Still Broken?

no stock market volatility vix 2015 technical analysis

Stock Market Volatility Indicator Technical Analysis February 2015:

The stock market is showing some signs of short-term consolidation and market participants may be looking to increase cash holdings.  The momentum stocks on most people’s watch lists aren’t reaching new highs (except for Apple) and after the Fed meeting last week, stocks ended the month with a loss.

Will the Dow hit 20,000 this year as Dr. Siegel suggests?  It seems unlikely to me that this could occur in the next 6 months if current trends continue.  I expect to see the 2nd largest wealth transfer shift in history if oil prices continue to nosedive.  The recent rally of 8 percent shows the transparency of heightened volatility in the mature stages of a decline.

January saw the S&P 500 decline nearly 3 percent  and the closely watched financials fell more than 2 times that amount by 6.96 percent.  Global monetary policy from Switzerland to Russia and China’s recent economic decline (which I told readers to look out for – a forecast that would have been wrong for the last 20 years) have caused some concern for holding long equity positions that is benefiting U.S. bonds.

This wasn’t a month for excessive trading and bullish setups for the major averages fell victim to volatile spikes.  But wait a second, I thought the VIX was broken?  For the most part people stopped tracking it and began to call it a ‘useless/broken indicator’.  That may have changed considerably as volatility rose sharply Friday to end the week.

At a wedding recently, I spoke to one of my good old buddies who works in the finance industry and after telling him how well I did this year trading the XLF and Facebook he told me he wasn’t having so much fun.  He said, “I don’t care which way the market goes, I need volatility.”

Because I was trading long positions I believe I responded that I hoped he and his firm went out of business and that the rally would keep going.  The current increase in volatility is suggestive of market participants unwilling to hold shares – with vigor.  This means price spikes and gaps may become more frequent in the intermediate run.

The Economic Picture February 2015:

Global headwinds may be more important than the local economic climate.  The U.S. economy is moving from sluggish growth to repair mode and there are more deflationary risks than in the last few years.  I’m not seeing the revisions to forecasts based on the sharp decline in oil and the enormous shift of wealth that is slated to occur.  This will also adversely impact some credit/financial engineering related to oil/projects that has yet to come to the fore.

Cash is king in the current environment and this may not be as simple as – “well – January of 2014 was a bad month t00 but the year ended up just fine”…. No..  we’ve now had two consecutive months of declines and the January 2014 decline may have been an inflection point as 2014’s gains were much less than 2013.  Currently, I expect 2015 to not to be a better year than 2014 with gains in the single digits for the first six months at best.

2014 Stock Market Highlights – The Most Hated Rally Stays Hated

dow jones technical analysis 2014

2014 Technical Chart Analysis Wrap UP –

I Predicted 18,000 Back In June – Here’s What’s Next:

It was another good year for Tory Capital Economics.  The start of 2014 set the tone for bulls but by the summer, sentiment became more bearish while I was calling for the Dow to hit 18,000.  My analysis saw upside potential from a longer run cyclical trend that suggested low inflation in a leveling unemployment environment.

I was clear as early as 2013 that commodities/gold were becoming less of a factor and the bull market for most heavily traded ones seemed to be waning.  As an economist that uses technical analysis, all indicators confirmed there was no bear market in sight for 2014 with Janet Yellen ‘not rocking the boat’.  The stock market was already in a sweet spot with bond prices rising and low interest rates but the strong dollar and oil drop were unexpected.  The U.S. economy will soon benefit from the dual impact of low oil costs and the stock market at all-time highs.  Gas prices hitting a national average below $1.50-75 is a possibility and in short, from Wall Street to Main Street, everyone is better off than a few years ago when looking at the pump or stock prices.

I am still bullish for early 2015 but my predictions are for 6 months and never a year.  I beat the stock market again this year – (results forthcoming) mostly by buying the XLF and Facebook on dips.  (I literally watched some traders hate Facebook all year, never recommend it and some opted for Twitter which I was against.  Facebook keeps running – going from around $54 to $80 this year so I give less credence to those jumping in and out trying to time stocks/technical analysis – without a good fundamental story.  How can you miss Facebook and ask for subscriptions for your service or management fees?) This wasn’t the year to write often or trade too much because the gains of 2013 could not be replicated. Short-term trading probably worked a bit less for most market participants on the long side because of low volatility coupled with low double digit gains for the indexes.

The Equity Trading Strategy for 2015:

  • I would be more enthusiastic about equities if I saw more momentum stocks rallying but some of the declines seem orderly.  Facebook recently confirmed suspicions it could return to its new high (see Facebook update here).  Facebook may continue to be a stock with a strong growth story if mobile growth doesn’t slowdown this year.
  • Apple has had issues with #bendgate and this could signal a medium-term inflection point as large buyers are looking elsewhere for growth.
  • TSLA – falling oil along with competition means sentiment and momentum could change for this high flyer.
  • Watch the momentum players and small/midcaps carefully.  Ignore oil – which will continue to fall and may not find a bottom this year that could be considered solid support.  Ignore gold. Stick with the winners until they become losers.  In the next 6 months look for more IPOs and former leaders like Google to possibly lose growth investor funding as they are replaced by the likes of Facebook and Alibaba.  Alibaba is up around 10 percent from its IPO and could double in a year like Facebook which I’ve been a fan of.
  • Alibaba is widely owned by hedge funds and institutions betting big on China.  Even if China’s growth slows, online shopping will continue to rise exponentially as it did in the U.S. during the last few years with high unemployment.  I’ve been watching some call a decline in China for 2 decades that have been wrong.  Some of these same people had their highest short levels at the end of 2013 while the stock market hit 18,000 as I predicted only a few days ago.  We’d be buying Alibaba on dips (see my Alibaba call here) and looking for small caps to continue to break out of what seemed to be a consolidated rangebound channel for a few months in order for the current rally to have legs as buyers begin window dressing this week.
  • Expect more retail participation in 2015 and look for more chatter from market participants looking to make quick money.

Until the most hated rally becomes the most beloved rally, long term technical analysis indicators remain positive in a low inflation environment, the market could digest the possibility of rising interest rates in 2016-17 as it successfully snapped back from the taper tantrum.  After calling for the Dow to hit 18,000 in June – I reaffirmed my call after the August distribution which led to an even sharper fall in prices in October.

dow jones industrial average august 2014 and october 2014 technical analysis

The Dow returned higher and while some P/Es may be getting fairly priced – I expect higher earnings based on a stronger economy which will make ‘pricey’ seem less obvious in the short-run.  If the highly leveraged stocks don’t continue rising and IPOs stop coming to market successfully -it’s time to reassess.

I’ll be writing infrequently as usual only looking for pivots and inflection points of interest for the major averages and equities I think matter.  Follow my updates via Twitter and Facebook for more timely market analysis.

Happy New Year…

Celestine O. Chukumba Ph.D.

The Correction That Wasn’t: July – August 2014

no correction bearish photo

Why There Was No S&P 500 Stock Market Correction July – August 2014:

It seemed like all the bears were getting ready to celebrate….but not so fast.  The most anticipated correction in history never occurred as the ‘most hated’ stock market rally in history continued.  Against the backdrop of Russian troops at the Ukrainian boarder, U.S. airstrikes in Iraq, Argentina’s banks, Ebola outbreaks and more, a couple of weeks later – it’s back to bullishness as usual.  Buying on the dip was still a good strategy as stocks began to become more attractive and key sectors like small caps and social media regained momentum.

The S&P 500 hit an all-time high last week as investors jumped back into risky assets while markets continue to be in the ‘sweet spot’ where low inflation and marginally good economic news keep the Fed at bay.  The brief pullback was a stellar opportunity to look for new entry points for equities and spread risk across sectors as an asset rotation which began with small caps continues.  Even with low volume, buyers weren’t afraid of the possible increases in volatility as Friday afternoon news spooks and largely 3 weeks of negative press didn’t stop bulls from gobbling up shares.

Is a correction coming? Of course – but who knows when…. A bear market will also be on the way but both should be less anticipated and profits should be falling, peaked and- not rising. The small cap sector hasn’t taken the lead but the best market to watch is mid caps as the crowded small cap trade is overhyped.  The NASDAQ is up nearly 13 percent for the year and semiconductors are up 20 percent this year.  There is no reason to be bearish yet and absolutely no evidence that the Dow won’t hit 18,000 this year.

A quick look at the S&P 500 shows the overall market is bullish and pullbacks should still be considered as buying opportunities.  Doing nothing since the last article posted here would have been profitable but buying on the dips had even higher returns.  Bonds are in an uptrend which will keep yields low and do the work for the Fed without changing its QE course.  A slight support test would be healthy for the markets and a possible distribution day in the near-term may be another opportunity to find good buys.

sp 500 technical analysis july august 2014

Is The July 2014 Stock Retreat The Most Predicted Correction Ever?

buy sell stock trading dice

Now, Everyone Is In Correction Mode:

July 2014 was a negative month for stocks after several weeks of gains but many market participants are now wondering whether equities are going to be in correction mode.  While it’s possible equities could retreat further, stocks haven’t really had much of a run in 2014 so much of the chatter about a correction is unfounded although the intermediate term does show some negative momentum for indices I follow closely.  The ‘most hated stock rally’ in recent history has had people shorting for months to no avail with some traders publicly stating they had their highest short positions ever while the market continued to rally another 20 percent hitting new all-time highs monthly.

Year to date, the S&P 500 is up 4 percent while the TLT exchange traded fund that tracks 20 year bonds is up nearly 13 percent.  Small cap stocks have fluctuated from slightly positive to negative all year and after last week the closely watched Russell 2000 is down 4 percent YTD.

Janet Yellen and company added new language that signaled they are willing to keep interest rates low for an extended period of time even after key economic benchmark indicators like unemployment rebound.  The FOMC statement from July 30, 2014 reads “The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run.” It’s clear short-term reactions began before the unemployment number was revealed and gained follow-through Friday even with a relatively weak unemployment number for July 2014

I predicted on Tory Capital Facebook page that unemployment would be much less than June’s 288,000 and the number came in within my range. (See prediction here)  There is no reason to see inflationary pressures with 6.2 percent unemployment and the Fed still purchasing bonds albeit at a reduced rate.

Could this be a correction? Yes – which would be healthy for the market to move higher, however, it would be a highly anticipated correction which makes it less likely.  The dreaded ‘C’ word has increased in social media metrics and internet searches I follow closely which gives contrarians a short-term play that could make buying this dip profitable.  This doesn’t mean rush back into equities but rather begin looking for bargains as discounted stock prices become more attractive.  The longer term reasons why the rally may continue are still intact, the economy isn’t firing on all cylinders, inflation remains negligible, money is still on the sidelines and the retail investor isn’t participating yet.

U.S. Stock Market Rally Continues Amid Negative July 2014 Global Headline Risk

globe - world markets

The next leg of the rally may have just begun:

The U.S. stock market continues to be the ‘most hated rally’ in history.  Long-term holders have been rewarded for their patience while short-term buyers are rewarded for purchasing on dips. Even global headlines that were extremely negative have not dampened bullish sentiment.  Here are 3 recent events that didn’t stop the buying momentum:

  1. The issues in the Ukraine didn’t stop buyers from taking new positions.
  2. The Portugal banking crisis was short-lived -although it may return.
  3. Equities rallied after the start of the Israeli ground operations.

In short, global headline risk hasn’t changed bullish sentiment and a true rally begins to have pressure when retail investors get more interested in buying stocks again.  There is still a lot of cash on the sidelines so hedge funds and institutional buyers need to put money to work.

Janet Yellen signaled to investors a word of caution regarding biotech and social media stocks but perhaps she wasn’t considering expected profits for companies like Facebook or was looking strictly at Twitter.  The social media sector boom should continue for some years to come because online profitability is no longer limited to Google.  The economy remains in slow growth mode and reduced QE hasn’t caused bulls to throw in the towel.

Technical Analysis and Economic Fundamentals:

The small cap sector has been rangebound for the last few weeks and may be a medium-term buying opportunity while it’s at the lower end of its recent price range.  Concerns about small caps would be warranted if Facebook, Apple, Google and other momentum stocks were underperforming the market.  Most moving averages are positively sloped and short-term moving averages have flattened since Thursday’s sharp decline and rise in volatility.  The S&P 500 is up 7 percent for the year while the Nasdaq is up nearly 10 percent and July has been a positive month for most stocks even with negative headline risk permeating the news.

Equity buyers are still in control and follow-through this week by the S&P 500 or tech/bank earnings could build more momentum even as bonds become more attractive.  When bonds and stocks are going up, this indicates more money coming into U.S. markets and could be considered the sweet spot of the ‘hated rally’.  Increased money flow and confidence central banks will add liquidity is a strong reason to maintain a bullish posture as the ‘Yellen-put’ continues to lift asset attractiveness. If small caps can find support and companies show expanded profits this week, expect the Nasdaq to hit new highs.  Watch mid caps carefully to evaluate whether continued buying at distribution entry points will continue to work for investors.  Dow 18,000 is still possible this year.

Dow Jones Looks Poised for 18,000


dow 18000

The Dow Jones Industrial Average looks ready to set a new all time high of 17,000 after continued follow-through since the Fed meeting last week.  Market participants where rationally exuberant after Janet Yellen kept on course and didn’t rock the boat with higher quantitative easing.  As expected, the FOMC kept the rates constant and trimmed QE bond buying by 10 billion which sent markets roaring higher with the S&P 500 hitting new highs and small caps continuing to breakout.

Inflation bugs were temporarily disappointed, but the economy isn’t improving at a growth rate that would make rising prices a problem and there is no need for the Fed to signal additional efforts to trim a marginally growing economy.  Many inflation watchers have been wrong for the last 7 years since the Great Recession began and it would take two consecutive quarters or more of exponential growth to make the economy susceptible to pressures from rising core prices.

The IMF decreased its forecast for U.S. economic growth by 0.8 percentage points to 2% last week and this is more evidence that the economy isn’t in expansion mode with risks to the downside still prevalent.  Several months of political partisan bickering have now yielded the continue slow growth warned about here based on almost endless possible government shutdowns and low certainty is now having its medium run impact on the economy.

Continue to watch small caps for any signs of increased investor sentiment and ignore volatility which hasn’t been a useful indicator over the last few months.  A sharp change in sentiment is possible but the path of least resistance seems to be upward in the short-run.  Investors looking for growth have not yet abandoned small caps or tech which is a positive sign for bulls.  The Dow could go as high as 18,000 barring a steep correction.  Watch the Dow Transports in the short-term.