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Next Week Will Be Important April 25, 2020

Posted by Tom in Thoughts.
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April 24, 2020 – Taking a quick look below; well . . not much happened this week. Most indexes are bouncing near resistance levels which are approximately at the 50% retracement level of this correction. Next week is important in that the big 4 of technology (Google, Facebook, Microsoft and Amazon will be reporting. What is of interest going forward is their “guideline”.

click on chart to enlarge

From above I note that “Price Strength” has gone neutral, but the remaining indicators are still positive / bullish. My more “advanced” model (not shown) is bullish, but backed off to a “neutral” reading. So, time to watch for a trend change . . . maybe.

The table below shows short term sector strength. But note: I would avoid “Energy” due to the excessive volatility in the oil market. ETF’s in this sector may not be able to track the underline commodity.

Not much else to say right now. But be aware of this resistance level and watch for a significant break in either direction. I am lightly invested, but will add more if this trend continues.

Have a good week. …….. Tom ………

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

Move Higher Continues, but . . . April 19, 2020

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April 17, 2020 – No doubt about it the recovery rally continues. Likely fueled by some positive news in the short term but mostly by FOMO. FOMO means “Fear Of Missing Out”. This typically happens after a sharp decline when most folks just sell and give up. After all of the selling is exhausted the bargain hunters start nibbling to buy; this nuggs the market higher. When no more selling comes into the market price recovers and more buying comes in. The buying continues with the last buyers feeling the “FOMO” pressure, and then . . . Well, we’ll see. The week coming up has some interesting earnings reports.

Those that expect a recovery soon to the previous highs would naturally assume that everything recovers quickly and there are no repercussions. The question is . . Is that realistic? IMHO, the best we could hope for is prices to oscillate around this level. IF there was any bad news, we could go back down and test the previous lows. We’re dealing with a virus and people. Both are rather unpredictable.

NASDAQ Composite Index

Everything on the chart about is positive and “Bullish”. Volume is increasing on up bars showing buyers are in control. But I’ve noticed an up tick in short selling of the S&P 100 Index. This indicates to me that there are some that feel we’ve come too far, too fast and are looking to “hedge” their positions just in case.

Also here is a chart of recent market down turns.

How Markets Recover

You’ll notice that major corrections are rarely (if ever) just a sharp down, then an abrupt move back to previous highs. It also shows that we still remain well above the very long term trend (red line) of market history. Just something to think about in perspective and valuation.

Lastly (food for thought) how did we get so high so fast over the past 3 years?

Borrowed Money to Buy Stock

I believe one of the major factors was low interest rates, and this is indirectly shown in the chart above as investor credit or the amount of “margin” credit. Briefly, if you borrow money from your broker to buy stock (because it’s going higher) and all of a sudden the prices plummet, you get a “margin call”, that is you have to come up with that borrowed money quickly, or the broker sells your stock (quickly). I think this was a big driver of why the market went down so fast.

Lastly, here’s a table of short term sector strength.

I am very selectively long with a fair amount of Cash. Looking for a better opportunity to deploy that Cash. Have a good week & Stay Fast ! ….. Tom ….

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

The FED Jumps in with Both Feet April 11, 2020

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April 9, 2020 – Thursday was an important day, not because the market went higher but because of why it did. Accentually the FED announced that it would start buying corporate bonds at par value. This has not happened before; the FED has only purchased US Treasury bonds . . until now. What is implied by this action is that the FED will do “whatever it takes” to prevent a major bankruptcy. The market is also reading into this statement that junk bonds and ETF’s are now provided instant liquidity & a parachute if needed.

Obviously this is bullish news and the market reacted as such. So, next week will be interesting to see IF there is any follow through to the upside or if it is a “one & done” type of move. (editorial: for the Conservatives out there . . is this corporate welfare and “socialism”?)

The other implied statement is that the impact of the virus has a much deeper impact on the economy and the lives of our citizens than many originally thought. Yes . . . it is serious, very serious.

NASDAQ Composite Index

This could be an Up Thrust in the price structure (we’ll know that soon) or truly a genuine move higher. The closes above 7878 are telling. But I continue to be wary of at retest of the lows and the potential for a “double bottom”. The market reaction to Trump’s announcement next Tuesday about reopening the economy may just be a catalyst for the next move in either direction.

The pie charts below do show just how broad and strong this latest move has been to the stocks in the very broad S&P 1500 Index.

Percent of Stocks in Accumulation or Distribution:

Percent of Stocks Above / Below their 20 day Moving Average:

The short term sector strength table is shown below:

Banks, Financial and Real Estate reacted very strongly to the FED announcement (i.e. we won’t let you fail).

That about it for this week. MY main market model just turned back to Neutral, but I may wait until after the Tuesday announcement & reaction before I remove my hedge and consider small selective buys. Careful now !

Have a good week and Happy Easter for those to celebrate the holiday. In the mean time, Take Care & Be Safe. ………. Tom ………

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

Is This “The Bottom”? April 5, 2020

Posted by Tom in Thoughts.
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April 3, 2020 – A familiar phrase: “Are we there yet?”. Well if anybody tells you that we definitely are or aren’t, you’re either listening to a gambler or a fool. IMHO. Because . . nobody really knows for sure. In that light let me give you a few possible scenarios.

1) Highly unlikely that we will see a “V” bottom. i.e. “that was the low”, and we only go up from here. Why? Because there was so much damage and unwinding of positions that was done during the last drop. It will take time with some “backing and filling” before true “real” progress can be made.

2) We go back and forth between the last significant high and low. This is show on the NASDAQ Composite chart (below) as 7878 and 6631 and labeled as #2; the dashed green line. This trading range would likely last for a few months at least, probably into the Fall. The action will build a “Cause” for the next move. So, the worst is over, but there is no hurry to re-enter.

3) We “test” the lower support of 6631 and perhaps bounce, but eventually (with bad news) break that level and continue lower. The purpose is a final wash out of the last holders and a final climatic sell off. One scenario via point & figure charting suggests a retest of 7878 in May, then a major break lower in mid June / July (forming a “spring”), before a major rally in the September / October time frame. This is shown as the dashed red line, labeled #1. Note that I didn’t have room in the time / date scale, so that is not representative.

My gut feel is that scenario 3 above is the most likely, but we should always be prepared for any possibility. Note how the volume on the last swing rally was low, i.e. No Demand. This market just doesn’t appear to be at the stage to go higher very soon. Buyers are not stepping in. Besides, we have yet to see the hard numbers of how badly this shut down is hurting corporate revenue.

I’m posting the (short term) Sector Strength table below, but honestly, I’d be very careful with any purchase and keep my time frame goals short term to say the least.

Even the strongest sectors are “less weak” since their weekly strength is not very good at all.

Time to be patient and continue caution. This is a weak, news driven market and picking a bottom is not going to be easy. Typically a major drop like this requires time and then a period of low volitility. I just don’t think all of the bad news has come out yet. I’m staying with a significant Cash position and trying to “hedge out” the rest.

Have a good week and stay as healthy as you can. Take Care. ….. Tom …..

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