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June 25, 2016

Posted by Tom in Thoughts.
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June 24, 2016 – Every once in awhile I think it’s a good idea to step back and evaluate the “big picture”.  By that I mean looking at the market in a different (typically longer) time frame.  With the market in so much turmoil it seems that now would be that time.  The chart below is the NASDAQ Composite in weekly bars; that is each vertical bar represents a week as opposed to a day.  (click on chart to enlarge)

NASDAQ

I’ve (attempted) to apply Wyckoff theory labels in the bigger, boxed letters.  Here is a POSSIBLE market structure scenario:

Did we have a Buying Climax (BC) in July of last year?  Followed by and Automatic Reaction (lower) to the 4290 area?  And then a Up Thrust After Distribution (UTAD) in November / December?  Lastly, was the last market rally (June of this year) a Last Point of Supply (LPSY) ?  For the purist, the answer is NO because these points are not spot on classic Wyckoff points, but IMHO Indexes are the hardest structures to call.  The reason is they are . . . averages of many stocks, and thus don’t necessarily follow pure Supply / Demand structures.  In my opinion, if you wait for a perfect structure . . you’re going to missing many important inflection points during the wait.

The red horizontal line just calls out that since November, 2014, the NASDAQ Composite has not made a lot of progress.  Volatility yes, in hand fulls, but no sustained upward progress.  So where does this lead to?  Well the markets closed at a previous swing low, and we can see that price support level going back years now.  Likely, if we can’t hold this level, we’ll re-test the 4290 area (lower).  I keep reminding myself of the definition of an Up Trend: higher Highs and higher Lows, while a Down Trend is lower Highs and lower Lows.  It all depends on your time frame, but on a weekly chart, I’m not seeing higher Highs right now.

What next?  Monday & Tuesday should be interesting.  Are retail investors selling after this weekend of news and / or are the big guys nervous enough to sell into this already significant decline?  Let’s pay particular attention to how the market acts in the afternoon and what volume is being generated.  I don’t doubt the possible buying opportunity, but we’ll need to see institutions coming into this market in a significant way and I doubt that will happen quickly.  Folks are nervous and more inclined to wait for a direction to be established.

No need to talk about what’s doing well.  It’s precious metals, US bonds, utilities and some real estate . . . all defensive.  These have gone up significantly over the past 6 months, so they are getting extended.  The big question is whether this is just a summer slump or a structural change.  If it is the later, my Wyckoff label may look pretty good.

Have a good week.  …………  Tom  ………….

price chart by MetaStock; used with permission

Market Fears Continue June 18, 2016

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June 17, 2016 – This will be a short post, it’s a busy weekend here.  🙂   But in any case(s) there not much new.  Concerns continue about “Brexit” and the unknown impact it will have on the US and world economies (IF it happens).  The FED can’t win.  If they raise interest rates there are fears of drawing money out of stocks (& from other parts of the world); if they don’t increase, things must be worse than anyone thought.

Political and social turmoil just add to the fears.  Stepping back we know that corporate earnings have slowed and we’ve recovered much of the equity lost during the “Great Recession”.  We’re close to the previous top.  More to loose than gain?  The market doesn’t know where to go next.  Back down or a slow grind up.  On top of that the summer season is typically not a strong one for stocks.  It looks like we’re settling in for the long hot (slow) summer.

NASDAQ

In the short term (hourly chart) I see lower Highs and lower Lows in the price swings; not a sign of strength.  The purple reverse trend line is clearly broken and there is more selling than buying.  A change in character for the market.  A key support level is the 4680 area (red dashed line), and we could very well get there.  Market Sentiment is Bearish.

Price Strength

The pie chart above shows the relative price strength of the stocks in the broad S&P 1500 index.  No surprise here, but so far it just looks like a correction.  I don’t see panic selling, just a mark down of price trying to shake shares out of “weak hands”.  Looks like the “smart money” is vacationing in the Hamptons.

Top Sectors

I don’t recommend taking new positions and hopefully we’re holding shares in one of the top sectors in the table above.  That’s were the short term strength lies.  This is a time to avoid losses and exit positions when they confirm weakness, especially relative to the overall market.  Preservation of Capital as they say.  The result is a market that doesn’t know where to go next.  Neither up or down look that great, but the nod goes to the weak side IMHO.  I’ve slowly raised Cash and hedged out my longs via a bear ETF.  Let’s wait in a near neutral position until the coast clears.

Have a good week.       ………. Tom  ……..

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

BREXIT Fears June 11, 2016

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June 10, 2016 – This past week was going along fairly well until Friday when a new poll taken in the UK showed that more people favored leaving the EU than staying.  In any case, it does appear that the vote will be a close one.  Rumors are flying that Holland maybe thinking about a similar vote.  IF the UK were to exit the EU it is very uncertain what affects it would have on any economy.  Likely though bonds in the US would go up as well as the US $ and Gold.  Oher than that, it’s a coin flip.

This does show how venerable the market is though.  Folks are nervous even with the grind higher.  Looking at the chart below we note that the prices are now at or very close to the recent highs back in November / December.  The narrow bars last week are an indication of buying / selling in balance with a bend toward a change, since there is minimal commitment on either side.

NASDAQ

Right now (close of Friday, 6-10) we are close to a short term lower channel trend line (not shown, sorry); that’s at 4850.  The next area that concerns me is around 4765 (a mathematical stop price).  The support levels shown on the chart are primary as well, since they go back to previous support levels.

My Trend math model has turned neutral (cash) from Bullish, so IF weakness continues into Monday, I’ll exit my Long index positions.  Sentiment remains Bullish, so I would hold off any Short Index position until that verifies a change.  I’m certainly not raising the red flag, but for the past 2 weeks I’ve been cautious, and this maybe the correction that fulfills that feeling.

The pie chart below shows what sectors the stocks are in that I’m tracking as Bullish.  Obviously, I’m not buying these just yet, but could if we get a correction, then a sign of strength.  My own opinion is that any correction would be minor (within the current move) and may be a buying opportunity; but that has to prove out.

Top Sectors

(as always, click on any graphic to enlarge it)

That’s it for this week.  Take Care & Good Trading.      ………….  Tom  ………….

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

 

“Stopped on a Dime” June 4, 2016

Posted by Tom in Thoughts.
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June 3, 2016 –  An interesting week as the market literally “stopped on a dime near the previous top of 4970.  Renewed concerns about the FED raising interest rates (again & again), as well as fears that the global economies are slowing even more.  So we’re at an important inflection point.  Will we break the old highs and continue to rally or just bounce off and head lower.  Either could happen as investors and traders are nervous.

NASDAQ

The overall problem that the FED faces is actually raising rates.  The chart below shows why.

Internation interest rates -10 Yr

Interest rates (10 year) in the US are much higher than the rest of the world . . . even higher than Spain & Italy (go figure).  Raising rates further will flow even more international funds into the US.  Good for US stocks (except financials), but it puts a dampener on what other countries are trying to do to stimulate their economies.  A conundrum for sure, with no easy solution.  I’ve got to believe that the EU and Japan do NOT want to see the US interest rates rise any further for a while.

If the FED keeps rates stable, the markets will likely like that; raising them would likely start a short term sell off (the “June Swoon”).  In the mean time all we can do is trade the market that we have and try not to get ahead of ourselves.  Here’s what is currently doing well (in the short term) out there:

Top Sectors

As usual, click on any graphic to enlarge it for easy viewing.

I note that volume has picked up to “average” and most of it is on up bars (accumulation), market sentiment is positive, so I am cautiously and partially Long.  I’ll increase those Longs if I see continued strength, but for now I could go either way based on where we are near a previous top.

That’s it for this week.  Take Care & Good Trading.     …….  Tom  …….

chart by MetaStock; table by http://www.HighGrowStock.com

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