Ideas left behind this week by investors

One of the best parts of technical analysis is each chart leaves clues of what investors are thinking. By linking those day to day clues together you find trends, and as everyone states, the trend is your friend. The challenge since December has been found in the choppy and uncertainty of the market creating a trading or consolidation range. Looking at the charts this week we find not much has changed, but the charts reflect one key item… they held support and bounced. In the case of the S&P 500 index the 2060 level held and moved back to 2100 on Friday. Not a huge gain, but enough to keep the sellers at bay. The chart of the index below shows the rising consolidation wedge pattern off the October lows.

Chart

Breaking the index down by the parts we find the chart below which provides clues of leadership off the low. Energy moved higher as the price of crude oil found support and bounced. Healthcare equally found support and bounced nicely to lead the broader index on the upside move. Industrials moved as some vision for global expansion was pontificated helping the sector produce solid gains on the week. Consumer Discretionary continues to find strength in the retail sector and with sales data for March due out Monday this will get some validation if the data confirms the chart. The other six sectors lagged the index on the move higher. We of course look for that to improve or change moving forward, but follow the leaders for now. Finding the leadership or where investors are putting money to work are the clues left behind that validate or invalidate our beliefs relative our allocation of money and risk.

Chart

 

Other leadership this week has come from the global markets with China (FXI) adding 11.1% gains to last weeks equally impressive move. The vertical climb is a challenge as what goes straight up generally will find a happy medium going forward or drop. Set stops according to how you want to protect your gains looking forward. Russia (RSX) gained 6.1% and has been impressive on the upside gains as well. The 3.3% move lower on Friday shows the need to protect against the overbought and over zealous moves in these positions. When you see positions go vertical take some gains off the table and adjust your stops on the balance. Say thank you to the irrational investment gods and protect your gains.

Crude gained 4.4% on some extreme volatility of rumors and speculation. I am not a fan of speculation based trading, but it has provided some moves technically you can trade. Never put money at risk without having a justifiable reason to take the risk of the trade as well as manage the risk of the trade.

As we move into the weekend and prepare for the new week, know what is in front of you, how you got here and what is leading the parade. Plenty to consider with the onslaught of earning in front of us for the first quarter coupled with a shift in investors sentiment to positive this week. Look for the clues left behind, stay focused and be disciplined in your strategy to capturing the next move of the markets.