Assessing through Technical Analysis My View of the Financial Markets

My research in assessing a directional bias for the markets overall starts with a look at the charts on what I call my ‘Corners’ of the market.

I look at the following 5 corners or area of the market.

1. Stocks / equities, represented by SPY: SPDR S&P 500 ETF Trust.
   This ETF tracks the S&P 500n Index
2. Bonds represented by TLT: iShares 20+ Year Treasury Bond ETF. 
   This ETF tracks a market-weighted index of debt issued by the US Treasury with remaining maturities of 20 years or more.
3. Currency represented by UUP:  Invesco DB US Dollar Index Bullish Fund
   This ETF/fund tracks the changes in value of the US dollar relative to a basket of world currencies via USDX future contracts.
4. Commodities Oil, represented by USO: United States Oil Fund, LP
   An ETF that attempts to track the price of West Texas Intermediate Light Sweet Crude Oil.
5. Commodities Gold – represented by GLD: SPDR Gold Shares
   It is one of the largest gold ETFs and tracks the price of gold bullion.

Once I go through these charts I assess whether I am bullish, bearish, or neutral on each. If I deem a chart bullish I give my assessment a +1 if it is bearish I give it a -1 and if I am neutral I give it a 0.

If two are bullish, one is bearish and the other two are neutral, a final group assessment is +1 and therefor I lean towards a bullish market bias.

More importantly I look to the corners individually and if I see bullishness in equities I try and find bullish option strategies on securities in that corner. But I am also inclined to trade bearish patterns with bearish options strategies when a corner of the market seems weak, technically.

With all this said, I will run through my corners of the market today and provide you with my outlook for them all right now as of Friday, August 09, 2024.

SPY

There were already concerns about the economy going in to a recession and talk of the Fed being too late with cutting interest rates.

Then Monday hits and the ‘unwinding’ of the Japanese carry trade sends the NIKKEI down in one if it’s most brutal sell offs since 1987. That further roiled our markets and the major US averages sold off significantly.

The SPY came close to hitting a 38.2% Fib retracement level before bouncing back. 

A rate cut is expected in September, but now the uncertainty is whether it will be a quarter or a half-point. Depending who you ask a quarter point isn’t enough others feel a half -point may spook the markets.

I am going to continue to read the charts and look for tests of support and resistance or breakouts/breakdowns of them. As long as SPY keeps taking out overhead gap levels without retracing I feel bullish. But I want to be aware of one those upside gap levels may becoming a resistance level.

TLT

One thing I have taught for years and will continue to teach is the perspective of inter market analysis.

One wants to train their eye to see and notice how when money flows out of one sector or asset class it is usually going to find another sector or asset calls to rotate in to.

One can see that recently as it happened when there was a sell off of large and mega cap tech stocks, (see the Magnificent 7 stocks) and money was initially flowing in to small caps and housing.

A situation where one asset class moves higher and another trades opposite of that is referred to as having an ‘Invers Correlation.’

A typical inverse correlation or relationship where two asset classes trade opposite each other is US equities and Bonds.

When one is seeing positive price momentum they will also see the other trading down in price.

Sometimes the two correlate, but in the charts between the Spy and TLT one can see from near the end of July to present the two are inversely correlated, the SPY traded lower and TLT is popping up in price.

The upcoming, highly anticipated ed decision on interest rates in September will definitely affect investors view on the state of the economy and whichever of these two asset classes said investors feel they will get a better return on their money will dictate where the money flows.

UUP

What is UUP

UUP goes long the US dollar and shorts the currencies of major US trading partners using USDX futures. Specifically, the fund is shorting the euro, Japanese yen, British pound, Canadian dollar, Swedish krona, and Swiss franc.

Notice the Japanese Yen is an asset in the basket of securities UUP uses.

What is this Japanese Yen ‘Carry trade’ everyone is talking about?

Well first let me summarize what a carry trade is.

A carry trade is where one borrows an asset trading at a low-interest rate and re-investing in a currency or financial product with an expected higher rate of return.

A popular trade that had been going on for a while is where investors borrowed Japanese yen at a low interest rate, and then invested the borrowed money in high-growth investments like the “Magnificent Seven” stocks.

Concerns about this trade ramped up when on July 31 when the Bank of Japan raised interest rates from 0.1% to 0.25%. This was its largest rate hike since 2007.

If you borrow in yen and then trade in dollars and then the yen gains value, you have to earn more dollars to pay back your yen-denominated loan. Fear of the yen strengthening further due to more interest rate hikes by the Bank of Japan is why more unwinding could occur.

USO

Technically one can see a series of higher lows.

Though this is a bullish pattern and indicates potential further upside I see an overhead price resistance of $83.

I am not saying there isn’t money to be made on a move from $76.25 (at the time of this writing), up to $83 as some would consider that a good trade.

A technical stop if one pursues a trade like that could be consider with a close below the ascending support line.

Options strategy for consideration could be a Long Call, Call Debit Spread or Bullish Butterfly to name a few.

Research shows the price of West Texas Intermediate (WTI) has fallen from about $85.00 a barrel to below $75.00 a barrel this past month. WTI recently pulled back to a 6-month to start the week.

Oil, which is sensitive to economic cycles, experienced a downturn in recent weeks. It can be looked at as having started with the weaker-than-expected June CPI reading released early in July.

Take in to account to concerns 1) Concerns about weaker demand from China and 2) Fears of a U.S. recession and that is why prices have fallen.

GLD

I have written for months how Gold has surprised investors by rising in price. Even though it may not be that robust a move it has drifted higher. I attributed it to the uncertainty in the upcoming election and in the US economy.

Recently, with the seasonally bearish patterns on some Gold or Gold ETF’s I have been making people aware there are some bearish opportunities coming our way.

July 29 Bearish Money Calendar pattern there was a bearish seasonal pattern on a gold-based ETF called the VanEck Junior Gold Miners ETF (GDXJ). It has or is working out thus far to the downside.

As I look through my Money Calendar scan I see more bearishness through the month of August and will be keeping an eye out on other bearish setups for potential bearish option trades.

Special Offer

Join Mastery On-Demand!

Have you ever wanted to join the Mastery Program but couldn’t make the live events? Well this year I wanted to change it up and offer you the ability to learn on your time with our brand new Mastery On-Demand offering.

Choose from a wealth of Mastery Programs including our System Mastery, Hedge Fund Mastery, and Trend Mastery — or choose to get access to all of them with the All Access pass.

Join Today!

App: Toms Option Tools

Toms Option Tools scan the markets for bullish and bearish trade opportunities using our proprietary scans and strategy algorithms. TTR Darknet finds bullish entries based on triple stack channel collisions. Money Calendar identifies seasonal patterns with at least 90% accuracy looking back 10 years. Weekly Cash Clock finds short term opportunities that last a week on average. Microcurrency Trader applies Darknet technology and moving averages to cryptocurrencies. Velocity Trader utilizes volume spike and Velocity indicators on custom stock lists. Quantum Scripts scans the markets for momentum acceleration signals and employs Quantum noise filters. Optimal Trader finds directional pre-earnings opportunities that are optimized for entry date, stock movement, and volatility surge. My Trades tracks the profit/loss of your trades, displays stock charts and risk graphs, creates new trades, and edits existing trades. Morning Report provides top 10 option rankings in 6 categories each day.

Disclaimers

Stock and options trading has large potential rewards, but also large potential risk.

You must be aware of the risks and be willing to accept them in order to invest in the stock and options market. Do not trade with money you cannot afford to lose.

This is neither an offer to buy/sell/ or recommend a particular stock or option.

Hypothetical or simulated performance results have certain inherent limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, since the trades have not been actually executed, the results may have under or overcompensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated trading programs in general are also subject to the fact that they are designed with hindsight.

No representation is being made that any account will or is likely to achieve profits or losses similar to those shown.

Disclaimer of Warranties and Liabilities Tom Gentile and TomsTradingRoom, LLC including employees, consultants, and editors (“Publisher”) cannot and do not warrant the completeness or accuracy of the content found in our areas, or its usefulness for any particular purpose.

Tom Gentile and TomsTradingRoom, LLC also make no promises that our content or the service itself will be delivered to you uninterrupted, timely, secure, or error-free. Under no circumstances will Tom Gentile and TomsTradingRoom, LLC be liable for direct, indirect, incidental, or any other type of damages resulting from your use or downloading of any content on our site.

This includes, but is in no way limited to, loss or injury caused in whole or in part by our negligence or by anything beyond our control in creating or delivering any portion of Tom Gentile and TomsTradingRoom, LLC.

You are agreeing that you bear responsibility for your own investment research and investment decisions. You also agree that Tom Gentile and TomsTradingRoom, LLC will not be liable for any I, investment decision made, or action taken by you, or others based upon reliance on news, information, or any other material published by Tom Gentile and TomsTradingRoom, LLC.

Tom Gentile and TomsTradingRoom, LLC relies on various sources of information that we believe to be accurate and reliable. However, we make no claims or representations as to the accuracy, completeness, or truth of any material contained on our site.

Tom Gentile and TomsTradingRoom, LLC are educational portals, providing content for educational and informational purposes only. Neither Tom Gentile nor TomsTradingRoom, LLC are a broker/dealer. Investors need a broker to trade stocks and options and must meet certain requirements. All securities, futures, and investments data and ideas are offered to self-directed investors. All prices in USD unless noted otherwise.

A full disclaimer can be found here:  http://www.tomgentile.com/legal_disclaimers.html.