Volatility Rears Its Head in Equity and Bond Markets

The bond and stock markets were under pressure after being spooked with talk that the Fed will be reducing its Quantitative Easing program, causing interest rates to rise, bond prices to fall and selling pressure in equities.Once again the stock market steadied itself before too long, with the S&P 500 holding support during the most recent decline of about 5%.  Earlier this month the market got oversold, making a low just above 160 on the SPDR S&P 500 SPDR (SPY). The S&P 500 then rallied to1654; stopping slightly above the 1650 target mentioned in the June 7 newsletter after failing at the first attempt.

Before the Federal Reserve meeting on June 18-19, we were in the process of challenging the highs, after breaking a short term downtrend in price; however there has been some slippage in the market internals and technical damage which  can be seen on the daily chart of the S&P 500 chart (right). Upside momentum based on both price and on MACD has clearly been violated.  This suggests we probably will not have an above average rally from here. In general, momentum normally peaks before the market peaks.

I believe sell stops are waiting below 160 which will likely cause downside selling pressure to the152-153 zone.  For aggressive traders, this support level would be a good buying opportunity. 

What Are The Positives For Continued Stock Market Strength?

• Investors of bond mutual funds are redeeming their assets; experiencing the biggest outflows since October 2008.  (Source: Ned Davis Research) This is a contrary indicator: Extremes in pessimism occur near market bottoms.

• The monthly uptrend remains in effect from the 2009 lows on the S&P 500 (SPY) trading well above the breakout from January of this year.

• Semiconductors are leaders of the market. As of June 19th, the PHLX Semiconductor Sector index (SOX) is trading near their highs of 2011.

• The Small Cap index, iShares Russell 2000 Index (ETF) IWM is holding above its breakout level of 95.00 from May 3.  It is holding up much better than the S&P 500 Index.  (See chart to right.) 2323

• A volume indicator that smooth’s out price action that I watch has moved into oversold condition, stabilized, and has turned up.

• The Nasdaq Daily new lows are contained, with readings less than 50 until 6/20. (contact me for updated info)

•  Our long term indicators which do not generate often are positive; no sells possible for a few months and in the past suggest declines to be contained.

What Are The Negatives for Concern For a Decline From Here?

•  Emerging Market iShares (EEM) are acting very poorly, one of the weakest areas of the market falling to the lowest level in nine months. It has also broken a support line extending back to the low of 2008, a very big concern. (See chart at right, with trendline break circled in green.)  This is not an area that I would be bottom fishing at this time.It’s best to wait for a more favorable pattern in MACD to develop.  The price action since October 2011 implies a downside objective of 33.50.
  

•  The Biotech Sector iShares NASDAQ Biotechnology Index (IBB), a market leader this year, has broken its  price uptrend from March and its MACD uptrend from November, and is well off of its May highs.

• The iShares Dow Jones Transportation Average ETF (IYT) seems to have lost its luster, with prices trading below their May highs. The transportation average is not gaining strength like earlier this year when it confirmed the Dow high.

• Utilities fell sharply in May.  Although they appeared to be stabilizing in June, this week’s decline brought the Utilities Sector SPDR (XLU) below the key support of $37 that I mentioned in the 6/7/13 newsletter, which is bearish.  A recovery to above $37 would, conversely, suggest that prices can stabilize.  (Note that XLU made a $0.37 dividend distribution on June 21 which dropped the share price by 1% without affecting its total return.)

• High yield bond funds peaked in May two weeks before the S&P 500 did.  Their renewed weakness this week is not a very good sign in the near term.

• Market volatility measured by VIX is well off its lows of May.  VIX hit a closing high of 20.5% on June 20, its highest level of 2013.  This breakout in VIX is bearish. 

• Market breadth is not as strong as early in the year and needs to be watched.  It is possible fewer and fewer stocks will rise, which will make it harder to make money.

In sum, to date decline in the S&P 500 has been contained but there is a good chance the short term top could have occurred.  If declines continue around the world, profit taking might upset the US markets more than it has so far.  Further market declines would give us an opportunity to take advantage of prices of securities that are good quality and good value. Look for higher volatility as we move further into the summer months.

I am looking for a pullback.  However, the intermediate and longer term charts on the S&P 500 are still in an uptrend which most likely will support the market.  In addition our long term models remain on a buy so I will give the market the benefit of the doubt. If the market breaks 159 on the S&P 500 SPDR (SPY) I would expect to see a short term correction to the 153-155 zone.  (SPY paid a $0.84 dividend on 6/21, so the former 160 support level is downwardly adjusted to 159.) As of the morning of 6/21, SPY is teetering around this level.  I do advise you to continue to review your portfolio and evaluate the risk vs. the reward on your investment.

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Bonnie Gortler (@optiongirl) is a successful stock market guru who is passionate about teaching others about social media, weight loss and wealth. Over her 30-year corporate career, she has been instrumental in managing multi-million dollar client portfolios within a top rated investment firm. Bonnie is a uniquely multi-talented woman who believes that honesty, loyalty and perseverance are the keys to success. You will constantly find her displaying these beliefs due to her winning spirit and ‘You Can Do It’ attitude. Bonnie is a huge sports fan that has successfully lost over 70 pounds by applying the many lessons learned through her ongoing commitment toward personal growth and development while continually encouraging others to reach their goals & dreams. It is within her latest book project, “Journey to Wealth”, where Bonnie has made it her mission to help everyone learn the steps needed to gain sustainable wealth and personal prosperity. Order your copy of ”Journey to Wealth” today!

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Bonnie S. Gortler

Bonnie Gortler, a Consultant, Coach, and Author, is a Wealth & Well-Being expert with over 35 years of experience in managing multi-million-dollar client portfolios at a top-rated investment firm. As the author of Journey to Wealth, Bonnie is dedicated to teaching the importance of risk management and achieving true financial well-being by integrating both the technical and mental aspects of investing. With an M.B.A. and certification as a life coach, Bonnie combines her passion for coaching, consulting, and blogging to inspire people globally. Her powerful techniques and winning mindset help others experience personal growth and financial success. Explore wealth-building tips, personal development strategies, and more at BonnieGortler.com, and discover how you can enhance your wealth and well-being.  


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