The Surprising FAANG Powerhouse Stock

Of the five FAANG Tech stocks, Netflix (NFLX) has enormously outperformed its counterparts on a percentage-gained basis, from the beginning of 2013 onward, as shown on the following two 5-Year graphs.

NFLX continues to keep pace, percentage-wise, with the other four, as shown on the Year-to-date graph below.

I'd watch for exceptionally high volumes to drive these stocks to even higher levels at this accelerated pace for the near term, as has been the case since June of last year. Otherwise, we may see a leveling off of the buying, as was the case this past week on AAPL, as shown on the 1-Week graph below.

And, as I've mentioned in previous posts (more recently here), Technology holds the key to overall U.S. equity strength, in my opinion. Until major weakness strikes these five major tech stocks, in particular, we're likely to see that continue.

May 22: U.S. Market Sectors Turning Up the Heat

The following is a screenshot of a heatmap of the U.S. Sectors, courtesy of FinViz.com.

From the amount of green displayed, you can see which sectors and stocks that markets are favouring mid-afternoon today.

P.S.

The following heatmap shows how other world markets ended the day. Brazil was the weakest, compared with other countries, and lost more ground today.

Euro Poised to Extend Rally

Should the Euro break and hold above near-term resistance at 1.1250, it's conceivable that it could reach the next level at 1.1500, as shown on the Daily chart below.

And, should the Euro break and hold above 1.1500, it would face long-term Fibonacci resistance around the 1.1680 level, as shown on the Monthly chart below.

Once through that level, the ultimate major resistance sits at 1.2000, where it would face extreme overhead supply.

However, before we get too far ahead on such a bullish scenario, we'll have to wait and see if it can, first, make it above 1.1250. Should U.S. equities weaken substantially, under conditions as I've mentioned here and here, such a Euro rally to that level, and beyond, could materialize.

"Sell" Signal Triggered on Brazil's Bovespa Index

A new "sell" signal has triggered on all three technical indicators for Brazil's Bovespa Index (BVSP), following Thursday's "shock drop," as shown on the Daily chart below.

Near-term price resistance and support levels sit at 65,000 and 62,500, respectively, followed by longer-term support at 57,000.

Looking at a bigger-picture Monthly chart below, we see that longer-term Fibonacci resistance is around 64,400 and shorter-term Fibonacci support is around 61,800.

As is the case with longer term price support (noted above), there is a convergence of major long and short-term Fibonacci support around 57,000.

If price fails to hold above the 200-day moving average (62,276), as well as short-term Fib support at 61,800, we could see a swift drop to major Fib support at 57,000, or lower.

2nd Quarter Indecision on SPX:VIX Ratio

Each candle on the following chart of the SPX represents a period of one quarter. Much of the action on the current Q2 candle has occurred above the top one-quarter of Q1, and price is hovering above its close of 2362.72.

The Momentum indicator has been sluggish since July 2014 on this timeframe, likely caused by the rise in volatility, large price swings and inability of this index to gain traction, until its breakout two years later.

Each candle on the following SPX:VIX ratio chart represents a period of one quarter. The current Q2 candle is a high-wave candle and its range is 96 points. This is signalling extreme indecision in support (or not) going forward for equities in the face of rising high volatility.

Price on on the Q2 candle is hovering above the Q1 close of 191.004, but is below 200.00...a level which, I've contended (and written about) for some time, represents a new bull market in equities.

However, in order for price to break and stay above 200.00, volatility will need to calm down and remain low. We may need to wait and see how the Q2 candle closes at the end of June to try and gauge what market sentiment may hold for the remainder of the year. At the moment, it's anyone's guess, although you may see a last-ditch spike in price on the SPX before the Fed's next interest rate announcement and Fed Chair press conference on June 14.

 

Money Flow for May Week 3, 2017

From the Year-to-date comparison chart below of the 4 Major Indices, it's easy to see that the Nasdaq 100 Index has led this year's equity rally by a wide margin, while the Russell 2000 Index is, essentially flat, after a couple of foiled attempts to gain any traction.

If the aim of President Trump's proposed health care plan, deregulation on businesses, tax cuts, and tax reform is to help small business owners, market players don't seem to be buying into that because of their rejection of small-cap stocks, so far, this year, as also depicted on the Year-to-date graph of the 9 Major Indices below.

In fact, money flowed out of small caps this week (along with most of the 9 Major Indices, as shown on the 1-week graph below.

Furthermore, if the economy is doing so well and the Fed is busy raising interest rates (with the promise of more to come this year), why is the Financials sector flat this year, as shown on the following Year-to-date graph of the 9 Major Sectors?

In fact, money flowed out of Financials this week (along with most of the 9 Major Sectors, as depicted on the 1-week graph below.)

We'll see if the coming weeks present any buying opportunities for small-cap stocks and for the Financials Sector. Further weakening of these could negatively impact medium and large-caps stocks. However, Technology still holds the key to overall equity strength, in my opinion, as I described in my post of April 30.

At the moment, the Financials ETF (XLF) is threatening to break below the neckline of a Head & Shoulders pattern, as shown on the Weekly chart below. A drop and hold below 23.00 could see a swift plunge down to major support at 20.00, or lower.

P.S. May 21...

I've added the following Daily ratio chart of the XLF:SPX.

Price closed on Friday right on short-term major price and 200-day moving average support at 0.0098. 

A break and hold above near-term resistance at 0.0100 could see price retest prior highs, while a break and hold below current support could see price retest longer-term major support at 0.0094.

A ratio chart worth watching...

P.S. May 23...

The following end-of-day heatmap of U.S. Sectors shows that money flowed into the Financials Sector and stocks today. We'll see if this is the beginning of a new trend or just a short-term round of possible short covering.

30-Year Bonds on the Move

Further to my post of April 10, 30-Year Bonds have gained a couple of points, as shown on the Monthly chart below.

Price now sits just above major resistance (50% Fibonacci retracement) and is poised to begin reversing the steep plunge that began in mid-2016.

Furthermore, price has now broken above the 50-day moving average of the USB:SPX ratio and is currently at the major resistance level of 0.65, as shown on the Daily ratio chart below.

Inasmuch as we're close to seeing a new "BUY" signal form on all 3 technical indicators, I'd keep an eye on this ratio to determine its strength versus equities in the coming days/weeks (particularly, in light of my comments of May 17), especially, if it breaks and holds above 0.65. If it does, its next target would be the 200-day moving average at 0.70.

As an aside, I'd add that, in the midst of the current political chaos emanating from the White House, President Trump may end up remaining in power for 4 years, but if, in the meantime, he's widely regarded by domestic and foreign political players, as well as the American public, as untrustworthy (in spite of future facts and conclusions reached on current political and intelligence investigations), his tenure could very well end up being unremarkable and devoid of any major accomplishment.

In that kind of environment, this would NOT be a wagon that equity markets could confidently hook up to in a sustainable way, without the risk of accompanying high volatility, in my opinion.

In this regard, watch for a break and hold below the 150 major support level on the SPX:VIX ratio, as well as a drop and hold below zero on the Momentum indicator, as shown on the Monthly ratio chart below.

In that case, volatility will remain elevated and we'll see larger intraday and overnight equity swings.

SPX Gap Fills, Political Chaos & 3 Trillion Dollars

Further to yesterday's post, the SPX has filled one prior gap up (in between the blue lines) and is currently filling a second (in between the red lines) (both made in the latter part of April), as shown on the following Daily chart.

At the moment, near-term support sits somewhere around 2320 (price support) to 2338 (external Fibonacci support shown in yesterday's chart).

A drop and hold below 2320 could see a swift plunge to 2250, or lower and may be influenced by a major change in market perception of Washington's ability (or inability) to function and produce any meaningful progress on the kinds of economic stimulus programs, tax cuts and reforms, etc., as promised by politicians during last year's election and, on which, market players were counting, as they invested heavily from that time...particularly, as the Fed reduces its monetary stimulus measures and continues raising interest rates.

We'll see where any political facts (if they surface), relating to ongoing investigations, lead the markets. No doubt any major shift in overall market confidence (to the downside) would produce such facts and resolutions sooner rather than later, inasmuch as 3 Trillion dollars added since the election remains at stake, as I've described here and here.

Perception, Persuasion, Repetition and Opportunity

The amount of negative press coverage emanating from Washington in relation to President Trump since his election last November has been relentless and, at times, apoplectic. This is simply my unbiased observation, as I do not condone or condemn any of it.

So far, the equity markets have ignored the rants from the media and political opponents. The SPX is hovering at all-time highs, as shown on the following Monthly chart, and has gained 12.2% since the election, as shown on the percentages-gained graph below of the Major Indices.

Monthly SPX chart

Percentages-gained graph of U.S. Major Indices

On the face of it, it appears that the perception of equity markets, in general, is that it's "business as usual," regardless of all the roller-coaster (almost) daily "anonymously-sourced political revelations" (which may, or may not, have been fact-based truths and which have, so far, been perceived to be fairly minor in the grand scheme of things).

However, at the point when "minor" issues morph into "major issues" and are backed up by repetition and persuasion with the presentation of credible facts, you may, finally, see a major dent made in bullish market sentiment.

Until then, these "whiffs" of potential scandals don't seem to present enough of a major barrier to continued support for equities, and the "buy-the-dip" opportunists will likely continue to take advantage of the current tumultuous political environment.

China Bounce or Catastrophic Drop Coming?

Further to my post of May 7, the following Daily comparison and ratio charts of China's Shanghai Index (SSEC) and Australia's Composite Index (AORD) show that SSEC now sits at long-term major support (in both instances), once again, and is vulnerable to further weakness in comparison with AORD.

We'll see if the Shanghai Index can muster a bounce here and gain any kind of sustainable strength and momentum to support an eventual breakout to higher prices in the Australian Index, or whether a plunge here produces a follow-on drop in AORD.

Failure at current levels could produce a catastrophic and swift drop for China down to the lows produced in 2014.

Daily Comparison chart of SSEC and AORD

Daily Ratio chart of SSEC and AORD

Aussie Dollar Hinting at Further Weakness for China & Australia

For many years, the charts have shown that, as China's Shanghai Index (SSEC) goes, so goes Australia's Composite Index (AORD), as shown on the multi-year comparison graph below.

However, a closer look at the following year-to-date comparison graph reveals that SSEC's attempts to continue to advance fizzled in mid-April and is now flat for the year, while AORD remains a bit more elevated.

A look at the following Monthly chart of SSEC shows that price remains below significant major price and Fibonacci resistance at 3250, while AORD is also facing major price and Fibonacci resistance from 6000 to 6050, as shown on the next Monthly chart.

A look at the following year-to-date comparison graph shows that the Aussie Dollar has been steadily declining since March 21...perhaps forecasting weakness that eventually followed in SSEC and a halt to further advancement of AORD.

As I mentioned in my post of March 30, we'll see if continued weakness in SSEC, AORD, and the Aussie Dollar have any negative influence on the World Market Index, or U.S. equities.

So far, the World Market Index remains unaffected, as it has reached a new high for the year, as shown on the following Daily chart, while the SPX:VIX ratio hovers just below its new all-time high (set on May 1), as shown on the Daily ratio chart below.

It may take something rather significant to induce any kind of major selling of Chinese and Australian assets and currency, and before it has any major impact on the the U.S. and world market, as a whole.

However, these are charts worth monitoring for the coming days and weeks, inasmuch as they have tremendous overhead resistance to overcome and will need fresh incentive/stimulus to achieve any meaningful and sustainable breakthrough.