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A Fallback to Center Channel: OK February 21, 2021

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Feb. 19, 2021 – This week the market pulled away from the upper trend channel (purple parallel lines) and is hovering around the center. And that’s OK. A continued drop to the lower line would not be surprising in view of how far we’ve come and so quickly.

click on chart to enlarge

As long as we stay above 12895 there may be concern, but not danger. Also of note is the drop in volume; lack of demand. And that’s OK too. What is interesting is the previous leaders, Technology sectors, are now just doing OK. The short term leaders are Material, Financial and Oil sectors. It’s to soon to say this is a significant sector rotation, but it’s something to keep an eye on. At least Semiconductors continue to be strong under the Tech umbrella.

A chart of a wide selection of industry sectors (46 of them) and how they performed over the past 5 days is shown below.

5 Day % Return: of 46 Major Industries

Looking at the over sum of “green” and “yellow” performance compared to the “red” actually confirms the idea of a pause to refresh right now. Everyday can’t be a rip roaring “Up Day” for everything . . . it just can’t last very long.

So I remain invested and doing minor changes to go with the current trend. If this trend toward a more defined move continues we’ll just naturally go there too. But this could be a concern driven by rising interest rates & inflation, it which case Materials and Financials could just be a short term blip. Stay Tuned as they say.

Have a good week. ……….. Tom …………

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

Upward, but expect Volatility February 13, 2021

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Feb. 12, 2021 – First, a little “house keeping”. I’ve done weekly entries on this blog site for over 4 years, and to my knowledge, have not missed a week. New entries are made over each weekend and the date displayed at the beginning shows the most current data. Thus don’t expect comments during the week. The one possible exception would be IF I see a major change in my model during mid-week. In the case I’ll do a short post.

Next, I’ve made some changes to the weekly chart of the NASDAQ Composite Index (see below). The idea is to make it a little easier on the eye and easier to read. Just use common sense to interrupt it; arrows up are Bullish, down are Bearish, red is a Bearish color, Green is Bullish. The bottom line is we’re looking for a confluence or a propensity of indicators to show the same thing. A “one off” is just a warning to pay more attention. I’m happy to receive comments about what is helpful to readers.

click on chart to enlarge for easy viewing

Now back to the markets. Overall, I’d expect this year to be fairly good and positive. COVID will likely get under control and more people will start working and spending money (like normal) again. The markets see that likelihood by way of continued higher prices and a recovering economy. Add to that the possible increase in the minimum wage and that spells more expansion for the economy. Why? Because +70% of the U.S. economy is fueled by consumer spending. It’s simple. The more money consumers have, the more they spend thus creating demand/expansion. (Putting more money in the hands of the top 1-2% won’t make a difference; there’s only so much stuff an rich individual can buy. Just say’in.)

So the trend is up and higher but please remember that we can also expect a volatile market. The cause is speculation and right now there are a lot of people thinking the markets only go up. They don’t. Case in point is the amount of margin loans that are outstanding. This is fuel for a shake out.

Many don’t realize that then their stock holdings go down and they are on margin, they may be told about a “margin call” in their portfolio. That means come up with addition cash NOW to cover loses or the broker will automatically sell your stock. (And Yes, you have agreed to that; read the fine print.) This force or automatic selling drives weak prices even lower and quickly. But if the economy remains positive, it’s a great time to go bargain hunting. The moral is, be careful. Sometimes it’s not a good idea to react quickly to falling prices. Most recently the Game Stop fiasco. We’ll try hard to look for signs of a long term decline before severe damage sets in (a.k.a. intuitional / “smart money” liquidating near the “top”.)

Stocks in the S&P 1500 Price Strength:

About 60% are “green”, 30% Neutral and roughly 10% “red”. A pretty strong market.

Short Term Sector Strength:

So that’s about it for this week. Take Care & have a good week. ………… Tom ………..

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

Steady but Volatile Markets Excepted February 6, 2021

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Feb. 5, 2021 – Not much new to say this week. The market continued a steady climb, but indicators show that while the climb may continue it will likely be volatile. Overall I continue not to see any near term problems with a major correction or pull back.

click on chart to enlarge

Of note is the trend channel lines (purple) that point upward. On the negative side Money Flow remains lethargic. I am debating whether to change this weekly chart to add what I think is an improved market timing graphic. More to come, it just takes extra time.

Let’s take a quick look at near term sector strength below:

Looking at the 5 day price change column (“% Pr Ch 5-“) it was a very good week for just about everything. I note that the previous leaders, namely Technology based sectors, were good, but not in the lead. We could be rotating to more of a “value” sector play; keeping an eye on that. It’s looking more and more to be a “stock pickers market” where being in the right sector and stock are the more important thing than just being invested.

That’s it for now. Have a good week. ……….. Tom ………

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

Reddit Revolt January 30, 2021

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January 29, 2021 – This will be short since I’m typing on a small keyboard & screen. The long awaited pullback is here and it’s long overdue. Volatility is with us and likely will be for all of 2021. The NASDAQ Index (below) pulled back near the 12950 level. We could expect that support to hold in a bullish market so let’s not overreact to this (actually) minor pullback.

click on chart to enlarge

Money and Volume Flow indicators are “bearish”, Sentiment and Price Strength are “neutral”; volume is very high, as expected with a major “short squeeze” with positions being covered / closed out.

What happens by mid next week will be telling for the market going forward. The pie chart below shows how the stocks in the broad S&P 1500 Index did last week. As expected, more “red” on the pie chart as stock fell across the board. But let’s take a step back and note that little has actually changed from a market conditions point of view.

My detailed market timing model does NOT indicate significant trouble ahead, so I have done only minor adjustments this week. The key here is follow through. Will the “smart money” come in and buy this dip or will there be more selling? (I’m thinking “buy the dip” at discount prices; we’ll see.)

The short term sector table is below.

The control of COVID and the resulting impact on the world economies are the important thing right now, so let’s keep focused on those bigger priorities. Have a good week ! ………… Tom …………

Markets Continue the Climb January 23, 2021

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Jan 22, 2021 – With all of the active news items (especially in the USA) it is amazing that these markets have not slowed down let alone corrected lower. Let’s see: virus deaths continue higher, vaccine in short supply, (US) government still “dynamic”, margin debt extremely high, option call activity at all time highs and money pouring into small speculative stocks. I might add that the ratio of stock prices to earnings is very high too. What could go wrong? Disappointment; and earnings season has just begun. So far the banks have held there own as well as NetFlix . . no so much with IBM though.

click on chart to enlarge

As we can easily see prices continue higher and at the top of their channel. Trading volume is high and the Money Flow is the only indicator that’s negative. The result is we have to follow the trend, but remain cautious for any signs of weakness in the broad market. My market internals model (not shown) shows a slight slowing in momentum but no signs yet of a correction.

Just how strong is this market? The pie chart below is of all of the stocks in the S&P 1500 index. The color relates to where the price is in relation to the Bollinger Bands of each stock (i.e the standard deviation / volatility based off of the 20 day moving average). Generally, this looks pretty positive with not too many in the red zone. Again, so far, so good.

Taking a look at what sectors are doing in the short term via the table below:

Of note is the strength of China and continued strength of Small Cap stocks. The columns to the far right show per cent return over 5, 10, 15 and 21 days. Not much more to say except “stay the course”. I’m continuing to research market correction warning signs and hope to provide some insight into that to avoid account draw downs. Remember, in order to make up a 50% lose, you need to have a 100% gain just to come back to break even. We need to avoid big losses as much as trying to get big gains. With all of these caution signs things may turn very quickly.

Have a good week and Stay Safe ! ……….. Tom …………

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

Momentum Slowing, Due for a Pause January 16, 2021

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Jan. 15, 2021 -Regardless of the reason(s), this market appears to be slowing its rise and maybe consolidating the recent gains. We see that in the % returns over the past 5 days pie chart at the bottom but also in Price Strength in this chart, which is back to Neutral.

Click on chart to enlarge

Money Flow remains down but Sentiment and Volume Flow are positive; thus a mixed bag. I draw attention to the heavy increase in volume since the first of the year (bottom of the chart). Volume shows activity (“Effort”) but not much Price movement (“Results”) in Wyckoff terms. Possible indications of Buying being absorbed by Selling. At this stage it could be a pause / minor correction or something bigger. Right now I don’t see anything “bigger”, but it’s good to be on guard for it.

Earnings (4th quarter) begin to ramp up now and that is always a catalyst for movement in either direction. Something to pay attention to since this market is rather highly valued and all ready anticipates good earnings. We closed Friday near the first level of support (12963) so failing to the next level (12652) would be a minor reaction. How investors react to disappointing earnings and news will tip their hand as to where things could go.

The reason for increased concern is the excessive optimism in the market. The chart below shows that in a historical context. We’re back to levels seen in 2000/2001 and that ending badly.

Not to say next week or month all Hell will break out, but once things start moving it could very well snow ball. Another chart shows the more recent bubbles of optimism. I’m not “dis-ing” BitCoin but there are times when evaluation (price) exceeds value of the underlying security. Then things correct back to “normal”. I’ll sure try to provide readers with a “heads-up” if I see excessive selling coming into the markets.

Here’s that 5 day return pie chart I was mentioning at the top.

Notice a slowing from last week (less green), but still half of the stocks are showing gains. So far, so good.

Lastly the short term sector strength –

Right now the more defensive sectors are not showing strength, but I’m seeing fewer “buy candidates” in my daily stock scans. So I’m pretty darn cautious in here. Mostly because I’m close to fully invested and that always makes me extra watchful. There is a lot of positive news out there but we may have to wade through the bad stuff first. Take Care and have a good week. …………. Tom ………….

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

Amazing Markets Continue Up January 9, 2021

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Jan. 8, 2021 – After this weeks events I (and likely many others) are amazed that the US markets did not correct significantly. I refer to the adage “Strong market remain so with bad news, where Weak markets react quickly” (or something to that effect). This market continues to be strong; so be it.

click to enlarge

Money Flow remains rather dormant and continues its sideways move but everything else is, well, positive. I have been working on a sensitive market internals model that combines advance / decline momentum with up/down volume and volatility of the VIX (put / call ratio) compared to the market. For a week it went from Bullish to Neutral, but on Thursday (much to my surprise) it returns to Bullish. I’ve been researching ways to provide an advanced “heads up” to changes in the market. Nothing is perfect but this may have some potential. The works continues.

Just how strong is this market? The pie chart below shows the percent of stocks in the S&P 1500 Index and their 5 day % change. There is a lot of green down there.

What could be driving this? Well the only things that I know for sure is there is more demand than supply. One theory I’ve heard is that money from the stimulus payments from those with jobs is flowing into the markets. This perception of “easy money” does concern me, but I have to trade what I see and not what I feel. I remain uneasy about the increase of new “investors” into this market (see previous posts), but we need to see some amount of smart money distribution before I’m ready to withdraw or hedge. It will come, just don’t know when.

Here are the sectors that are doing well in the Short Term –

What I find interesting is the Treasury Bond going down (bear going up), which indicates an increase in interest rates. Likely a short term phenomenon, but something to watch in the coming weeks.

I’ve made minor changes this week. Selling a couple of things that have lagged the market advance and picking up a few that have showed strength. If this trend continues for a few days I may add to my Index model a Mid Cap ETF; we’ll see.

That’s it for now. If you like something or want to see something else let me know. Otherwise Take Care and Stay Safe. We’re not “There” yet; patience. Have a good week. …………. Tom …………

Wobbly Market January 1, 2021

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Dec. 31, 2020 – Not a whole lot new this shortened and light week. I am seeing some early signs of market internals weakening, so that’s my “story” about a “Wobbly Market”. I’ve got more work to do to verify this early signal indicator, plus the full market and it’s participants will be back next week, and that may verify the condition.

The chart below shows a calm market and my concern about tax selling in the final days of 2020 did not materialize. Money Flow dropped off but that is likely a symptom of low holiday volume in the between Christmas and New Years market. I note the Low price on Thursday is a near term support level with 12525 being the significant one.

click to enlarge

With the market rather quite I thought I’d give readers a little perspective on the economy and the market in general. First there is optimism in this market and that’s fine but where does the economy stand? The US economy is based on consumer spending and over 20 million Americans remain unemployed currently.

This chart just give perspective on how fast employment recovers from a recession, and by economic definitions, we are in a recession. The bottom line is that it will take years, not months to recover jobs. Once the vaccinations become effective in the second half of the year, things should kick into a higher gear. Corporate earnings (outside of on-line merchants, select technology and pharma companies) will take awhile to recover. 2021 will likely be a selective and focused market place.

Next who is in this market and are they prepared?

With the combination of “Covid stay at home” and “zero” commissions (which aren’t really zero BTW) activity in small volume call option orders has increased dramatically. The idea is that the market only goes up . . . it doesn’t. When reality hits this could cause panic and a bow wave of selling and margin calls (borrowed money), which drives the market down due to the late overreaction. Any news item could set this into motion.

This doesn’t have to keep us up at night but something to consider and be aware of. 2021 could very well be a very volatile market with changes happening quickly. OK, that’s it for 2020 and happy to see it go. 2021 brings hope but let’s stay focused on what we see and not just what we hope will be.

Take Care & Happy New Year ! ………………. Tom……………..

Price chart by MetaStock, used with permission. Sources as noted on charts.

A Pause & Indecision December 24, 2020

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Dec. 24, 2020 – I’m writing this about an hour before the close on Thursday (at 11:00 am EST) and the US markets are closed tomorrow, so it’s basically the end of the week. Wednesday saw a large volume spike likely driven by Trump’s refusal to sign a bill to fund the government and another to fund the second round of stimulus for COVID relieve. I try (hard) not to be political but . . . . really? Where the Hell has he been the last 4 weeks when all of this was being negotiated ! The “end” can not come soon enough, IMHO (I won’t get started on pardons, that’s another story).

click on chart to enlarge

That big spike on Wednesday and the very high volume bar (labeled “Activity”) had me worried that Supply was quickly coming into the markets. As of this morning, the market indexes are up modestly; so far no follow through. But in general the market breath is weak, mostly because of this rally is long in the tooth.

Last week I showed a chart of the S&P 500 and the average P/E ratios (price/earnings). I follow up on that with a chart of similar fundamental metrics.

click to enlarge chart

The stocks in the index are divided into two groups, those with traditionally low P/E ratios (green) and those with high ratios (red). I’ve put in a dotted yellow line at the 50% level as a sort of bench mark. Now just because prices are high compared to earnings that doesn’t mean prices can’t go even higher, but we are in an over valued state which leaves the market open for disappointment. Bad news will do it. Any sign of a sustained slowing of the economy will bring a response from investors. I’m watch two areas: 1) Any excess tax selling (on increased volume) between now and the end of the year. 2) Post Christmas retail sales numbers (a direct sign of consumer spending & confidence). We won’t have to wait long for either one of these news bites; next week. The stage is set for reaction to news. Time for caution.

Here’s the table of Short Term Sector Strength

Wishing all of my readers a very Happy Holiday Season ! Take (extra) Care. ………. Tom …………

Chart by MetaStock; table by High Growth Stock Investor

Trend Continues . . . . Slowing December 19, 2020

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Dec. 18, 2020 – Well the trend up continues though there are signs of slowing. Concerns about the economy include consumer spending and rising unemployment. Retail sales numbers after Christmas should be a telling indicator. In any case the pressure is on Congress to “do something” and Trump has basically given up on the presidency (i.e. no involvement or interest).

click to enlarge

The 12217 level would be a mild pull back after Christmas as there would (likely) be some tax selling before the end of the year (concerns that taxes will increase next year). It’s pretty basic: until the virus is under control the economy will not recover, but it looks like help is on the way. The Friday “blip” in volume was options & futures contracts expiring & thus rebalancing stocks. This and next week activity should be low as we head into the holiday season so volume will be light and trading liquidity light as well. Prices can move more quickly in this environment and so volatility will likely increase.

Looking at sectors. Here’s the very short term strength over the past 5 days in pie chart form:

And the same sectors in a lightly long term table form:

I note that consumer goods and the software element of technology are doing well. Interesting in this environment so we’ll see just how long these sectors can continue to show gains.

Nothing else very exciting so enjoy the holidays as best you can. Take Care. …… Tom …..

Chart by MetaStock, table by High Growth Stock Investor; used with permission.

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