Get an Edge from Yearly Charts

01/05/2015 10:30 am EST

Focus: ETFS

Thomas Aspray

, Professional Trader & Analyst

Investors and traders should not ignore the yearly charts, says MoneyShow’s Tom Aspray, as they can alert you to major trend changes and help you avoid reacting emotionally to short-term market gyrations.

The market’s brief slide from the early December highs was enough to convince some high profile analysts that the bull market was over. Those who reacted emotionally to this brief market decline missed out on the end of the year highs.

There were two key technical signs that the correction from December 5 would be short lived. The 1.6% plunge in the S&P 500 on Wednesday, December 10 resulted in a one day reading in the ARMs Index, or TRIN, of 3.47 (Was That a Panic Low?). 

The next week, the VIX, or volatility index, closed at 23.57 on Tuesday, December 16 and then reversed to the downside the following day. As I noted in a lunch time Tweet on December 17, this confirmed that the stock market had formed a panic low.

The new highs last week in both the weekly/daily NYSE Advance/Decline Line reaffirmed the market’s major positive trend. Therefore, last week’s 1.5% decline in the S&P 500 looks like just a normal pullback and the futures are slightly lower in early trading Monday.

In addition to monitoring the quarterly pivot levels for many of the key ETFs, I also look at the yearly charts of several key markets. A break either above the prior year’s high or below the low can often warn of a change in trend.

In January 2008 the S&P 500 dropped over 100 points to violate the prior year’s low at 1,363.98, which was further confirmation of the market’s major top in October 2007.

The yearly support and resistance analysis of both crude oil and gold combined with the volume analysis (Two Worst Markets in Any Time Frame) should have made you prepared for their weakness in 2014. So which are the key levels to watch in 2015?

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Chart Analysis: The yearly chart of the cash S&P 500 shows the strong upside breakout in 2013 as the trading range (lines a and b) was completed. This formation has upside targets in the 2500-2600 area.

  • For 2015, the yearly pivot for the S&P 500 is at 1962 with the S1 support at 1832.
  • A drop below the 2014 low of 1737 is needed to suggest a change in the major trend.
  • The February 2014 low of $170.38 in the Spyder Trust (SPY) was just above the 2014 yearly pivot at $169.90.
  • The 2015 pivot for SPY is at $195.90, which is approximately 4.6% below current levels.
  • The 2013 high at $181.15 and S1 yearly support at $180.01 are even more important levels to watch.
  • The yearly on-balance volume (OBV) broke out to new highs in 2009, as the resistance at line c, was overcome.
  • The OBV has since continued to form higher highs and is well above its WMA.
  • On the yearly chart, the powerful close in 1995 (point 1) may have been when the last major bull market started to mature on optimism.

The Dow Jones Industrials had a low in 2014 of 15,340, which was just slightly below the 2014 yearly pivot at 15,422.

  • The high last year at 18,103 was just above the R1 resistance at 17,741.
  • For 2015, the yearly pivot is at 17,088 with the S1 support at 16,074.
  • The R1 resistance is at 18,837 with the R2 at 19,851.
  • The SPDR Dow Industrials (DIA) held well above the yearly pivot at $134.52 throughout 2014.
  • This year the pivot is at $169.53 with the S1 support at $158.35.
  • The 2014 low for DIA was $150.01 which was just slightly below the 2013 pivot at $150.49.
  • The R1 resistance is at $189.05 while the completion of the trading range, lines d and e, is in the $219-$221 area.
  • The yearly OBV has been above its WMA since the early 1990s with good support at line f.

Next: Two More Yearly Charts to Watch

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The crude oil futures had a yearly pivot of $98.85 in 2014 and a low in 2013 of $85.41. The uptrend connecting the 2011-2012 lows, line a, was in the $80 area.

  • Once these levels were broken, then the focus became the 2011-2012 lows of $74.95 and $77.28.
  • The failure of crude oil to hold these lows was quite bearish, which helped to explain the additional plunge of $20 per barrel.
  • The yearly chart shows next major support, line a, in the $30 area.
  • The United States Oil Fund (USO) had four-year support in the $29-$29.10 area.
  • It closed 2013 at $35.32, which was just barely above the 2014 yearly pivot at $35.21.
  • In 2015 the pivot is at $26.54, which is well above the 2014 close at $20.36.
  • The S1 support stands at $13.66 with the R1 resistance at $33.26.
  • The yearly OBV for crude oil is still well above its WMA, but the monthly OBV generated a classic AOT sell signal in June (see chart).
  • Currently, the daily, weekly, and monthly OBV analyses are all negative.

The Comex gold futures closed down $18.20 at $1184.1 in 2014. This was just barely above the 2013 low of $1179.4.

  • As I noted in early 2013, the yearly range of $1798.10 and $1526.70 were the key levels to watch.
  • Therefore, the April 2013 break below the prior year’s low was a negative sign.
  • The gold futures ended up losing another $400 after this support was broken.
  • For 2015, the year pivot for the futures is at $1235 with the R1 resistance at $1340.
  • For the futures, the S1 support is at $1078.
  • The SPDR Gold Trust (GLD) closed 2014 just below the 2013 lows.
  • For 2015, the yearly pivot stands at $118.98 with the R1 resistance at $128.29.
  • A move in GLD above the 2014 high of $133.69 would be a positive sign.
  • The S1 yearly support is at $104.27 with the long-term uptrend for the futures, line c, in the $940 area.
  • GLD formed dojis in both November and December so a monthly close above $118.99 will trigger a HCD buy signal.
  • The monthly OBV is still negative while the weekly is positive.

What it Means: The price ranges from the prior year as well as the pivot numbers for the year can help keep traders and investors on the right side of the market throughout the year. It can also help them avoid vulnerable stock market sectors.

For the stock market, there are no signs of a change in the major trend. I continue to favor the small-cap stocks and am staying with the position in the iShares Russell 2000 (IWM). I will be looking to recommend buying the Spyder Trust (SPY) on the current correction, so stay tuned to my Twitter feed.

The gold market requires the closest monitoring as we may see a change in the yearly trend analysis in 2015. Though crude oil is likely to see a good rebound in 2015, it would take an amazing rally to change the yearly trend. There are no signs of such a rally in the imminent future.

How to Profit: No new recommendation.

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