Weekend Update: A Health Check for the Markets

This weekend we are going to look at the nine S&P500 sector groups and also Gold, Treasuries and the Dollar. It is important to get a good feel for identifying where the strength and weakness is in the market, and using that information to build a base theory for where the market as a whole might be headed next. We follow price and what it suggests for the health and direction of the market. We don't get swayed by the media or Washington or let emotions dictate our investment decisions. You will be hearing all about the Debt Ceiling debate over the next few weeks, about a government shutdown, about the upcoming earnings season, blah blah. This is what will dominate the financial airways, but remember it is not designed to help you make correct investment decisions. The financial media needs to be taken as entertainment, not sound investment advice.

Now that my seemingly weekly obligatory financial media rant is out of the way let's take a look at some price charts! What really matters...


SP500

The SP500 pulled back this week after setting new record highs last week. Already the top-calling buzzards are circling and are sure that okay, this time is the one! We will stick with the trend (which is UP!) until we are proven wrong and forced to re-position. For the S&P, the line in the sand is 1,627. Although I will be watching the uptrend support for a major warning signal that the move is finally over.

XLF--cash

We currently are not holding a position in the XLF as we were stopped out on our position last month. But that doesn't mean we simply ignore one of the most influential sectors in the market. The XLF is very important from a perspective of leadership and higher general prices. While it has not made a lower low in the uptrend yet, it did invalidate my trend signaling indicators and failed to outperform the SP500. You can see last week's trading attempted to get back above the uptrend line but it was rejected on the retest and prices followed through to the downside this week. Not the best action here...but its also not quite over yet.

XLY--invested

Discretionary still looks great up here. Every time it pulls back to trend support and the 20 WMA it just pops right off, on to a new high. It has also consistently held its relative outperformance dominance over the S&P. Let's stick with this one above the $57.50 low for now as our stop.


XLK--invested

Nobody's really talking about it but Tech is holding at new highs. A very good sign for the health of the overall market. Tech needs to lead here and it has been doing its best recently, seeing many breakouts in the individual component stocks. QCOM, ORCL, and AAPL are some of the notable leaders of the group. As of now we like XLK above $31.30.

XLI--invested

Industrials have been monsters lately. One of the top sectors of the past 5 months and seemingly still chugging along. They are setting new highs on every rally attempt and we like the XLI above $43.90.

XLB--invested

The Materials sector also has been a market leader for a couple months now and is still holding and trying to accelerate its move to new highs. The $40 level looks like a place to reduce risk to me and would signal a false breakout for the group. We will be watching this breakout closely as the last 2 weeks have shown poor price action. Last week the big move to new highs did not hold well forming a long shadow above the closing price. Meaning prices were much higher intra week than where they ended the week. Thats not particularly troubling by itself, its the follow through to the downside this week that is more concerning. Although so far we have not much to build a bear case with. Its still breakout price action and needs to be treated as such until price confirms otherwise.

XLE--invested

Energy continues to grind its way higher. Strong uptrend, breakout holding, a Relative price breakout underway, and you have the makings for a solid position. A failure to hold the lows and uptrend support at $79.80 would signal to us that we in fact have been proven wrong by the market and would see our exit. As of now I believe the chart is saying higher prices in the future.

XLP--cash

While price has more or less traded sideways since our exit mid-August, the performance of the Staples relative to the market has been abysmal. While an uptrend in price is still intact for now, I want nothing to do with this space until it starts performing better compared to the SP500. The fact that Staples are performing so badly is encouraging for the risk appetite for stocks. While the media has been screaming about tops and corrections, money managers have continued to put money to work in the offensive, economically sensitive groups and have been avoiding the "safety stocks". They are showing continued belief in the rally, the consumer and the US economy. That's a positive sign for the intermediate future of the market.

XLV--invested

The raging Healthcare bull market is still in full stride. Last week XLV acquired a small triangle type continuation pattern and set a new all-time high. We are going to want to be in the Healthcare space above the prior swing low now at $48.40. Stick with aging US demographics and stick with Healthcare.

XLU--cash

While Utilities have been in an uptrend since the bear market low in 2009, they have also underperformed the market significantly during that same time. Typically Utilities outperform the market during corrections and pullbacks. Lately these have not done anything regardless of where the market went. They are relatively weak and should be avoided for short/intermediate term trading. However for a long term investor, trying to build a position through time and collect dividends, I think (in terms of price trend alone) that the XLU presents a fine opportunity to purchase a partial position near these levels. XLU is trading right along its 5-year lower support line and offers a good risk/reward add to a cost averaging plan.

GOLD

After being punished over the past year, Gold is trying to turn things around. For several months now it has attempted to build a support base to launch from. While things are beginning to form, I still believe its too early to make the call that the bottom is in. We are still yet to see a higher high and the 20 WMA is still sloping lower. What I could envision happening here is what I have drawn above; a potential base reversal pattern that still needs time to complete the right shoulder formation. This consolidation would allow the 20 WMA to catch up and Gold could position itself for a rally through it at that time. Currently there is no trade and if I had to take a position in Gold, i mean had to, (I truthfully don't like either direction here) I would still favor the short side due to the little evidence of a bottom being in place. In my Plan, breakouts above a declining 20 WMA are not to be trusted as they are often false breakouts. We can see a perfect example of this over the past 6 weeks; price ripped through the 20 week, but saw zero follow through to the upside and has since slipped back down below... I need to see more than that. Gold is telling us fear is low, markets have confidence, and we should maintain the current course...for now.


TREASURY BONDS

Despite a whole lot of noise as to the direction Treasury bonds are headed next, I think its important to take a look at the longer term view and form our own opinions. What I see doesn't look anything like a bottom in prices here. I do believe the relentless downtrend does indeed favor a counter trend bounce, but the overall direction is lower, clearly. We have price below a sharply declining 20 WMA, a two year reversal topping pattern in play, and no discernible support until the $96ish level. I am not a Treasury bull here and this shows little sign of a "safe haven" asset at this time.

US DOLLAR

Speaking of safe haven assets, the US$ looks to be breaking down here on the intermediate term chart. We've seen a pullback to uptrend support (this support has held since mid 2011) and then a failed bounce as price got rejected right at its declining 20 WMA. Since the failed bounce the Dollar has broken below both the uptrend support and the prior lows. What do we get when you see a lower low? thats right, a broken uptrend. We would have to see prices get back above the failed bounce high at $83 to believe this was going to turn back around. As of now investors don't seem too concerned with safety and are not seeking the shelter of the world's reserve currency.


Overall I would say this market passes the test with flying colors as to the current trend. Every offensive sector sans Financials (although like we said its not quite dog-meat just yet either) are in uptrends, relative outperformers and making new highs. While simultaneously the defensive (safety) groups are ALL showing downtrend/weakened action and suggest a high investor appetite for risk assets. To me this means we still stick with the trends and ignore the fear invoking news out there. Follow price and we will be on the correct side of the market every time.



**Something to note going forward, I have been toying with the idea of instituting a partial profit taking option on trades where we have a chart pattern target acquisition and/or approaching significant overhead resistance levels. Currently with my personal accounts I have a particular exhaustion reading that I follow to determine a profit taking place with a stock that is moving very fast and exceeding standard parameters for risk management. Recently as well I discussed our holding in Ford where we had a target acquisition on the Double Bottom pattern we had been watching. I said that it would likely struggle at these levels to push higher and could see some choppy trading. Well, we certainly have seen that type of trading for the last couple months in F and its all occurring just under a major resistance level (which is also our new breakout level for the multi-year Inverse Head/Shoulder reversal pattern. What I am suggesting going forward is that when a stock or ETF we own moves into extreme overbought levels or acquires a key pattern price target at a major resistance zone, that we consider taking half our original position off the table. We still want to be a part of a winning position and don't want to pick the exact top, so we will continue to hold half a position should the stock just keep on moving higher regardless of a skewed risk reward setup. The plan at that point would be to look for a key support level to be tested on a pullback OR a breakout above the major resistance to add back the other half of the position. Now this is strictly a profit taking strategy and for those of you with taxable investing accounts, you may feel its not worth making the sale to avoid the capital gains tax you will incur due to the sale. I will simply present the opportunity to reduce exposure to a particular stock based on the above criteria and you can choose to hold the entire position or follow my game plan and trim half the shares.

What I don't want this to evolve into is an excuse to sell a winning position because its run too far or gotten too expensive. We can never know how far a trend could persist and you never want to exit a full position when the position is winning and not invalidating your sell signals. I don't want this to become an emotional outlet to our investing; we are not emotional investors, we observe price action and follow its cues. All I want to do with this new wrinkle is add a way to sell SOME shares into extreme strength, strength that my system and research deems unsustainable. And I want a way to reduce exposure to a stock once a major target objective has been achieved. Investing is a process and our strategy can always use a little tweaking from time to time. I would like to try this added portion and see how it goes.

Profit Taking Opportunity

F- ford

I know we talked about this recently and the potential pattern formation that could trigger a move back to prior highs over the next few years. This is simply one of my "new" opportunities that I want to try instituting into the Plan. What we have here is a Double Bottom pattern that acquired its upside target which was right at the edge of our resistance "neckline" range for the potential base breakout. We have held our position throughout and now price seems to be forming what looks like a Double Top and short term momentum is rolling over. What my new profit taking option would look to do here is to take half of our current holdings off the table and wait for either a pullback to uptrend support, which is around $14.50 or so. Or if we where to get that breakout above the neckline range resistance, triggering the reversal pattern. Those two scenarios would be what I would be looking for to put the other half of the position back on. Nothing here has invalidated the uptrend, but I am noticing a potential major sticking point and the stock is being sold at these levels. If you wish to continue to hold a full position here i have no problem with it, just know that this seems to be a level where risk is more skewed against us. I reduced positions by half and if you are planning to do so, execute them at the open of trading Monday morning. If not, continue to ride this winning name.

PBW- clean energy

Clean Energy is in a similar position as Ford. This past week PBW acquired its reversal target and is now approaching an area where the history of the price suggests a struggle ahead. $6.45-6.50 represents a prior inflection point going back to mid-2011 through early 2012; that level held as support and then turned into resistance twice as prices failed to take out that area. It also represents the 38% retracement from the 2011 highs, which typically is an area of significant support/resistance. Throw in the fact that we are completing a multi-year base and you have the recipe for consolidation. I do believe that in time we will see this level taken out, but I would rather reduce some risk at these notable levels and wait for a better setup to make a run at these prior highs. Again, there is nothing wrong with this trend and holding a full position here is not bad. I am merely presenting these opportunities for those who would wish to be a little more active with their investments.

Noise is Noise and Price Pays

THE MOST IMPORTANT FED MEETING EVER!!!! I'm just trying to sound as enthusiastic and dramatic as the financial media. The "Taper" was a done deal, many "pros" were holding the most cash they ever have, $10-15 Billion reduction...that's consensus.

BOOM! NO TAPER! Oops, did Big Ben catch you guys off guard? Sorry about that one, better luck next time! On to your next Top call....

Needless to say the Federal Reserve and Ben Bernanke did not reduce their QE3 bond purchases at the September meeting. They chose to "await more data" before easing off the printing press. Wait, I think I know a few people who saw this coming. But what did they/we see that EVERYONE on Wall Street failed to? Frankly I don't know what Wall Street was thinking, apparently they weren't. At the same time though, I absolutely don't care what Wall Street or CNBC or economists think about stocks at these levels or about the next "debacle" that will send the US economy spiraling into recession. All of this hype, all of this noise, none of it is for the purpose of making you (the viewer) money. It is for some schmuck to put on a suit and stand in front of a camera and give you his/her wildest guess as to which way the market is headed next. Let me tell ya, nobody has a crystal ball. Not me, not you, not Warren Buffett and certainly not some hot "news" anchor on business television. I really don't understand how these "professional" analysts can all be so horribly wrong about the same events over and over and over. Within the last year there have been already 3 such "disasters" just on the horizon. First it was the presidential election. Then it was the FISCAL CLIFF AAHHHH!!! And recently its been THE TAPER. This is not intended to be an exhausted list. You will see this next year and the year after that, we will see this forever.

Ignore Noise and follow Price. That's what we do here folks. We take the only real quantifiable data available (what the share price is currently worth on the open market) and we watch and map its behavior over time. We follow simple, rigid rules and we do not discriminate a signal based on our biases. Signals are signals and price is price. We cannot know the future, nor do we need to. We have simple guidelines we must observe and they, over time will lead to positive results.

That being said:
We have a new breakout! This week's Fed inspired news was just what the market was hoping for and it blasted through the upper resistance level to new all-time highs. Friday was an options expiration day, so the day's trading has a bit of a "take it with a grain of salt" feel to it. With the new breakout and subsequent retest of that breakout, we now have to adjust our current stop positions on our holdings to reflect the new confirmed "higher low". Remember once we have a higher high, the prior swing low is now the next stop level in the trend. That is the level we obey without question.

Using the S&P Daily view of the last 6-months, its easy to see the reason we have maintained our Bullish positioning with stocks. Quite simply we have continued to see a steady upward direction to the market. And a prior confirmed low has not been violated. All the analysis in the world can't beat this simple approach for risk adjusted returns. Stick with the prevailing trend and only start to worry when the trend actually turns.
1,629 is the confirmed "higher low".

We will be watching this narrowing range closely from this point forward:

  Here's the view of the Weekly chart. There is clearly a wedging of price occurring; connecting the two significant peaks following the 2009 market bottom, we have an upper resistance line and an inclining uptrend support tracking the entire 2013 market rally. This formation is described as a rising wedge and is often a Bearish pattern. It will be very important for the market to continue to hold the uptrend support and break through the upper channel resistance. Nothing here is confirmed in either direction yet, all we can do is stick with the prevailing uptrend as long as we continue to see higher highs and most importantly, higher lows.

As for our positions, we need to adjust our stop levels if we can, due to new highs being made.

DDD

Since breaking out from a 6 month trading range, DDD has been able to hold well above that prior support level. With this new strength we will be using the upper support range and rising 20 WMA as our stop going forward...Just about $48.

PPG

PPG set a new all-time high and weekly closing high. Although the week's trading range was wide and closed well off the highs, we are still seeing steady higher highs and higher lows. Our stop will be moved up to the new swing low at $155-$156.

HAIN

I have been pleasantly surprised how well HAIN has held up since the Icahn liquidation over the past few weeks; it was reported recently that Carl Icahn has sold his remaining shares now as well. In the last 3 weeks Icahn has sold roughly 7 million shares and those have hit the market and been more or less digested impressively. We are still using the $74-$72 range as our stop. A break of the swing low at $72 will see our exit.

AAPL

While AAPL provided a nice scare early in the week, challenging our stop level, it has since rallied back after holding the 20 WMA. As we go forward we will be focused on a failure of the breakout level and rising 20 WMA, $450.

CMI

Cummins saw follow through after its big breakout last week. However, short term this has become extended based on my research. I have found through backtesting certain situations that a move that carries price more than 13% above its rising 20 WMA becomes an unsustainable advance and is likely to correct. This reversion trade often carries price back to a prior support level and allows the 20 WMA to catch up. For long term accounts I take no action based on this signal and hold positions, but for shorter term accounts I do reduce position size by 50% on such an occurrence. This has proven to be a valuable reference point for me in the past. I also must note that the 13% level only applies to stocks with a beta of less than 1.60. We have discussed beta previously in our studies and this is another example of why you need to know how volatile your stock trades. For stocks that have a beta higher than 1.60 the level is more in the 25% region before unsustainable levels are met. Stocks do not often extend to the 13% level above the 20 WMA, when they do it typically signals a fierce move that will need time to digest before continuing higher. These digestions need to occur so we can have a new, lower risk base to trade off of.

Our stop on CMI is still the $122 low from the breakout retest.

F

Ford has entered into the "neckline zone" of the 12-year Inverse Head/Shoulder bottom and it will be very interesting to see how it handles this range between $17.25 and $19. Due to the sheer size and length of the pattern under formation I want to give this position plenty of room to evolve so we can catch this massive opportunity should price breakout above $19. I will be content with using the uptrend support from the August 2012 lows as my stop, which right now sits at approximately at $14.50.

But I sure couldn't fault you if you wanted to protect gains and use the swing low at $15.70 as a tighter stop. I just happen to really like this long term setup and am willing to give the American automaker a little more cushion than that.

WFC

This is a very simple read...Stop on a break of the swing low, trendline support, and 20 WMA at about $41.

PBW

PBW continues to make new 52-week highs and is still targeting the $6.35 level as the reversal pattern target. This level also coincides with a key prior support/resistance level from back in mid-late 2011. Not only that but it is also the 38.2% Fibonacci Retracement from the 2001 peaks. It should be clear at this point that the $6.40ish area is going to be of significant importance going forward.


Weekly Performance

DDD       +5.5%
PBW       +2.7%
PPG        +2.4%  
WFC      +1.4%
SP500     +1.3%
CMI        +.05%
AAPL      +.02%
F              +.02%
HAIN       -1.7%


Next week we will take a long look at the Sector Groups. Some new leaders seem to be emerging, but some of the key Defensive Groups may be starting to show stabilization also. We will watch them this week and do a full rundown next weekend.

Weekend Update: Uptrend Remains Intact

Despite many "noise makers" out there, markets still continue to want to push higher. Whether its the Fed stimulus, decreasing jobless rate, or record corporate profits, market participants have maintained a strong bid to buy any and every dip. Over the past few weeks we have been in a more critical position and we have been trying to figure out if this one was finally the big top or just another in a series of shallow pullbacks. While the noise has been to run for the hills and sell stocks, the recent price action has told a different story. This week the SP500 gained 33 points and closed back within 1.5% of the prior all-time highs. Also, the resistance zone we have been watching so closely was challenged and managed to close the week above the May high set at 1,687. Needless to say we have seen quite significant recovery from the major averages over the past 2 weeks and now talk of an impending correction has been pushed to the back burner.

We also have been discussing the big Fed meeting that is now only 3 trading days away, where the media is absolutely certain the Fed will begin to taper their bond purchases. I have been quite confident that the Fed will not begin to taper at this upcoming meeting and still feel this way. However, I was much more optimistic of a positive market response when the SP500 was trading 50 points below current levels. It appears the market is front-running the Fed meeting and we will likely see a "sell the news" event. If (and its still a big if) the Fed decides to reduce purchases at the Wednesday meeting the market WILL be susceptible to a significant, knee jerk reaction to the downside. Now I am not the type of trader that will try to play this announcement; I will not be selling strong, winning stocks into the meeting, but I do feel that the downside risks at this point are much higher than they where two weeks ago. Typically when you see the market rally hard into a highly telegraphed news event, very often short term traders will sell ANY news that comes out regardless of whether it is good or bad. This is just something to keep in mind as we head into Wednesday. If the Fed decides to maintain its current course of action (meaning no reduction) I do expect the market to push higher, but the upside would be more limited than I have been expecting based on the last two week's strength.  

Lets take a look at where we are after this weeks strong rally:

 What price is saying that the short term downtrend has been broken, the prior resistance zone has been retaken, and a new "higher low" has been put in to trade against. The important levels to hold in any pullback will be the 1,668 swing point and then ultimately the 1,627 low. The 1,627 low will signal a break of the intermediate uptrend and leave the long term breakout in jeopardy. Those are the levels we will be watching to confirm our uptrend thesis and maintain conviction that higher prices are still to come. I do expect some mild weakness and/or choppiness heading into Wednesday's meeting, but will be looking for 1,668 to hold as support on any sort of retest of that level.

The weekly view has firmed up significantly over the past two weeks.

 Since the close below the 20 WMA 3 weeks ago, the market quickly retook that average and this week pushed off strongly from that level. This was one of the key signals we wanted to see repaired to have conviction in the uptrend. In my view, the weekly chart looks very much intact and suggestive of new highs to come.

We saw some new highs in a couple key sectors this week which show even more reason to believe in the uptrend and to stick with the market leaders.

Industrials (XLI)

The Industrial sector made a new all-time high this week and proved that it is a major market leader. Since we have this new high, it means we can move our stop up to the new swing low. Our new stop will be placed just below the $44 level which coincides with the intermediate term uptrend support and the rising 20 WMA.


Materials (XLB)

Our newest position to the Portfolio is the Basic Materials sector fund XLB. XLB broke out of multi-year resistance on increased volume and close convincingly above the prior highs. This is very bullish behavior here and is coming from a highly economically sensitive sector group. I think this gives the market a new potential leader to push us to even higher highs to come. Just know the measured target from this mulit-year triangle formation is approximately $54 and some 30% above current levels. Our stop will be set below the prior swing low and 20 WMA at $40. For those counting at home this trade has a $2 risk for a potential $13 gain. That's 6.5/1 reward/risk from Friday's close and a probability I will take any day of the week. This is how you win in investing. BUY BUY BUY XLB!  I'm pounding the table here!


Energy (XLE)

The Energy sector made a new intra-week high as well and seems poised for higher prices. With oil holding in the mid $107's per barrel, the companies in this sector will make so much flippin money that its not even funny. Higher profits and earnings create higher stock values, stick with Energy. Because of this massive triangle formation I am not inclined to move the stop any higher than the previous low and breakout level at $79-$78. That will be our line in the sand for the Energy sector.

It is a very strong signal to see rotation of this magnitude within the sector groups. Industrials, Materials and Energy are now becoming the new Generals in this market and that is a very healthy sign for prices moving forward. Along with strong continued leadership in Discretionary, Technology, and Healthcare, the "right" sectors are in front and should push the averages higher. Even Financials were able to retake its 20 WMA, although it still has some work to do to completely right that ship. And then to see Staples, Utilities and Bonds lagging considerably only confirms the risk appetite of money managers and that usually means good things for the market going forward.


There was not too much to report this week from our holdings as most simply churned and continued to hold key support levels. CMI was the notable winner this week however posting a gain of over 5% and setting a new all-time high. AAPL was the notable loser as investors were disappointed with the "big announcement" that was hoped to be a joining with China Mobile, but ended up being just another, ho-hum phone with a slightly lower price point and fewer features.

Cummins (CMI)

The breakout this week not only set a new all-time high but also broke above the 3 year trading range we have been tentatively watching. After a breakout of this magnitude we have to expect higher prices in the future. In interest of full disclosure, CMI is currently my largest holding in my personal accounts as well. I expect strong outperformance in the future for Cummins.

AAPL

While the announcement results disappointed many speculative traders hoping for a quick pop, there was still relatively little technical damage done to the weekly chart. I will be concerned however if the stock does not stabilize here on its breakout retest. I am moving my stop to the 20 WMA and the $454 swing point. If that level and breakout fails to hold, we will want to step aside and let this one set up again.

Holdings Performance last week:

CMI    +5.1%
F         +2%
SP500 +1.9%
PPG    +1.9%
WFC  +1.8%
PBW   +1.5%
HAIN  +0.8%
DDD   -2.6%
AAPL -6.7%

Cash positions:
HD      +3.3%  
ENB    -1.8%

Entering Materials (XLB)

Today signaled a buy in the Materials ETF, XLB. We have been watching this for a while and with today's new high close we will be entering for the Blog Portfolio.

Here is a zoomed in view of the Daily chart and you can see clearly the higher closing high from today's trading. That new high signaled confirmation of the underlying strength we have seen relative to the SP500 recently and through my scans I am seeing significant strength from the XLB component stocks.

Here is a look at the Weekly chart. For the longer term perspective, you can see how today's breakout looks in context to the larger pattern.

This is a big level we are dealing with here as it represents a new recovery high for the Materials sector. The Relative Strength vs the SP500 has broken out significantly over the past month and shows the underlying strength recently. When I see an long term underperforming sector make a new high, and then breakout on a relative basis, it tells me that a new leader could be emerging for the market. We like new leaders and this is one of those setups that screams BUY!

Weekend Update: Hold the Line

The SP500 managed to hold, bounce and retake its rising 20 WMA this week. Overall a positive result from the potential breakdown we saw last week; this is the first step. There are still things to accomplish, but there always are. After a weaker than expected August Payroll Report yesterday, markets seemed confused about what they expected out of the result. Did they want a good number? But wouldn't that encourage Fed tightening? Did they want a bad number? But if that's the case then it doesn't matter if the actual economy and market are healthy, it just matters that Big Ben will keep his pedal to the metal...and that's suppose to be good for stocks?

As I have believed for some time now, the Fed would not be tightening its stimulus at the upcoming September meeting. This only seems confirmed now that the report was on the disappointing side and didn't signal a rapid expansion in the employment market. In fact they revised down the prior numbers from July as well, which shows even more softness than was previously perceived.

What this means for the market at this point is...Not much, just NOISE!
The fear mongering in the media has been deafening while prices are still holding up. If you think that a "clarity" or "all clear" signal will be given to the market after the Fed meeting relief rally fades, then you are just fooling yourself. The focus will just shift to the next headline worry. Noise is everywhere, its rampant and relentless. You need to have and follow a disciplined plan that avoids reacting to noisy, emotional events and sticks with the signals generated within your strategy. Otherwise a week like we have just had will chop you up and spit you out (your account balance at least).  

Markets have been choppy and whippy for the the past few days, but apart from some volatile intra-day action the overall results have been modest in either direction. While the overall return of the SP500 this week was 1.4% or 23 points, all but 4 of those points came on the gap higher open we saw to start the week on Monday. Apart from that initial reaction we really saw sloppy and nervous trading. Friday's job related trading saw an initial 9 point move higher, followed by a drop off that took the market negative 12 points, only to see the direction shift again to take us back to the highs up 9. How did the day finish out you ask? With the final hour fade the SP500 traded back to the flat line into the close. That's 39 points of movement from highs to lows to highs again and finally settling for a 0 return day. This is why we extend our time frame and attempt to avoid getting caught in emotional trading like we saw today.

Looking at the Daily view of the SP500, to me it looks as though we will trade more or less sideways for the next week heading into the Fed meeting September 17th. If this scenario plays out orderly it would potentially build a right shoulder to a yet-to-be confirmed reversal pattern. Lets take a look:

There is a lot going on here, but this is the exact same chart we have been watching for sometime now. As you can see we are still between the upper resistance zone and the lower support uptrend line. This reversal setup could build here in the next week just below the downtrend resistance and then look to resolve the pattern with an announcement from the Fed the following week. The areas of importance that we will be watching here will be the 1,670 prior swing high and the 1,630 low from last week. That is our range and we will be waiting for a move above or below that area.

We lost no positions this week in our Portfolio and I really only have a couple notable charts to discuss from our list. We saw mostly solid gains across the board except for HAIN, which was our only down holding this week.


F (monthly)

This is a long term look at Ford. Going back to 1995, we see that since topping out near $39 per share in '99, the stock traded down to below $1. Since that low F has staged an impressive rally, regaining almost half of its prior value. But there is still a lot of work to be done to get back to those prior highs. What we can see here is that for the past 12 years the stock has been carving out a large support base off the lows. Within that base formation there is also a large reversal pattern taking shape. If the stock can break above the $17.65 resistance level, Ford could attempt to regain ALL of those prior losses. I will be watching this closely. This pattern suggests that Ford's stock could double over the course of the next 10 years or less.


HAIN (daily)

While the chart is fairly unchanged since last week there was some important news on Wednesday. One of HAIN's largest shareholders, Carl Icahn announced that he would be selling half of his 15% position in the company. While tracking Insider Selling is not the most accurate measure for timing, when an investor of this magnitude and reputation makes a large move we have to take notice. Something notable on the chart above shows the most recent "spike" just this last August and the other huge earnings jump in August 2012. I am noticing some similarities in the two events; both involved huge volume spikes (not shown), a large surge in Relative Strength, followed by a failed attempt to continue to drift higher after the report. In the previous year once the stock broke below the 20 DMA, it went on to correct all of the prior breakout move and then some. While this did set the stage for a new support base to build and subsequent breakout, it was still a 25% correction from top to bottom.

Due to this pattern and chain of events I have reduced my positions in HAIN in all "short term" accounts, but have maintained a 1/2 sized, core position. For long term accounts like our Blog Portfolio I am standing pat here and will continue to honor the support near $72-70 as the level that needs to hold for long term positions going forward. My recommendation to you would be to decide what your time frame is for the stock and determine whether you feel a 15% correction is worth sitting though for the likely prospect of continuing higher. Or whether you wish to be nimble enough in the market to take some very nice profits here and wait for said correction to add back into a full position more near to support levels.  

Our weekly stock Holdings' performance:

PBW   +5.2%
F          +5%
CMI    +2.8%
AAPL  +2.4%
PPG     +2%
SP500   +1.3%
DDD    +1%
WFC    +.09%
HAIN   -4.1%

cash
HD      -2.38%
ENB    +1.3%

That's pretty much it for this week, still in wait and see mode and we will continue to see how our stocks and the market hold up around these key levels.