My pals JC Parets and Phil Pearlman do a weekly market chat where they discuss what they’re seeing out there. I’ve known JC for years and he is one of the best technicians out there. The guy bought me lunch in NYC once and I’ve been admiring his work ever since. He follows any and all markets, and just opened up his own hedge fund. Phil is the Interactive Editor over at Yahoo! Finance. He is a master at trader psychology and is a social media expert. Everyone knows Phil and he is one of the true nice guys out there.
With that intro, this weekend they posted a video that was full of great charts from JC. Instead of reinventing the wheel, I’ll show some of them now.
First up, here’s a weekly chart of the SPX. We did break out to new highs, yet saw some selling late in the week. This created a bearish wick and is a near-term concern. As JC put it, “formed a pretty nasty candle.” As a result, he is looking for lower prices here.
Next is the percent of stocks above their 200-day moving average. It keeps diverging and this shows that not all stocks are participating. So under the surface there is some deterioration.
Next up, financials have started to lag after leading much of the past 12 months. You don’t necessarily need financial leadership for the rally to continue, but it sure doesn’t hurt. Another worry here. Below shows financials relative to the SPX and as JC put it, “you don’t want the most important sector underperforming.”
They next look at Japan. It had a picture perfect breakout from a huge triangle pattern. This bodes well for Japan longer-term, but near-term JC has some concerns. He is seeing an evening star forming (second red arrow) on the DXJ here and he is looking for near-term lower prices. Also this is right where it ran into trouble back in July, another reason to be cautious here.
Lastly, they look at bonds. JC has been bullish bonds the past few weeks and I must say I agree. Here’s a chart of the 20 year Treasury Bond and it has made a nice double bottom. Also, overall sentiment toward bonds is near past major lows. No one wants to own bonds and that can be the exact reason to be accumulating. All the sellers have left and no one is left but buyers at this point.
Here’s the whole video.