(1) MAILBAG E-MAIL:
Regarding comments on developments related to Dow Theory forecasting in my 5/31/15 Trader's Corner:
"What I don't hear in all the recent chatter on the divergence of the Tran and Dow, is that it could be just the result of the blowout in the energy patch, which had/has a great impact on RR's and truck usage, and clearly took a lot of profit away from many tran companies. The analysts should account for this, and adjust the figs for it, to show if there is more going on than that."
I don't try to account for what may be 'causing' the recent divergence (between the Dow Transports and the Dow 30 Industrials) except that the divergence exists. There's always a cause for shifts in stock prices and stock sectors. As a technically oriented trader/adviser I mostly deal with what shows up on the charts and technical indicators.
Regardless of the underlying sector dynamics, I assess it especially as premature to read the Transport disconnect as a 'warning' of a bear market ahead. The TRAN/INDU divergence has at a minimum pointed out that the two Dow averages may continue to under-perform the broader Market.
I point out chart/technical patterns of interest relative to major index trends and this was one among some others. Curtailed profits in the energy sector has also kept a lid on the S&P index. If the energy sector, as seen in the weekly chart of the S&P energy sector (SPDR) chart, wasn't hit hard from the big drop in energy stocks, SPX would likely see a breakout to new highs.
Regardless of the economic dynamics for SPX topping out repeatedly at recent highs, I point out when upside potential above key resistances looks doubtful. Jim Brown, on the other hand, in his commentaries, covers the underlying 'fundamentals' of the different sectors in some detail.
(2) MAILBAG QUESTION:
"... in your weekend comments you suggested a couple of bullish trade ideas doable around recent lows. would you recap what trades you'd be in or out of in this flip prone market?"
I'll recap some specific trade ideas from my Saturday (6/6/15) Index Wrap. I don't always have more than general trend predictions, support and resistance areas, etc. On Saturday, as some of the major indices appeared to be falling toward technical support, I had a couple of trade suggestions plus a suggestion on where the S&P 500 Volatility Index (VIX) should find support and where it would hit resistance.
First the VIX, quoting from my most recent 6/6 Index Wrap:
"I liked buying the S&P 500 (VIX) volatility index at 12 and under either for a speculative play OR as a portfolio hedge due to the tendency for VIX to move inversely to SPX. My upside VIX target is modest currently, to 15.5 - 16. Intraday, the Index already traded at 15.5 but briefly, near week's end.
The trading range market of the past 3-4 months has not generated VIX readings above 16, at least not for long."
PAST WEEK OUTCOME: For some months now VIX has fluctuated in a relatively narrow range but this range has also been fairly reliable in short-term trading and which has offered points to put on and possibly 'lift' portfolio hedges.
I made a trade suggestion in my 6/6/15 Index Wrap commentary in terms of a speculative buy in Dow Index (DJX) calls as follows:
"A dip into the 177-178 range in the Dow Index (DJX) would be a tempting call buy, risking to 176, with upside potential back to 181-182 or higher such as to the top end of INDU's broad uptrend channel."
My thinking in making a bullish trade scenario was based on the where (lower) trendline support looked to come in, as well as where my lower moving average envelope line suggested as an oversold condition. Moreover, I assumed that if INDU got down into the 17700-17800 zone, it would also drop into a 'fully' oversold Relative Strength Index area.
The initial 'oversold' rebound in INDU was impressive, but more impressive would be a sustained move back above resistance implied by INDU's 21-day moving average. Above this key trading average would be an ability for the Dow to climb back above 18200 resistance and to a possible retest of the 18350 high.
INDU has already fulfilled my projected short-term trade objective for a rebound back to 18100-18200 in that the Dow did nose above 18100 on the upside but only by a 'nose'; a scant 10 Dow points.
I favored a bullish play in the recommended zone based on risk to reward trade considerations. Buying Dow Index (DJX) calls in the 17800 area, exiting on the move to 18100 was an ok short term play but I was anticipating a more sustained advance to the 18400 area and the top end of INDU's uptrend channel. An 'uptrend' channel close to also representing a SIDEWAYS trading range .
Recapping a second trade suggestion in the Nasdaq 100 (NDX) index, I put out the following trade idea in my 6/6/15 commentary:
"On a risk to reward basis, bullish plays in NDX between 4400-4350 are favorable, given a Close below 4330 as the trade exit point and assuming an upside target to the 4600 area."
PAST WEEK OUTCOME:
NDX dipped into my suggested 4400-4350 price range for call purchases and other bullish plays but, like the DJX suggestion, just barely. I favor bullish plays on what looks like lower 'extremes' but it upside progress isn't easy either. The initial stopper is often the 21-day moving average. Assuming NDX can churn through short-term resistance it would be in a position to retest overhead resistance at 4550-4560 and maybe reach the 4650 area and the current top (resistance) end of NDX's uptrend channel. Sustained rallies have been hard to come by but stay tuned.
GOOD TRADING SUCCESS!