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Pushing On a Rope September 19, 2020

Posted by Tom in Thoughts.
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Sept. 18, 2020 – This market continues to consolidate with no clear trend. I see folks trying hard to guess the next move either up or down. I feel that getting involved with that logic is like “Pushing On a Rope”; it’s just not going to work. Sure, some will guess correctly and others not, but that’s not investing IMHO.

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Looking at the chart above we note the trend indicators are all Bearish / negative. I’ve labeled three price bars 1,2,3 to show that the close of those bars are all very nearly the same. A “triple bottom”? Perhaps, but it does indicate to me that (on a closing basis) that the level around 10728 is gaining in importance. A close below the 10412-ish level would likely move the market lower. A close above the 11300 level would be a bullish breakout. The third scenario is shown by the gray bracket, and that is prices would remain within the trading range for a while, bouncing back and forth.

Typically one would look to the volume for confirmation but this Friday was options expiration day so there was (expected) high levels of volume as option writers “squared up”. We’ll have to wait until next week and with all of the political cross currents there is uncertainty. And markets don’t like uncertainty. Any breakout, in either direction, may take awhile.

Short Term Sector Strength –

None of these sector are very strong trend wise (i.e. values under 200).

And so it goes. I’m heavy into Cash with a light hedge. No need to “jump the gun” or “Push on the Rope” here trying to make something happen, or worse let, trying to be a hero. Patience.

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

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

Price Consolidation September 12, 2020

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Sept. 11, 2020 – A quick look at the chart below of the broad NASDAQ Composite Index shows signs of price consolidation near the current levels. The dashed blue line is the near term support. If we drop (especially on the close) below this level we’re in for further weakness.

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Yes, this chart is rather “Bearish” with all indicators indicating the same, but when I look at the “cause” of this sudden drop, I’m not so sure. The chart below shows the dramatic increase of small trader (less than 10 contracts) call option buying (light blue line; S&P 500 in black).

click to enlarge

This certainly shows wild speculation and was likely driven by many people sitting at home due to the virus. (Nothing to do? Make lots of money trading options!) Funny how this fell apart days after Apple & Tesla split their stock, and . . SoftBank revealed that they had $ Billions in call options. The stage was set; everybody had “bought in”.. I’m thinking we’ll bounce around until next Friday (Sept. 18) when those call options expire. Then we may have an opportunity to reset and see just where we go from here. This sudden move was driven more by news and the market itself. An economic awakening may yet to occur and will likely happen over weeks and not days.

Sector Strength table below:

I remain heavy in Cash right now. Looking for the market to decide, and yes, it can go either way. Let’s see if these levels can hold and this market takes a “breather” perhaps into the election. Earnings will not be great, so folks will be cautious for a while.

Have a good week. …. Tom ….

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

Start of a Correction or “Buy the Dip”? September 7, 2020

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Sept 4, 2020 – A significant and violent sell off last last week. The big question will be is this just the start of a correction or an opportunity to “Buy the Dip”?

As a background, this market, especially Tech stocks, were way overvalued. Note the “typical” price earnings ratio for major / S&P 500 stocks is around 22-23 for a Price -Earnings ratio when they get “over bought”. Apple (for example) had around a 34 P/E ratio earlier last week. And then we have Tesla, semiconductors, etc. So the stage was set, the question was really “when” a sell off would occur. The Japanese tech conglomerate Softbank was reported to have billions $ in U.S. tech company options and that started to raise big concerns. Regardless of “why” the market just sold off quickly.

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The 11090 level held on a closing basis, and that is important. Money & Volume Flow indicators did show weakness, but volume was not excessive for this range of a price movement. The stage is now set for a bounce come Tuesday late morning. But we’ll have to wait until Wednesday / Thursday to see if any bounce has “legs” to continue. Right now this could just be an opportunity to buy at lower prices or the early stages of a more meaningful correction. Currently it looks like a short term thing. We need to see what the major traders do in the next few days. Is there support here, or does more selling & volume come into play.

We do have some retail companies reporting earnings this week and those could set the tone for what shape the economy is in. The “back to school” shopping is a big unknown and not likely to be strong.

Stocks in the broad S&P 1500 index did surprisingly well. More more red and yellow, but the green / strong section still is in evidence.

Sector Strength showed a big change with the Tech leading sectors falling dramatically; now #22 on the list. The more defensive sectors rose to the top.

So a time to be cautious because this market will likely turn in either direction quickly. I did sell out much of the tech holdings on Thursday and placed a “light hedge” on the remaining positions. Very rarely do markets turn this quickly with little time for the “smart money” to sell into strength, so we may be in for a modest consolidation going into the U.S. elections.

Have a good week. …………. Tom ………..

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

Slow Summer Grind Higher August 28, 2020

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Aug. 28, 2020 – The markets just grind higher. Nothing dramatic, just a slow & steady grind. It seems like nothing really matters. The economy (looking past that), earnings (looking off into the future), social unrest (been there) or politics (waiting until October). As long as there is very cheap money, not much matters. A big geo-political event might have an impact, but it looks like the real danger is earnings. I doubt that this market has “felt” the 38% decline in the Gross Domestic Product . . . . yet.

Just keep in mind that fewer and fewer stocks are holding up these index values. If it wasn’t for the Technology sectors, well then things would be a lot different. A single mis-step by a tech darling would bring a reawakening I feel. Until then we just have to be extra careful.

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Sentiment is neutral but nearly everything else is positive. Prices climb the upper price channel (purple) while volume is dropping. Not much buying, but not any selling either. I think this is the “summer doldrums” with many traders “out” until after Labor Day (Sept. 7 in the U.S.). I remain invested, but have extra Cash to deploy; it’s just not a great environment to do that now.

No surprises here. It’s mostly Technology leading the way. I do note that Treasury bonds have been moving lower (interest rates increasing a little) over the past couple of weeks.

Not much else to dwell on. Have a good week. ……. Tom …..

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

Narrowing Market Leadership August 22, 2020

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Aug. 21, 2020 – Last week my writing theme was what is fueling this market (especially in the U.S.). The bottom line was & is cheap and available money (especially for big banks) and optimism for a Corona virus vaccine (and soon).

The logic is that the world in general is either in recession or an economic depression. Valuations of common stocks are high (as measured by the price/earnings ratio) and the guidance going forward is mixed at best. Since the U.S. economy is roughly 70% based on consumer spending, what will stimulate corporate earnings in the immediate future? Back to the vaccine idea. So this market is overvalued but very hopeful. That sets the stage for disappointment IF things don’t work out. That could mean a slow rollout of a vaccine (distribution worldwide) and a slow economic recovery.

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I note in the chart above that Sentiment has turned negative as well as Price Strength. Another observation is the very narrow bars over the past 7 days. This being an indication that buying and selling are about equal. Make no mistake, the big guys sell into a strong market when they have buyers. Is this the beginning of a correction? No one knows for sure but I did come up with a new way to look at market strength and overall breath.

The pie chart below shows the percent of stocks in the S&P 1500 Index that had a price movement in 3 categories over the past 5 days (the last week). As a reference I note that the index itself showed a increase of 0.5%.

Of interest is that over 76% of these stocks did not participate in the move and only 9% had a significant move. My conclusion is that this is (again) a time for caution. Let’s look at sector strength to see what ares are moving the market.

We see the Technology sectors well represented. Not surprising that they are typically the ones least affected by this virus economy. I am surprised about Consumer Goods & Services though. Keep a close eye on these sectors for weakness; the “canaries in the coal mine”.

That’s about it for now. I have throttled back just a little on Friday, but keeping an eye on the exit door. Have a good week. …. Tom ….

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

So Bad, and Yet So Good ! (?) August 15, 2020

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Aug. 14, 2020 – With the price to earnings multiple at near nose bleed levels, the outlook for future profits doubtful, how can the stock market be at / near all time highs? The answer is money, and lots of it.

We all know that the stimulus programs have pumped lots of money into consumers, the unemployed and business but what about the stock market? Well, if you could borrow at near 0% interest all of the money that you wanted and could get 5-10% return in a week . . . that would be called a “good deal”. And that’s the deal that the big banks have got. The hope is the cheap money will be loaned out and keep the banks balance sheets healthy but there is nothing to stop them from “investing”.

Let’s look at the Federal Reserve data on the U.S. Monetary Base below. The Monetary Base is the sum of all money in circulation and deposits at commercial banks. (i.e. “commercial banks” = big & bigger banks)

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Talk about a sudden increase in the Monetary Base ! The concern is how long this can continue without some form of “debasement”; is the US dollar still worth the same to everyone in the world . . . or not? (note: the $ has fallen as of late)

There has been a lot of talk about unemployment and how the rate of new claims is slowing. That’s good, but the real issue is the continuing claims. The chart below tries to put that into perspective.

About the only thing I can gather is that unemployment is not getting worse, but it sure isn’t getting better either.

Lastly, I’ll leave the reader with a write up by John Mauldin which talks about how this economy will recover.

https://www.mauldineconomics.com/frontlinethoughts/the-second-great-depression-but-not-really

It is eye opening in that the economy will recover, but VERY Slowly, and it will not be the same economy. The service industry will not fully recover.

OK, here’s the NASDAQ Composite chart (below). We have inched a little higher last week, but the last 3 bars / days show a very narrow range on low volume. Buying = Selling and (volume) there’s not much of either; a dull market. Looks like we’re back to “wait & see” mode.

I note Money Flow is softening as well as Price Strength. Let’s take a quick look at Sectors:

I remain about 50% invested just because of concern that reality of the US economy will come back into focus. And when it does it will be a rapid adjustment. Much hangs on the new stimulus package. Without it many people (think over 31 million unemployed) will have major problems. And since the US economy is 70% based on consumer consumption, that WILL effect nearly all areas and businesses.

I am watching the VIX and Treasury Bonds for clues about big money taking a defensive position. Take Care and have a good and safe week. ………. Tom ……….

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

Break out or “Over Throw” ? August 8, 2020

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Aug. 7, 2020 – Last last week the markets (NASDAQ shown below) broke above their multi-week horizontal price consolidation / price channel. Now the question is whether it is a breakout higher or just a price “over throw” above the upper channel (purple lines), with the price coming back within the channel?

My feeling is that it is an “over throw” of the channel and prices will come back down within the channel. The support for this logic is that volume did not increase on Friday with the close well above the upper channel; folks were not in a hurry to buy. So early next week will tell us. A correction back to the 10412 level is likely, especially with the news over the weekend. Support is at the 9663 level. Breaking that (on a close) would be cause for concern. But, overall, the chart below looks very positive.

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Sector Strength remains strongest in the “Tech” sectors and small(er) cap stocks. (table below).

Not much else to contemplate except how the markets will react to the stand off in Washington. I just got that feeling that the markets (in the US) can’t go much higher without some form of social stimulus package. (the response to the virus has not been handled well at all)

That’s it for now. ……………….. Tom ……………….

Still . . Horizontal August 1, 2020

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July 31, 2020 – For the past month (+ 4 weeks) this market has gone basically nowhere . . . . in a horizontal channel (purple line below). With all of the news, both good and bad, still no defined trend.

click to enlarge chart

Volume has not been unusually high or low, so trying to find a hint of a demand signature is tough. Is this re-Accumulation or Distribution? Right now it just appears to be a consolidation of recent gains. Technology earnings are great, but what about the entire economy where Gross Domestic Product feel by over 30% last quarter? There is more than enough “bad news” to spook the market, but with liquidity (i.e. easy money) available at near 0% for big banks what is there not to like? At the first sign of the FED cutting back on loans, that will be the hour of reckoning.

I see “structure” in the lower half of market breath indicators giving me concern that only a few names are holding the market indexes higher. It just seems that things are great for a few big companies, but that good feeling does not go very far down the list. I keep thinking an international exposure may be a good idea, but nothing has developed just yet.

In the means time we just have to invest in what we have & what we see. I’m only about 50% invested and the rest in Cash. I’d love to buy more, but putting all money in just a few similar sectors is not a good risk control method. I feel like it’s a version of Musical Chairs. And when the music stops . . . Here’s a table of short term sector strength:

Not much more to say except be watchful of the leaders and signs of them “falling out of bed”. Take Care and have a good week. … Tom …

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

Steady but Weakening July 25, 2020

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July 24, 2020 – From the chart below we see that the broad NASDAQ Composite Index is in a horizontal trading range (purple channel limes). Not much really happened last week.

click on chart to enlarge it

The trend channel is nearly horizontal, Money Flow is OK / Bullish but Sentiment, Volume Flow and Price Strength are now Neutral. This market is “treading water” waiting for something (likely news of a stimulus package); it may have to wait longer . . . it’s the Senate.

Price Strength of stocks in the S&P 1500 Index (pie chart below) look fairly neutral / healthy with a reasonable amount in all three categories. Looks pretty strong.

But . . . what is not very evident is the underlying sector rotation (at least in the short term). The Technology sectors that have lead the entire market higher are now falling back.

Noting that Precious Metals, Basic Materials & Utilities moving higher in the rank with Tech falling near the bottom is not a sign of overall market strength. I’m finding very few stocks to even consider to purchase; on Fridays close there were none.

This could be a good time to “buy some insurance” just in case the market reacts to some bad news. Coming up next week is the continuing saga of the next stimulus package, a Fed meeting and big cap Tech earnings; watch for guidance going forward. Then there is the virus and China. These continue to put a drag on the economy. “What could go wrong?” I’m getting more and more cautious.

That’s about it for this week. Take Care. ………… Tom ………….

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

Beginning of the Summer Doldrums” ? July 18, 2020

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July 17, 2020 – This will be short because not much has changed over the past week. Markets seem to be stuck at previous highs with little movement in either direction. Small investors are breaking records buying Call options (a ‘bet’ to go higher) and they love ‘penny stocks’ (very low priced stocks). Market breath is meandering back and forth and mixed signals abound.

click on chart to enlarge

So what to do? Right now, not much. Without a clear trend in either direction I just stay put. I do have a “light hedge” on as insurance, but nothing significant just yet. The table below shows that investors are taking a step back from Technology sectors. The NetFlix earnings report was a disappointment, as was Wells Fargo. So it is a mixed bag. It just seems that there is a lack of confidence to drive prices higher, but nothing firm to wave the red flag either.

What concerns me just a little is the defensive nature of some of these sectors. Looks like money is being parked for the summer, but that could sure change quickly with any breaking news item. News sensitive markets are not strong markets and this market just seems to be waiting.

Have a good week and stay safe. ……. Tom …….

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

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