Views From The Hill

View From the Hill: July-25-2016

Market Condition

bulls-and-bears4Financial pundits, in an attempt to put a negative spin on today’s trading, blamed falling oil prices. It was a strange day in that every major asset class was represented by losers, including the VIX (VXX). As the stock market enters its third week of trading since a major breakout, some buyer fatigue is allowed. Besides, this week’s calendar is one of the busiest ever with almost 200 of the S&P 500 components reporting earnings and central bank meetings scheduled by Japan (BOJ) and the Federal Reserve (FOMC).


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Price Volume Analysis

In surveying the top 20 stocks based upon their average volume-dollars, we can generally get a good read on market sentiment as these issues represent a large amount of the benchmark index’s market capitalization. In terms of stocks declining in price on higher than average volume, excluding Yahoo (YHOO) which is being acquired by Verizon (VZ), the following shares saw lots of action:

  • General Electric (GE) down -1.31% on 26% above average volume
  • Apple (AAPL) down -1.34% on 21% above average volume
  • Chevron (CVX) down -2.45% on 21% above average volume
  • CVS Corp (CVS) down -2.60% on 40% above average volume
  • Roper Industries (ROP) down -5.76% on 508% above average volume

However, the day wasn’t entirely “redrum” as a few other well-known names exhibited signs of accumulation buying:

  • Gilled Sciences (GILD) up +2.31% on 875 above average volume
  • Netflix (NFLX) up +2.31% on 15% above average volume
  • Micron Technology (MU) up +6.02% on +75% above average volume
  • Texas Instruments (TXN) up +1.11% on 106% above average volume


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ETF Performance Summary

US equities (SPY, DIA, QQQ and IWM) continued to display their superior relative strength vs. other markets, such as Europe (VGK), Japan (EWJ), China (FXI) and EAFE (EFA). Latin America (ILF) and Brazil (EWZ) have been the exceptions in terms of price resiliency and some of this may be due to their longer-term price corrections. However, both of these, like the rest of the world outside the USA, are trading in bearish channels and could be headed downward later.

Moving on to sector analysis, Energy (XLE) is exhibiting the same double top pattern of WTI Crude Oil futures and following the US Oil Fund (USO) which has all but rolled over for dead. I would avoid energy stocks or at the very least “put” (pun intended?) some portfolio insurance on them while riding out the storm. In the meantime, there is safety to be found in Consumer Staples (XLP), Utilities (XLU), Telecom (IYZ) and even Consumer Discretionary (XLY) under such conditions of full employment.

To summarize our take on other assets, bond prices, e.g. the 20+ Year Treasury (TLT), are firming up at existing support levels. Awaiting cues from the Fed and BOJ, major currencies are at an impasse as the Dollar (UUP) stalls while the Euro (FXE) and Yen (FXY) both feebly attempt to reverse their bearish trends. Regarding   commodities, it is safe to say their rally has failed as both the DB Commodity Index (DBC) and  USO confirm such. Gold (GLD), however, is the exception as it has pulled back but remains within the support confines of its short-term bullish channel. Lastly, the not-often-mentioned-in-the-media stealth rally in real estate assets (IYR, ITB, and REZ) continues unabated and I remain bullish on it both technically and fundamentally.


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Signing off @ Hillbent…

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