The Week Ahead Highlights from June 2011

 Notes for the week of June 27, 2011

The first thing I look at each week, in doing these updates, are the seasonals on the handful of indexes and ETFs I follow (currently 25). Before looking at the daily and weekly price charts, I want to know what historical tendencies, or biases, there have been in these markets and sectors. I'm looking for sectors to further investigate for trade candidates, areas where there have been high-percentage price movements in the past.

Heading into summer, there has been a neutral to downward bias in most of these markets. Now, a slight upward bias is beginning to show up. The semiconductor index, $SOX, and the semi ETF, SMH, have moderate downward biases. All others are more neutral.

Once we get into July, I expect more upward biases to show up. But for now, there aren't any playable seasonals, at least in the overall indexes and ETFs.

Turning my attention to price charts, one thing immediately jumped out at me - how many major indexes and ETFs have just closed below their 200-day moving averages. This is a fact most institutional traders have to be noticing, and doesn't bode well for the market.

On the daily charts, we've got this:

DJIA above, but close to 200MA
SP500 sitting at 200MA
NASDAQ sitting on 200MA
DIA above, but close to 200MA
QQQ and OEX below 200MA
Russell 2000 a little above 200MA
$SOX well below 200MA, may be starting another move down
SMH testing 200MA
XLE and IYE above, but close to 200MA
XLF and IYF well below 200MA
OIH just closed below 200MA
RTH sitting on 200MA
XLY bounced off 200MA, but heading down again
IYC heading down to test 200MA
XOI just closed on 200MA
XLB closed on 200MA, but heading down again
XLK below 200MA
GLD and XGLD dropped below 50MA
HUI well below 200MA, set lower high and lower low
Dollar poised to break above recent highs
TLT steadily moving up, 50MA just crossing above 200MA

Whether you place much faith on moving averages or not, most of the big players pay attention to them, especially the 50 and 200-day moving averages. The picture doesn't look good.

 Notes for the week of June 20, 2011

I like to match up seasonals with promising chart patterns. Most of the overall market and sector indexes and ETFs we follow show little bias, one way or the other, for the next several weeks. The exceptions are a couple of oil-related ETFs, which I'll get to in a minute.

The recent market action reflected in the price charts show more conviction than the seasonal charts though. The S&P 500, DJIA, and OEX for instance may be forming an intermediate-term cycle low. Maybe not. But the S&P 500 and the DJIA usually form a cycle low about every three to four months. The S&P 500 may bounce upwards from here. It is near the 200-day moving average, and the 50-week moving average. Last week's close also happens to be at the same level as the low three months ago:

chart courtesy of Worden − www.Worden.com

You can see the current level can be viewed as good support, and if the market follows its typical cyclical nature, it may very well turn upwards from here.

The DJIA and OEX look similar. The NASDAQ Composite and QQQ also look similar, but they are slightly more negative due to the collapse of RIMM last week.

The semi index and ETF don't look as good. Both have closed below their 200-day MA's on increased volume. Their seasonal charts show a slight negative bias, meaning their historical track records show a net loss over the next several weeks. But the downward bias isn't enough to bet on. So the best bet may be to wait until both the price charts, and the seasonals, show an upward bias.

The price charts of OIH and XLE, two oil-related ETFs, show lower lows being set on increasing volume. Their 200-day moving averages may act as support.

The seasonal downward biases on OIH and XLE are a little stronger this week, meaning there's been some historical weakness in these ETFs this time of year. I was wondering if a specific stock or stocks may have strong negative seasonals, affecting these ETFs. Turns out, currently, the top seven stocks in each ETF are the same, and the seasonals charts of each of those stocks don't show much negative bias (OXY showed the only real downward bias, averaging a 2.5% loss each year over the next five weeks, with losses in 18 out of 27 years). So I don't think this is a reliable seasonal that can be played on the downside. I think, like above, the best bet may be to wait until both the price charts and the seasonals of various stocks and/or ETFs show an upward bias.

 Notes for the week of June 13, 2011

The selling continued this week. Looking at the weekly chart of many indexes and ETFs shows a similar pattern to the same time last year, except there's much less volume this year. The weekly chart of the Q's is a good example:

chart courtesy of Worden − www.Worden.com

Seasonals for many of the indexes/ETFs are flattening out, and showing signs up turning upwards. This means that historically, these markets have had a downward bias moving into the summer. Then, a net upward bias has traditionally developed through the summer, intensifying into the fall. It's a little early to play uptrends right now. Be patient. Wait until the odds are more favorable. Besides, we need to see if the recent pullbacks will taper off, or break through major support lines/moving averages, and pick up speed.

 Notes for the week of June 6, 2011

As I covered last week, the seasonals for the overall market indexes and ETFs show little overall bias for the next several weeks. The price charts of the market indexes and ETFs, as well as the semiconductor, technology, consumer, and retail sectors have set lower lows. Weekly volume on these down-moves is picking up.

Our StockQuirks Select List, which is the list we do a full weekly analysis on, currently has 347 stocks in it. On the weekly charts, 70 of those formed a 'Bearish Engulfing' pattern this week. Quite simply, a Bearish Engulfing pattern is often a reversal pattern, formed at a short-term high. It can be the first sign of a change of momentum to the downside.

Summer vacations are starting, QE2 is ending, and countless other factors may take a role in the next several weeks. Take profits and just go take a vacation. Seasonals will start showing an upward bias as we head through the summer. Let the market sort things out on its own for the next few weeks.