Monday, September 14, 2015
Little-Known Indicator Calling for a Turning Point in the Market
There is an old trading adage I've always liked: "The market will scare investors out or wear investors out."
Prior to Aug. 20, we were in a wear-you-out stage. The Dow was trading in the narrowest range in more than 100 years of just 7.7% from top to bottom.
To make things worse, the S&P 500 had crossed its 50-day moving average a total of 35 times, exceeding the number of crosses ever seen in a full calendar year in the first eight months alone. And the vacillating, whipsaw nature of the sideways trend aggravated investors.
Just prior to the violent sell-off, I wrote about how the massive pickup in new lows indicated a stealth correction occurring in stocks. At the time, about 60% of S&P 500 stocks were down at least 10% for the year -- i.e., in official correction territory -- yet the index was basically flat.
Then, on Aug. 20, the market entered a scare-you-out stage. Traders embarked on a selling spree sparked by global growth fears that brought the index into full-blown correction territory in just four days.
The chart below shows the gargantuan spike in stocks making new 52-week lows as traders panicked and threw in the towel.
The next graph shows how oversold the S&P 500 is using the
Relative Strength Index (RSI) indicator. The number of S&P 500
stocks below 30 -- the standard oversold level -- went off the charts
compared to every other sell-off in the past three years. (more)
Prior to Aug. 20, we were in a wear-you-out stage. The Dow was trading in the narrowest range in more than 100 years of just 7.7% from top to bottom.
To make things worse, the S&P 500 had crossed its 50-day moving average a total of 35 times, exceeding the number of crosses ever seen in a full calendar year in the first eight months alone. And the vacillating, whipsaw nature of the sideways trend aggravated investors.
Just prior to the violent sell-off, I wrote about how the massive pickup in new lows indicated a stealth correction occurring in stocks. At the time, about 60% of S&P 500 stocks were down at least 10% for the year -- i.e., in official correction territory -- yet the index was basically flat.
Then, on Aug. 20, the market entered a scare-you-out stage. Traders embarked on a selling spree sparked by global growth fears that brought the index into full-blown correction territory in just four days.
The chart below shows the gargantuan spike in stocks making new 52-week lows as traders panicked and threw in the towel.
C R Bard Inc (NYSE: BCR)
C. R. Bard, Inc. designs, manufactures, packages, distributes, and
sells medical, surgical, diagnostic, and patient care devices worldwide.
The company offers vascular products, such as percutaneous transluminal
angioplasty catheters, chronic total occlusion catheters, guidewires,
fabrics, meshes, introducers, and accessories; valvuloplasty balloons;
peripheral vascular stents, self-expanding and balloon-expandable
covered stents, and vascular grafts; vena cava filters; biopsy devices;
and temporary pacing electrode catheters for the treatment of peripheral
vascular disease and heart arrhythmias.
Take a look at the 1-year chart of C.R. (NYSE: BCR) below with my added notations:
BCR has created a simple chart pattern known as a symmetrical triangle. Combining a down trending resistance (red) with an up trending support (green) forms the triangle pattern. As the support and resistance converge on each other the pattern is created. Since there is no true way to know which way the stock will break, most traders will wait for the breakout or breakdown before entering a trade.
The Tale of the Tape: BCR has formed a simple symmetrical triangle. A trader could enter a long position on a break above the down trending resistance (near $195) with a stop set under the entry level. However, if BCR were to break below the trend line support (currently near $190), a short trade could be entered with a stop above the trend line.
Take a look at the 1-year chart of C.R. (NYSE: BCR) below with my added notations:
BCR has created a simple chart pattern known as a symmetrical triangle. Combining a down trending resistance (red) with an up trending support (green) forms the triangle pattern. As the support and resistance converge on each other the pattern is created. Since there is no true way to know which way the stock will break, most traders will wait for the breakout or breakdown before entering a trade.
The Tale of the Tape: BCR has formed a simple symmetrical triangle. A trader could enter a long position on a break above the down trending resistance (near $195) with a stop set under the entry level. However, if BCR were to break below the trend line support (currently near $190), a short trade could be entered with a stop above the trend line.
US Weekly Economic Calendar
| time (et) | report | period | ACTUAL | forecast | previous |
|---|---|---|---|---|---|
| MONDAY, SEPT. 14 | |||||
| None scheduled | |||||
| TUESDAY, SEPT. 15 | |||||
| 8:30 am | Retail sales | Aug. | 0.2% | 0.6% | |
| 8:30 am | Retail sales ex-autos | Aug | 0.1% | 0.4% | |
| 8:30 am | Empire state index | Sept. | 0.0 | -14.9 | |
| 9:15 am | Industrial production | Aug. | -0.4% | 0.6% | |
| 9:15 am | Capacity utilization | Aug. | 77.6% | 78.0% | |
| 10 am | Business inventories | July | 0.2% | 0.8% | |
| WEDNESDAY, SEPT. 16 | |||||
| 8:30 am | Consumer price index | Aug. | -0.1% | 0.1% | |
| 8:30 am | Core CPI | Aug. | 0.1% | 0.1% | |
| 10 am | Home builders' index | Sept. | 61 | 61 | |
| THURSDAY, SEPT. 17 | |||||
| 8:30 am | Weekly jobless claims | Sept. 12 | 280,000 | 275,000 | |
| 8:30 am | Housing starts | Aug. | 1.17 mln | 1.21 mln | |
| 8:30 am | Building permits | Aug | -- | 1.13 mln | |
| 8:30 am | Current account | 2Q | -- | -$113 bln | |
| 10 am | Philly Fed | Sept. | 5.3 | 8.3 | |
| 2 pm | FOMC statement | ||||
| 2:30 pm | Janet Yellen press conference | ||||
| FRIDAY, SEPT. 18 | |||||
| 10 am | Leading indicators | Aug. | -- | -0.2% | |
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