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Caution . . . April 26, 2024

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April 26, 2024 The graph below shows the overall trend of the market on the S&P 500 Index.  I’ve circled (in red and green) the points where my primary signals have aligned to show a likely change in trend.  As you can imagine, we are “heavy in Cash” currently, but our High Yield and Income models are doing very well.

This market was “priced for perfection” with investors predicting continued rapid economic growth and hence earnings to increase.  Multiple interest rate cuts were assumed and reflected in the prices, but disappointment brought things back to reality and the market is now (I believe) in a mild correction.  Such a correction is actually very typical after a prolonged run in the stock market.  I am not anticipating a recession or major correction, but a minor one.

I wish you and your family a healthy and happy Summer, as I’m nearly certain that this Fall will bring a fair amount of consternation on the national stage.  Hopefully it will have minimal effects on the markets.

  • Note: Click on Chart to Enlarge it for Easy Viewing

Have a good week, but be careful out there. 🙂 …………. Tom …………..

Correction Territory April 13, 2024

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April 12, 2024 – We are now heading into “Correction Territory”, not to be confused with a complete break down . . . at least not yet. Not surprising since this market has been on a major and steep rise for over 5 months now. Fueled by the hopes of multiple interest rate reductions coming as soon as June. But, that doesn’t appear to be the case and the markets are disappointed.

Add to that JP Morgan’s earning guidance projecting out to be lower in the coming months and well . . there you have it. Disappointment. Continued conflicts in the Middle east certainly don’t help and the Ukraine/ Russia situation appears to be stalled. Disappointment . . . . no immediate reason to buy right now. (click on chart to enlarge it)

The circled area shows price breaking below the Purple Stop line and the Black Lower Channel line and also the Blue Moving Average line too. These are drawn on a daily chart and indicate a near term “Change of Character” in this market. IF these were violated on a weekly chart, I’d say we’re in for a full blown down trend; we’re they aren’t.

I have a higher than normal amount of Cash waiting for the right time to put it back to work. Likely this market needs to poke a little lower (maybe 5% lower) then consolidate for a few weeks. No hurry to jump back in here now. Have a good week. ………… Tom …………..

The US Consumer: Status Report March 27, 2024

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March 27, 2024 – The US economy is roughly 70% consumer based and the rest “other” (government and business to business direct). So . . . when the US consumer catches a cold, the economy gets the flu (so to speak).

Up for your consideration is a couple of metrics about the US consumer. The top chart is the amount of debt consumers are holding and the lower chart the interest rates for short term debt, a.k.a. credit card debt. My thought is that this economy has certainly recovered and it’s because of the consumer; not surprisingly. More than likely because of the pent up demand caused by COVID and the urge to “get back to normal”, though it’s more like catching up to normal.

This does not mean that the economy or markets need to go down, but does likely mean they won’t go up nearly as fast a rate as what we’ve seen. A sideway market or a minor (5-10%) correction would be entirely appropriate. The question is what event will trigger that?

Until then, I’m invested but with Cash available to add as a continuation of a market move high develops.
Happy Easter to All ! …………. Tom …………….

The Magnificent 7 Ride Again (& Again & Again) March 3, 2024

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March 1, 2024 –  I’ve been harping on the ‘Lack of Breath’ in this market for months.  It basically means that a smaller number of stocks account for the majority of an index’s performance.  I’m super business so I’ll get right to the point.

Below is a chart of the” Magnificent 7” stocks in comparison to the broad S&P 500 Index.  Now, one of the major reasons for this is that the S&P Index is capital weighted, that is, the price of the stock times the number of shares = “capitalization”.  The S&P gives weight or value to the stock’s price as a function of its capitalization.  Thus large (number of shares) companies with high stock prices sway the index the most.

The “Mag 7” stocks are also the most “expensive” when viewed in comparison to the average stock P/E Ration (Price divided by Earnings).

Here’s the most recent table of P/E evaluation –

Now folks will say that these stocks are “worth more” because of potential earnings growth.  OK, but if (or when) that earnings report comes out that does not support that narrative . . .  well, all Hell breaks loose.  The bottom line is stocks, like real estate, are worth whatever the buyer is willing to pay . . .  now.

I’m not saying that the market will fall apart soon, no one can say that with a straight face, but we are far above “average value” and thus suitable to at least a correction.  That’s the big reason why everyone is concerned about interest rates, and when they will be cut.  The markets don’t like to be disappointed, and right now they are expecting 2 -3 cuts this year; preferably in a month or two.  If not . . . that might cause a brief set back this summer.

I remain invested but have raised some Cash recently.  In the short term (about 2 weeks) we’re overbought, but in the long term (since early November, 2023) we’re about average within the trend.

Have a good week !        ………….  Tom  ………………

Interest Rates and the FED “Dot Plot” February 3, 2024

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February 2, 2024 – It’s obvious and well known that the market (especially in the US) is obsessed with interest rates.  If one watches the market intraday on say a 5 minute “bar chart” near the 2pm FED meeting announcement day, you’ll see wild moves up and down.  The first 10 minutes appear to be driven by computer programs picking out key words from the press release and acting on them.  Followed usually by moves from humans that actually take some time to figure out what the FED chairman actually means by his “word smithing”.  Folks . . . it’s dramatic, and many traders either “fade the initial move” or just stay away entirely waiting for the dust to clear.

There has been a lot of talk about the “Fed Dot Plot” so I thought I’d cover that briefly.  You’ll note in the graph below a series of vertical dots.  Each dot is supposed to be either a statement or an interpolation of what each FED governor predicts for interest rates in the future.  Note that most folks in the FED don’t predict, so take these predictions with a grain of salt . . . .  perhaps the entire salt shaker!

Thus the market is always trying to front run and get well ahead of any significant news that would affect the economy or the market itself.  And believe me when I say that “Cheap money” fuels the markets.  They want interest rates to drop soooo bad they can taste it.  Two rate drops, no (just may) 3 drops in 2024.  Wonderful, the guessing continues.  But until inflation & the economy cool down, I think that interest rates will stay put.  (My own feeling, for what it’s worth, is maybe one late in the second quarter, but more likely early in the third.)

I’m thinking that we’re likely headed for a market slow spot late in February / early March before it picks up steam this Summer.  I’m staying invested but still have some Cash on the side lines to put to work.  Tech is expensive, let’s keep our eyes open for solid opportunities in other sectors too.

Have a good week(s) & Take Care.           …………….  Tom  ……………

At the High: but What’s “On Deck” January 20, 2024

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January 19,2024 –  By now you’ve heard that the markets (in the US) are at all time highs.  And that’s great, but keep in mind: “Where is the Risk?  At the 52 week High or the 52 week Low?”  Now, a new 52 week high doesn’t not mean that we are at the top and going lower, but as the market climbs / increases, so does the risk.  Eventually it will catch up.  (The goal of this last statement was to let some air out of our egos and keep things “real”.)

Just to give you a “heads up”; the end of January has some pretty significant events:

1/30      Federal Reserve Meeting.  All eyes & ears will be on this projecting event.

1/31      Treasury Department releases its funding goals for the quarter; the amount & maturities.

2/1         Apple earnings.  A big part of the “magnificent 7” tech stocks and a bell weather.

Make no mistake, this market is fixated on interest rates, earnings and consumer strength.  So, these events will be carefully analyzed.  Until then, I present the chart of the NASDAQ Composite Index:

           Click on Chart to Enlarge it

Not surprising, Technology stocks continue to lead the way higher.  The red circle at the upper right column shows the relationship of Fridays Close to the indexes 52 week high.  These stocks are “expensive” in relationship to their price and their current earnings (P/E ratio).  As long as earnings growth is evident, there’s no problem, but if current or forward earnings are presented as slowing, that IS a problem.

The Short-Term Sector Strength table is shown below –

Have a good week & Take Care.       …………….  Tom  ………………

Price chart by MetaStock; table by http://www.HighGrowthStock.com. Used with permission.

A New Year: Tax Selling & Profit Taking January 6, 2024

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January 5, 2024 –  OK, this market was waaay overbought and due for a pull back.  As I pretty much expected, 2023 profits were harvested at the beginning of 2024 (delaying taxes for over a year) along with the standard profit taking in an overbought market.  Now the question is how much farther down and into what sectors / stocks will that money flow?

Monday should bring some selling and then consolidation (I think).  Later in the week we may see some select buying.  But lately Bonds have been inching down (higher interest rates) and the US $ also moved higher.  Ideally, I’d like to see Bonds higher and the US$ lower.  Those two would re-stimulate the US market and signal a return to previous highs and higher.

I’m seeing what might be the beginning of the end of this pullback; Caution.  Sectors that are currently strong are generally defensive so keep an eye on those Bonds, US$ and sector rotation back into growth.  The small cap Russell 2000 Index and the NASDAQ 100 will be the confirmation of back to “Risk On”.  Until then “Patience is a Virtue”.  The Short-Term Sector Strength Table is shown below.  –

Cheers and Wishing all a Happy and Health New Year.  (Make no mistake, 2024 will be a bumpy ride.)

………………  Tom  ……………

Table by www.HighGrowthStockInvestor.com; used with permission.

Due For a Pause, Then Resume December 24, 2023

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December 22, 2023 – If there is ANY doubt about how infatuated this market is with interest rates, well the action over the past 2 weeks will put that to rest. J. Powell has hinted of lower rates in 2024 and markets always anticipate the future; so off we go. Not even some tempering words about forward earnings from the likes of Apple, Nike or FedEx could put a damper on this “feel’in good” move. Geopolitical or domestic issues? Nah, the market will worry about that “tomorrow”.

Here’s the trend bounded by a +/- 2 standard deviation channel. Likely a slight dip lower before a resumption of the climb. The big thing to watch for is whether there will be tax selling of any magnitude after the first of the year that shows sector rotation (& a tax delay of a year). We’ll just have to wait and see.

Interest rates remain inverted, but not many care. (short term rates above long term = an inversion)

I’m about 70% invested looking for opportunity in a set back. Until then wishing all a . . .

Very Happy & Healthy New Year.   ………… Tom …………

Santa Clause Has Arrived December 16, 2023

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December 15, 2023 – This was the “Santa Clause Rally” and Santa came in the form of Jerome Powel, Chairman of the Federal Reserve System.   The mere possibility, even alluding to, interest rate cuts next year by Mr. Powel was all it took.  In practice, the economy in the US has been darn good for a while now, especially when compared to the European Union or China, so we were already in a positive / bullish stance. 

How long can this go on?  Well maybe a year but we’re due for a pause in the action so a minor pullback is not unexpected shortly.  The chart below shows the percent of stocks in the S&P 500 Index that are above their 50-day moving average.  Its intent is to show the breath of a rally.

Click on Chart to Enlarge It

Note that when it gets above 65% it getting rather frothy and like to fall back to the center.  65% is a rough level of strong market participation, 85% is about tops and 50% is about “average”.  Now the market can remain up above 65% for a while, so it doesn’t mean that a major problem is around the corner, just that this market is “getting ahead of itself”.  

Volatility

We’re at the end of the year and that’s when stock indexes rebalance.  Since the S&P 500 is capital weighted (# shares x price per share) and a select few have had significant gains where others “not so much”, funds, ETF’s etc. will need to buy some and sell some over the last 2 weeks of this year.  That could cause unusual moves in select stocks.  Just be aware since this time of year liquidity, hence volume, is lower to begin with.   Couple that with the increasing popularity of 0DTE options (zero days to expiration) that are for a single day only, you get unusual & quick moves in popular stocks.  (The reason is option market makers need to offset sold options in the opposite direction to limit their risk.)  Lastly, we see the correlation between Treasury Bond (interest rates), the US Dollar and the stock market.  Bonds and the Dollar effect the stock market more than most folks realize.

And so . . . .

I am about 75% invested and will add during a pullback, which I don’t expect to be very severe.  2024 is looking like a positive investing environment unless some geo-political issue raises its ugly head, which is always a possibility.  I’m looking at strong sectors but also ones that are just now showing strength, as there will undoubtably be sector rotation ahead.

Until next year, Wishing All (who celebrate it) a Merry Christmas and to All a Happy and Healthy New Year.        …………….  Tom  ……………

A Pause then a Resume Upward December 1, 2023

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December 1, 2023 – The market has done pretty well lately.  I’m expecting a pause or a minor pullback, then a resume upward.  I see buying returning to Small and Mid-Cap stocks which is bullish for the market overall.

What’s driving this is very positive economic news and indications that interest rates will not go higher, at least not much in worse case terms.  Then anticipation of rates falling in the first half of 2024; after all, it’s a Presidential Election year.

The Short-Term Sector Strength table is shown below –

I have been “scaling into” this market and will continue to do so.  The global issues don’t seem to matter right now and investors don’t want to miss the boat.  The “Santa Clause Rally” looks like a real thing this year.   Take Care and have a wonderful Holiday Season !       ………….  Tom  ……………