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Market Analysis

Market Update - 1/23/2017

Conditions continue to favor risk taking even though the S&P 500 ($SPX) has been stuck in a fairly narrow range, and the Dow Jones Industrial Average ($INDU) is having a hard time  getting over the 20,000 hurdle. That being said, I'm not a buyer here for several reasons, chief among them is the exhaustion signals due to be registered on various monthly charts at the end of January. Hence, my strategy would be to look for option premium selling opportunities toward the end of the week. 

A handful of charts are published below along with my technical commentary.

The Nasdaq Composite ($COMPQ) sports a massive Cup and Handle pattern. The summer 2015 correction, whose low was subsequently retested and slightly exceeded in February 2016, traced out the 'handle' portion of the pattern; it is represented by the purple a-b-c. Moreover, the post-February price action constitutes a legitimate breakout even though I do expect a retest of the February 2015 low at some point in the future.


Chart 1. Nasdaq Composite ($COMPQ)

The Dow Jones Industrial Average ($INDU) recently broke out of the channel established by the Andrews Pitchfork. This is the very channel that impeded any further advance by this index back in 2015. This breakout is not to be taken lightly even though I do expect the 2015/2016 lows to be retested at some point in the future.


Chart 2. Dow Jones Industrial Average ($INDU)

The Russell 2000 ($RUT) reached a technical milestone in recent weeks. This coincides with an impending Monthly TD 9-13-9 Sequential Sell signal due at the end of January.


Chart 3. Russell 2000 ($RUT) 

The Philly Semiconductor Index ($SOX) also sports a massive Cup formation, but it remains well below its all-time high recorded 16 years ago. Hence the Semiconductor sector will likely continue to offer one of the most lucrative investment opportunities for years to come. Here again, an impending Monthly TD 9-13-9 Sequential Sell signal is due at the end of January.


Chart 4. Philly Semiconductor Index ($SOX)

The Dow Jones Transportation Average ($TRAN) remains strong, offering more upside potential despite the tremendous gains realized in recent months. Back in late 2014, this index reached the yellow Cup and Handle's technical objective (yellow arrow) before ushering in a stealthy multi-month correction. Most major indices continued to forge ahead for months to come before finally succumbing  to the same fate during the summer of 2015. We're on the lookout for a similar non-confirmation configuration to signal the start of the next correction. It is NOT here yet. It's also worth noting that the same thing happened back in 2011. However, it was the $SOX, not the $TRAN, that flashed the warning signal back then, several months ahead of the summer 2011 swoon. NO SUCH BEARISH DISPARITY IS EVIDENT TODAY. Hence, as stated at the beginning of this write-up, conditions continue to favor risk takers.


Chart 5. Dow Jones Transportation Average ($TRAN) 

For a BUY signal to be triggered, the $SPY must take out 227.40.

Trade Smart,

Peter Ghostine (@peterghostine)


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