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A Possible Rally (?) May 21, 2022

Posted by Tom in Thoughts.
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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

Posted by Tom in Thoughts.
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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

Posted by Tom in Thoughts.
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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

Posted by Tom in Thoughts.
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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

Posted by Tom in Thoughts.
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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.

Waiting for News, Either Good or Bad April 17, 2022

Posted by Tom in Thoughts.
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April 14, 2022 – This was a shortened holiday week due to Good Friday and activity (volume) was light, but has been falling off for a few weeks anyway.  Likely cause is four big weeks coming up on first quarter earnings plus concerns about the push of Russia restarting in Ukraine.  The environment is unstable, hence low volume and little commitment by traders.  The earnings forecasts by corporate America will have a big influence on where the market goes from here . . .  and it could go either way.  We’re kind of at a point where a little news could have a big effect.

click on chart to enlarge it

Note in the chart above of the NASDAQ Composite Index is in a bearish condition.  Not exactly a good time to deploy any funds into the market.  I’m holding off until there are some better signs of “good health”.  Interestingly, “seasonality” is positive for the next couple of months, but I doubt if that will have an over powering effect on this market.  News & earnings “trump” seasonality IMHO.

The Short Term Sector table below shows what’s doing best right now.  No surprise that defensive sectors are at the top.  I do have positions in those sectors, but also in Cash.

And so we wait for earnings and Putin over the next 3-4 weeks.  It may be a “nail biter”; we could use some good news for a change.  Have a good week.   …………  Tom  …………..

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

It’s All About Earnings & The FED April 9, 2022

Posted by Tom in Thoughts.
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April 8, 2022 – I get asked “Why isn’t the stock market recovering (fast)?  Must be (fill in the blank, usually political)!”  Actually it’s all about earnings (a.k.a. profit), now and in the future.

The market likes constant / stability.  Stable good or bad is OK as long as “they” (investors) can evaluate what it is and what it affects in the market.  Thus money rotates were it will do best in the future; or at least everyone’s best guess of the future.  With unemployment low and the economy on fire why aren’t we roaring to all-time highs?  The unknown is the answer, and that’s what makes Wall Street very uncomfortable.  So much so that the big guys / gals buy Put options and Futures to hedge (protect) their portfolios.  These instruments have expiration dates and must be “unwound” before those dates.  That means volatility during the settling process.  Then the question is will that protection be renewed / rollover again.  Make no mistake about it, options and futures activity does affect the stock market.  And big pension portfolios & mutual funds need a lot of these to offset their holdings; billions in short order.

Now getting back to market concerns and future corporate earnings.  Companies big and small are faced with a rapid increases in demand and a limited supply.  “Happy days are here again” style demand came very quickly via Covid case drop offs, that with many having added savings in the bank created demand, a.k.a. “Back to Normal”.  But companies have limited supplies.  They are faced with limited labor, higher wage demands, supply chain issues and higher costs.  With inflation concerns by the consumer being an issue, can they raise prices or absorb these problems without affecting profits?

I’m thinking that the FEDs policy on May 4 could be a significant event.  The markets have priced in interest rates rising, but how much and how fast?  The bigger issue is under the surface, and that is liquidly.  The FED has purchase soooo much public and private debt that it intends to sell (or retire) back into the markets.  How fast that happens will definitely affect liquidity in the capital markets.  Note the sudden spikes in the FED balance sheet chart below. 

There is a lot of money / capital up in that chart that the FED intends to deal with to fight inflation.  Just how they go about doing it is a key factor for the future.  I don’t know and the markets don’t know either; “unknown”.  Liquidity,  the availability of capital, is the life blood of a capitalistic economy and  that’s why this matters.  That’s the reason why the next FED meeting and the current corporate earnings projections will be important.  Current earnings should be “OK” but the forecast of earnings will be something that everyone on Wall Street will be closely watching.

What next?  The war in Ukraine is terrible, but basically a “known”.  COVID is rising is some areas, but now we have therapeutics; “a known”.  Domestic politics continue; “a known”.   Back to the “unknown”.  I think corporate earnings / profits will be OK to good this quarter.  The markets will like that short term.  Thus a possible scenario would be a rise toward the previous high (though not making it) into the May 4 FED meeting.  Then my feeling is it could drop back to test the previous lows.  And many will be surprised and left holding “the bag” near the top. In the mean time we have to trade the chart in front of us and look at it with an open and unbiased mind (difficult!).   The table below shows what is happening in the Short Term with sector rotation.

Well . . .  that’s my big picture forecast for now.  Have a good week.           ………  Tom  ………..

table by High Growth Stock Investor, used with permission.

Strong but A Little Tired April 2, 2022

Posted by Tom in Thoughts.
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April 1, 2022 –  This market is showing significant strength based on many indicators but the one the stands out the most is the McClellan Oscillator which measure market breath.  No doubt about it, more stocks are advancing than declining and thus money is flowing back in, but likely at a cautious rate.  Note the low volume on the chart below.  It appears that a good bit of the recent strength was generated by the “unwinding” of put options that were placed as a hedge during the correction.  That’s behind us now.

click on chart to enlarge it

So the question is whether this market can continue higher.  I’m thinking that it is due for a small dip down or at least a base building period before moving significantly higher.  First quarter earnings are in front of us so that could provide a spark . .  or disappointment.  Of course the wild cards in any market move is the unknown . .  that being Ukraine and COVID.  I don’t think the interest rates or inflation bothers investors very much; they were generally expected.

The Short Term Sector Strength table is shown below –

I see that Utilities and Real Estate are higher that Financials and Technology.  Not exactly a sign of confidence in the growth area right now.  This move may take a while and be rather selective in nature unlike the previous 2 years where just about everything did pretty darn well.

I’m about 70% invested right now and looking for more opportunity but I’m not in a big hurry.  Have a good week.        ………..  Tom  ………..

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

OK . . . . but March 26, 2022

Posted by Tom in Thoughts.
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March 25, 2020 – A good week for the markets.  Up past my “mid-line” and every indicator on the chart below is positive / bullish.  But . . . Ukraine still holds over the market, as does inflation and “fear” of interest rates rising.  The market seems to say “OK, I’m feeling better, but not entirely well”.  Note the rather low volume, below the 20 day average . . .  no rushing to jump back in by institutions.

click on chart to enlarge it

The big factor will be the upcoming corporate earnings reports.  If the majority can show modest growth then I think we’ll be “off to the races”, or at least firmly toward new highs.  How profitable companies are in this environment really says it all since skepticism abounds in the long term.  But employment is at an all-time high, interest rates are very low by historic measure and inflation was expected coming off the COVID lock downs.  Oh yes, COVID could be a wild card in the entire scheme of things.

So what to expect?  In short, the unexpected.  The war . . . who knows what Putin will do.  COVID . . . we’re in much better shape to deal with it now.   Inflation . . . slowly getting under control late in the year as supply chains improve.  Corporate earnings . . . pretty darn good, except for some pockets of poor.  I’m thinking that the next 2-5 years will be a stock / industry sector pickers market; everything will not be going higher at the same rate, nor at the same time.  Those days are behind us (I think).

How to handle this is via a “Top Down” analysis approach.  Starting with market health, then sector strength, then industry strength and lastly stocks in those industries.  More on this later.  For the time being here’s a look at the Short Term Sector Strength:

Note the rise Technology sectors.  Let’s see if that continues since they were beaten down so much.  (Note the “%Cl/52” column on the far right, that’s the % Close from the 52 week high price..)  So that’s it for now.  I’m cautiously taking position in those strong industries & sectors.

Have a good week.     …… Tom  …..

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

At The Turn ? (Patience Young Jedi) March 19, 2022

Posted by Tom in Thoughts.
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March 18,2022 – I see possible indications that we could be at a market turning point of this correction.  My major market model (not shown) is giving me a “heads up” to watch carefully next week.  But why?

First off this market has already priced in the major news issues in the short term.  The terrible situation in Ukraine, the FED interest hike and recent COVID uptick are known.  As long as the “unknown” doesn’t creep in or takes take an unexpected turn for the worse, we could be “OK”.  This is where patience comes in. 

click on chart to enlarge it

Take a look at the chart above: broken channel up, Close above the “mid-line”, Volume & Money Flow Bullish, Price Strength (black line) Bullish. Time to pay attention, with care.

Friday I was hearing many knowledgeable amateur investors talk about a “follow through day” (a major up on high volume, off a major swing low formation).  Well yeah, that might be but that volume was due to the “triple witching” of stock & futures options and futures contracts.  Make no mistake: most of these contracts were hedges placed to protect portfolios in a down market.  That volume was contract settling, but were there any actual positions taken?  Let’s wait for confirmation next week before we assume anything.

How will we know?  I’d say watch the institutions.  If they think the worst might be over, they will be putting money to work where they can quickly and easily.  Read that as liquid big mega cap technology companies.  Is money flowing out of the fear stocks (metals, staples, defense, utilities, etc.) and into more speculatives?  I’d also keep an eye on the Russell 2000 index (IWM) for hints in comparison to other indexes.  Again . . .  patience, because it’s not all going to happen in a day or two.

The Short Term Sector table gives us some indication of that possible rotation –

That’s it for now.  ‘May the Momentum be with You’ Young Jedis.    Have a good week.  ……  Tom  …….

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

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