Better Trader

Apple Bounces Back

By Thierry Laduguie

Two weeks ago I wrote that Apple was a buy (see article), the stock was trading at 530 at the time. As we can see on the following chart the stock has moved up since I made the call and is now within reach of the 55-day moving average.

I used simple indicators like moving averages, the RSI and the relative strength to time the stock. These are not the only indicators one can use, any momentum indicator will do. The indicators gave a strong signal but more importantly I predicted a stock market rally at the time. If you trade stocks you want to know where the market is headed. Any stock, with or without strong fundamentals, will be dragged down by a market decline. Apple is no exception so when the S&P 500 lost 7% in two weeks, Apple pulled back sharply.

On 18th May I predicted a stock market rally and Apple met my criteria based on the relative strength, the 55-day moving average and the RSI. When a good quality stock is dragged down by the market, it presents investor with a buy. Of course things can change rapidly and today I can’t say with confidence that the stock market rally will continue. Nevertheless, buying at the right time offers some protection.

Had you bought near 530, today with the price at 578 you would have moved your stop loss to the opening level. If the market decline continues at least you would not lose money. That’s the way I do things, timing the entry and protecting the position.

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Thierry Laduguie is technical strategist at e-Yield

S&P 500 Update: Bears Reach for 1300

By Kathryn James

Yesterday’s harsh decline in the world markets saw the S&P 500 lose nearly 20 points and ignite fire among the bears! While the medium term trend points lower, the near term trend is a little harder to determine. Tuesday’s gap higher saw the index break the previous reaction high of 1328, but the move was unsustainable and yesterday, with a sign of weakness the S&P gapped down, leaving an island of intra-day price action behind (see chart). The current price action resides within a flag pattern that has developed on the shorter-term hourly time frame.

 

Flag patterns generally slope against the main trend and then reverse back to continue with the trend. In the case of the S&P this would be a bearish breakdown of the flag to target lower levels. The flag is said to ‘fly at half-mast’ so when broken we have a target for the move. I’m not going to do the sums yet as a quick glance gives a scary target of much lower levels. For now, I’m going to wait and see if the pattern confirms and breaks down; the futures are indicating 1314.7 so it’s currently trading near the bottom of the upward sloping support line.

Given the underlying volatility of current price action, I wouldn’t be surprised for the tape to trick both bulls and bears alike and hunt stops with sharp whipsaw action. But as ever, traders should stay sharp and remain disciplined in case of a potential market calamity.

S&P 500 Key Levels

Cash prices

7th resistance	1408	Resistance line
6th resistance	1373	Previous support line
5th resistance	1368	61.8% Fib retracement
4th resistance	1358	Previous support
3rd resistance	1335	Previous high
2nd resistance	1331	Yesterday's high
1st resistance	1318	55-90min moving average
1st support	1310	Yesterday's low
2nd support	1292	Previous low
3rd support	1290	38.2% Fib retracement
4th support	1288	Previous resistance line
5th support	1284	200-day moving average
6th support	1249	50% retracement

 

If you are short:

1st resistance at 1318 (55-90min moving average). Weak stop loss above that level.

2nd resistance at 1335 (previous high). Fair stop loss above that level.

3rd resistance at 1358 (previous support). Strong stop loss above that level.

If you are long:

1st support at 1310 (yesterday's low). Weak stop loss below that level.

2nd support at 1288 (previous resistance line). Fair stop loss below that level.

3rd support at 1284 (200-day moving average). Strong stop loss below that level.

Economic Calendar

Important announcements today (UK Time):

US ADP Employment Report at 13:15

US GDP at 13:30

US Jobless Claims at 13:30

US Chicago PMI at 14:45

Market Trends

Cash prices except Crude Oil (July)

	S&P 500	EUR/USD	Gold	Crude Oil
Trend	Down	Down	Down	Down
Buy or sell	Sell	Sell	Sell	Sell
Trend change	above 1340	above 1.2550	above 1585	above 91
Probability of trend change	50%	50%	25%	50%

Trends over the next 1-2 days. The trend is likely to reverse when the probability is 75%. Probabilities varies between 25% - 75%.

Research provided by e-Yield

FTSE 100 Key Levels

Cash prices

7th resistance	5720	Previous resistance line
6th resistance	5603	61.8% Fib retracement
5th resistance	5558	200-day moving average
4th resistance	5414	Previous high
3rd resistance	5391	Yesterday's high
2nd resistance	5340	Previous support line
1st resistance	5334	55-90min moving average
1st support	5284	Yesterday's low
2nd support	5268	78.6% Fib retracement
3rd support	5253	Previous low
4th support	5235	Elliott wave target
5th support	5130	Previous resistance line

 

If you are short:

1st resistance at 5340 (previous support line). Weak stop loss above that level.

2nd resistance at 5391 (yesterday's high). Fair stop loss above that level.

3rd resistance at 5414 (previous high). Strong stop loss above that level.

If you are long:

1st support at 5284 (yesterday's low). Weak stop loss below that level.

2nd support at 5268 (78.6% Fib retracement). Fair stop loss below that level.

3rd support at 5253 (previous low). Strong stop loss below that level.

UK Stocks-Factors to watch on Thursday May 31 | Reuters

* The UK blue chip index closed down 93.86 points, or 1.7 percent on Wednesday at 5,297.28, reversing much of a previous four-session rally to put it on course for a monthly drop of over 7.5 percent in May, its worst performance since August 2011.

via uk.reuters.com

The Story in Four Charts

By Ashraf Laidi

Four charts shedding light on:

i) Spain 10-year yields heading towards 7%
ii) BRICS are insufficient to hold up the global economy
iii) A coordinated central bank FX swap operation is unlikely at this point
iv) Broad-based deterioration in eurozone macro dynamics

 

Source of image - Bloomberg

1. Spanish bond yields: It’s different this time
As Spain’s 10-year bond yields hit fresh 6-month highs at 6.70%, the momentum of the current rise suggests further increases ahead, rather than a pause or reversal as was the case in December or August of last year. The fundamentals for Spanish 10-year yields to reach the “bailout territory” of 7.0%, reached by Greece, Portugal and Ireland include further breakdown in talks between Madrid and the ECB and a possible hike in bond margin requirements by exchanges such as LCH.clearnet. But a more vocal catalyst to further gains ahead is the stochastic indicator for the monthly chart, suggesting Spanish bond yields are technically better positioned for further “run-up” (green circle). This is unlike the highs from December and June when stochastics appeared topping out, suggesting “overbought” positioning (red circles). As yields take out the 7% territory, the spread between Spain & German 10-year yields will push further up the 5% level, the same level triggering bailouts for Greece, Ireland and Portugal. Although Italian 10-year yields did near 7% levels and 5% spreads in November, the situation was alleviated by a system-wide LTRO and coordinated central bank liquidity swap, which served as a substitute for 1-nation bailout.

2. Falling BRICS
Brazilian Rates to Hit Record Low Today In another sign confirming that this is not 2011 or 2010 when eurozone market woes would be alleviated by the BRICs, Brazil’s central bank today readies to make its 7th rate cut, taking its selic rate to a record low of 8.50% (from 9.00%) as part of the government’s efforts to call on private lenders to reduce interest rates on various forms of credit/financing for business and individuals. Rates have fallen by 350-bps over the last 10 months in an effort to stimulate the sharp slowdown in growth. GDP q/q hit 0.3% in Q4 2011, from 1.1% in Q4 2011 and 2.8% in Q4 2010. India Easing Moves into Repo Rate Last month’s cut in the Reserve Bank of India’s repo interest rate was the first since 2009. The RBI has already cut its cash reserve ratio requirement (CRR) twice this year, which encourages banks to lend and hold fewer funds. The cut in the repo rate (principal interest), is aimed at driving down the cost of funds across the board. The repo rate was raised 13 times from early 2010 to last October, aiming to fight off stubborn inflation.

3. EU-US LIBOR Spread “Not” due to Rising USD LIBOR
As the spread between euro and USD 3-month LIBOR extends its plunge to 0.13% from 0.70% in January, the resulting decline in the EUR/USD follows through as it has over the last 3 years. The notable difference between today’s selloff and previous phases such as in late last year is that the declining EU-US spread is not a result of rising USD LIBOR but solely a result of declining in EURIBOR. This may reflect the improved liquidity situation among US banks and highlights the euro-centricity of the latest woes. This also helps explain the 3% rebound in US equities from their mid-month lows. One potential implication of such causality to falling EU-US LIBOR spread and stabilizing US LIBOR levels would be the non-likelihood for the Fed to lead a co-ordinated central bank currency swap operations to alleviate USD shortage. This is not the case today.

4. EU Confidence Broad Deterioration
May eurozone Industrial confidence index hit 27-month lows at -11.3 from -9.0, Economic confidence index deteriorated to a 31-month low at 90.6 from 92.8, while Consumer confidence held unchanged at -19.3. The multi-sectoral macro-deterioration is clear and so is the erosion into German shores following recent IFO and ZEW surveys. Chatter of sub 1.0% interest rates by the ECB starts to emerge as CPI enters a new slowdown phase after falling off last year’s 3.0% peak and LTRO remains out of the conversation.

Ashraf Laidi is Chief Global Strategist at Leading Spread Betting Company - City Index

S&P 500 Key Levels

Cash prices

5th resistance	1408	Resistance line
4th resistance	1373	Previous support line
3rd resistance	1368	61.8% Fib retracement
2nd resistance	1358	Previous support
1st resistance	1335	Yesterday's high
1st support	1320	55-90min moving average
2nd support	1319	Yesterday's low
3rd support	1292	Previous low
4th support	1290	38.2% Fib retracement
5th support	1288	Previous resistance line
6th support	1283	200-day moving average
7th support	1249	50% retracement

 

 

If you are short:

1st resistance at 1335 (Yesterday's high). Weak stop loss above that level.

2nd resistance at 1358 (previous support). Fair stop loss above that level.

3rd resistance at 1368 (61.8% Fib retracement). Strong stop loss above that level.

If you are long:

1st support at 1319 (yesterday's low). Weak stop loss below that level.

2nd support at 1288 (previous resistance line). Fair stop loss below that level.

3rd support at 1283 (200-day moving average). Strong stop loss below that level.

FTSE 100 Short Term Forecast

By Thierry Laduguie

After the timing indicators have become oversold (13-day BTI and Top 20 Differential) and the stock market has rallied, the indicators should return to neutral. This has already happened with the 13-day BTI, however the Top 20 Differential is still oversold. This is not good news. When the oversold condition is not relieved after a week during which the FTSE is bouncing back, it means stocks are weak. I have seen the FTSE drop sharply when the Top 20 Differential behaves like this. For this reason I would not buy the FTSE, plus the pattern is bearish too. Markets are trading lower this morning on fears Spain will be the next euro zone country to leave the euro.

There are two possible wave counts

Wave count #1

The FTSE made a new high on 28th May [wave (c)], then prices pulled back to the 55-period moving average, and yesterday they rallied back to the top. This pattern resembles a rising wedge [(a),(b),(c),(d),(e)] which is a bearish pattern. This one is not very steep but it can be a rising wedge. So today, based on this pattern, this morning drop is wave (d) and the next move will be wave (e) up. As we can see there is potential for another rally to 5420 this afternoon. The completion of the rising wedge near 5420 will mark the end of wave iv (circle). Based on this pattern, it does not appear that wave iv (circle) will reach the 38.2% retracement [5469]. The next move is wave v (circle) down, an initial target is 5150.

Wave count #2

The FTSE completed a three-leg upward correction for wave iv (circle) on 28th May. This is possible because the high on 28th May [5414] is above the top of wave (a). The upward correction does not appear to be a zigzag but it could be a double zigzag. This wave count suggests that the FTSE will decline immediately to new lows.

S&P 500

I am not sure what the pattern is on the S&P but it could be a rising wedge too. So far the rally is in three waves but wave (c) is not an impulse wave, wave (c) is in three. This kind of wave (c) occurs in a wedge, therefore today we should see a decline to 1320 [wave (d)] followed by a rally to 1339 [wave (e)]. The rising wedge is wave iv (circle) and it should end near the 38.2% retracement. The next move should be wave v (circle) down, an initial target is 1270.

Special offer: receive daily market updates from e-Yield and get the first month for half price. Click here to subscribe.

Thierry Laduguie is technical strategist at e-Yield