January - in like a lion and out like a lamb. Volatility is back what's it mean for the markets in the short term? This and a look at parabolic blowoffs in this months Charts on the Move video which can be seen here
Lightening II
Back on November 20 of last year I wrote about the possibility of lightening striking twice on ASND stock. The stock was setting up to break out of a cup and handle pattern right after reaching its upside target out of an inverse head and shoulders. The cup and handle pattern pointed to a 15% upside move. Remember this chart?
As you can see in the chart below, It took 20 days of price grinding sideways before the buyers eventually overwhelmed the sellers and price climbed higher. Much higher. In fact it blew right past the pattern’s target and peaked ~48% above the close on the date of my blog post.
As you would expect after such a big move in a short period of time and being massively overbought, the stock will need to digest its gains before we are likely to get a clue on what may lay ahead for ASND. The good new is that biotech is on a roll and I expect, once done consolidating, ASND may be ripe for another rip higher. If you took this trade, congratulations. Consider selling ½ and letting the rest run.
Uh Oh
It should be no surprise to anyone bond yields are rising. What may be of surprise is that we MAY have just turned the corner and entering our first bond bear market in more than 30+ years. As you can see in the 5-year weekly chart of 10-year US Treasury bond yields that we just broke out from a rounded base which target projects up to 2013’s high water mark, labeled T1.
While this chart may not look as if it has formed a bearish reversal (bear market), turning to the much longer-term view of Treasury 10-year rates we see they have broken and closed above their downtrend line for the first time in 30+ years. Breaks of downtrends are interesting but carry less weighting without higher highs and higher lows being formed. Without them, its more than likely to turn out to be just a counter-trend bounce.
While this is definitely a HUGE yellow caution flag, my interpretation is that until they break and hold above (not just rise up to) 2013’s peak, I would not be overly concerned. Why? Because virtually everyone is aware (the FED has been telling us they will be raising rates for eons) and the smart money is positioned accordingly. Markets move most when most involved are surprised, which is not the case here. As such, I fully expect the market to do exactly what you would expect it would do when everyone knows what is coming … the exact opposite of what is expected. So, until this reversal question is finally resolved, because of bonds effect on other investments, there are potential major changes on the horizon. I don’t need to say it but we are in interesting times and investors need to keep a close watch on what unfolds with intermediate and longer-term bonds in the weeks and months ahead.
My Precious II
Back in August of last year in my 8-23 blog post (“My Precious”) I wrote about the potential breakout in palladium above near-term highs with a target back to the 2001 highs at $1100.
On Jan 8th the price of palladium closed at $1105 (providing a nice 16% gain in 5 months), right where the breakout told me to expect it to go. As you would expect, that prior high is acting as resistance and price has pulled back slightly and begun a sideways consolidation.
Keep in mind that just because it has reached its target does not mean it’s done. But, if I were in this position (I am not), because it had reached its target, I would be taking at least ½ of my position off the table, locking in those profits and looking for another setup providing a risk:reward ratio of 1:3 or greater.
18 Years Later
Coming from the industry in my prior life, semiconductor stocks have always been a sector I follow closely. Their heath is a good proxy and gauge of investor’s willingness to take risk. The semiconductor ETF, SMH peaked after its parabolic run-up during the dotcom boom, the same boom that turned into a bust laying waste to pets.com, webvan.com and etoys.com (RIP). SMH finally bottomed during the 08 –’09 financial crises, losing more than 85% of its value from the highs. In 2015 during the markets one year consolidation, SMH formed a huge base (under the red horizontal) from which to launch higher. That huge cup and handle pattern has a target around the $100 level (the blue horizontal line), which just so happen to be where it reached this week and back 18 years ago.
With price sitting well above its 200 day moving average and massively overbought, it needs a rest. As such I would expect to see consolidation (or dare I say even a pullback) in the upcoming days/weeks before it shows its hand on whether this prior resistance level will put throw cold water on the current rally-to-the-moon party. In an ideal world, price would slice right through that critical area of resistance and not look back and the path of least resistance considering the strength of this market.