1/7 Weekly Market Recap.
Posted by jon on
Spy of the week.
Hello traders! Last week was a shortened trading week as the market traded half a day on July 3ed, and didn’t trade at all on July 4th. Happy anniversary America!
Obviously, on weeks like these, the participation of traders and institutions alike is very limited. Usually, the overall market volume is quite low and there is not much of a price action. Traders do prefer to stay in cash positions, and avoid the risk of trading in a low volatility-reduced volume environment. Bear in mind that we also approach the summer vacation season, which traditionally brings a certain sleepiness to the market, and yes, traders do take vacations from time to time…
As for the SPY, we are currently situated at the high of the week, moving further away from the widely watched 160.00 support level.
Although the recent upward move was made with not much of a conviction regarding the market buyers (low up volume), market price is quickly advancing towards the upper channel resistance level, preparing for a decision, break up, or drift lower. Notice that Laguerre Filter is still pointing lower.
That being said, let’s remember that earning season of the second quarter has just started, a situation that often yields sharp moves either way regardless of the short term technical analysis.
Despite the dull action in the markets this week, we had some sharp movers, let’s have a look:
American Capital Agency (AGNC), a financial company, experienced a sharp decline in stock price the last two month.
On the daily timeframe, we can see a steady and consistent decline under the falling Laguerre Filter. Down volume is significantly higher than the up volume, indicating a determination of sellers and weakness of buyers to hold the price back:
Drilling further into the 5 min time frame we can see a clear bearish sentiment as Darvas Box gives us 3 consecutive Short selling signals, 2 of them were successful, and one is still wandering around the formed box waiting for a buyers/sellers balance decision.
Another unfortunate stock lately is Linn Energy (LINE), as its name implies, this is a company that engages in the acquisition and development of oil and natural gas properties. Overall, energy stocks performed poorly along with basic materials sectors.
This stock has experienced a sharp decline past Tuesday with a sharp increase in volume. Applying what is called a “Continuation” trade, we would like to benefit from the strong, momentary Bearish sentiment. The opposite action could be taken when the opposite scenario occurs:
Metals continue the drift, Energy surges.
The number one phrase in technical analysis that is being repeated over and over again, proves to be correct, again. “The trend is your friend”, that’s the phrase that every newbie trader knows by heart.
As for GLD, this phrase couldn’t be more correct. This week we continue to drift lower and execute all the previous analysis regarding the bad shape of the metal sector.
GLD is continuing the decline with further strong bearish signals – High down volume, Laguerre Filter pointing down, and the plotting of red Darvas Boxes.
U.S Oil Fund (USO) – The moment we have been waiting has finally come, the break of the descending wedge on the weekly time frame has finally materialized as we predicted, by a strong move upward.
The contraction of the price came to a dead end and had to choose a direction, a sharp up or down move.
If you follow the news, one thing that might have triggered that upward thrust is the latest events in the middle east regarding Egypt and the unstable political situation there. The Egyptian Army revolution brought up concerns about the stability of the region, events that almost automatically bring the Oil prices up.
One element that’s missing here is the volume in which the up movement was constructed of, which is not quite big as we would like. If this is not a sustainable move, we will observe a quick retracement towards the breaking point, where the price could go down even further.
Dollar unstoppable raleigh.
The Dollar index ($DXY) continues a 2 week raleigh with a positive gap, reaching the 84.50 resistance level. The last move resembles the May raleigh which stopped at that point and reversed back as well as February raleigh. We are clearly in a sensitive level where Bulls and Bears are experiencing an equilibrium in their respective strength.
This time, we believe that recent geopolitical events will set the tone as big investors reassess their foreign investments, and big chunks of money could be transferred back and forth.
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