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Buy the Dip ? (or not) February 22, 2020

Posted by Tom in Thoughts.
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Feb. 21, 2020 – The S&P 500 lost 1.25% for the week, which is not very dramatic since it’s had such a terrific run up over the past 6 weeks.  The rate of increase is really not sustainable so this downward “correction” is not a surprise.  These “corrections” have typically been where buyers begin to step back in for the anticipated run higher.  At some point, this will not happen.  Then things get interesting in that, does panic set in or just a wait and see type of back and forth consolidation.  In the long term, earnings (or the hope of increased earnings) drive the market.  What effects the Corona Virus has on Chinese and World economic growth is still TBD, but market makers will anticipate the direction no matter which way it goes.

The 9493 level on the NASDAQ Composite Index (red line) is where some concern begins to get generated.  (click on chart to enlarge)  It is the low of a previous important up bar and it is at the low end of the price channel (purple lines).  The earnings guidance from some tech companies (like Apple) have been muted, and thus the growth rate is a cause of near term concern.  So far the volume has increased on down bars, but not to an alarming level.  Money Flow remains neutral and the Price Strength indicator has come off of a “Strong” level.  Time to be extra watchful next week.

No surprise that Gold & Silver have risen along with other more defensive sectors.  The ranking in this table is sensitive and short term, so it can turn quickly in either directions.  But in any case it may be time to take some money off the table.  As of Friday, I backed off to being 50% Long, and will put a hedge on early next week IF the weakness continues.

Like anything else, whatever went up quickly seems to fall back quickly. Time to be careful and nimble.   Have a good week.        ………. Tom  ………..

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

Continuation Higher . . . For Now February 16, 2020

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Feb. 14, 2020 –  This will be short because there’s really not much to add from the previous 2 weeks; this market just continues higher.  Regardless of the reason / cause, it just continues . . . . until it doesn’t.  (tongue in check comment)

As shown in the above chart, prices continue to hug the upper trend channel.  That’s a little concerning because of the potential of being “over bought”.  All indicators confirm a continuation, so we must abide and be invested, at least for the time being. (click on chart to enlarge)  I have moved the support level up to 9493 on the NASDAQ Composite Index.  That would be the level where things start to peak my attention of a possible change; but until then.

Sector strength is relatively unchanged.  Technology related sectors continue to do well, but Real Estate has moved up too.

That’s about it for this week.  Continuing on, but be watchful of a change of character in this market.  When it does happen, it will happen quickly.   …………..  Tom  ……………..

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

Climbing The Wall February 8, 2020

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Feb. 7, 2020 – This market continues to “Climb the Wall of Worry” and keeps on going.  We’re half way through earnings season and so far its been pretty good, though a number of companies have given weaker guidance going forward.  Market Sentiment (chart below) has returned to positive, but Money Flow remains negative.  I’ve labeled the current price formation a possible Up Thrust.  This occurs at new highs with narrow bars (buying = selling) and light volume (decreasing demand)(click on chart to enlarged it for easier viewing)

Nothing is chiseled in stone so we’ll have to wait but this does indicate a reluctance to push higher in the immediate / short term.  The news will likely be a catalyst should any significant move up or down occur; trader are nervous.  Also I’ve moved the support level up to 9123 on the NASDAQ Composite Index.

Other than that, the table of short term sector strength is shown below.  Of note is the recent strength in the BioTech sector, likely driven by the Corona Virus scare.  The next couple of week will be a critical time for the virus.  It will either show signs of containment, or not.  The infection rate is pretty high right now.

Now much else to say.  I am “lightly long” mostly because it’s getting harder to find good stocks to buy.  This is born out by the fact that fewer and fewer stocks are driving the market indexes higher.  The majority are being left behind.  I’ll post a chart on that next week to illustrate the point.  Until then, have a good week.   …..  Tom  …..

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

Still “Lightly Long”. . . For Now February 1, 2020

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Jan. 31, 2020 –  My master timing model (not shown) remains “lightly long” for now, but it is very close to switching to Bearish.  A close below the 9088 level (the low last Monday) on the NASDAQ Composite Index will be the confirmation that there is a “change of character” in this market.  I note on the chart below that the Sentiment indicator is now Neutral, Money Flow is Bearish and Volume Flow is basically neutral.   (click on chart to enlarge it)

For some insight, let’s look at what the stocks in the S&P 1500 Index are showing us.

First off, Price Strength

Not a surprise that nearly 65% are weak and only a few (big name tech and defensive stocks) are strong.

Next the number in Accumulation or Distribution of shares (i.e. buying / selling)

Here is where we see a more “balanced market” where there is a near equal number of stocks in Accumulation (showing buying), Neutral and Distribution (selling pressure).  My conclusion is that prices are certainly weak, but there has not been a rush to sell stocks as a whole.  Perhaps many are in the mode of “buy the dip” which has worked out well for the past several years.

The Sector Strength table is shown below –

No surprises that the top sectors are generally considered to be “defensive” in nature.  Note that this table shows where sectors “are” and not necessarily where they are “going”.

So I’m “lightly Long” and “significantly in Cash” for the time being.  Watching IF we close below 9088, and what the volume signature tells us about the level of selling.  Have a good week.  …………….  Tom  …………….

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

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