"The main purpose of the stock market is to make fools of as many men as possible."
- Bernard Baruch.
For anyone utilizing technicals to even a small degree, the energy space continues to be almost entirely uninvestable. Both light crude oil and Brent crude oil futures remain in total freefall. And, though not as impactful to individual oil stocks, unleaded gasoline futures are also trapped in a death spiral. Suffice it to say, long-only energy traders and investors should remain on the sidelines until these commodities begin to stabilize and trade above their shorter-term moving averages.
Similar to the energy commodities, I see no reason for long-biased traders to be actively stalking the majority of oil drilling and independent exploration stocks. I understand how tempting it is to bottom fish well-known stocks such as Transocean (RIG), Apache (APA) and Anadarko (APC). But rather than buy something simply because it is selling for 50% of what it sold for four or five months earlier, I'd encourage you to make a list and monitor the names on it for signs of stabilization. Remember, stocks trapped in a vicious bear market generally don't turn on a dime and spring back to life. They develop expansive trading ranges over a number of months.
The only energy-related names I have any interest in outside the day timeframe are the more reliable dividend-paying names discussed back in the Dec. 1 Trader Daily. And even among those names, I have relatively little interest trying to guess random points where they might bounce. With the short and intermediate-timeframe moving averages declining on virtually every energy stock, there is no reason not to be patient.
On a more bullish note, let's take a moment to review last week's winning sectors.
I know the iShares 20+ Year Treasury Bond (TLT) isn't a sector, but considering it gained more than 4% last week, I can't see the logic in ignoring it altogether. Last week's other big winners revolved around the biotech, REIT and utility sectors. And setting aside the rather obvious momentum divergence in the Vanguard REIT ETF (VNQ) and Utilities Select Sector SPDR Fund (XLU), last week's winners all begin the new week with intact and generally bullish chart patterns.
Moving on to our broad market ETFs, I would now classify each ETF has stuck in neutral. With all ETFs trading above their respective 50-day simple moving averages (bullish), but plagued by sub-50 Relative Strength Index (RSI) readings (bearish), I believe a neutral posture is warranted.
As we begin a new trading week, remember that the 50-day simple moving average (SMA) is a logical and popular reference point to look for buyers. Be sure to familiarize yourself with the location of the 50-day SMA on the SPY (circled and highlighted in green on the chart above), and any other indices or stocks you may be studying.
- One of last week's more noteworthy declines occurred in shares of IBM (IBM). You'll recall I added IBM to my list of potential breakout stocks earlier this month, but despite the bulls' best efforts, the stock never quite made it above $165. And Friday's collapse beneath $160 absolutely removes this stock from our watch list. The daily and weekly charts of IBM are back to being undeniably bearish. Downside continuation toward $133 (the breakout level from late-2010) now seems a logical possibility.
- Please check columnist conversation prior to Monday's regular session open for an updated Es volume profile and trade plan.
Any trading or volume profile related questions can be posted in the comments section below, emailed to me at email@example.com or posted to my twitter feed @ByrneRWS.