Weekly Thoughts

Week of July 25, 2016

by John Person

7-25-2016 WEEKLY POSITIVE THOUGHT: In the realm of idea, everything depends on enthusiasm; in the real world, all rests with perseverance. – Johann Wolfgang von Goethe

Market Thoughts & Observations: Great thought for traders this week, perseverance. While we all aspire to make money and profit from our trades, most vet-erans have long discovered it’s not a sprint to the finish line rather this business requires one to be pa-tient and persevere.

It’s like the major move in equities we have expe-rienced this year. Over the long haul we have had our fingers on the pulse of the market. Looking and searching every single week at “what’s under the hood” so to speak at market diagnostics, checking to see where the sector and Index leadership comes from, and then using that information to make good trade decisions. The List of weekly bullish HCD’s and bearish LCD’s have been chalked full of fantastic trading opportunities. A recent example was what we identified in QUALCOMM ($QCOM) just two weeks ago. And the results speak for themselves. Then the simple trade in Apple ($AAPL) and the timely profit taking, as last week the stock seemed to lose bullish momentum at the profit target near 100. After our timely email alert to take profits last week Apple stock price pulled back and formed a Doji on the weekly time frame. While not a sell signal it certainly caus-

es concern that it lost bullish momentum. Strength in the market still reigns supreme in the Metals and Mining sector. Steel stocks have risen and we see Coal stocks have made a tremendous recovery as of late. All finding support perhaps from a potential “policy” changes in case the Republicans win in No-vember. On that note financial stocks also have fared well. We have a position in Fifth Third Bank ($FITB) from the email alert sent which most likely we will need to exit before Wednesday (FOMC day).

For Next Week: There were several names that pop-ulated weekly buy signals under the HCD set-up but most have earnings this week or in the news, like Yahoo ($YHOO) for example. Moreover we have the Federal Open Market Committee meeting on Wednesday afternoon, multiple domestic and Glob-al economic news releases, and of course earnings. I have used this rally in the overall market to reduce long positions and take profits or scale out on posi-tions, $AAPL & $TLT for example. As I stated last week, “the markets are all in multiple time frame PPS buy mode, we are a tad overbought and the $VIX is near a level of strong complacency.” Last week while it seemed the markets were making a strong gain, at the end of the week we really only gained .65% in the S&P 500. My favorite sectors, like Biotech fared better as the $IBB gained 3.07% on the week. With the schedule of events slated for this coming week, and based on the…

Technical Points of Interest:

l $SPY, $DIA, $QQQ’s, $IWM & $NYSE are in daily & weekly PPS buy mode.

l All Indexes show A/D levels are above respective Moving Averages in both Daily & Weekly times.

l Weekly OBV reading show potential Bearish Divergences exist in $SPY, $QQQ, & $DIA

l Weekly McClellan Osc. Level at +98 versus +70 last week. Daily McClellan Osc. Level is at 50.69

l Only Two sectors are negative on the year ($IBB, $KRE)

l The $VIX is at 12.07 versus 12.67 last week (high Complacency level)

l Small specs have a small net SHORT position in S&P’s.

l Small specs have a small net LONG position in NASDAQ 100!

l Small specs have a small net LONG position in Russell 2000.

l Weekly Doji in $HYG at Monthly Persons Pivot Resistance from 2 weeks ago signals red flag.

Based on the above bullet points it’s very tough to put on brand new long positions. Options traders may find opportunities in “binary earnings” earn-ings events this coming week with the “biggies” like $AMZN, $FB, & $GOOG. However from a RISK to RE-WARD perspective, I believe we will see better trading opportunities after earnings. For example let’s look at Amazon ($AMZN), here are the facts: the Monthly, Weekly & daily charts reflect a strong price advance. We can assume they will have awesome earnings due to “Prime Day” sales that exceeded last years.

They announced expansion plans with another ful-fillment center being built in the fine city and State of Houston, Texas. So the question begs will earnings be overshadowed by expansion contracting profit mar-gins?

Technically speaking we are at and near both Monthly and Quarterly Pivot Point resistance and over these three multiple time frames, both my proprietary mo-mentum Indicator and Volume indicator along with OBV reflect a bearish divergence, see chart below.

Selecting how to trade this is a bit perplexing, using data from Thinkorswim platform as shown below, the weekly straddle points towards market makers pricing in a move closer to $55.00 based on the July 29th Weekly 745 strike Straddle. The stock closed at 744.86 on Friday. Earnings come in on Thursday. There are ultimately hundreds of combinations to trade this market using options depending on your capital, time horizon and point of view on price direction or non-directional option writers. Here is one idea I am exploring and one that a short term trader can implement. Based on the hope that we rally into Thurs-day’s close on top of the already fantastic move this year (which we’ve made money on), I’m prone to sell an OTM Call spread for the August 5th weekly expiration. This strategy gives an option writer the edge as Implied Volatility is at 51% with Historic I.V. at 53%. The key here is if we rally further this week ahead of the earning release. If all goes well I will actually send a trade alert out by email on this set-up.

Macro Timing Techniques: For several weeks we have continue to deal with the perplexity of a strong breadth but weak volume market internal evalu-ation. However, it’s both the lack of volume accu-mulation and location of Persons Pivots between Monthly and Quarterly levels that raises a red flag to expect a pullback. This would be welcomed, in the sense that this week we have the FOMC meeting announcement and “rock star” corporate earnings from the likes of Apple, GOOGL, Facebook, Amazon, Verizon, Fifth Third Bank, US Steel, Valero, Coca-Co-la, Comcast, Wynn Resorts & Twitter. We are long a couple off names in this list, I’m looking to exit due to the “earnings risk” rather than to add new longs.

Last week one sector I consider defensive, Utilities ($XLU) gained 1.46%. Consumer Staples ($XLP) did lose .36% and foreign markets like Germany ($EWG) France ($EWQ) and China ($FXI) gained,

but marginally. It all has the identity of markets that want to go higher, but are susceptible for exit door liquidation on the first hint of bad news. With the re-cent decline in the pace of price change over time and the volume analysis, my well-founded fears are we will wake up to a sharply lower gap opening in the major indexes, sooner rather than later.

This is the kind of lower open that stops will NOT be helpful. So why not implement bearish strategies? Because as my email stated last week when I ad-vised to take a profit in Apple ($AAPL) I simply do not have any sell signals. McClellan Osc. suggests we are close to a zero line breakdown, light volume rallies in equities, low $VIX readings, Weekly Doji on $HYG are just some of the warning signs to take money off the table and all of these technical points of interest and seasonal analysis suggest the bullish advance is stalling.

All the best, John

This is why I am still expecting the market to undergo a short term pullback. If my indicators alert to sell short great otherwise let’s look to see how the volume and breadth studies look by mid-week or on FOMC day. If the stock market experiences the pullback I’m expecting then bonds might rally a bit. This would allow us to enter in some choice stocks and put back on the full position in the December TLT Wide Vertical spread trade.

July Seasonal Trends: *Denotes mid-month Strong: B. Pound, $IBB, Copper, Wheat, $RXI, $IYR, $XLI, $ITB, $XHB, $KIE, $XBD, $XLF, $BKX, $KRE, $IAI Weak: $DXY, $TLT, Gold, $XME, $GDX, DBA, IYT, XLY*, $XRT*, $SOX*, $DRG, $XLU, $OIH*, $IYT*

Weekly Bullish HCD’s: Last week’s HCD’s in Auto Parts are still working, in that space $JCI triggered this week. Retail Apparel is still in play, I took profits in $UA which has earnings this week. $LB, $RH, $HUM, $ANF, $AEO, Weekly Bearish LCD’s: $DIS (E-8-9) ($MDT)

Seasonal Commodity (futures) Spreads: Buy Dec. Cattle / Sell Dec. Hogs on 6-6 liquidate before 8-15 Buy Oct Bean Meal / Sell Oct Bean Oil on 6-8 liquidate before 9-6 Buy May Corn / sell Dec. corn (bear spread new crop) on or about 7-12 hold until 9-25 Buy Dec. Wheat / Sell Nov. Beans on or about 7-12 hold until 7-28 Buy Sep. Swiss Franc/ Sell Sep. Yen on or about 7-14 hold until 7-29 Buy Oct. Crude Oil Sell / April Crude Oil on or about 7-14 hold until 9-17 Buy Dec. Live Cattle / Sell June Live Cattle on or about 7-23 hold until 10-15

REPORTS & EVENTS: Monday: Dallas Fed Survey 13:00 AM, 2 Yr. Note Auction 1:00 PM Tuesday: FOMC 2 Day Meeting begins, Redbook 8:55 AM, Case Shiller 9:00 AM, PMI Services 9:45 AM, Consumer Confidence 10:00 AM, New Home Sales 10:00 AM, Richmond Fed Survey 10:00 AM, 5 Yr. Note Auction 1:00 PM, API Energy Report 4:30 PM Wednesday: Durable Goods 8:30 AM, Pending Home Sales 10:00 AM, EIA Oil Inventories 10:30 AM, FOMC Announcement 2:00 PM, BOJ Announcement 8:00 PM Thursday: Int. Trade 8:30 AM, Weekly Unemployment Report 8:30 AM, EIA Nat Gas Inventories 10:30 AM, KC Fed Mfg. Index 11:00 AM, Japan Jobs Report 7:30 PM, Japan Retail Sales & Ind. Prod. 7:50 PM Friday: German Retail Sales 2:00 AM, Euro Zone Employment Rate 5:00 AM, GDP 8:30 AM, ECI 8:30 AM, Fed Speak 9:30 AM< Chicago PMI 10:00 AM, Fed Speak 1:00 PM EARNINGS: Double check release times: all reports are in (ET). Monday: AVB, CR, CACC, DHR, KMB, LVS, COL, S, Tuesday: AKS, AKAM, AAPL, BAX, BWLD, CHRW, CAT, CHKP, CB, CTXS, CNX, DTE, EW, FCX, HUBB, HZO, HOT, IRBT, JBLU, JNPR, KEY,LLTC, LLY, MMM, MCD, MBLY, TSS, TOWR, TWTR, UA,VZ, VLO, WAT, ZION, X Wednesday: AMGN, BA, CA, CBT, KO, FB, FLIR, GRMN, GPRO, GRPN, GLW, HESS, KIM, KNX, LRCX, LM, LVLT, MRVL, MCK, MDLZ, MO, MUR, NTRI, NTGR, ORLY, OC, OI, PXD, R, ROK, SFLY, SO, SVU, TMUS, TER, TMK, VRTX, WYNN, WFM, XLNX Thursday: ACOR, AFL, AMZN, ALXN, APD, AMT, AEP, ADP, BIDU, BHI, BZH, BMY, BC, BG, CHK, CAB, CBG, CELG, CME, CL, COP, DPZ, DOW, EMN, EXPE, FITB, F, GOOGL, GRUB, HOG, HSY, IP, LAZ, LAD, MPC, MA, MJN, MWW, PAG, PJC, QLGC, SKYW, TMO, UTHR, VRSN, WDC, Friday: ABBV, AN, CPN, CBOE, COG, CVX, LXK, LYB, MRK, PSX, REV, SAVE, TYC, UPS, VTR, USM, XOM,

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personsplanet.comJohn Person President of John Person Inc dba PersonsPlanet.com worldwide known for his unique use of Pivot points and candlestick charting, also known as Person Pivots or PPS on TD Ameritrade / Tos platform, John provides online trading education for a begin-er or advance traders with his University Pro-gram and daily trading room, John Person offers research for ac-tive stock and options traders with newslet-ters, trading software, trading seminars, forex trading systems, trad-ing course, books us-ing advanced technical analysis on candlestick, pivot points, fibonacci and indicators.