Everyday on financial news outlets we hear different market opinions and predictions. These "experts" get in front of the camera and tell us where they think the markets are headed, whether the economy is on solid footing or not, what the fed's next move might be etc. Most often, these "predictions" are made based on fundamentals which lag the real market action. Remember, if you are going to trade based on the earnings report of a company or other financial reports, this information is almost always baked into the cake before its released to the general public. One thing we know, which has been proven over time, is that the charts tell the story of the future, far better than any talking head in the media or falsified financial report. With that in mind, I will detail out one of my current tools which help to gain a peek into the future; the SPDR KBW Regional Banking (ETF) (NYSEARCA:KRE).
After looking at the chart of the SPDR KBW Regional Banking (ETF) (NYSEARCA:KRE), I found it to be quite interesting and ahead of the markets to the downside. We have all heard how in 2007 the markets topped out and then rolled over in the fall of 2008, as Lehman Brothers went under. The SPDR KBW Regional Banking (ETF) (NYSEARCA:KRE) had peaked out many months before the S&P 500, in fact it topped in December of 2006 (almost 1 year ahead). In 2010 this ETF put in a high basically around the same time as the rest of the major indexes, and then the S&P 500 had a 17% correction. However, in 2011 the Regional Banking ETF made its high early in the year (January 2011), while the markets didn't top out until May 2011. That high was followed by a decline in the S&P 500 to the tune of almost 22% (some say bear market status).
Since then the SPDR KBW Regional Banking (ETF) (NYSEARCA:KRE) has basically been in lock-step with the overall markets and had a nice ascent higher. That is until a few months ago when it made a high of $42.79. This security has since made a lower high and has clearly diverged from the S&P 500. You can even make a case that there is a potential head and shoulders being formed on the daily and weekly charts (depends where you draw your neckline). All these facts I have presented have nothing to do with fundamental analysis and is purely based on technicals and chart reading. So while the pundits and talking heads on TV carry on with their opinions, I will look to the charts as the real crystal ball, and eliminate all that white noise. Keep a close eye on the KRE chart as it appears to be talking to us right now.
If anyone needed proof that there was a disconnect between Wall St. and Main St. then look no further than the housing stocks, in particular D.R. Horton, Inc. (NYSE:DHI). The stock plummeted an eye popping 11.5% in a single day, and basically took down the entire sector. The results were disappointing to investors to say the least, as U.S. sales of newly built houses dropped 8.1 percent in June to a 406,000. So what happened to this "recovery" that we all keep hearing about? [more]
Baidu Inc (NASDAQ:BIDU) reports earnings after the market close today. This stock has hit a major level of resistance today at $205. While any stock is a gamble into earnings, this epic move higher into this key level puts the stock at a higher risk of a sell off. Consider that the stock has also rallied from $140 in April 2014 to the high today of $205.50. That is a whopping 47%. I post this not so much as a short signal and trade as a cautionary flag to anyone holding the stock on the long side.
Leading aerospace manufacturer The Boeing Company is trading lower again this morning. The stock has come under major distribution in 2014 after peaking out in January at $144.57 a share. Today, the Boeing Company stock is trading lower by $2.13 to $124.58 a share. Many traders and investors are now hearing that business is slowing down for The Boeing Company. Earlier today, the stock was downgraded by BofA/Merrill Neutral from Buy citing potential cancellations in orders and shrinking military programs. Traders and investors must now look to the charts to find important support levels where the stock could stage a bounce and create a trading opportunity. At this time, The Boeing Company stock should have important support around the $117.75 level in the near term. This was a level where the stock broke out in October 2013. Often, prior break-out levels will serve as important support when retested.
Looking at the recent Herbalife Ltd. (NYSE:HLF) drama, there is no reason any investor should find themselves in the situation like Bill Ackman placed himself and his investors in. Have you ever let a position go from profitable to a losing trade, without a clear way of managing it? Well, Herbalife Ltd. (NYSE:HLF) is a prime example of why as an investor, you must know how to read the charts and leave your ego at the door. If Ackman did that, not only would he have saved himself millions, he would have made double that. [more]