Technical Tuesday

Posted On August 23, 2016 12:24 pm

Ever since bursting to new highs the broad indices have been in a historically narrow range. In fact, the S&P 500 Index has now gone a record 31 days without a 1% or larger move and 26 of the days have been less than 0.05%. The S&P 500’s entire trading range during this period has been just 1.9%; at least the Nasdaq 100 and Russell 2000 have enjoyed a solid trend higher, gaining 3.6% and 2.8% respectively over the past month.

This of course has pushed volatility levels, both realized and implied, down to 52-week lows with the VIX below 12%.

But beneath these benign numbers there has been a fair amount of movement in not only individual issues reacting to earnings, but also some of the macro assets and economic measures that will be driving Central Banker and investor decisions in coming weeks.

Today I’m going to lean on charts to in hopes the pictures help tell the story of where the market stands, where it may be going and a few of the individual stocks I’m looking at.

Let’s start with the big picture – the S&P weekly chart shows a bull flag forming above support suggesting the next move will be higher.

spx weekly 8.21

What was interesting, as the 5 minute chart shows, yesterday saw fairly violent back and forth action within the range. Some might say this was simply due to the light volume and thin trading. But others might point to this as a sign we are finally ready to break out of this range. We shall see.

spx 5 min 8.22

One of the big discussions swirling around policy makers is why, despite incredibly accommodative interest rate policies, they have failed to stimulate economies or generate any inflation. In fact some of these eggheads are complaining about deflation. The reality for those of us living in the real world is there has been a huge divergence in prices; basically the cost of things we need, such as food, education, shelter and healthcare have soared while the cost of things we want, flat screen TVs, has plummeted over the past two decades.

inflation things graph 8.23.16

A couple of the stocks I’m looking at include:

GoPro (GPRO) the camera on the stick company is getting a lift today on the heels of Best Buy’s (BBY) better than expected earnings as it bodes well for spending on electronics. The company had its IPO just over 2 years ago now and was able to reach the $100 share price before falling all the way back to single digits. This shows how speculative the name is as the hopes everyone will walk around with a camera on their head never came true, but there is market for action based photography. They are still introducing new cameras along with streaming capabilities ahead of the holiday season and now the chart shows new upside interest.

The price has recently rallied above the yearly swing point of 14.30 and is above all 3 moving averages with a double bottom in place down at the 9 level. Traders can try to enter long above this point and use a violation of the last shelf breakout at 13.40 on the downside, which also the use of 200 DMA as the stop.

gpro 8.22

If people are shopping they are most likely using credit cards. I think Visa (V) looks good here with a small bull flag building suggesting it may be ready for a breakout to new highs.

V Chart 8.23.16

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About author

Steve Smith

Steve Smith have been involved in all facets of the investment industry in a variety of roles ranging from speculator, educator, manager and advisor. This has taken him from the trading floors of Chicago to hedge funds on Wall Street to the world online. From 1987 to 1996, he served as a market maker at the Chicago Board of Options Exchange (CBOE) and Chicago Board of Trade (CBOT). From 1997 to 2007, he was a Senior Columnist and Managing Editor for TheStreet.com, handling their Option Alert and Short Report newsletters. The Option Alert was awarded the MIN “best business newsletter” in 2006. From 2009 to 2013, Smith was a Senior Columnist and Managing Editor for Minyanville’s OptionSmith newsletter, as well as a Risk Manager Consultant for New Vernon Capital LLC. Smith acted as an advisor to build models and option strategies to reduce portfolio exposure and enhance returns for the four main funds. Since 2015, he has worked for Adam Mesh Trading Group. There, he has managed Options360 and Earning 360, been co-leader of Option Academy, and contributed to The Option Specialist website.