Kirkpatrick's Weekly Market Strategist

Kirkpatrick’s Weekly Market Strategist The technical stock market letter published weekly since 1976 August 18, 2017

long-term u.s. tREASURY bONDS

Intermediate-Term Trend Table

Index Signal

BKX Dn BOND Dn UTY Up

Date

Sig Pr

Cur Pr

6/2 87.38 93.24 9/9 165 28/32 155 27/32 2/17 627 668

*Change from last week

The newly optimized and walk forward analyzed diff model for U.S. Long-term Bonds shows a buy signal back in May, and despite the large decline in late June, it shows no sell short signal through out the price changes since. The DI+ has remained above the DI-, evidence that the trend is upward.

Conclusion: The position is now in cash

GOLD The gold price chart shows a continuation of the upward trend signal earlier this month. The long-term downward trend channel may have been broken by the shorter-term upward trend channel. The upward break of the larger declining channel is still unsure because the price has been flip-flopping around the channel bound.

Even the new short-term high on Friday could not hold but immediately ran into resistance at the upper bound of the short-term channel and turned down forming a key reversal downward. Thus aside from the Diff model buy signal, the technical picture is not completely clear.

Conclusion: The position is now long.

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Crude oil The crude oil market corrected last week after the dramatic upward breakout three weeks ago, and it broke below the low bound of a new, but smaller, upward trending channel. The cradle from the earlier triangle pattern has held the decline but now it is difficult to figure on the correct future direction. The DMI is saying to be short and suggesting that the breakdown from the upward channel is more important than the old cradle, and thus we are short.

Conclusion: The position is short.

Emerging stock markets No downward reversal signal yet in the emerging markets ETF. The price remains within an upward sloping channel, despite its lackluster performance over the past three weeks. In such patterns the outcome is either an upward break of the upper bound on a speculative rise, unlikely right now, or another correction to the lower bound.

The DMI is inconclusive and wobbling along a flat trend, though the DI+ is consistently above the DI-, a positive sign.

Conclusion: The position is long.

bitcoin market

The Bitcoin market follows technical rules just like any other free market instrument. To repeat from previous weeks, it formed a triangle, falsely broke down, then broke upward, threw back to the cradle and finally erupted in an upward channel that doubled its price since the false low.

It now has accelerated to the point where it broke upward through the channel, a sign of gross speculation. In such circumstances, the item should be sold when it breaks back into the channel. Of course, we will see if the Diff model confirms such a break.

Conclusion: Position is long.

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STOCK MARKET Trend Table

Index Signal

DJIA Up NDX Up OEX Up VIX Up

* change last week

Date

Sig Pr

Cur Pr

3/25/17 5/27/16 5/27/16 6/2/17

17,621 4,760 933

21,674 5,791 1,073

The last letter looked for a short-term low to occur soon. The technical indicators suggest that it is occurring now. The extreme oversold condition in the oscillators and in sentiment suggest that unless the market is on the edge of a collapse, the damage over the short term has already been done.

Sentiment as measured by option volume is now very pessimistic with the oscillator far below its lower standard deviation and well below parity at 1.000, a sign in a bull market that a low is very near. Investors seem to believe that a large decline will occur soon, and they may be correct, but not yet. All of the momentum oscillators are below their lower standard deviations and thus confirm the negative sentiment. They are likewise at levels often associated with short-term lows.

The DMI will trigger an intermediate-term short sale signal by declining 217 points below the level that oc-

curred when the DMI crossed negatively (2,464 on August 15) at 2,247, considerably below the current price. This is unlikely unless the intermediate-term trend has turned down precipitously. Usually market tops are rounded, gradually weakening as individual stocks peel off. After the next short-term rally the odds improve for a larger decline this fall.

The NDX hourly trading model, gained 84 points this week per contract for a total of $1,680. completely erasing the previous week’s loss.

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Market Timing

Intermediate-Term - Both technical indicators remain in sync on the upside. This is portrayed in the charts above. As would be expected, the Diff model buy signal occurred when the price broke to a new high above the 2016 congestion in the DJIA and S&P 500. Now you can see that the DI+ is arching over while the DI- has yet to turn upward. This is an early signal that the intermediate-term cycle is peaking. The buy signal in the moving-average crossover model remains the same, yet averages appear to be peaking in strength. Both methods together suggest that a portfolio should be 100% invested in the Bargain List for the intermediate-term, on the other hand, the spread in the DMI is slowly closing and the buy moving average is about to go negative.

STOCK SELECTION

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BARGAIN LIST For Week Ending 8/18/17

Security Description SYMBOL

PRICE RELATIVES Close PCNT PRICE P/SLS

ADDED SUGGESTED DATE PRICE G/L STOP

**DELETED FOR ADX PEAK Bluebird Bio

BLUE

92.45- 1.6%

65- 9

99

6/ 9/2017

111.90 - 17.4%

Lumentum Hld

LITE

52.00

43- 2

63

5/26/2017

58.50 - 11.1%

Blueprint Medi Cm ST Teladoc Inc

Universal Display Veeva Systems Inc

BPMC

42.37- 8.2%

TDOC

0.0%

29.50- 2.9%

OLED

109.80- 1.5%

VEEV

63.12+ 2.0%

46-38 79- 8 88- 4 92+ 2

98

6/23/2017

94

5/12/2017

97 96

50.00 - 15.3% 29.45 +

0.2%

60.31 +

4.7%

5/ 5/2017

111.30 -

151.83 + 10.3% 133.10

5/19/2017

1.3%

**BARGAIN LIST - COMPLETE Alibaba Group Holding Lt

BABA

167.50+10.4%

98+ 1

96

7/14/2017

Alnylam Pharmaceut

ALNY

81.42+ 4.0%

98+ 1

98

6/23/2017

Align Technology I

Arista Networks Inc Esperion Theraptc

Exact Sciences Cor Exelixis Inc Ferrari N.V.

First Solar Inc Iac/Interactive Jd.Com Inc Ads

Kite Pharma Inc

New Oriental Education & Nvidia Corporation Portola Pharma

Ptc Therapeutics Shopify Inc

Sina Corporation Square

Tableau Software Inc Cla Take-Two Interacti

Tal Education Group Vertex Pharmaceutic Wayfair Inc

Weibo Corp. Ads

Weight Watchers Internat YY Inc GROUP

AVERAGES

ALGN

168.61- 2.9%

ANET

172.01+ 3.8%

EXAS

37.87+ 0.3%

ESPR

44.74- 9.4%

EXEL

26.33- 0.7%

RACE

111.53+ 3.6%

IAC

104.92+ 1.4%

KITE

130.17+ 8.4%

NVDA

161.50+ 3.5%

PTCT

17.50- 7.8%

FSLR

48.06+ 1.0%

JD

40.13-12.6%

EDU

80.05+ 2.3%

PTLA

53.99- 3.1%

SHOP

94.58+ 3.1%

SINA

98.40+ 3.2%

SQ

24.83

DATA

69.74+ 1.5%

TTWO

92.07+ 3.1%

TAL

29.45- 0.2%

VRTX

148.13- 3.7%

W

66.87- 4.1%

WB

89.68+ 8.4%

WTW

47.43- 1.2%

YY

NUM=

0.0%

73.69- 6.7% 27

====== + 0.2%

97- 1 97+ 1 97- 2

94

4/28/2017

92

2/17/2017

0

6/23/2017

98

97

98

85+ 1

94- 1 98

44

93

86-11 99 96

97+ 1 97- 1 96- 2 96+ 2 95+ 2 96- 1 95 98

57+ 1 31- 7 99 88

97- 1 95- 2 99+ 1 99

98- 1 ===== 0

95

7/14/2017 7/28/2017 5/12/2017 5/12/2017 6/ 9/2017 5/19/2017

98

85- 2 96

85+ 1 64 86 95 97

22- 2 97 54

60- 5 ===== 80

7/28/2017

5/12/2017

82+ 1

99

96

4/14/2017

97

7/14/2017 6/ 9/2017

134.62 + 25.2% 139.00 85.21 -

4.4%

76.02

44.34 +

0.9%

43.49

27.63 -

4.7%

25.41

48.87 -

1.7%

40.56 -

1.1%

119.06 + 44.5% 141.78 23.27 + 62.7% 93.90 + 18.8% 102.59 +

2.3%

87.79 + 48.3% 71.59 + 11.8%

8/ 4/2017

71.31 -

2.2%

0.00 +

1.0%

5/12/2017 5/19/2017 3/ 7/2017 7/14/2017

83.50 69.91

81.55

3.6%

4/ 7/2017

38.51

61.52 + 53.7%

102.11 -

7/14/2017

98.91

32.57

5/19/2017

5/26/2017

35.33

62.42 - 13.5% 6.8%

2/24/2017

84.38

136.00 + 18.8% 138.58 16.39 +

2/17/2014

31.04

17.43 + 42.5% 77.07 + 19.5%

15.73 83.40 22.66 60.43 70.39 19.17

115.88 + 27.8% 120.77 60.68 + 10.2%

65.03

17.01 +178.8%

32.55

78.31 + 14.5% 63.49 + 16.1%

65.65 53.21

0

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Legend for Stock List u EX = If an “XX” is present, it means that the stock has met the sell trigger under the new rules for deleting stocks from the Bargain List. u Security Description = Name of underlying company. u SYMBOL = Exchange symbol for stock. u PRICE = Includes the Close and the percentage change (PCNT) over the previous week. u RELATIVES = Each column includes the percentile and its change from the previous week. The relative percentile columns are different for each list and are listed in the table below: u ADDED = Data pertaining to when and at what price the stock was added to the list. “G/L” is the gain or loss in the stock as of the report date (upper right corner).

Bargain List Rules Addition to Bargain list – Stock is added to the Bargain list when all of the factors below have been met: Relative Price Percentile > 97 Volume = > $50,000,000 /day for 50 days Last Price= > $10 Deletion from Bargain list – Stock is deleted from the Bargain list when any of the factors below are met: Relative Price Percentile = < 58 Sell on close below nine-week low or last two-bar reversal low

Chart Legend On Weekly Price Chart Vertical Black Bars = Weekly Price Range Red Line = Forward line (16w SMA, fwd 16w) Small Red Dots = Important low carried forward Large Blue Dots = Broke above an important high Large Red Dots = Broke below an important low Below Weekly Price Chart Green Line = ADX (16-weeks) Blue Line = DMI buying pressure (16-weeks) Red Line = DMI selling pressure (16-weeks)

Peak in ADX

Note: Relative percentiles are between 99 and 0, with 99 the highest.

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ADDITIOns TO THE bargain list NONE deletions from THE bargain list

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Glossary of Indicators KEVIN The KEVIN oscillator is simply the 8-day moving average of the daily up-volume divided by the total of daily up-volume and down-volume. It was presented to me by an old floor-trader friend named Kevin MacNamara, thus the name “Kevin.” I don’t believe you will find in it in any technical references, but as you can see it is very simple and effective.

FORWARD LINE When analyzing the cyclical nature of price behavior, I find that moving averages are very useful to dampen shorter- and longer-term price trends. This allows me to concentrate on a specific cycle in the data. Without going into great detail, however, let me give you an example.

Let’s say a stock index appears to have a 20-day cycle. Using a 10-day moving average, we eliminate the effects of price motion of 10 days and less, allowing us to concentrate on the next higher order cycle, in this case the 20-day and longer cycles. Half the suspected cycle length is usually the period for the calculating the moving average.

When we plot a moving average, however, it lags behind current price behavior because it is being affected by the past prices in the average. To be absolutely true, a moving average should be plotted half the period back from the present. Thus a 10-day moving average should be plotted 5 days behind the present. A moving average is not just an average of prices but also an average of time. The average of price in our example is 10-days, and the average of time is halfway through the period or 5 days earlier.

If a cycle of 20-days exists in the data, and we are representing it by a 10-day moving average plotted 5-days earlier, we will see the highs and lows in the average roughly 10-days apart - high to low and low to high.

The full cycle would be from high to high or low to low of 20 days. The rising portion and declining portion of a 20-

day cycle lasts 10-days, ideally. We now plot the moving average ahead 10-days from the true plot (or 5 days from the current price). This is called the “forward line.” When the current 20-day cycle is rising, the forward line should be declining because it is half a cycle forward. Crossing above the forward line should ideally occur when the rise is half over. Breaking the forward line can thus be a means of estimating where the next target will be. Because the rise is half over when the forward line is broken, the second half should occur at roughly the same distance (if the cycle is valid and flat).

I know, it sounds complicated. It isn’t really, but does sound that way from my trying to describe it. The thing to remember is that if the forward line is broken, say from the upside, the downward price target will be the distance from the top price to the forward line projected below the forward line. If the price stops at the forward line, we know that the underlying trend is strong. If the price exceeds its forward line target, a larger trend reversal is likely developing KIMM KIMM is used in the monthly overview as one measure of longer-term stock market momentum. It stands for Kirkpatrick Indicator of Market Momentum. It is a composite of the 12-week momentum of all stocks listed on the New York Stock Exchange. Each stock is given a weight of plus or minus one based on its 12-week price momentum, either upward or downward. The KIMM is the total of all the weights. Thus, a reading of +1000 says that the number of stocks with positive 12-week momentum is a plurality of +1000. That might be 2000 stocks with a plus rating and 1000 with a minus rating. The net is +1000. KIMM generally follows the market and is useful as an overbought/oversold intermediate-term oscillator. Generally, a bullish signal develops when the KIMM above the -1000 level from below, and a bearish signal develops when the KIMM declines below +1000 from above.

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Description of Notes on DMI max diff model charts Length = The length of the DMI in bars smooth = sometimes the dmi is smoothed with an average calculation.

LAG = SOMETIMES THE DMI IS LAGGED BY A NUMBER OF BARS

PCUP= PERCENTAGE RETRACEMENT OF DI+ MINUS DI- TO GIVE A SELL SIGNAL PCDN= PERCENTAGE RETRACEMENT OF DI- MINUS DI+ TO GIVE A BUY SIGNAL entry stop: le= The percent that the price must rise above the signal bar high to confirm a buy signal. se= the percent that the price must decline below signal bar low to confirm a sell signal. exit stop: stop or stop and reverse percentage from initial signal entry. lx= The percent that a price must decline from the first entry. sx= the percent that a price must advance from the first entry.

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