Ari Wald: Undercover Participation Leading the Market Recovery

February 8, 2019

Ari Wald, Head of Technical Analysis at Oppenheimer, was on Bloomberg's 'Smart Charts' segment with Abigail Doolittle Wednesday afternoon discussing 3 key chart topics that indicate a positive sign for the markets, domestic and international, going forward. While there is still more work to do and resistance levels to get through, Ari believes investors need to own stocks here. His first topic is that the decline in Q4 2018 was consistent with a bear market within a secular bull market. While the V-bottom reversal caught investors off guard Ari believes "it sticks if we are above 2,600 in the S&P, which was the low in January 2018." This price action looks and feels like a false-breakdown. Ideal price action would be a sideways consolidation to resolve the recent rip through time rather than downward price. To finish, Ari mentions the participation going on under the surface. The NYSE Advance Decline line, a breadth indicator measuring the number of advancing stocks less the number of declining stocks, is breaking out acting stronger than the indices price action. This line is shown in green below:

Ari's next topic is Semiconductors. Broadening participation is an important factor but it is also important that the right sectors are apart of this participation. Luckily for investors, Semiconductors fit this bill as a cyclical sector and leading indicator. Semi's peaked in Q1 2018 and broke down over the summer ahead of the S&P 500. They are now seeing a recovery, forming a higher-high and completing a base above the 200 day simple moving average. The prior resistance turned support of 1,275 is the key level in SOX. "An improvement in Semiconductors is good for Technology which is good for the overall market," says Ari.

Ari's final topic is FXI, the iShares China ETF, which tracks the largest capitalization equities on the Hong Kong Stock Exchange. China never participated with the S&P 500's spring time rally and broke down in June ahead of the weakness to come in the US. Over the last few months, investors are seeing the reverse image of this. Besides a recent price breakout in FXI, the MACD indicator has formed higher-lows, a double bottom and a breakout. The Moving Average Convergence Divergence, or MACD, is an indicator that shows the relationship between two moving averages of a security’s price that is calculated by subtracting the 26-period exponential moving average from the 12-period. "This is all part of the bigger picture recovery and improvement going on under the surface," concludes Ari.