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Continued Slow Grind Up May 30, 2020

Posted by Tom in Thoughts.
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May 29, 2020 – Not much new as far as the stock market is concerned. The slow grind up continues. This appears to be driven by the extremely low interest rates given to the big banks; they “rent money” at 0% and invest it. Plus a significant number of small investors; driven by “stay at home”. (?)

NASDAQ Composite Index: click to enlarge

So prices are staying in the upward sloping channel (purple lines) and the indicators show a bullish condition. But . . . from a historical perspective the market is over valued (price to earnings ratio). Even higher than before the Covid Crash. This can’t go on “forever”.

This market is also over bought. Money just keeps on chasing prices higher. The pie charts below show just how over bought we are getting; a lot of green there. These represent the stocks in the broad S&P 1500 Index.

Price Strength
% Stocks in Accumulation / Distribution

The table below shows which sectors are the strongest in the short term.

So for the time being, we go with the flow. But I still remain uneasy about this market. Just too much liquidity out there which could drain very quickly if “something” bad were to happen.

Have a good week. ……….. Tom ……….

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

Going & Going (Up) May 23, 2020

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May 22, 2020 – Wow . . there’s really not a whole bunch (new) to talk about. This market just keeps going & going. But that will come to an end, the only question is when. With the FED pumping money into literally everything there seems to be no bottom and hence “no fear”. That in itself is a danger sign. I’ve seen small yellow warning flags but many times they will pop up then disappear. Case in point is the ratio of up volume vs. down volume. For a couple of days it flashes “Yellow” (distribution), then backs off. So . . I’m looking at multiple sensitive indicators that show if money is being pulled out. So far, nothing there, but that could (and will) change quickly in this environment.

One theory is that we won’t see a meaningful pull back until late in the second quarter, when big corporations start to see that earnings are not very good. A last, this depends more on the consumer and than the FED. The folks at SentimentTrader.com did a study going back nearly to the 20’s/ 30’s to see how this market compares. The charts are shown below.

courtesy SentimentTrader.com

Note the current market is shown in light blue and the “parallel market” is shown in dark gray (click on graphic to enlarge). What does this mean? Well . . take your pick. Either we’re at the point of a consolidation phase or near a top or still have some room to go. (It’s never easy) What will drive this market (I think) is how the consumer reacts to this “opening” phase. Will they come back strong, will the virus also come back, will things just slooooowly return. My feeling is the latter, but who really knows. In an election year, there will be a lot of bantering back & forth, that is for sure !

NASDAQ Composite: click to enlarge

All I can say is that the parallel trend channel continues upward (for now). But IF we do get a correction / pullback, it will likely be modest, the FED will pump away (there is talk of them buying stock to prop up things IF it gets out of hand). OMG, bonds are not enough to support?

Sector short term strength is shown below. Note the leaders continue to be Technology based sectors. When that show stops . . look out. That is what is driving the market indexes higher.

That’s about it for now. Those in the U.S., have a good Memorial Day. Take Care ! …….. Tom …….

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

A Softer Market May 15, 2020

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May 15, 2020 – The markets were down lightly this week. I’m seeing some increasing volume coming in on down bars. Now that doesn’t mean that we’re headed for a correction, it just indicates softening for the time being. I continue to watch other market breath indicators for weakness. IF they appear & confirm I’ll move to a more defensive position.

It seems that everyone has been so conditioned to “buy the dips” for the past (many) years that it will take a significant issue to break that habit. Jerome Power of the FED had an effect on the market, but so far not that much has become of it.

A follow up on last weeks commentary about how just a few (primarily tech) stocks have driven the indexes higher. Here’s another perspective on it courtesy of Goldman Sachs.

The darker line plots the average of the top 5 tech stocks in the S&P 500 Index, while the lighter line plots the remaining 495 stocks. Since Tech has been in the lead now for quite sometime it is important to watch the top 5 for signs of weakness. Tech is a “crowded trade” and then it starts to turn sour watch out. The rest of the market will follow.

click on chart to enlarge

As you can see we just touched the lower channel trend line so things are intact for now. I’ve move my warning level up to 8705; that’s the first line of support.

The major technology sectors remain high on the short term sector strength list. With everything being so focused in that area I’m getting more concerned that the markets are venerable. I’ve cut back some exposure in that group.

That’s it for now. Take Care & have a good week. ……. Tom …….

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

Tale of Two Markets May 9, 2020

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May 8, 2020 – There is a fair amount of speculation that we are looong overdue for at least a modest correction. Last week I showed two possible scenarios. So why haven’t these played out? Well the chart below pretty much answers that question:

click to enlarge chart

The result, especially this week, is that “the market” is being lead higher by Technology stocks and the large cap stocks really haven’t moved all that much (note dashed arrows).

Two things I’ve read this week:  new account openings are at a high at retail on-line brokers & the number of shares (outstanding) for the SPY ETF has decreased significantly over the last 2 weeks.   Now . . . . I’m not drawing conclusions, but one has to wonder if this rally is being fueled by “stay at home” amateurs and that the SPY ETF is in redemption.   (note: search for redemption / creation of ETF’s for more information). Hummmm. I am watching market breath very closely for signs that the big guys are selling.  So far no, but the Up/Down volume is getting “light”.

click on chart to enlarge

I note that “money Flow” has turned lower, but other than that the NASDAQ Composite Index (the super set of the top 100) is holding up well. I’ll keep my support & resistance levels where they are. I remain concerned that stocks are venerable to bad news, either on the virus side or earnings side.

The short term sector strength table is shown below –

We see Tech sectors at or near the top and also Energy. With oil demand low and supply high I’d be very careful with that sector right now. Small positions & short term only (IMHO). I’m “passing” on it.

I’m “dancing close to the door” in case “the parties over”. That about it for now. Have a good week. ………… Tom …………

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

A Pause or A Correction ? May 3, 2020

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May 1, 2020 – “Hooray Hooray, the 1st of May !” So far earnings have been a mixed bag, even in the Technology sector. Some have been pretty good considering, while others poor, with even worse guidance. The big issue is what will happen over the next 2-3 months with the impact of the virus. No one knows. But with states opening up we should get a glimpse into the future over the next 2 weeks. Do the number of cases increase, stay the same or decrease? I think that metric will be key for the next 6-9 months.

In the mean time the long anticipated pause / correction appears to have started on Friday. I show two scenarios on the chart below.

NASDAQ Composite Index; click to enlarge

Scenario #1 is a very mild drop to the 8215 support level which I would call a “pause” before a general up trend resumes. Scenario #2 is more severe with a drop to around the 7288 level. I note that the volume on Friday (the last bar) was rather light; “no demand”, but not significant selling either. So far it looks like option #1 is the most likely but be aware that if we get bad news #2 could definitely be in play as well.

So far most indicators remain “bullish”, with Price Strength being “neutral”. We should have a good idea about the strength of this market over the next 2-3 days. I’m watching the price (of course) but also volume; which would confirm price.

The short term sector strength table is shown below.

I’m still wary of the energy sector, but if anything will lead this market high it will probably be Technology in one form or another. Banks and Finance would come in as a second.

I just have this feeling that the complete effects of the Corona Virus have yet to be fully appreciated. Will it be just jump back to the “old normal” or transition into something else? Will everyone get their old jobs back? (I doubt it.) Will restaurants, airlines, cruise ships and casinos pick up where they left off? Very doubtful ! The economy, not to mention the Federal debt load, will feel the effects for years to come. I’m cautious.

Have a good week and watch price and volume (activity). But mostly, Take Care. ………. Tom ………

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

Next Week Will Be Important April 25, 2020

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April 24, 2020 – Taking a quick look below; well . . not much happened this week. Most indexes are bouncing near resistance levels which are approximately at the 50% retracement level of this correction. Next week is important in that the big 4 of technology (Google, Facebook, Microsoft and Amazon will be reporting. What is of interest going forward is their “guideline”.

click on chart to enlarge

From above I note that “Price Strength” has gone neutral, but the remaining indicators are still positive / bullish. My more “advanced” model (not shown) is bullish, but backed off to a “neutral” reading. So, time to watch for a trend change . . . maybe.

The table below shows short term sector strength. But note: I would avoid “Energy” due to the excessive volatility in the oil market. ETF’s in this sector may not be able to track the underline commodity.

Not much else to say right now. But be aware of this resistance level and watch for a significant break in either direction. I am lightly invested, but will add more if this trend continues.

Have a good week. …….. Tom ………

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

Move Higher Continues, but . . . April 19, 2020

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April 17, 2020 – No doubt about it the recovery rally continues. Likely fueled by some positive news in the short term but mostly by FOMO. FOMO means “Fear Of Missing Out”. This typically happens after a sharp decline when most folks just sell and give up. After all of the selling is exhausted the bargain hunters start nibbling to buy; this nuggs the market higher. When no more selling comes into the market price recovers and more buying comes in. The buying continues with the last buyers feeling the “FOMO” pressure, and then . . . Well, we’ll see. The week coming up has some interesting earnings reports.

Those that expect a recovery soon to the previous highs would naturally assume that everything recovers quickly and there are no repercussions. The question is . . Is that realistic? IMHO, the best we could hope for is prices to oscillate around this level. IF there was any bad news, we could go back down and test the previous lows. We’re dealing with a virus and people. Both are rather unpredictable.

NASDAQ Composite Index

Everything on the chart about is positive and “Bullish”. Volume is increasing on up bars showing buyers are in control. But I’ve noticed an up tick in short selling of the S&P 100 Index. This indicates to me that there are some that feel we’ve come too far, too fast and are looking to “hedge” their positions just in case.

Also here is a chart of recent market down turns.

How Markets Recover

You’ll notice that major corrections are rarely (if ever) just a sharp down, then an abrupt move back to previous highs. It also shows that we still remain well above the very long term trend (red line) of market history. Just something to think about in perspective and valuation.

Lastly (food for thought) how did we get so high so fast over the past 3 years?

Borrowed Money to Buy Stock

I believe one of the major factors was low interest rates, and this is indirectly shown in the chart above as investor credit or the amount of “margin” credit. Briefly, if you borrow money from your broker to buy stock (because it’s going higher) and all of a sudden the prices plummet, you get a “margin call”, that is you have to come up with that borrowed money quickly, or the broker sells your stock (quickly). I think this was a big driver of why the market went down so fast.

Lastly, here’s a table of short term sector strength.

I am very selectively long with a fair amount of Cash. Looking for a better opportunity to deploy that Cash. Have a good week & Stay Fast ! ….. Tom ….

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

The FED Jumps in with Both Feet April 11, 2020

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April 9, 2020 – Thursday was an important day, not because the market went higher but because of why it did. Accentually the FED announced that it would start buying corporate bonds at par value. This has not happened before; the FED has only purchased US Treasury bonds . . until now. What is implied by this action is that the FED will do “whatever it takes” to prevent a major bankruptcy. The market is also reading into this statement that junk bonds and ETF’s are now provided instant liquidity & a parachute if needed.

Obviously this is bullish news and the market reacted as such. So, next week will be interesting to see IF there is any follow through to the upside or if it is a “one & done” type of move. (editorial: for the Conservatives out there . . is this corporate welfare and “socialism”?)

The other implied statement is that the impact of the virus has a much deeper impact on the economy and the lives of our citizens than many originally thought. Yes . . . it is serious, very serious.

NASDAQ Composite Index

This could be an Up Thrust in the price structure (we’ll know that soon) or truly a genuine move higher. The closes above 7878 are telling. But I continue to be wary of at retest of the lows and the potential for a “double bottom”. The market reaction to Trump’s announcement next Tuesday about reopening the economy may just be a catalyst for the next move in either direction.

The pie charts below do show just how broad and strong this latest move has been to the stocks in the very broad S&P 1500 Index.

Percent of Stocks in Accumulation or Distribution:

Percent of Stocks Above / Below their 20 day Moving Average:

The short term sector strength table is shown below:

Banks, Financial and Real Estate reacted very strongly to the FED announcement (i.e. we won’t let you fail).

That about it for this week. MY main market model just turned back to Neutral, but I may wait until after the Tuesday announcement & reaction before I remove my hedge and consider small selective buys. Careful now !

Have a good week and Happy Easter for those to celebrate the holiday. In the mean time, Take Care & Be Safe. ………. Tom ………

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

Is This “The Bottom”? April 5, 2020

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April 3, 2020 – A familiar phrase: “Are we there yet?”. Well if anybody tells you that we definitely are or aren’t, you’re either listening to a gambler or a fool. IMHO. Because . . nobody really knows for sure. In that light let me give you a few possible scenarios.

1) Highly unlikely that we will see a “V” bottom. i.e. “that was the low”, and we only go up from here. Why? Because there was so much damage and unwinding of positions that was done during the last drop. It will take time with some “backing and filling” before true “real” progress can be made.

2) We go back and forth between the last significant high and low. This is show on the NASDAQ Composite chart (below) as 7878 and 6631 and labeled as #2; the dashed green line. This trading range would likely last for a few months at least, probably into the Fall. The action will build a “Cause” for the next move. So, the worst is over, but there is no hurry to re-enter.

3) We “test” the lower support of 6631 and perhaps bounce, but eventually (with bad news) break that level and continue lower. The purpose is a final wash out of the last holders and a final climatic sell off. One scenario via point & figure charting suggests a retest of 7878 in May, then a major break lower in mid June / July (forming a “spring”), before a major rally in the September / October time frame. This is shown as the dashed red line, labeled #1. Note that I didn’t have room in the time / date scale, so that is not representative.

My gut feel is that scenario 3 above is the most likely, but we should always be prepared for any possibility. Note how the volume on the last swing rally was low, i.e. No Demand. This market just doesn’t appear to be at the stage to go higher very soon. Buyers are not stepping in. Besides, we have yet to see the hard numbers of how badly this shut down is hurting corporate revenue.

I’m posting the (short term) Sector Strength table below, but honestly, I’d be very careful with any purchase and keep my time frame goals short term to say the least.

Even the strongest sectors are “less weak” since their weekly strength is not very good at all.

Time to be patient and continue caution. This is a weak, news driven market and picking a bottom is not going to be easy. Typically a major drop like this requires time and then a period of low volitility. I just don’t think all of the bad news has come out yet. I’m staying with a significant Cash position and trying to “hedge out” the rest.

Have a good week and stay as healthy as you can. Take Care. ….. Tom …..

Volitility Continues, No Clear Direction March 29, 2020

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March 27, 2020 – Sorry about being late last week.  The post was completed but only in Draft form.  It took until mid-week before I found that out.  I’m now back to using the “classical editor” and should happen again (I hope).

Yes, back to volatile up and down swings.  Each move seems to begin with news, then gets amplified by computer algos.  And so it goes, back and forth.  I’ve laid out two possible scenarios.  The first is “bullish” and is shown via dashed green line.  The logic is the NASDAQ Composite Index retreats back to roughly a 7194 “mid point”, then rallies higher nexy week.  This puts in a “higher low” price swing, which is positive.  The “bearish” version is shown with a dashed red line.  It just continues back to the previous low.  At that point it just oscillates between Resistance & Support areas or, worse yet, heads even lower.

It all depends on virus and corporate news.  Which in this environment is not a surprise.  The markets are weak and nervous, and just about anything will send them off in any direction.  No value in trying to predict but knowing key price patterns can help decipher overall directions; if only for the short term.

The table below tries to show short term sector strength.  Though it’s hard to read too much into these right now.  (Who would have thought Utilities / Defensive would be right near Semiconductors – Aggressive?)

That’s about it for now.  I’m trying to avoid jumping into things too quickly, but also trying to remain optimistic as well.  Have a good week.   ……….  Tom  ………

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

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