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It’s All About The Market September 10, 2016

Posted by Tom in Thoughts.
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Sept. 9, 2016 – At this point it is “all about the market”, so I’ll focus on that this week.  Wyckoff was a believer in the classic “top down analysis”, that is analyzing the market environment first, then sectors, then selecting stocks.  I hope that most folks agree with the statement that it’s easiest to pick strong stocks (& make money) when the market is strong, so let’s look at this market in more detail.

The chart below shows market weakness, and has since Aug. 17 when we had a “change in character” driven by the (reverse) trend line break (red arrow).  Next my “volume flow” indicator showed weakness with a falling level (blue dashed line).  Lastly a very subtle increase in “effort” (volume on Wednesday and Thursday) with very little “ease of movement” (price bar spread; circled in blue); likely the CO selling into a small rally and getting out.  The market headed “south” on Friday big time.

nasdaq

The question now is whether this is the beginning of a new Bear market or just a correction?  Let’s go back to price structure.  Is there a structure of Distribution here?  I don’t think so.  I don’t see a Buying Climax, a Test, let alone an Up thrust after Distribution.  But recall my comments about it can be harder to see these inflection points on an index, which is an average of many stocks.  Averages then to muddle things up and take the crispness out of structure (IMHO).  Also the Supply & Demand on an Index is not a “pure” as with a stock with limited shares in the float (# of shares available).

Let’s see if the 5108 level is broken at the close early next week.  (my guess is probably not)  If not, then maybe the “buy the dips” folks step in for some bargain hunting.  If it does break, then we’ll likely drop lower to around 4970.  After that the bottom could drop out.  This just looks like a “FED scare” issue.  (Does anyone believe that the economy will go into recession with a .25% interest rate increase?)

No need to be heroic here.  I did some selective pruning of stocks Friday afternoon to raise some cash.  If we break 5108 decisively I’ll start to hedge out, going cash neutral.

Here’s a table of sector strength.  Note the “RS” values in red for the higher ranked sectors, not very healthy in the long run.

top-sectors

That’s it for now.  Time to be cautious, but also nimble to opportunity.  Have a good week.    ………  Tom  ………

Notes:  This blog typically gets updated on Saturday or Sundays, see the “data date” stamp at the beginning.  Click on graphics to enlarge them.   Chart by MetaStock; table by http://www.HighGrowthStock.com; used with permission.

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