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Showing Early Positive Signs August 31, 2019

Posted by Tom in Thoughts.
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Aug 30, 2019 – OK, this will be short and to the point.  I’m now seeing signs of possible “stopping action” for this correction.  The chart below shows Market Sentiment (top) followed by Money Flow and Volume Flow beginning an up trend.  That’s encouraging, but we still need confirmation.  I feel that confirmation will be when the NASDAQ Composite Index closes above the 8048 level (dashed green line; click to enlarge chart).

That could come early next week as many traders return from the (US) Labor Day holiday.  Until price action confirms we must assume continuity, that is a market in a trading range with a negative bias.

One thing that helps confirm a possible market change is the table below.  I note that the more defensive sectors have moved out of the top ranks.  I have begun to nibble on a few stocks that have shown good strength relative to the overall market, plus have good price action.

Have a good week; even though the US markets will be closed on Monday, foreign market will be open and will give us an idea how the US markets will open on Tuesday.     ……..  Tom  ………

Chart by MetaStock; table by http://www.HighGrowthStockInvestor.com.  Used with permission.

 

Weak Markets in a Trading Range August 24, 2019

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Aug. 23, 2019 – First a short note:  I’ll be away from my office for the next 4 weeks.  In the past 5 years I haven’t missed a weekly report, but . .  that may happen over the next month.  Plus my posts will likely be rather short; so just a “heads up”.

Markets that are weak tend to react (or over react) to bad news, while strong markets usually ignore the news.  With just a few minutes of his time and one “tweet”, Trump can send the market down over 2%.  Bamb !  Not to get political, but this action shows just how on edge many investors are.  And, the algo computers continue to amplify any significant move.  This is a hard market to trade.  A look at the chart below shows the trading range that I believe we are in.  (click on the graphic to enlarge)

As a Wykoffian I’ve labeled the Buying Climax (bc), Selling Climax (sc), Automatic Rally (ar) and the Secondary Test (st).  The reaction at the top of the range on narrow bars and very light volume showed that there was no demand; i.e. no buying interest at that level.  Friday was a large bar down on heavy volume.  The next thing to watch is how this market acts around the 7643 level.  Do investors see this as a “buy the dips” opportunity or does the selling continue?

Again, we’ll analyze the spread of the daily bar and the volume behind it (effort = volume and ease = price action).  Effort with little Ease of Movement (price movement) tells us that buying (or selling) pressure is being absorbed and change is likely to happen next.  The other scenario is that we just continue to trade with little conviction between 8041 and 7643 until after Labor Day, or another piece of news crosses the wire.  In any case right now there is no clear trend in the near term.

Looking at the table below we note that defensive sectors are at the top of the list.  (note that these ranks are short term based)

I am holding a few stocks that so far are doing well compared to the general market, but also I have a light hedge on via being short the NASDAQ 100 & Small Cap Indexes.  I’m keeping an eye on a few mutual funds and will scale out to Cash if they show weakness relative to the overall market.  So far, they are doing OK.

That’s it for now.  Have a good week.       ……….  Tom  ……..

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

Short Term: Stuck in the Middle; Long Term: Down ? August 16, 2019

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Aug. 16, 2019  A quick look at the chart below shows the market in a trading range / consolidation between 8041 and 7643 (green & red dashed lines).  Major damage was done during the latest drop and once again volatility has returned.  In my opinion this volatility is being driven in a major way by “algo” / computer trading, as once a move starts we see volume coming into the markets to amplify it (in either direction).  The computer programs basically “dog pile” into and out of the market.  It’s something we have to live with, and the way to look at it is what has happened over the past 5-10 days and not just the last 2 or 3.  (click on chart to enlarge)


Market Sentiment, Volume and Money Flow indicators remain Bearish.  The short term Price Strength is Neutral.  The question is are we in a consolidation / base building phase or just a pause?  Until the price closes with a break in either direction we won’t know.  But my “guess” is we have more room below than we do above at these levels.  All that’s needed is a news item (like China trade or Iraq) and away we go; and go quickly.  That quick response makes managing a portfolio a lot harder.  But there is an old saying, “It’s better to be out wishing you were in, than in wishing you were out !”.

I remain in a fairly hedged out / cash neutral status for now.  A look below to the sector strength table shows why.  The majority of the top sectors are defensive (China being the exception).  Not exactly an endorsement for a strong, growing equity market right now.


So, not much else to say except try to keep some powder dry and if things get worse, I may go slightly short (net overall).  Watch the daily volume and what the price bar does on those high or low volume days.  Direction wise, but also the spread of the bar and where it closes within the range.  Is the volume being absorbed or is it pushing price in a direction easily?  These will be the clues on who is doing what.  So far the big holders have not liquidated much, but if they do, we’ll see it and act accordingly.

Have a good week.  ………….  Tom  …………..

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

Market Neutral August 10, 2019

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Aug. 9, 2019 –  After the fall comes the moment of truth.  Is this “buy the drips” (which has worked many times before) or the start of something more substantial?  No one knows for sure, but we do know that “algos” (algorithmic trading) accentuates just about any move of more than 1% in a day, either up or down.  Damage was done via the large chuck of volume traded last week, so we’ll have to see IF buying comes back.  The last couple of days look like short covering rallies.

My key levels are 8041; a close above this would put me into CASH and sell my bear fund insurance.  And 7643; a close below that would have me add to my bear fund insurance and consider exiting a few more stocks.  Other indicators remain “bearish” due to the volumes that were traded on the down bars.

Looking at the broad S&P 1500 stocks and how they are fairing-

Price Strength:Weakness far exceeds strength.  Pretty much what is expected right now.

Accumulation/Distribution:A fairly even distribution of Accumulation (buying), Distribution (selling) and Neutral percentages of stock.  Thus not wholesale selling and more characteristic of a minor correction or a congestion of prices going forward.

Sector Strength:

The more defensive sectors remain at the top of the sector strength table.  It just seems that this market remains “on edge”, looking for direction.  Most of the earnings are now in and has been a few great and poor ones.  What concerns this market is the future and the future looks like a continuation of a trade war and geo-political  turmoil (red N. Korea, Iran, Brixit, slowing and lethargic world economies.  This is the time to be very selective and more short term focused; IMHO.

Have a good week.    ……… Tom ……..

Back to Caution August 3, 2019

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Aug. 2, 2019 – Just 2 short weeks ago I titled this blog as “Caution”.  Then the market went to new highs; go figure.  And this past week, in just 3 days we’ve seen that cautious position pan out.  All it took was the FED to “only” reduce short term rates by .25% instead of the much hoped for .50%. And then a Trump tweet on tariffs put the icing on the preverbal cake.  I remember the old quote that “strong markets sluff off bad news, while weak ones quickly react”.   What I find strange is that we’re a little over half way through earnings for the 2nd quarter and they have been generally pretty good.  It must be nerves about the future.

 

In any case we blew through the early warning “3 bar reversal” level at 8771.  I note that volume picked up during the price drop but not to panic levels.  My inclination is that we’ll approach the next level down at 7812 for a shallow but quick correction.  Looks like the big guys “sold at retail” and are looking to “reload at wholesale” prices.  When we start to see strength returning in the Technology and Internet sectors that will likely be the bell weather that strength is returning overall.

Let’s look at the very broad S&P 1500 stocks to see how much damage was done:

Price Strength – Accumulation/Distribution – 

No doubt that the percentage of stocks in the index has taken a hit with over half below their 20 day moving average or very close to it.  The number in Accumulation or Distribution is much more even, leading me to think that this is likely a “normal” correction.

Short term sector strength is listed below:

No surprise to see Bonds and Defensive sectors showing the most strength.

I have lightened up on stocks that were showing weakness greater than the market and have reduced sector holdings.  Since news is driving this market one must not get to confident that everything will return to previous highs.  We may just flop around in a narrow range until after Labor Day.  And so we go “Back to Caution” for the time being.

Have a good week.  ………..  Tom  ………..

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

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