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A Good Week June 25, 2022

Posted by Tom in Thoughts.
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June 24, 2022 –  Last week was a good week for the stock market with some hopeful signs beginning to show.  The markets are oversold so that nice bounce on Friday was somewhat expected.  What is interesting was the very high volume on Friday.  This was likely caused but “short squeezes”, that is people who were short stocks and then having to buy them back to cover their short positions (to avoid losses); a.k.a. “buying begets buying”.  But another factor is there remains billions of dollars in Put options and some of them expired on Friday.  The question is: did these contracts “roll forward” (in time) or did they cover/close?  Lastly, we are approaching the end of the quarter and many funds will begin to rebalance their portfolios per their charters.  We’ll have a better idea on Monday.

click on chart to enlarge

There has been extreme investor pessimism and there are very early signs that the Technology and growth stocks are beginning to at least stabilize. I still favor a possible bottoming and basing formation over the next 6-8 weeks.  That process could be a positive if strength returns, or . . . if economies don’t show some improvements, a set up for another leg down that would be a flushing out and capitulation phase.  That basing area could be between 12290 at the top and 10560 at the bottom (NASDAQ Composite Index).

The Short Term Sector Strength table shows what a difference a week makes.  Energy at the bottom and select Technology sectors moving toward the top.  Note the strength in Chinese stocks.

The bottom line is really no change, we continue to be in a Bear market but we must also be open to that will eventually change.  The question is when, and it will likely take time over months.  I’m watching for a base and “stopping action” to form.   Have a good week.      …………  Tom  ……….

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

OK . . . What Next? June 18, 2022

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June 17, 2022 –  Interest rates are going up (no surprise) and will continue to go up (again, no surprise).  The question is how much and how fast, but really the bigger question is whether it will lead into a recession and just how deep and long it could be.  Oh yes . . . inflation is a major factor.

In general, a news item typically causes a minor short term effect on the stock market.  What REALLY concerns investors is a recession, because that has a major effect on profits, hence earnings.  Over the long run, it’s really all about earnings and the future growth of earnings.  Stock prices just reflect the “future hopes” (i.e. bets) of investors.  I’m NOT predicting, but I do like to anticipate possible market structural scenarios.  The idea is not to act on them now, but to be open to the possibility of movements so when they begin to unfold (or don’t) one can react quickly.  So, here we go:

click to enlarge chart

The Green lines represent a bounce up from where we are about now going way back to late September, 2020 (note the red arrow; this is a weekly chart).  The idea is that this level is a logical support level and then we spend the next 6 weeks or so in a trading range (then possibly another leg down).

The Red lines represent a continued move lower, perhaps much lower.  Sure, there will be small bounces, but the trend would be continued weakness for the foreseeable future.

The good news is that we shouldn’t have to wait much longer to find out.  I note that billions of dollars of Put hedges expired on Friday, and since the prices did not fall (indicating option exercising) they appear to have been rolled forward (i.e. close out the June contract and open a July one).  Why do we care?  Because the big investment houses are continuing to hedge, thus “buying insurance” in case the market falls further.  The big guys are cautious, I am too.

The Short Term Sector table is below:

China is showing some life and potential but much of the top sectors are defensive.  Note that Energy has dropped down; is it short term weakness?  That’s it for now.  Have a good week, looks like this will be lasting for a while, no V bottoms this time.        ……….  Tom  ………..

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

Back To Reality June 11, 2022

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June 10, 2022 – At the beginning of this week it appeared that a bottom might be in and a strong rally was underway, but . . . inflation data came out, retailers were reporting that their inventories were up 30 to 40%, consumer confidence continued to be low and (of course) gas prices crept even higher.  That was it, two days of big drops.  I was thinking that we were in-line for a pullback because of the low volume (a.k.a. low commitment) at the higher price levels and besides, nothing has materially changed either.

click on chart to enlarge

So what’s next?  I’m thing lower prices early in the week, then a recovery.  The strength of that recovery will be telling. But since the FED is meeting next week, and will put out a news release on Wednesday afternoon, not much will happen until late in the week.  The market is expecting two more (at least) ½% increases this year.  How Powell phrases ANY activity after the meeting will be an important factor on how the market reacts with anticipation.  Does he sound dovish or hawkish and to what degree, that is the question.  Then we need to evaluate how the market reacts and just how committed it appears.  Is volume increasing?  Is everything being affected or only a handful of sectors?  The bottom line is: Is this market ready to rally?

Looking at the Short Term Sector Strength table below we see the Energy complex and China showing the most strength.

I’ve added a small China position to my Energy & general commodities holdings but still have Cash to deploy IF & When that’s appropriate.  And when it’s time to take a position, scale into it.  Nobody gives you “extra points” for jumping in with both feet.   Have a good week.      ……………  Tom  ………….

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

Showing Life, but Not Commitment June 4, 2022

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June 3, 2022 – Interesting week, this past week.  In the media I’ve heard: “The bottom is in, time to back up the truck” and then, “An economic hurricane is coming, get prepared.”  Well . . . OK, looks like we’ve got two extreme predictions and the winner is: “Nobody really knows for sure.”  The saying “Even a broken clock is right twice a day” comes to mind.  Let’s look at the chart.

click on chart to enlarge it

What do I see?  I see a market that has many indicators positive and Bullish . . . but two things:  1. Look at the volume last week.  Very low.  You may say it was a holiday week, but in reality big trading firms have a staff on duty every week, regardless of vacations (they rotate throughout the summer) so there is always a trained staff manning the desks; they can’t afford not to.  2.  What has changed?  I mean has the Ukrainian war changed?  Has the economic outlook changed (inflation, interest rates, etc.)?  No and No.

What I’m getting at is let’s see IF the resent rally is anything to get happy about.  Low volume = low commitment; period.  Thanks but I’ll wait for at least some confirmation of a genuine rally before I get excited.  Let’s see what the sector table indicates.

I see the Energy sectors showing continued strength and maybe China is coming out of a funk, but that’s it.  No leadership from Technology or Finance or Consumer sectors.  Not a great vote of confidence.  Unless you’re day trading or in very short term trades, this remains an unfriendly market.  That could change, but not yet.  IMHO.

I remain in Energy and select Commodities, with a bit of Value exposure, plus Cash for the time being.  That could change, but I need to see more.  Have a good week.   ………….  Tom  …………

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

Bouncing into Next Week May 28, 2022

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May 27, 2022 – First off, Happy Memorial Day (for those in the US).  This is especially rough with the shootings in Texas and a war raging in Ukraine.   We’ve got to do better.

The market is beginning to show some signs of strength.  Sentiment is Neutral, Money & Volume Flows are Bullish, Price Strength is Bullish and Volume is low (possibly due to the holiday in the US).

click on chart to enlarge

Next week we need to see a commitment with closes above 12202 (roughly 420 on the SPY), that’s the first line of resistance for prices to move higher.  The next spot is 12985 on the NASDAQ Composite Index.  I’ve drawn in 3 scenarios, Green is the most optimistic, Yellow shows a consolidation phase and Red is a retest of the lows.  I’m favoring the Green right now but the pattern may develop at the 12202 level and not the higher 12985 level.  The question will be does a substantial move higher last for more than a couple of weeks?  I question that.

The low volume last week may be due to the holidays or due to lack of commitment by large intuitions.  We’ll know that on Tuesday.  I continue to see a large number of “protective Puts” in the market most expiring the 3rd week in June.  The big guys have not given up on downside protection yet.

The Short-Term Sector Strength table is below:

It’s encouraging to see sectors other than Energy strengthening, but again, that’s short term.

Have a good week and watch for volume coming back into this market, it will confirm one scenario or the other.    ……….  Tom  …………..

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

A Possible Rally (?) May 21, 2022

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May 20, 20200 – Just when you thought all is lost . . .  comes a (possible) recovery.  That’s my feeling right now that Friday was a possible short term capitulation day in the immediate term.  Market breath is “so bad, that it’s good”; in that so many stocks are washed out that we’re due for a surprise rally next week.  Now that may only be a short-term rally, we’ll have to gauge its strength and breath IF it does come but I’m seeing early signs of divergences in a number of indicators.  My concern is it could just be a brief “got-sha” rally to lure folks back in before we head back down.  That would be more typical than not.

click on chart to enlarge

I note in the chart above a positive “Money Flow” indicator and just average volume.  A true capitulation sell off would be on high volume, but Friday was options expiration day with many Puts expiring so that could mask volume in the background since futures are involved with many options writers.

One thing that doesn’t help is that a couple of large hedge funds are calling it quits and now must liquidate shares to redeem clients back into cash.  Also a sign of extremes are the prices of wheat and corn.  They are at / near all-time highs due to the Ukraine war; it’s not just oil (Thanks Vladimir).

To give us an idea of where we are in the typical stock market cycle I borrowed this chart from Doug Short at Advisor Perspectives.

And the Short-Term Sector Strength table shows us that the more defensives sectors are the strongest ones currently.

And so we will be patient as next week develops and be open to a possible short term rally.  The big question is how long will it last.  J   Have a good week.  …..  Tom ….

Price chart by MetaStock; pie chart & table by www.HighGrowthStock.com & Advisor Perspectives.com. Used with permission.

Drop then Pop May 14, 2022

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May 13, 2022 – Happy Friday the 13th.  🙂 Another interesting week on Wall Street, but since I’m on the road, I’ll make this to the point.  Sure, there are many pundits that at predicting / calling for a bottom here . . . and they may be right.  But what I’m looking at is how “the big money” is positioned, and right now, they remain hedged with large Put positions.  You can say that they won’t pick the bottom (or top), but these are professional money managers and they are quite happy to harvest the middle 80 to 90% of a trend move without taking on undue risk.

click on chart to enlarge it

Keep in mind that in previous bear markets there have been 30 to 50% bounces up within the general a down trend.  What we’ve seen this week is a “drop then pop” which is accentually short covering by those who are heavily hedged.  They buy because they were heavily short speculative stocks . . .  it’s called a “short squeeze”.

The question is: are these stocks “viable companies”, by that I mean do they make money?  One or two days (or more) of a rally in heavily shorted stocks does not mean a new bull market.  I’ll wait for confirmation via the “big money” continuing to buy good companies (those with + P/E’s).  Right now, this is a traders market and unless you are nimble I would just let it go for now.  A near term rally is a strong possibility with volume picking up on down bars (capitulation) so next week could start off on a positive note . . . but will it continue?

The Short Term Sector table is shown below –

Have a good week, but be aware of a possible short term rally in the next few weeks that totally surprises everyone; we’re due for it.   …………..  Tom  ………….

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

Building a Low Base May 7, 2022

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May 6, 2022 – Quite a week.  The markets are showing their true color (as if we didn’t figure that out months ago).  Wednesday was FED announcement day and since there were no surprises (the ½% rise was expected) the market ripped higher.  Make no mistake; the rip was caused by short / hedge covering and computer algos.  The “big guys / gals were not taking positions.  The phrase “Buying begets Buying (& Selling begets Selling) was in full swing.   It didn’t last long.  The next day reality set in and we went right back to where it started.  Many are waiting to “Buy the Dips” . . .  this ain’t it!

Market bottoming is a messy process and it typically takes time when you have significant economic issues in the background that weren’t there before.  I am expecting a significant up and down volatile market through May with maybe (a key word) the re-accumulation of stocks and a base forming in the mid to late summer.  Europe is heading into recession, China is on lock down, supply chains are stretched, inflation, the war in Ukraine and there are signs that US consumers are delaying “wants, but don’t needs” items.

The chart below puts it in perspective with short term and long(er) term trend lines drawn in.  Also . . . for those still majorly invested . . . we’re now back to the level of December . . .  2021

click on chart to enlarge

Yes, I know the phrase “There’s always a Bull Market somewhere” and the sector table below indicates those areas, but right now . . .  the wind in not at our backs and one should be uber careful especially since many stocks in those strong sectors have already been bid up.  Any news would tip the apple cart.

I haven’t shown the number of stocks in the S&P 1500 Index that are above their 20 day moving averages, so I’ve added that below.

The strong stocks are in the strong sectors.  Tolling for unusual “opportunities” will be risky in this environment.  Well, that’s about it for now.  I’m lightly invested in defensive sectors/ stocks; there is “value”, but not much “growth” currently . . . “this too will change”.         ….  Tom  ….

Quad Bottom with All Eyes on the FED April 29, 2022

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April 29, 2022 – Just when you thought it couldn’t get worse . . . along came earnings. Apple was OK (at best) as well as FaceBook, but Google was poor with Amazon and NetFlix being actually bad. All eyes will be on the FED news conference on Wednesday afternoon. Not so much as the anticipated ½% rise in FED funds rates, but the prognostication for the future. China supply chain issues, the Ukraine war and inflation worries continue. Add to that the US dollar being very strong (that hurts exports) and the Yen and Euro being weak; things are out of balance. All chart indicators are bearish.

What we’re seeing here is a market where the “big money” is heavily hedged via futures and put options. The short term pops are basically short / hedge covering and then are being sold back down. Not too much is doing well right now. Even oil and commodities are running into upper level resistance . . . fears of a recession will do that.

click to enlarge

The Short Term Sector Strength table is shown below –

Not much to like in the sector analysis table. Heck, even China popped when the government said it would support all industries, even on-line and tech. Are we getting a little desperate?

Have a good week. ……….. Tom ………….

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

Triple Bottom ? April 23, 2022

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April 22, 2022 – A rough week for the market, especially after FED and European economic news came out late in the week; a “double whammy” so to speak.  The market is expecting and discounting a ½% increase in the FED funds rates at the May 3-4 meeting.  But now there is talk about a ¾% and or multiple ½% increases over the rest of the year.  The markets LOVE cheap money and that is drying up folks, and it’s not temporary.

click on chart to enlarge

Back to 12555 on the NASDAQ?  It’s not that far away.  Note the low volume which equates to low commitment by investors. Few see a need to step in and buy as others are selling.  Netflix got shellacked with loosing subscribers; trouble in the streaming industry.  Tesla beat revenue forecasts and so far a mixed bag. The earnings season continues over the next 3 weeks and all eyes on are forecasts for the rest of this year.  Concerns about added expenses and supply chains continue; worries about profits being squeezed.  Add to that housing starting to cool, loan interest rates rising and general recession fears.

No surprise that the Short Term Sector Rotation table shows a continued move toward playing defense.

Likely addition selling on Monday morning, but how this market reacts after that will be important.  Do buyers step in at pick up bargains or just continue to “sit on their hands”?  Have a good week.  ..  Tom ..

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

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