Market Technicals are Weakening: Short and Intermediate Term Downtrends are Likely to be Contained

The first half of 2013 has been one of the best for our stock market even with June being a down month. High volatility continued in both the US, world, and bond markets. Selling pressure continued in the international markets, but prices finished above their lows of the month. Bonds also had challenging times with Treasury rates  rising to levels not seen since August 2011 almost 1% higher than last year. Bond mutual funds had huge outflows in June. High yield mutual funds and other bond ETF’s products were also under selling  pressure.

Gold has had large trading swings. Prices plunged, falling to levels not seen since August 2010. The SPDR GLD Gold Trust ETF(GLD) fell to the first downside objective of 117 mentioned in the May 21st newsletter followed by a short term reflex rally with prices now at 120.13, but so far no bullish conviction. The full downside objective remains at 105 (See chart at right). I believe it’s too early for a meaningful rally of significance in (GLD).Although we are oversold, momentum oscillators don’t appear ready for a change in trend. Relative strength is still weak, MACD patterns are not favorable and no positive divergence is in place. A break above 125 in GLD would suggest prices to further rally to 132.50.

What are the charts saying for the US market?

Let’s look at the Daily S&P 500 SPDR (SPY) chart.

The S&P 500 was volatile in late June with the S&P falling over 1% two days in a row, breaking short term support of 159, (adjusted for its dividend paid on 06/21), moving lower, to an intraday low of 155.73. The S&P 500 traded below its 50 day moving average, stabilized, then reversed up beginning a new short term advance with a high of 162.48 as of this writing (July 3). The rally failed at resistance close to the downtrend line from the May peak. It was not a good sign when it could not penetrate the 50 day MA on the retracement. (Editor’s note: SPY closed at its 50-day moving average on July 5.)

It appears that the July 5 rally will generate an MACD buy signal and short-term trendline break to the upside (both bullish). It would be even more bullish if there would be a break above 165.00. This would change the short term trend from down to up.

Market Technicals are Weakening: Short and Intermediate Term Downtrends are Likely to be Contained

The International Market Outlook

Looking at the Daily Emerging Market iShares MSCI Emerging Markets Index ETF (EEM) Chart:

The Emerging Markets (EEM), has been weak closing at 44.35 December 31 2012, out of favor in compared to the US market, trading in a down trend since May. A rally occurred, but failed, followed by another decline to a low of 36.16 on June 16th. The top 4 countries in EEM and percentage holdings as of July 1 is China 17.44%, South Korea 14.46%, Taiwan 11.68%, and Brazil, 11.09%.

It is possible a short term bottom has taken place. Notice the MACD is oversold, has turned up and the short term down trend has been broken. The real test now is whether we can hold above the breakout line of the downtrend. This would be bullish if we could rally from here. Short term objective is 40.00, a 20% upside potential.

There is also a small change in the relative strength ratio of the SPY/EEM relationship on the daily chart. The relative strength of EEM turned up and broke its downtrend line at the same time as the price of EEM itself. If strength develops in emerging market stocks, this would help the US market remain stable and ultimately go higher.

Just to sum up

Our long term models remain on buy signals, suggesting downside risk is likely to be contained even though we are in an unfavorable seasonable time frame for the market. The charts show the market still in a short and intermediate term down trend, but many monthly charts remain positive. New lows were increasing but are now at very low levels. The defensive groups such as telecommunications and utilities have stabilized for now. Apple Computer (AAPL) has all of a sudden come to life. It would be very bullish if concerns over the Fed ending its quantitative easing disappear, the Emerging Market area comes to life, and the Nasdaq becomes a market leader over the S&P 500 so we could once again challenge the highs. As long as we hold above 153 on the SPDR S&P 500 ETF (SPY), I will give the market the benefit of the doubt for now however I do recommend reviewing your portfolio and evaluating your risk vs. the reward potential so that you are prepared for the unlikely event that the decline gets more serious than is expected.

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Bonnie S. Gortler

Bonnie Gortler, Consultant, Coach, and Author specializing in Wealth and Well-Being, is a successful stock market expert who has been instrumental in managing multi-million-dollar client portfolios within a top-rated investment firm during her over 35-year corporate career. As the author of “Journey to Wealth,” Bonnie has made it her mission to share the importance of risk management and how to enjoy real financial well-being by applying the technical and mental sides of investing. Bonnie has an M.B.A. and is a certified life coach. It is through her love of coaching, consulting, blogging, and social media that she creates change in the lives of many and inspires people from around the world. Bonnie is fully committed to your personal growth and development as she shares her winning spirit and powerful techniques with you. Visit BonnieGortler.com to gain tips and insights about investing, personal development, and inspiration through her articles on Wealth and Well-Being.
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