Happy New Year. If I had to describe 2015 in a few words, I’d call it “violently flat.” No one can “predict” what 2016 will bring. Thus, let’s focus on the state of the overall market right now and look for 2016 clues on specific charts of interest.

$SPX (monthly) closed December and 2015 at 2043.94, below the 10 month moving avg of 2052. Further. The 10mma looks to be rolling over and on its way to undercutting the 20month at 2028. I would consider a bearish cross of the 10/20 month as the official start of a new bear market, similar to 2000 and 2008. A clear top is in place ~2125.

$SPX printed another inverted weekly hammer, closing at weekly lows and below the 10 & 40 (2060). Major concern - The bullish cross of the latter moving averages is once again negated by the price action last week (12/28 - 12/31).

Zooming in on the daily, $SPY broke its upward trend from $200 and is now under its 5ema and 20 & 50 dmas. Given the trend break, I am waiting for the first green bounce and close under the 5ema to go short via $SPXS.

$SPX triple timeframe summary,

• Monthly - under 10 month (2052). Watch out for a 10/20 bear cross below 2028 for a bear market signal

• Weekly - printed inverted hammer again. More worrisome,10/40wma bullish cross was negated again at 2060

• Daily - below 5ema on $SPY @ 205.13. I’m looking to short first bounce under the 5 and 20dma at 205.2

• Currently bear. I get bullish again (short timeframe) if SPY retakes 5ema and 20dma for another run at 2100

So, what charts am I watching to determine market direction for next week and 2016 overall? Here’s the roll call:

1. $WTIC – Oil continues its  attempt at bottom after -68% decline (current low at 34.5). Still believe higher is due

2. XLE – last time the Energy Sector was this low, $SPX was -37% lower. Sector dropped -58% in 2008 crisis

3. AAPL – looks weak and of heavy importance due to 11% weighting in the $QQQ

4. $RUT – small caps look vulnerable near a major pivot. If buyers don’t step in I take it as a sign of “risk aversion”

5. SSEC – remember when China was the chart to watch instead of $WTIC? It needs to stay healthy for bull case

6. EEM – emerging mkts w/ extremely weak chart influenced by $WTIC. Could trigger fear of weak global growth

7. JNK – former two-day “hot topic” that brings lots of scary predictions on TV, but is the chart bottoming?

Final thoughts

Last week, I said my thesis calls for a continuation of commodity bounce, bringing the $SPX and $NDX with it. Crude is holding tough for now; however, $SPX $NDX charts have a bear bias on most timeframes at the moment. A 6-day uptrend was broken on 12/30; hence, $SPXS is on watch for a trade. Monitor the charts below regularly in 2016 to remain ahead of the curve on potential market direction triggers. 

#1 $WTIC

Crude Oil is THE chart to watch going into next week

Crude is 6.8pts from the Dec low (~34.5) but being challenged by a falling 20dma at 37.15.

A breakout above 37.5 w/ force could target the upper bolli at $40 (+8%). I still believe Oil is bottoming & more likely to “surprise squeeze” here rather than decline to $20 as most predict.

A break below rising trendline under $36 would compromise the bottom thesis and gets me defensive on overall market

#2 XLE

Last time the Energy Sector was this low, $SPX was -37% lower. Current downtrend from the July 2014 top to August 2015 low stands at -40%.

For reference, this sector dropped -58% during the 2008 financial crisis. The $58 mark is a crucial level. A breakdown below could trigger an “implosion” in the chart. Watch closely. The bear scenario on 12/8 post calls for an “implosion” in the energy sector to trigger the next bear market

#3 AAPL

Last week I recommended $AAPL as a buy @ 107.45 given daily RSI of 30. Price surged as high as 109.4 (+2%) before reversing. Last week I also noted that APPL topped on 7/20 and ex-APPL, the QQQ % gains since would be flat vs -2%. Above calculation for 2015 -  $QQQ all-in +6.49% / vs / $QQQ ex-APPL +8.31%. Apple held the Q’s 1.8pts behind this year.

Now, the $105 level stands as a crucial pivot on longer chart. Losing this level will compromise a major advance in $QQQ

$AAAPL is -21% off its all time high and 12.5pts away from the 8/24/15 panic low. Notice how defined patterns always resolved to upside on the run from $55 to $125. The stock lost mojo in March 2015.

#4 $RUT

The 1,100 level is the key pivot that must hold for Small Caps. A roll-over below could also trigger a bear market scenario

#5 $SSEC

China is +23% off the Aug lows and remains on an uptrend. This chart needs to remain healthy above 10wma (3,531)

#6 EEM

Emerging Mkts -27% from May ’15 highs. A breakdown below uptrend at 31.55 would be negative. No bottom yet.

#7 JNK

High Yield +2.7% off Dec low printing long bottom tails. Hi/Lo decline at -13% vs -8.5% prior 3 yrs. Constructive signs

Posted by Aaron Jackson at 1:17 PM