Market Observations as of Dec 15, 2017

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

This week we saw some minor bumps as markets continued with their overall trends from the prior

week’s oscillations. Thursday saw most markets experience a minor drop after a brief strong opening,

with some sectors weaker than others. Friday ended this week with a big bang as many indexes and

stocks delivered new all time highs on rather large volume. The volume was expected as Friday was

quadruple witching and the last major expiration day for 2017. Friday also saw news of progress on the

new Tax Legislation finding sufficient support (votes) that likely provided a fresh breath of hope in the

markets. The Russell 2k (+1.4%) and Nasdaq (+1.1%) showed the greatest relative % increases on

Friday, with the S&P (+0.9%) and DOW (+0.58%) delivering new all time highs on a bit less % gains for

the day.

We will look at the major US Indexes, commodities, sectors and stocks, as we usually do, to see what

has changed from last week, what continues, and where strength seems to be found.

This weekly ‘Market Observations’ file serves as an educational tool with examples of one way to do a

Top Down Market Analysis. Below we will look at a recent example (from the past week to 10 days) to

see how this Top Down process can be used to find fresh trends or opportunities that may fit your

criteria to potentially trade. We suggest you develop your own process that fits your style of trading.

Our example may act like a seed of some idea, that you can then go on to develop yourself.

The purpose of our examples is NOT to give out trade recommendations, but to help the trader develop

their own skills to find opportunities on their own. This way the trader can, in time, become fully self

sufficient and not dependent upon any publication, service, expert, or magic indicator. Our examples

are just that, examples. We show at least one way to proceed as a real example to explain the

concepts and principles we share.

Now, let’s look at the charts to see what they are telling us this week.

S&P 500 weekly chart as of Dec 15, 2017 – We have shared the Fibonacci Retracement study (Purple)

many times over the past two years. This week we saw the S&P break above this 261.8% extension

level.

S&P 500 daily chart as of Dec 15, 2017 – The S&P broke above the 261.8% Fib level late on Monday, and

remained above this level all week except for the last 2 hours of trading on Thursday. Friday saw the

largest range day for the S&P and new All Time Highs. Note the very high volume on Friday, as was

expected due to quad witching expiration activities.

DJIA daily chart as of Dec 15, 2017 – The Dow did not dip nearly as much as the other indexes on

Thursday, and recovered to new All Time Highs again on Friday.

NASDAQ daily chart as of Dec 15, 2017 – The Nasdaq had a horizontal week until the Friday pop.

IWM daily chart as of Dec 15, 2017 – The Russell 2000 had an expansion week with oscillating prices in

wider and wider range days each day this week. Overall a slightly positive week, as most of the time it

remained above Oct Resistance (Yellow line) as new Support this week, except for Thursday.

NYSE Advance/Decline Line daily chart as of Dec 15, 2017 – Market breadth was horizontal this week

except for the Thursday dip that was fully recovered on Friday.

McClellan Summation Index daily chart as of Dec 15, 2017 – The acceleration of market breadth was not

seen this week as this Index remained mostly horizontal.

VIX daily chart as of Dec 15, 2017 – You can see a little increase in the VIX Tuesday, Wednesday and

Thursday this week, but Friday saw volatility drop back down near the lows of the year.

GLD daily chart as of Dec 15, 2017 – Gold broke support (Grey line) late last week, and continued lower

the beginning of this week. The small bounce Tuesday and Wednesday this week could not reach the

prior Support level (Grey line).

Oil daily chart as of Dec 15, 2017 – Oil oscillated mostly sideways this week in a narrow range.

US Nat Gas daily chart as of Dec 15, 2017 – Late last week UNG broke Support (Orange line) from March

2016 lows. The break down in price continued each day this week.

DJ Transports daily chart as of Dec 15, 2017 – The Transports were mostly sideways this week as they

also remained near their 2017 highs.

XLF daily chart as of Dec 15, 2017 – The Financials were mostly sideways this week as well, remaining

near their 2017 highs.

XLE daily chart as of Dec 15, 2017 – The Energy sector was one of the very few sectors that dropped

this week.

XLV daily chart as of Dec 15, 2017 – Health care sector was up a little this week, after nearly retesting

October highs (Grey line) on Wednesday, getting knocked down hard on Thursday, and then recovering

part of the prior day’s drop on Friday. We do see higher lows and higher highs since early November.

QQQ daily chart as of Dec 15, 2017 – The large Tech stocks helped to drive the Qs up to new highs on

Friday this week, breaking above November Resistance. This shows us that some strength remains in

this sector.

SOXX daily chart as of Dec 15, 2017 – We saw last week one of the weakest bounces shown in the

Semiconductor sector. This week that relative weakness continues with a nearly horizontal week that

could not break back above its 50 day SMA in Friday’s strong markets.

XRT daily chart as of Dec 15, 2017 – The Retail sector has seen a mostly horizontal two weeks. This

week gave back the minor gains of the prior week. Friday’s bounce could not get back to retest the

highs of this week.

XHB daily chart as of Dec 15, 2017 – The Home Builders continue to consolidate with a slight drop this

week. The Triangle shows converging support and resistance. Note the nature of this sector over the

prior months shows that two week horizontal pauses are common.

XME daily chart as of Dec 15, 2017 – From a broad view, this chart looks like it is in a horizontal range

still. Last week we saw the XME had crossed above its 50 day SMA on Dec 7th, the second time that

same week. This week the XME continued up to retest, break above, and close above its prior

Resistance (Yellow line) on Wednesday of this week. If you dug into this sector ETF last week, you

would find the largest holdings within this ETF. [e.g. visit: https://us.spdrs.com/en/etf/spdr-sp-

metals-mining-etf-XME to find out for yourself. ] The top five holdings in this ETF are: BTU, X, STLD,

FCX and ATI. By looking at each of these charts back on Dec 7th when you saw the ETF breaking above

its 50 day SMA, you would see that FCX had also crossed its 50 day SMA early on the same day (Dec 7th).

Let’s look at the FCX chart now to see how this example played out this week.

FCX daily chart as of Dec 15, 2017 – Note the horizontal trend since early August and the horizontal

moving averages (20 day Yellow, 50 day Blue, and 200 day Purple). We also can draw a trend line from

Oct and Nov highs to see it broke briefly on Dec 4th, then again on Dec 6th when it remained above its

20 day SMA and under the 50 day SMA on the 6th. The next day FCX broke above its 50 day SMA with a

wide candle range day and above average volume. Buying near or just above the 50 day SMA was a low

risk entry on Dec 7th (Blue arrow). A break above the High from Dec 4th (Yellow line) could also act as

an entry trigger to catch the move this week. A break above the Aug highs (Grey line) could also

confirm breaking out of the range bound box as an entry trigger as well. Note how FCX has moved on

strong volume this week to come within 7 cents of retesting the $17.06 highs from Jan 24th 2017 on

Friday (Dec 15th).

This is an example of using the Top Down market analysis to find an opportunity to trade.

This is also an example of four types of triggers. [1] the most aggressive being the earliest with the

break above the Orange Trend line Resistance on Dec 4th. [2] Next is the Break above the 50 day SMA

on Dec 7th. [3] The Break above Dec 4th highs (Yellow line) also on Dec 7th. And [4] the least aggressive

break above the Aug thru Nov Range Resistance (Grey Line) on Dec 13th. The earlier the trigger is, the

lower the odds are of being correct but with higher potential rewards. The later triggers each have

progressively higher odds of being correct with slightly less potential rewards.

The idea is to find where YOU are most comfortable with a trade-off between probability, risk and

rewards. Then define that point clearly and write it down so that you can consistently use that

decision point on a variety of trades. Over time, and with a statistically significant number of

examples, you will understand both the pros and cons of your trade-off point, and go on to build

confidence and consistency.

Now let’s look as some more key stocks to see how they acted this week.

AAPL daily chart as of Dec 15, 2017 – Apple made a nice gain on Monday, and then chopped mostly

sideways the remainder of the week, with a small move and close at the highs for the week on Friday.

These highs remain below the all time highs from early November (Orange line).

GOOGL daily chart as of Dec 15, 2017 – Alphabet was quiet and horizontal the first three days this

week, then move up a little on Thursday and more on Friday to close just below its All Time Highs.

This is one of the strongest of the FAANG stocks this week.

AMZN, FB and NFLX all has positive weeks, but were relatively quiet and did not even come close to

retesting the prior highs from late November just before the Sector Rotation taking down the FAANG

stocks.

AMAT daily chart as of Dec 15, 2017 – AMAT saw a very small bounce this week as the sector remained

weak and mostly horizontal.

MU and NVDA were both down slightly this week as this sector remained weak.

GS daily chart as of Dec 15, 2017 – GS retested its March 2017 highs (Grey line) early last week, and

broke above that Resistance area on Tuesday of this week. Note how this prior Resistance (Grey line)

acted like support the remainder of this week.

HD daily chart as of Dec 15, 2017 – HD was quiet and flat this week as the sector was consolidating.

DHI daily chart as of Dec 15, 2017 - DHI was also quiet and horizontal this week as the sector is

consolidating.

DE daily chart as of Dec 15, 2017 – Deere was horizontal this week as it retained most all of its recent

gains.

CAT daily chart as of Dec 15, 2017 – CAT saw a very strong Wednesday to new highs as it led the DOW

the middle of this week.

X daily chart as of Dec 15, 2017 – X started the week with a new high on Monday, then continued lower

the rest of this week.

BA daily chart as of Dec 15, 2017 – Boeing had an outstanding week delivering new all time highs nearly

each day. Note how this stock seems to rest in a horizontal range for a month at a time, then moves to

the next level. The move the prior two weeks is the strongest since July this year.

LMT and UTX are also defense sector stocks and did well this week.

I hope our chart review and examples helps you develop your skills reading charts. The key to

developing any skill is lots of practice. Try it yourself before you read my next ‘Market Observations’.

Trade Smart, Anything can Happen.

CJ