State of the Markets January 2019

Indices and Technicals

SPY: The index appears to be in wave 4 of a 5 wave pattern. The 3rd wave down was a powerful drop coming down nearly 500 points in a matter of weeks. After Christmas we had a record bounce as the market was extremely over sold. This next move up should take the SPY back to the 2600 level where it runs into lateral resistance and the declining tops line. Be patient on looking to add shorts as it is unlikely the market goes straight back up. So we will be watching for the roll over and the start of wave 5 for short entries. By the same token, be careful trying to catch dead cat bounces on the long side as many of the stocks have had big moves off the bottom and could be topping out in the short term.

NDX: The index is similar to the SPY. It also is in wave 4 of a 5 wave move and remains in a down trending channel. It has lateral resistance at 6500 and the declining tops line comes in around 6600. Watch for a roll over and the start of wave 5 for short entries.

IWM: Now in a rising bear channel in wave 4 of a 5 wave pattern. It will run into resistance around 140 and 146. If it does roll over I would look for wave 5 to take it to $118.

DJ -20: Trannies also are in wave 4 of a 5 wave pattern. But, the Trannies plunged hard in wave 3 and not much of a bounce for wave 4. This is not a good sign for the overall markets. It has resistance here at 9250. Through that and it could trade up to 9400 and 9760. But I think that would be a stretch. Again, watch for the index to roll over for the start of wave 5 down.

McClellan Oscillator: The Oscillator has moved from the low of -265 to 133 in 1 week. That is a strong rally for stocks. Normally it would indicate an over bought market. But with this strength we may merely see the indices consolidate before moving higher. I will be watching this action in conjunction with the other technical indicators.

Stocks above the 40 day PMA: Again, with only 20% of stocks above their 40 day moving average, we are still slightly over sold and could see this rally continue to push. This is the 20% of stocks we want to be looking at to go long. Even though we are in a bear market, stocks will still have nice moves to the upside that we can look to trade.

VIX: I had said VIX over 30 would be an oversold area and the indicator traded to 36. But it has backed off quickly down to 21. So, again an area of neutrality. We are not in an over bought situation so wave 4 still has some room to move to the upside.

TVIX/UVXY: If wave 4 continues in here, both UVXY and TVIX are sitting on support levels. A break down (rising market) could see UVXY to $64 and $59 and TVIX to $53 and $51.

NDX Major Components:

AAPL: Stock continues in a down trending channel after gapping down out of a bear wedge on earnings guidance. We could see AAPL rally to as much as $155 (declining tops line) before rolling over. But probably $150 is the first level of resistance it has to get through.

ADBE: Stock may have put in a double bottom at $206 and now rallying. It needs to get through $229 otherwise this could just be a bear wedge and a rollover could take it back down to the $206 level.

ALGN: Stock has come down from $400 and made a new low at $177. It did close above support at $186. But this is a terrible chart and looks to trade much lower. It may find support at $150. Major support at $100. This stock will continue to be a drag on the NDX.

AMZN: Stock is also in a down trending channel forming an orderly declining pattern. This could be a bear flag for it in here. It needs to get over $1600 (50 day ma) and $1650 (declining tops line).

BIDU: Stock continues to be in a down trending channel. With markets rallying, this stock has put in a very weak response. If it breaks down below $154 look for $143.

FB: Stock continues to trade in a down trending channel. After breaking down out of a bear flag at the declining tops line ($140) the stock traded down to $124 area. Now it is forming a bear wedge again and is at lateral resistance and the declining tops line. Look for FB to roll over and retest the $124 level and then $116.

FSLR: This chart is fighting the trend of the markets. It has broken the declining tops line and was up for 7 days in a row. It has key resistance at $48. Through that and $51 is the next target.

GOOG: Super choppy stock seemingly having found support around $1000. It is approaching the declining tops line around $1080. If it can break through that look for $1132. But if the markets roll over look for GOOG to test the $1000 level again.

INTC: This stock maybe a market leader as long before the other major components of the indices came off, INTC traded lower in a declining channel. But, since August it has been consolidating and has not made a lower low since mid October. It has major overhead resistance at $50.40 and support around $43.50.

ISRG: Choppy chart but looks to be in a down trending channel It broke support around $470 and plunged to $430 area. It has rallied back to $470 area but appears to be forming a bear wedge. I would look for this stock to retest the $430 low. A failure there takes the stock to $390.

MSFT: After breaking the long term rising channel line, old Softie consolidated in a narrow range. But with the markets selling off the stock traded below $100. It looks to have formed a V bottom with a right hand extension and approaching resistance at $103. It needs to hold $100 otherwise we will see it test the $94 low and maybe lower.

NFLX: Of all the stocks making up the NDX 100, NFLX is the strongest. It is up 7 days in a row moving $65 from the low. It broke through lateral resistance, the declining tops line, the 50 day ma and now right at resistance at $298. If this move continues look for the stock to trade to $333 and $350.

NVDA: Stock continues to trade lower in a down trending channel. The stock has sold off from $312 to low $120 area, nearly $200. I still would not be a buyer in here as it is at the declining tops line and in a bear wedge formation. With the rest of the markets bouncing this stock has made a weak attempt at a rally. If it rolls over here look for $115.

TSLA: After breaking down in December below $365 the stock plunged to $295. It then bounced and now pulling back to support. If this breaks $295 we should see it sell of to $250.

Main ETFs:

DWT: Oil appears to have bottomed as the DWT (Oil bear) broke the up trending channel line and gapped down on Friday. It may find support around $11. If markets roll over, there may be an opportunity to re-enter this trade which we called at $6.64.

FAS: Financials look to be bear wedging in wave 4 of a 5 wave down pattern. We should see FAS run into resistance around $50 area (top of the channel) and $52 area (lateral resistance). Watch for financials to roll over and continue lower in wave 5 of a 5 wave pattern.

JNUG/NGUT: The gold miner ETFs broke out of a resistance level but continue to trade sideways. Up one day and down the next. Gold is still not showing any direction.

LABU: After a steep plunge in December to a low of $24 the LABU is now in a rising bear wedge. It will come into lateral resistance around $40 and into the declining tops line at $45. The chart continues to look ugly. Expect biotechs to continue trading lower.

SMH: After making a massive top over the summer the semiconductors sold off hard to $81 at the bottom of wave 3. It had an ensuing bounce (wave 4) but may be pulling back in here again. This is major resistance for SMH at $87. Let's see if it holds support at $81 (truncated wave 5). If it fails at $81 wave 5 should take it down to $76.