What a difference a week makes! The multi standard deviation move to the upside has changed our outlook on the intermediate outlook for the market. The Chaikin Model is best leveraged for trades lasting 3 to 6 months.
Let's start with the market....
Let's start with the market....
The SPY is the ETF for the S&P 500 and our proxy for the market. We use Chaikin technical indicators to get our bearings.
- It successfully retested August lows and broke through significant resistance at the $200 area. Technicians would view the breakout from a Double Bottom (or possibly an Ascending Triangle)
- Chaikin Money flow exploded to the upside, so institutions are pushing prices higher.
- Price closed above the long term (orange) Chaikin trendline, which has begun to curve upward.
- Price is well above the 21 day MA, which is pointed up.
- The OB/OS oscillator is OVERBOUGHT and price is well above the upper volatility band.
- Technically, the market has reversed its short term downward trend but after a strong move, is more likely than not to revert to the mean before continuing its advance. Eventually, we should match the highs for the year.
The Power Gauge is Chaikin Analytics' secret sauce. Weighted 85% by fundamental factors, the Power Gauge on individual equities is essential to making trading decisions. When we roll up and compare the aggregate relationship between Bullish, Neutral and Bearish stocks in an index, we can validate what the technicals tell us. When the Power Gauge is in line with the technicals, the probability of our forecast being correct goes up. This is the directional edge that Chaikin Analytics gives us over other market participants.
The Bull/Bear ratio on the SPY, at 91 bullish/95 bearish stocks is an improvement, but is not in line with the bullish technicals. Therefore, we remain neutral on stocks. A stronger fundamental picture must emerge as earnings season progresses to propel the market to new highs. We'll cherry pick from the areas of the market that have better Power Gauge ratios, such as Tech.
Notice the bull/bear relationship is 19 to 8 on the Tech ETF XLK, a ratio that's better than the overall market. Tech has been out-peforming the market for weeks, and price has already matched the highs for the year.
The Bull/Bear ratio on the SPY, at 91 bullish/95 bearish stocks is an improvement, but is not in line with the bullish technicals. Therefore, we remain neutral on stocks. A stronger fundamental picture must emerge as earnings season progresses to propel the market to new highs. We'll cherry pick from the areas of the market that have better Power Gauge ratios, such as Tech.
Notice the bull/bear relationship is 19 to 8 on the Tech ETF XLK, a ratio that's better than the overall market. Tech has been out-peforming the market for weeks, and price has already matched the highs for the year.
Recent earnings in the tech sector have beaten expectations and driven prices up. The sector is overbought. We'd expect some sideways churn or perhaps a shallow pullback before heading higher.
We'd look in the Semicondutor subsector for trade candidates...
We'd look in the Semicondutor subsector for trade candidates...
It's just recently started out-peforming the market with some incrementally positive money flow and a recent breakout above the Chakin long term trend, which is now curving up
Look at the money flow on Bullish rated Semi-conductor industry component CRUS.
Look at the money flow on Bullish rated Semi-conductor industry component CRUS.
Institutions appear to be accumulating this stock. Also, though it's very early, notice the market (Relative Strength) and the model (bullish power gauge)are in agreement as Friday. The combination of Money Flow, Relative Strength and Bullish Power Gauge puts the odds in our favor that the recent trend reversal will continue. Price broke above the long term Chaikin trend.
Since earnings are coming up on Wednesday, is this is a great time for us to test out the new options module? Certainly, defining and limiting risk with options makes GREAT sense if you were to put on a bullish trade before the earnings news.
Since earnings are coming up on Wednesday, is this is a great time for us to test out the new options module? Certainly, defining and limiting risk with options makes GREAT sense if you were to put on a bullish trade before the earnings news.
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