Market Update Into 2/4: A Look at the Monthly Overlays

A prepared trader is generally a profitable trader, and Sunday is a great day to get ready for the week ahead by studying up from last week’s price action.  In this weekend’s analysis, we take a look at a brand new feature that was released earlier this week, monthly candles. For $SPY, $QQQ, and $XBI, we take a look to see how the weekly price action is interacting with the monthly indicators and trendlines.

$SPY: Weekly Candle W/ Monthly Overlay

Written Analysis

1.  A strong close through the Monthly basis moving average (20-month SMA) last week with 6 weeks green in a row now. Based on past patterns like this, the market is either due for a hard correction or flat, choppy waters ahead.
2.  The MACD is in the process of crossing on the weekly candle with this cross sometimes being a lagging indicator short term but has been a good signal over the long term for higher price levels.
3.  The %R continues to move up with more room before hitting overbought levels. Even when this hits overbought levels, it still can easily false signal and actually signal momentum increasing. To filter this overbought signal out, sometimes it is useful to add the RSI to the lower indicators.
4. The Vortex Indicator is crossing hard with this being a signal for more upside ahead generally. However, past moves do not always predict future moves and the current market landscape is much different than it has been in the past.

$QQQ: Weekly Candle W/ Monthly Overlay

Written Analysis

1.  QQQ is looking very similar to SPY with a recent push through the monthly Bollinger Band basis MA. Notice how this level acted as support the last few weeks before making this the launch pad for the next leg up. It is also interesting to see how the monthly Bollinger Band created the top of the weekly channel.
2.  A recent MACD cross would suggest higher levels but with this sometimes being a lagging indicator, the past has shown there isn’t always short term gains after this move. However, this move generally signaled longer term moves up.
3.  As with the other indicators, the %R is looking very similar to the SPY %R with a strong move up since January and more room to move up before nearing the overbought levels.
4. The Vortex Indicator is converging hard after the VI- and VI+ diverged hard from each other during the big move down in December.

$XBI: Weekly Candle W/ Monthly Overlay

Written Analysis

1.  XBI is a VERY interesting chart here with some weird discrepancies between SPY and QQQ. Before this, XBI has generally lead the market since October with price levels reversing before SPY and QQQ showed signs of any change in momentum.
2.  It is very odd to see the weekly candle not breaking through the monthly Bollinger Band basis MA but the MACD is further along in the bullish cross.
3.  Also different than SPY and QQQ, XBI has hit overbought levels on the %R before the other two ETFs. This overbought level on the %R has proven to be a reversal point to the downside in the past.
4. Similar to SPY and QQQ, the vortex indicator is in a similar place with the VI- cross to the downside through the VI+. Based on how this has set up in the past, this may be signaling a longer-term move to test the upper monthly Bollinger Band.

$NIO: Before vs. After

This weekend’s “Before and After” shows $NIO bouncing hard to test the blue resistance line above before continuing to move up. In this chart, we look at how the Vortex Indicator and MACD were both showing signs of a possible breakout. These are simple ways to look at correlations of price action and indicators and should not be taken as a way to trade securities. To learn more about the vortex indicator and how it can be used with other indicators, check out our recent webinar with Dan at BullishBears here.

Before

After

Timestamps Captured This Week

$NIO

$TWTR

$BABA

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