THE DAILY FORK FULL
Some traders use 'gut feel' or intuition for their market bias. Rules-based traders develop a consistent method for determining market bias. Part of a rules-based determination can be made using advance-decline information on the SPX or NYSE. In the chart below we have a market bias indicator based on NYSE advancing / declining issues and advancing / declining volume.
AAPL reached an extreme overbought state last week and pulled back sharply. The MACD divergence marked the end of Apple's trending move and gave warning of the pending decline.
Once again we have an example of symmetry in the markets. Price dropped from point A to point B, rallied to point C and then duplicated the A-to-B move and reached point D. We could predict the approximate D point using the Fibonacci Extension tool or Tim Morge's simple crayon drawing techniques.
The NYSE Composite breakout is tentative at this point. Price has risen above a resistance level and is currently pulling back to that level to test it for support. If the test is successful and we get a move higher we can then have some confidence in the breakout. Until then caution is warranted.
The S&P 500 is struggling with resistance while NASDAQ powers higher. If both markets were struggling we might have cause for concern. With the NASDAQ remaining strong we have to maintain a somewhat bullish outlook.
Apple is an amazing stock - it just keeps powering higher and higher. 'Buy and hold' might be a viable strategy with this stock but that isn't much fun as a trader. Besides, we have a toolbox with some cool tools in it, we might as well use them.
When we are trying to predict where price will run out of energy, one of the tools we can use is the Fibonacci Extension. We draw this tool using three pivot points (A-B-C) with the objective of identifying the next pivot point (D). The most common Fibonacci levels are 38.2%, 61.8% and 100%.
We continue to get mixed signals from the precious metals sector. A few of the mining stocks are looking bullish while the mining indexes remain fairly bearish. Gold looks somewhat bullish in the daily timeframe but the weekly chart is bearish. These mixed signals may be part of a bottoming process but after three years of relentlessly lower prices caution remains the order of the day.
We reviewed the charts of more than 100 junior miners this week and found two that we especially liked. When the precious metals finish their bear cycle and return to bull mode, the junior miners are likely to zoom higher. As the saying goes, even pigs fly in a high wind. The better performing juniors today should be the price leaders in a rally.
The precious metals and the mining stocks remain in a long-term downtrend. We may be seeing the beginning of a new bull phase but caution is warranted. The sector became overbought in recent weeks and we are seeing a pullback. Price will show us where it wants to go next as the current decline plays out and finds support. If you are accumulating on weakness stick with the relative strength leaders.