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Yellow Flag – Caution July 20, 2019

Posted by Tom in Thoughts.
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July 19, 2019 – First off, there are a couple of sensitive indicators that are showing caution and a possible down turn here (started on Friday).  Some are price based and a few are more general based on indications of weakness driven by a lack of continued buying.  In any case it’s not necessarily time to bail out or hedge, but a time to be more observant.  (click on chart to enlarge it)

IF price on the NASDAQ Composite Index closes below the low on Friday, I’ll consider putting my Index model into Cash.  If it continues to drop below the support level at 7915 I would consider putting on a “light hedge” for protection.  Further weakness would increase the hedge to protect the rest of the portfolio.  On the stock and ETF side I’m looking for signs of weakness, especially in reference to the broad market.  The idea is to detect Distribution of shares; i.e. liquidation / selling.  Price weakness on increasing volume is not a good sign.

A lack of buying (Accumulation) doesn’t necessarily mean selling, but it could lead into that.  I’ll watch the VIX Index, which shows the ratio of call volume to put volume.  If these option traders are getting concerned, that’s usually a good sign that I should be too.  The question is always just how far.  The bottom line is no one really knows until buying resumes.  Remember, prices only go higher if there are more buyers than sellers.  Buyers need to see the possibility of even higher prices to buy now.  Earnings continue next week and we’ll see what effects they will have on the overall market.  Microsoft was good; Netflix not so much.  So far, a mixed bag.  Momentum is slowing; that much is known.

Right now Technology, Consumer Goods and Banks are in the lead in the short term.

That’s about it for this week.  Yellow flag is flying . . . watch for Red.  Have a good week.  ……  Tom  ……

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

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