Market Recap Friday, December 18, 2015 - SPY NYA TLT MUB UUP GLD GDX USO XES UNG FCG

Although the weekly losses for the S&P 500 ($SPX) was only 0.34%, the manner in which this loss occurred is indeed concerning if you are a stock bull. The past two weeks saw increased volatility in many asset classes due to the speeches by chairs of both the European Central Bank and the Federal Reserve. The initial reaction to Janet Yellen’s announcement of a ¼ percent interest rate rise was positive, but things completely fall apart by the end of the week. Chart of SPY now shows a confirmed Bearish Engulfing (Outside reversal) pattern. Friday’s close also put the ETF below its November low for the 2nd time this week.
CHART OF SPY
​

​Various market breadth indicators did not improve after the Fed announcement, but deteriorated further by Friday’s close. For example: Percent of stocks above the 200-day exponential moving average (EMA) for NYSE Composite index now stands at only 29.9. Another indicator: New Highs-New Lows Percent for NYSE has been bearish since June of this year.
CHART OF NYA
       Our in-house Market Breadth Index (MBI) has been flashing Bear Market warning signs since mid-September. In our back testing going all the way to 1970, MBI was able to call 8 out of the 9 secular Bull and Bear market inflection points. What’s even more impressive is the fact that MBI would have also been able to eliminate the annoying whipsaws – false trend changes. (This index is available for exclusive licensing – contact us if interested.)
         Based on the various momentum, market breadth and trend data series that I follow, the overall preponderance of evidence paints a picture of beginning stages of a bear market. So for now I am going to trust the data I am seeing and continue to look for shorting opportunities within the general stock market.

Bonds also experience rather wild swings as Draghni and Yellen delivered their speeches. Interestingly, TLT held support and rebounded following Yellen’s announcement – a clear indication that rising interest rates may not be as much of a drag on the bond markets as many observers predicted. If anything, the move into bonds (Municipal bonds are hitting all-time highs) and away from equities is showing an increased amount of fear in the markets.     
TLT CHART, MUB CHART
​

​The US dollar ($USD), like many other asset classes, experienced severe volatility following Mario Dragni’s comments. I think $USD is still in an uptrend and the recent breakout is still valid. In the past 2 days $USD rebounded off a possible support to close again above the breakout level. Again, we are very close to 52-week highs, so at least a re-attempt to those highs is in order.
CHART OF $USD    

After Draghni’s comments, gold bounced off a multi-year lows. This bounce seem to have failed immediately as bears stepped in and pushed the prices to multi-year closing lows on Thursday. Gold is very much a bearish security, so I see 2 paths for it right now.

1. A rebound to around $1100-$1140, maybe even $1160 and a failure there.
2. A drop below the recent lows and continuation to around $1000, or lower.

I don’t see a third scenario of a major bottom and a beginning of a new bull market in gold just yet, especially if $USD continues to trade near 52-week highs.
GOLD CHART 
       Gold miners (GDX) are again trading near the $13 magical area. This is perhaps the 8th time in the past 6 month that GDX attempts to break below this level, but keeps failing. Will this time be different? In the ideal world, I would like to see a rebound for GDX to around $15-16 for a good        setup. If the dollar weakens, gold and GDX may rebound and provide for another shorting opportunity in the near future.
GDX CHART

Oil hit multi-year lows again this Monday, then rebounded to its broken support at around $38. Tuesday the price was rejected at that broken support and oil traded sideways for the rest of the week. Oil is very weak and staying weak. This week’s action may be tracing out a rising wedge of sorts. Rising wedges in a bearish security are bearish once the wedge breaks down. Oil could easily reach the high $20s area - based on the measured move from the October highs to its support break below the August lows. If XES (oil services ETF) is any indication, there is still more pain to come in the oil sector. XES just broke supports from August and October lows.
CHART OF OIL, CHART OF XES
​

​Natural gas ($NATGAS) is again hitting multi-year lows. The chart of $NATGAS is a picture-perfect example of why trend followers should at all costs avoid attempts to bottom pick a bearish security. On December 2nd $NATGAS closed below support and in the next 2 weeks plunged over 22%. If you view my previous videos, I mentioned the possibility of a down move of around 12% based on the measured move rule. Clearly I underestimated! Also, there were at least 4 hammer-like candlesticks in the past 2 weeks – none of them marked the bottom so far. Now $NATGAS is quite oversold, so a short covering rally cannot be excluded. Ideally the rally should take $NATGAS to around $2.20-$2.40 at which point it would be a nice place to short again. FCG (ETF that holds natural gas stocks) hit all-time lows this week. You can see the measured move in action on the chart there.
CHART OF $NATGAS, CHART OF FCG
 
Trade Alerts Service is now live – please sign-up here!
That’s it for this week’s market recap,
Best Regards and have another great trading week!
 
Alexander Berger (www.MasterChartsTrading.com)