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Right at (price) Support Level May 25, 2019

Posted by Tom in Thoughts.
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May 24, 2019 – Once again a up & down week, but of note is that we’re right at the 7645 price support level on the broad NASDAQ Composite Index.  This is a “logical” level to spring upward, but also a level to be concerned about if it closes below that.  That break below doesn’t mean a crash, but just validates market weakness and a likelihood of further decline.

It’s rough to keep up with the quick moves; mostly driven by news & “tweets”.  Looking at a longer term perspective the McClellan (volume) Summation Index shows that over the past months there has been roughly 5.5% more downside volume than upside volume.  Also the chart above shows most indicators are negative or at best, neutral.  It’s looking like the “Sell in May & Go Away” idea has caught on this year.  It could be a long summer of back and forth.

Earnings season is wrapping up and it has been generally “OK”, with a few cautions going forward.  The trade war with China is beginning to weigh on an increasing number of businesses, and that will likely affect the next earnings reports over the summer.  I haven’t shown the SP 1500 Index pie charts for awhile so let’s take a look:

Price Strength – % of Stocks in S&P 1500 Index:

No surprise that most stocks in significantly below their 20 day moving averages (red shades above).

Accumulation / Distribution – % of stocks in S&P 1500 Index –
The 3 sections above are about equal (roughly 1/3 each), so not a whole lot of selling just yet.

As far as sector strength (in the short term), there is strength in defensive issues; Telecom, Wireless, Government Bonds, Utilities, Real Estate.  Weakness in Emerging Markets, especially China.  Semiconductors continue their weakness with Technology not far behind.  I remain modestly invested and modestly “hedged” to protect the portfolio.  Since the economy is fairly strong, a rebound in prices could happen at any time depending on news.  A time for caution and to keep an eye on the exit door, but not to run toward it.  (IMHO)

Have a Good memorial Day (in the U.S.) and a great week.     …………  Tom  ………..

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

Between a Rock and a Hard Place May 18, 2019

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May 17, 2019 – I was temped to title this “Between Iraq and China”, but decided to drop the idea of a pun.  This market continues to be majorly influenced by news.  To be bouncing between a trade war and a fighting war is not a recipe for a stable investing environment.  Nuff said.  But the real “Rock” is the 7645 level (green dashed line; price support) and the “Hard Place” is 7965 (red dashed line; price resistance); note chart below (NASDAQ Composite Index).

The indicators are mixed: Money & Volume Flow are negative, Price Strength positive and Sentiment negative.  I find it interesting that prices did stop near the 7645 area, that’s where the last “buying” occurred, and that was drawn in quite awhile ago.  The same for the 7965 level, where selling came into the market.  These are “weekly significant bars”; not true Wyckoff, but inspired by his work.  This is a fairly narrow range in between these levels so we won’t have to wait very long for something to happen.  I should point out that on an intraday basis, we should be on the lookout for a “shake out” if market makers try to do a “head fake” at either level and then head the other way.

The table below shows where the market is strongest in the short term.  Namely Telecom, Wireless, US Treasurer Bonds, Real Estate Utilities, etc.  The trend I see here is that these are generally speaking, defensive sectors.  Sure, Tech and Internet stocks have recovered, but so far they are not registering.  Note how low the Semiconductor sector ranks.  Major weakness continues in Latin America, China and Emerging Markets.

Currently I have a light hedge on portfolios as a defensive tactic, but that will come off if I see a strong close above 7965 & then go to Cash while I wait for an “all clear” signal.  Time to get ready for a possible break, the question is which way, but it seems most are thinking defensive right now.

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

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

At an Important Level May 11, 2019

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May 19, 2019 –  This will be rather short, but that’s O.K. since we’re at an important level.  That support level being 7965 (close to it).  Note on the chart below that every “heads up” indicator has turned negative in the short term, and we’re resting just a small bit below the 7965 level.

While it sounds like we’re in bad shape from news reports, the price action has really not been that bad.  Volume is up just a little, so people are not rushing for the exits and the lows for many bars (days) were made in the morning with a strong close at the end of the day.  People are on edge with all of this trade talk but so far no panic.

Looking at the stocks in the broad S&P 1500 Index we note that there remains a health, near equal, split between the number in Accumulation, Distribution and Neutral.

But I have seen a shift in the sector strength table (below).  The technology stocks have been hit hard while the rotation has been toward “safer” Treasury Bonds, Real Estate, Healthcare and Pharmaceutical sectors.

Of note is that Banks and Financials are hanging in there for now.  Gas/Oil, China and Emerging Markets join Tech at the bottom.

Right now I’m moderately “hedged” via purchase of a “Bear Fund” that will go up when the market goes down.  I look at this as a synthetic Cash position / portfolio insurance that can be added or removed quickly.  Next week will be interesting to see who or what will push this market in one direction or another.  I’m watching bar price action and volume for clues, but right now things look OK for the time being.

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

The Grind Higher May 4, 2019

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May 3, 2019 – With all the news about the (US) economy, jobs and new market highs, it’s easy to get caught up in a near euphoric state of mind.  But as some have pointed out, a market correction starts at the top, not the bottom.  This week started slow then got hit on Thursday only to recover on Friday.  Not much movement really.

We see on the chart above how we were about to get indicators to rollover in sync and then they recovered.  Money Flow and Market Sentiment showed weakness only to barely recover.  I note that Price Strength did go from “strong” to “neutral”.  Earnings have been pretty good but stocks are fairly well valued.  We’ll need added buyers coming into this market to drive prices higher; earnings alone won’t do it at these prices.  I’m looking at the 7965 level on the NASDAQ Composite Index as a near term support level.  So where does the incremental buyer come from?  The chart below shows that “Dumb Money” (small retail buyers) are approaching a high and “Smart Money” buyers (intuitions) are getting cautious & less confident.

This data along with the number of stocks advancing vs. declining and the number of new highs vs. new lows shows that the upward momentum is slowing and the participation in the moves is getting smaller.  (my Thanks to SentimentTrader.com for this chart)

Another factor is the issue of sector rotation.  We’re seeing Tech slow down and Internet stocks really slowing, while Banks and Financials are finally showing leadership.  Healthcare and Pharmaceutical are recovering from the “social medicine” scare a few weeks ago.  The table below shows the current strength of the major sectors.

That’s about it for this week.  The market loves low interest rates and high consumer confidence so the grind higher continues, but it’s beginning to shows signs of being tired.  Bad news could be a trigger and if it comes (when it comes) it will be quick.  Have a good week.        ………….  Tom  …………

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

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