Market Observations - as of Apr 27, 2018

By Carl Jorgensen - For Objective Traders - For educational purposes only. Not Financial Advice.

This week was an interesting week even though most of the markets remained within their

consolidation patterns and did not change much from last week’s close. What made it interesting was

the very strong earnings reports (82% have reported better earnings than estimates) many with very

strong beats, but the Markets mostly sold off anyway. We saw a lot of gap up at the open just too then

sell off strong as the common reactions to positive earnings this week. Tuesday was the climax of the

selling reactions this week. However, we have only seen a few gap-up and rally reactions this week.

This made it feel like the markets were ignoring the fundamentals as if all news was bad news.

There were plenty of positive news events this week (North and South Korea peace progress, Trade

negotiations progress report from Larry Kudlow, huge earnings beats) yet the markets did not seem to

feel like celebrating. These reactions could be a clue to bearish sentiment brewing off the side lines.

Fortunately, we don’t need to know the ‘why’ to follow the charts and make decisions based on the

facts we see, and not rumors or expectations.

The major indexes mostly closed this week near to where they closed last week, and had a brief sell-

off on Tuesday this week, that was mostly recovered by the end of the week. This created a weekly

candle with a long lower wick and little to no body at the upper part, almost a mirror image of last

week’s candle that had a long upper wick and little to no body at the lower part.

The S&P and Nasdaq again closed this week near the middle of their 2018 range. For the S&P, this mid

level is also near where it closed at the end of 2017. The Dow is in the lower 1/3 of its range, and the

Russell 2k in the upper 1/3.

With markets remaining within consolidation for a few months now, and no trend in the daily or longer

term charts, we must either be patient and wait for a trend to resume (if you are a trend following

trader), or change strategies to shorter time frames where brief moves or range bound moves can be

traded. Changing strategies allows one to adapt to a variety of market conditions. However, doing so

also requires: clearly defined criteria to determine exactly when to change & to what system. It also

requires having multiple well tested systems, each with their own strengths and weaknesses identified,

so one can choose the best fit for the current market conditions (like a coach). These are more

advanced trading styles for experienced traders. One can decide to develop, over time, multiple

trading systems to have alternate strategies available for specific market conditions where that system

may perform best. If one is starting out trading the markets, its far more important to focus on just

one system at a time, refine it, and master it, before moving onto developing a second (or third).

We did see oil prices and the Energy sector remain mostly horizontal this week as they retained most

all of their gains from the prior weeks. Lots of sectors were hit hard this week mostly on Tuesday’s

broad selling spurt. The Semiconductor sector was hit hard late last week and the first half of this

week before bouncing a little on Friday.

Let’s look at the charts to see what they tell us about this week.

S&P 500 weekly chart as of Apr 27, 2018 – Clearly still in consolidation phase, as we see another flat

week with a round trip down to the long term trend line (Red line) during the week.

S&P 500 daily chart as of Apr 27, 2018 – Here we see the consolidation pattern ending the week near

the middle of its range and near where the S&P was at the end of 2017. The widest daily candle this

week was on Tuesday, with a bounce on Wednesday and Thursday that recovered most all of Tuesday’s

losses. Friday was rather quiet narrow range day. All of this week was spent below the 50 day SMA. This

week ended with the S&P just above its 20 day SMA and below its 50 day SMA.

S&P 500 hourly chart as of Apr 27, 2018 – We see a consolidation triangle pattern even on the hourly

charts over the past month showing us how this market is overall trendless as swings and volatility have

decreased. We can see the prior week’s bump above the 50hr and 200hr SMAs, and then this past

week’s dip under the 50hr and 200hr SMAs. We can see all three SMAs converging and crossing each

other the past two weeks as well. All these show us the convergence and consolidation of the S&P on

multiple time frames.

DJIA weekly chart as of Apr 27, 2018 – The Dow continues in a consolidation pattern as well, but with a

descending triangle pattern as compared to the S&P symmetrical triangle pattern.

DJIA daily chart as of Apr 27, 2018 – The Dow spend this week below its 50 day SMA, with Tuesday being

the wide range day that was not fully recovered by the end of the week. The Dow ended this week on

its 20 day SMA and below its 50 day SMA. The Dow ended this week 408 points below where it was at

the end of 2017.

Nasdaq weekly chart as of Apr 27, 2018 – The Nasdaq has been in a horizontal consolidation pattern

most of this year. It too ended this week near where it was at the end of the prior week after testing

the Trend Line support (Red line) during this week.

Nasdaq daily chart as of Apr 27, 2018 – Here we can see the Nasdaq spend this week below its 50 day

SMA and ended the week near the middle of its 2018 range (50% Fib level - Purple).

Russell 2000 daily chart as of Apr 27, 2018 – The Russell 2000 is also inside of its consolidation triangle,

but its triangle looks more like an ascending triangle with an upper Resistance Trend Line (Orange) that

is nearly horizontal.

Next let’s look at a few market internals studies to see the overall nature of this week.

NYSE Advance/Decline line weekly chart as of Apr 27, 2018 – We see another mostly horizontal week,

similar to the prior week, with no net change in market breadth this week.

McClellan Summation Index weekly chart as of Apr 27, 2018 – We see the same story with the McClellan

Summation Index indicating the absence of any positive or negative momentum acceleration in market

breadth. This confirms a very ‘neutral’ and quiet market this week.

VIX daily chart as of Apr 27, 2018 – The VIX has been below its 20day and 50day SMAs for over two

weeks, with only a very small spike up on Tuesday when the markets dropped that was recovered over

the following three days to end the week near where it ended the prior week.

Oil daily chart as of Apr 27, 2018 – Oil remained rather flat this week while also keeping the gains from

the prior weeks. Note there was no big drop on Tuesday of this week when most of the markets fell for

a day.

Gold daily chart as of Apr 27, 2018 – Gold fell Monday crossing below its 50day SMA where it remained

all week. Gold has remained inside a range (Green lines) for all of 2018 so far.

US Dollar Index daily chart as of Apr 27, 2018 – Here we see a significant clue to the bearish market

behavior this past week. Note how the US Dollar Index increased in strength (against other currencies)

nearly every day this week as it broke above 90 at the beginning of the week. As the dollar gets

stronger it tends to put some downward pressure on Dollar priced commodities and markets.

TLT weekly chart as of Apr 27, 2018 – Here we see the 20yr Treasuries dip to retest long term support

again this week.

TLT daily chart as of Apr 27, 2018 – Here we can see the dip this week to retest support (Orange line)

on Wednesday then bounce back to near where the week began.

Next we will look at several market Sectors to see how they did this week.

Dow Transportation Index daily chart as of Apr 27, 2018 – The Transports dropped on Tuesday with most

of the market, but did not recover all of those losses the following days as the Transports oscillated on

either side of the 20 day and 50 day SMAs. The sector remains inside its consolidation triangle this

year.

XLF daily chart as of Apr 27, 2018 – The Financials continued to be horizontal and quiet this week. They

dropped on Tuesday, but remained above the 20 day SMA and below the 50 day SMA.

XLE daily chart as of Apr 27, 2018 – The Energy sector remained horizontal this week, like oil prices,

and did not see a big drop on Tuesday this week. The Gains from the first half of April have been

retained so far.

QQQ daily chart as of Apr 27, 2018 – The Tech sector was hit hard on Tuesday this week, but recovered

most of those losses on the following two days. Friday saw a test of resistance at the 50day SMA and

failure to break above, ending the day and week near the middle of its 2018 range (Purple dash line).

SSOXX daily chart as of Apr 27, 2018 – The Semiconductor sector was hit hard late last week and that

selling continued the first half of this week to close below the 200 day SMA on Wednesday. The bounce

Thursday and Friday failed to recover these losses as the sector ended the week below the 20 day and

50 day SMAs.

XLV daily chart as of Apr 27, 2018 – The Healthcare sector has been below all 3 SMAs for three weeks

before moving up a little last week. This week saw the sector break back below its 200day SMA until

Thursday and Friday when a small rally helped the sector close above all 3 SMAs on Friday and the

Trend Line Resistance (Orange line).

XLU daily chart as of Apr 27, 2018 – The Utilities sector has seen a very slow upward trend over the

past two months, with the Thursday and Friday of this week moving up to end the week above the high

of the prior week. It still remains below its 200 day SMA.

XME daily chart as of Apr 27, 2018 – This sector pulled back this week to oscillate above and below its

50 day SMA then close the week below both its 20 day and 50 day SMAs. The XME remains inside its

consolidation triangle and is near the middle of its 2018 range.

XLP daily chart as of Apr 27, 2018 – The XLP was hit hard the prior week after testing resistance at its

50 day SMA and failing to break thru. That drop continued the first half of this week and then bounced

a little the last 3 days of this week to end the week near its prior Support / new Resistance level (Grey

line). This has not been a flight to safety candidate this year.

Next let’s look at a few key stocks that we have been watching to see what the charts are telling us.

Remember, of the F.A.A.N.G. stocks, Amazon and Netflix have been the strongest charts over the past

few months, while the others (Apple, Facebook and Google) have shown weakness relative to these top

two. [We shared a percent change overlay chart of these stocks in our ‘Market Observations’ dated

April 13 2018.]

AMZN daily chart as of Apr 27, 2018 – Amazon reported on April 26th after the close with a huge beat to

gap up at the open on Friday to new all time highs. AMZN sold off during the day to give back about

half of this gap. The earnings were very strong and blew away even the most optimistic estimates.

However, we did not see a gap and rally up, but a gap and sell off. If any stock had warranted a post

earnings rally it would be AMZN, if the markets operate based on fundamentals. However, that is not

what we saw. This is a reminder for us to not have any expectations, but focus on carefully reading

the charts to expose the behavior of the market participants.

NFLX daily chart as of Apr 27, 2018 – NFLX gave back all of its post earnings (Apr 17th) gap up gains this

week, filling the gap and even dipping briefly under its 50d SMA on Wednesday. NFLX remains near to

its all time highs from the prior week.

AAPL daily chart as of Apr 27, 2018 – Last week we saw Apple drop to its 200 day SMA. This week we

saw that drop continue on Monday and Tuesday then bounce only a little on Wednesday and Thursday

just to drop and retest and break down to a lower low for the week. Every day this week AAPL closed

below its 200 day SMA. Apple is scheduled to report earnings on May 1st after the close. AAPL is now in

the lower 1/3 of its 2018 range.

FB daily chart as of Apr 27, 2018 – FaceBook reported its earnings beat on April 25th after the close. It

gapped up above its 50day SMA and 200 day SMA the following day. Friday saw a gap up that was

rejected and prices dropped back below the 200 day SMA where FB closed this week. FB ended the

week near the middle of its 2018 range.

GOOGL daily chart as of Apr 27, 2018 – Alphabet reported its earnings beat on April 23rd after the close.

We can see the gap down and sell off to below the 200 day SMA the following day. Tuesday April 24th

was an ugly day for most of the markets, not just GOOGL.

NVDA daily chart as of Apr 27, 2018 – Like most of the semiconductor sector, NVDA continued the prior

week’s selling the first half of this week to then bounce the last two days. NVDA ended this week

nearly on its 20 day SMA. NVDA is scheduled to report its earnings on May 10th after the close.

MU daily chart as of Apr 27, 2018 – MU continued its selling the first half of this week to then bounce

Wednesday and Thursday to recover most this week’s losses. Friday saw a gap up and selling all day to

end the week near the bottom of this week’s range. MU closed every day this week below both its 20

day and 50 day SMAs.

SQ daily chart as of Apr 27, 2018 – SQ dropped the first half of this week crossing below both its 20 day

and 50 day SMA on Tuesday. The Bounce Thursday and Friday only recovered half of this week’s loss.

The Financial sector has been horizontal for several weeks. Square is scheduled to report earnings on

May 2nd after the close.

V daily chart as of Apr 27, 2018 – Visa reported its earnings beat after the close on April 25th. The Gap

up at the open on the following day also saw a rally continue up the first half of the day delivering new

record all time highs. The gains from Thursday were mostly retained on the quieter Friday to close the

week near its record highs.

MA daily chart as of Apr 27, 2018 – MA remained mostly horizontal this week, inside its narrow range.

Remember that BA is scheduled to report earnings on May 2nd before the open. Over the past month MA

has been one of the stronger stocks in its sector.

GS daily chart as of Apr 27, 2018 – GS reported its strong earnings beat on April 17th to be sold off last

week and the first half of this week down to its Nov 2017 levels crossing below its 200 day SMA on

Tuesday this week. Note the large range days on Monday and Tuesday this week vs. the narrow range

the following 3 days.

BA daily chart as of Apr 27, 2018 – BA reported its earnings beat on April 25th before the open. BA

rallied back above its 50 day SMA on Wednesday where it remained the rest of this week.

LMT daily chart as of Apr 27, 2018 – Lockheed reported its earnings beat on April 24th before the open

just to gap up and be sold hard. This was the ‘UGLY’ Tuesday we spoke of, where strong earnings (LMT,

CAT, etc.) saw strong selling reactions. The selling in LMT continued on Wednesday to find support at

the 200 day SMA. LMT made a futile bounce on Thursday and then move back down on Friday to end

the day and week near its 200 day SMA.

X daily chart as of Apr 27, 2018 – US Steel reported its earnings beat on April 26th after the close just to

gap down below its 20 day SMA the following day and be sold down hard, nearly touching its 200 day

SMA.

AA daily chart as of Apr 27, 2018 – We saw AA report its earnings beat on April 18th after the close to

gap up a little the following day to briefly deliver new highs before pulling back to prior support (Grey

line) on Friday April 20th. This week we saw AA gap down big at the Open on Monday (April 23rd) and

sell down below its 20day SMA the following day. The bounce on Wednesday and Thursday could not

prevent AA from crossing back below its 20 day SMA on Friday where it closed.

SCCO daily chart as of Apr 27, 2018 – SCCO began the week breaking below its Trend Line Support

(Orange line) and then its 20 day SMA on Tuesday. SCCO reported its earnings beat on April 25th just to

be met with selling below its 50day SMA where it remained the rest of this week. SCCO did briefly

break below its March support (Grey line) on Thursday, but respected that support on Friday.

FCX daily chart as of Apr 27, 2018 – FCX reported its earnings miss on April 24th before the open, to be

sold off very hard that day to cross below all 3 SMAs and close below its 200day SMA where it remained

the rest of the week.

CAT daily chart as of Apr 27, 2018 – CAT reported its earnings strong beat before the open on April 24th

to gap up at the open and hold up for 2 hours before being sold off very hard the rest of the day. This

was part of the ugly Tuesday as CAT lead the Dow Industrials down that day. Feb support (Orange line)

was tested and respected on Wednesday as CAT ended the week above this Support level.

CAT 5 min. chart as of Apr 24, 2018 – Note how the selling accelerated right after the break of support

(Orange line) established in the first half hour of trading on Apr 24th was broken about 2 hours into the

session. This is a common behavior when support is broken, since it can cause both those with long

positions to want to sell to protect profits, as well as the bears are selling and get encouraged once

they see support has broken. When both groups are doing the same thing at the same time, we can see

both prices drop very quickly with some volume behind it. This behavior can be seen on most all time

frames.

Let’s look at an example of a more typical reaction to a strong earnings beat.

CMG daily chart as of Apr 27, 2018 – CMG reported their earnings beat on April 25th after the close. We

see a large gap up and rally that follows. This is more often what you may see when a company reports

a strong beat of estimates.

CMG 5 min. chart as of Apr 27, 2018 – Here we can see the opening gap up followed by a strong rally

the next few hours, with only a few small pull backs. The rally continues the next day as well, at a

slower pace. This is an example of a ‘Gap-n-Go’ reaction that is more likely after a very strong

earnings beat. There were lots of very strong earnings reported this week, but very few charts that

look like CMG’s reactions.

HAL daily chart as of Apr 27, 2018 – HAL reported earnings (small miss) on April 23rd before the open

and we do not see much of any affect this week. HAL remained in a narrow horizontal range this week,

as did the sector.

RIG daily chart as of Apr 27, 2018 – RIG remained inside a narrow horizontal range this week, as did

most of its sector. Remember that RIG is scheduled to report its earnings on Monday April 30th after

the close.

We saw some interesting reactions to earnings this week, with most companies beating estimates.

However, the bears did not seem to care much about fundamentals as they showed us their convictions

on Tuesday of this week. There were very few stocks this week that could rally after reporting a

strong beat.

This serves as another reminder, that Anything Can Happen. Do not have any expectations, but remain

observant to what the charts show us.

Trade Smart,

CJ