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The charts, graphs and comments in my Trading Blog represent my technical analysis and observations of a variety of world markets...
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Saturday, December 31, 2016

2016 Market Wrap-Up: S&P 500 Index, SPX:VIX Ratio & USD

This post will outline how the S&P 500 Index and the SPX:VIX Ratio performed throughout 2016 and how they ended the year. It will also take a look at where the US Dollar Futures Index finished up.

S&P 500 Index


The following four charts of the S&P 500 Index will depict how 2016 ended, on a yearly, quarterly, monthly, and weekly basis.

Each candle on Chart #1 represents a period of one year.

After breaking out to all-time highs and above major resistance, the 2016 candle closed near its high, after re-testing last year's low and the close and open of the 2013 and 2014 candles, respectively. It would appear that, after shaking out short-sellers, the bulls are firmly in control of upward momentum. We'll see if the Momentum indicator makes a new high on the 2017 candle...a distinct possibility, if price can remain above major support at 2100. If price drops to that level, we'll see a rise in volatility, and, if price drops and holds below that level, volatility will rise drastically.

Chart #1 SPX Yearly

Each candle on Chart #2 represents a period of one quarter.

The Q4 candle closed in its upper 1/4, after re-testing the lows of Q3, as well as, what was major resistance, now major support. I'd like to see the Momentum indicator begin to reverse its current downward drift, if price moves higher...otherwise, we could see weakness and an increase in volatility in the first quarter of 2017.

Chart #2 SPX Quarterly

Each candle on Chart #3 represents a period of one month.

The December candle closed in its upper 1/3, after re-testing November's close and highs. The Momentum indicator broke its downtrend (which began in 2014), but has failed to make a new swing high. This signals that we'll likely see an increase in volatility in the medium term, until a new swing high is made on MOM.

Chart #3 SPX Monthly

Each candle on Chart #4 represents a period of one week.

The last week closed on a bearish engulfing candle, after re-testing the top Bollinger Band and prior all-time highs, once again. The Momentum indicator has broken slightly above its 2016 downtrend, but has yet to make a new swing high. This signals that we'll likely see an increase in volatility in the short term and lower prices down to and on either side of 2200, until serious buying resumes and a new swing high is made on MOM.

Chart #4 SPX Weekly

SPX:VIX Ratio


The following four charts of the SPX:VIX Ratio will depict how 2016 ended, on a yearly, quarterly, monthly, and weekly basis.

Each candle on Chart #5 represents a period of one year.

Price on this ratio closed near its all-time high and above major resistance at 150 on a massive bullish engulfing candle, after a hefty retreat down into the "Fragile Zone" this year. Volatility was enormous in 2016 and the Momentum indicator drifted slightly upwards, but has yet to make a new swing high. We'll see if the Momentum indicator makes a new high on the 2017 candle...a distinct possibility, if price can remain above major support at 150. If price drops to that level, we'll see a rise in volatility, and, if price drops and holds below 140, volatility will rise drastically.

Chart #5 SPX:VIX Yearly

Each candle on Chart #6 represents a period of one quarter.

The Q4 candle closed in its top 1/3 on a massive high wave candle. Although price was plagued by uncertainty, it finished relatively strong on this timeframe. Although the Momentum indicator drifted higher in 2016 from its lows in mid-2015, it has yet to make a higher swing high and dipped by the end of the year.

Chart #6 SPX:VIX Quarterly

Each candle on Chart #7 represents a period of one month.

The December candle closed near its low after briefly breaking out to new highs and is high-basing in the upper 1/3 of this year's candles. While the Momentum indicator broke out to a new swing high several months ago, it has yet to confirm December's brief (and failed) breakout.

Chart #7 SPX:VIX Monthly

Each candle on Chart #8 represents a period of one week.

The last week closed near the bottom of its large bearish candle, after briefly breaking out (and back into a long-term uptrending channel from the 2011 lows) the week before. Bollinger bands are tightening and the Momentum indicator has been making a series of lower highs this year on this timeframe...suggesting that serious longer-term, committed new buying has yet to make its way into the S&P 500 Index. Until it does, I think we'll see a rise in volatility, particularly if this ratio drops and holds below 150, and, especially, 140. Bulls will need to come out in full force to see it rally back into the rising channel above the 200 level...and be confirmed by a new MOM swing high on this short-term timeframe.

Chart #8 SPX:VIX Weekly

US Dollar Futures Index


Each candle on Chart #9 represents a period of one month.

The December candle closed in its upper 1/3 on a high wave candle...although, it's, technically, a bullish candle and closed higher than the prior month, it still represents indecision on this timeframe, after breaking out to new highs this year. It's caught in between a 161.8% external Fibonacci retracement level at 100.54 (major support) and a 161.8% Fibonacci extension level at 103.47 (minor resistance). The next Fibonacci resistance level is 107.08 (a 200.0% external Fibonacci retracement level). Bollinger bands are still widening on this timeframe, and, if price can hold above 100.00, then it could very well rally to 107.00. However, it may be influenced by what happens in the S&P 500 Index and the SPX:VIX ratio, so it's worth monitoring how those behave in the short and longer terms, as outlined above.

Chart #9 US Dollar Monthly

CONCLUSIONS


2016 was a year of major volatility. In my Market Forecast for 2016, I had anticipated an increase of around 5-6% in equities, in general, as well as a rise in volatility. In fact, the S&P 500 Index had increased by 11.14% by mid-December, but closed at 9.54% by the end of the year.

2017 will, no doubt, hold a lot of uncertainty in relation to what happens with a new U.S. political administration and future economic and fiscal policies that may be enacted, what domestic and foreign events and policies develop, and what the Fed decides regarding interest rates. However, if we see general cooperation being maintained among government officials, we could see much less volatility next year (especially since the 2016 U.S. Presidential election is behind us)...and it may be a slower, steadier climb to higher prices in equity markets than we saw in 2016, along with a rising U.S. dollar. The timeframes on the above-referenced instruments are one of many methods that can be used to evaluate the effects from such future influences.

A LOOK INTO THE FUTURE


In closing, I'd mention that my Market Forecast for 2017 can be found at this link...and that my longer-term SPX Outlook to 2020 U.S. Presidential Election can be found at this link.

Of course, I realize that a forecast is, simply, one possibility. However, it can be a useful tool for any serious trader/investor to implement in order to track, assess and learn from one's future successes and failures on a short, medium and long-term basis. And, it can be modified/updated during its duration, depending on world and domestic influences at the time.


I wish you good fortune with all your endeavours in 2017!

Happy New Year 2017!

Saturday, December 24, 2016

Saturday, December 10, 2016

Four-Year Dearth in Retail Sales

The Retail Sales m/m report for November (includes auto sales) is being released on December 14 at 8:30 am...the consensus is 0.3%.

For around 10 years, from 2002 to 2013, average monthly sales were 1.0%. For the past 4 years, average sales have been less than 0.5%.

We'll see if this lackluster trend continues into 2017...or, whether Americans will be induced to open their wallets again by the recent stock market "Trump bump" and as the Trump economic and tax agendas become clearer and take shape.

Let's see if December's report is any rosier when it's released next month (January 13th @ 8:30 am).


* UPDATE December 14th:

Actual Retail Sales m/m print for November was 0.1%...lower than forecast...watch this space...


AAPL Poised For New Highs

If AAPL can break and hold above 120, we could see it soar to new highs. Watch for a bullish crossover of the MACD and PMO indicators and for the RSI to remain above the 50.00 level, as shown on the following Weekly chart.

Weekly AAPL

It's important that price hold above 110, as shown on the second Weekly chart below, as it represents a confluence of price and a 61.8% Fibonacci fanline major support level.

Weekly AAPL

Perhaps if AAPL executives can be persuaded to repatriate its considerable overseas cash to the U.S., in exchange for forgiveness of paying taxes on such a transaction by some kind of Congressional intervention (which includes, say, AAPL committing to invest in public infrastructure programs), you could see its stock break out to new highs next year. Maybe President-elect Trump's team can work some kind of magic in this regard.

Friday, December 09, 2016

Tech May Hold Key to Continued Santa Rally

From the close of November 8th to the close of December 9th (today), the Dow 30 Index has gained 1,424.11 points...a gain of 7.77% since the U.S. Presidential election.

Daily Dow 30 Index

Percentages Gained Since U.S. Presidential Election

In the meantime, while the Nasdaq Composite Index has finally broken out and closed at all-time highs, the Nasdaq 100 Index is still stuck in a 1 1/2 year trading range. We'll see if it plays catch-up to break out, and round out, a potential continued Santa rally into the end of this year...and, possibly, signal overall market strength for 2017, as I wrote about in my Market Forecast for 2017 post.

Weekly Nasdaq Composite Index

Weekly Nasdaq 100 Index


Sunday, December 04, 2016

EUR/USD Nearing Critical Support Level

As the EUR/USD Forex pair continues its rather steep decent during the past couple of months, it is approaching a critical major support level around 1.04, as shown on the Weekly chart below.

Not only will a drop to that level form a potential triple bottom pattern, it will also hit a triple confluence of long-term price, trendline and regression channel "mean" major support.

A drop and hold below 1.04 could see a catastrophic price plunge to levels (0.8827) not seen since October 2000. We may, however, see price overshoot and drop below 1.04 briefly, before a potential bounce occurs.


In this regard, it may also be worthwhile keeping an eye on the European Financials ETF (EUFN). As shown on the Daily chart below, price has recently managed to pop back above a major resistance level at 18.00 on a high volume spike.

If price can remain above 18.00, if the RSI can remain above 50, and if we get bullish crossovers on the MACD  and PMO indicators, it may have a positive influence on the Euro.

But, major weakness in the Financials sector could bring about a catastrophic drop in the Euro. In that scenario, we'll see whether the ECB has any bullets left in its monetary armory to prevent such an event.


Thursday, December 01, 2016

Market Forecast for 2017: SPX at 2400 by End of Year

On November 26th, I posted an article which outlined a hypothetical scenario of the S&P 500 Index reaching 2700 by the next U.S. Presidential election in November 2020.

I realize that this is only one of many possibilities that lie ahead for the SPX. However, given the aggressive economic, tax and fiscal agenda that President-elect Trump is currently promoting, it could, very well, materialize without too much resistance.




In keeping with the trajectory and velocity associated with that premise, I anticipate that the SPX could reach 2400 by the end of 2017, as shown on the Monthly chart below.

Monthly SPX

In last year's market outlook for 2016, I anticipated a rise of around 5-6% in equities, in general, in a run-up to this past November's Presidential election.

As of today's date of December 1st, you will see that the S&P 500 Index has gained 7.2% Year-to-date, as shown on the first graph below, while the Dow & Nasdaq Transport Indices and Russell 2000 Index have gained the most. The Nasdaq 100 Index has been the weakest.

The second graph shows the steep rise of the Dow & Nasdaq Transport Indices and Russell 2000 Index from the day after the election.



The third Year-to-date graph shows the percentages gained/lost for the 9 Major Sectors

Energy, Industrials, Financials and Materials have gained the most, while Consumer Staples has gained the least, and Healthcare has lost 4.16%, so far, this year. 

The last graph shows the steep rise of the Energy, Industrials, Financials and Materials sectors, and the decline of the Healthcare and  Consumer Staples sectors, since the election.



CONCLUSIONS

Assuming that volatility will be kept low (which can be monitored in a manner as described in my post of November 26th), I'd project that equity markets, in general, will gain around 11% in 2017. That would place the S&P 500 Index at just above the 2400 level by the end of the year.

In that regard, I think it will be important that Financials, Large-Caps and Small-Caps stay strong and that market participants continue to favour the riskier sectors over their more defensive counterparts. As well, I'd like to see Technology firm up and gain strength to support such a bullish outlook.

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P.S.
By the way, for those who have pooh-poohed the validity or value of my forecasts, I would, respectfully, mention that forecasting is a useful tool for any serious trader/investor to implement in order to track, assess and learn from one's future successes and failures on a short, medium, and long-term basis.

And, they can read my prior years' forecasts at this link and determine their merit for themselves.

~~~~~~~~~~~~~~

P.S. -- SHOUT OUT TO INVESTING.COM...

As a contributing writer to Investing.com, I'd like to thank them for inviting me, once again, to participate and share my views and for publishing my article at this link on their site on December 28th, along with some of their esteemed contributors. It's a privilege to have contributed to their annual forecasting special during the past few years.



* UPDATE February 21, 2017: Since the beginning of this year, the SPX has already gained 5.65%, as shown on the following Percentages gained/lost graph of the U.S. Major Indices...a little over half-way to its projected 2017 percentage increase.

U.S. Major Indices -- Year-to-Date percentages gained