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Continued Slow Grind Up May 30, 2020

Posted by Tom in Thoughts.
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May 29, 2020 – Not much new as far as the stock market is concerned. The slow grind up continues. This appears to be driven by the extremely low interest rates given to the big banks; they “rent money” at 0% and invest it. Plus a significant number of small investors; driven by “stay at home”. (?)

NASDAQ Composite Index: click to enlarge

So prices are staying in the upward sloping channel (purple lines) and the indicators show a bullish condition. But . . . from a historical perspective the market is over valued (price to earnings ratio). Even higher than before the Covid Crash. This can’t go on “forever”.

This market is also over bought. Money just keeps on chasing prices higher. The pie charts below show just how over bought we are getting; a lot of green there. These represent the stocks in the broad S&P 1500 Index.

Price Strength
% Stocks in Accumulation / Distribution

The table below shows which sectors are the strongest in the short term.

So for the time being, we go with the flow. But I still remain uneasy about this market. Just too much liquidity out there which could drain very quickly if “something” bad were to happen.

Have a good week. ……….. Tom ……….

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

Going & Going (Up) May 23, 2020

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May 22, 2020 – Wow . . there’s really not a whole bunch (new) to talk about. This market just keeps going & going. But that will come to an end, the only question is when. With the FED pumping money into literally everything there seems to be no bottom and hence “no fear”. That in itself is a danger sign. I’ve seen small yellow warning flags but many times they will pop up then disappear. Case in point is the ratio of up volume vs. down volume. For a couple of days it flashes “Yellow” (distribution), then backs off. So . . I’m looking at multiple sensitive indicators that show if money is being pulled out. So far, nothing there, but that could (and will) change quickly in this environment.

One theory is that we won’t see a meaningful pull back until late in the second quarter, when big corporations start to see that earnings are not very good. A last, this depends more on the consumer and than the FED. The folks at SentimentTrader.com did a study going back nearly to the 20’s/ 30’s to see how this market compares. The charts are shown below.

courtesy SentimentTrader.com

Note the current market is shown in light blue and the “parallel market” is shown in dark gray (click on graphic to enlarge). What does this mean? Well . . take your pick. Either we’re at the point of a consolidation phase or near a top or still have some room to go. (It’s never easy) What will drive this market (I think) is how the consumer reacts to this “opening” phase. Will they come back strong, will the virus also come back, will things just slooooowly return. My feeling is the latter, but who really knows. In an election year, there will be a lot of bantering back & forth, that is for sure !

NASDAQ Composite: click to enlarge

All I can say is that the parallel trend channel continues upward (for now). But IF we do get a correction / pullback, it will likely be modest, the FED will pump away (there is talk of them buying stock to prop up things IF it gets out of hand). OMG, bonds are not enough to support?

Sector short term strength is shown below. Note the leaders continue to be Technology based sectors. When that show stops . . look out. That is what is driving the market indexes higher.

That’s about it for now. Those in the U.S., have a good Memorial Day. Take Care ! …….. Tom …….

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

A Softer Market May 15, 2020

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May 15, 2020 – The markets were down lightly this week. I’m seeing some increasing volume coming in on down bars. Now that doesn’t mean that we’re headed for a correction, it just indicates softening for the time being. I continue to watch other market breath indicators for weakness. IF they appear & confirm I’ll move to a more defensive position.

It seems that everyone has been so conditioned to “buy the dips” for the past (many) years that it will take a significant issue to break that habit. Jerome Power of the FED had an effect on the market, but so far not that much has become of it.

A follow up on last weeks commentary about how just a few (primarily tech) stocks have driven the indexes higher. Here’s another perspective on it courtesy of Goldman Sachs.

The darker line plots the average of the top 5 tech stocks in the S&P 500 Index, while the lighter line plots the remaining 495 stocks. Since Tech has been in the lead now for quite sometime it is important to watch the top 5 for signs of weakness. Tech is a “crowded trade” and then it starts to turn sour watch out. The rest of the market will follow.

click on chart to enlarge

As you can see we just touched the lower channel trend line so things are intact for now. I’ve move my warning level up to 8705; that’s the first line of support.

The major technology sectors remain high on the short term sector strength list. With everything being so focused in that area I’m getting more concerned that the markets are venerable. I’ve cut back some exposure in that group.

That’s it for now. Take Care & have a good week. ……. Tom …….

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

Tale of Two Markets May 9, 2020

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May 8, 2020 – There is a fair amount of speculation that we are looong overdue for at least a modest correction. Last week I showed two possible scenarios. So why haven’t these played out? Well the chart below pretty much answers that question:

click to enlarge chart

The result, especially this week, is that “the market” is being lead higher by Technology stocks and the large cap stocks really haven’t moved all that much (note dashed arrows).

Two things I’ve read this week:  new account openings are at a high at retail on-line brokers & the number of shares (outstanding) for the SPY ETF has decreased significantly over the last 2 weeks.   Now . . . . I’m not drawing conclusions, but one has to wonder if this rally is being fueled by “stay at home” amateurs and that the SPY ETF is in redemption.   (note: search for redemption / creation of ETF’s for more information). Hummmm. I am watching market breath very closely for signs that the big guys are selling.  So far no, but the Up/Down volume is getting “light”.

click on chart to enlarge

I note that “money Flow” has turned lower, but other than that the NASDAQ Composite Index (the super set of the top 100) is holding up well. I’ll keep my support & resistance levels where they are. I remain concerned that stocks are venerable to bad news, either on the virus side or earnings side.

The short term sector strength table is shown below –

We see Tech sectors at or near the top and also Energy. With oil demand low and supply high I’d be very careful with that sector right now. Small positions & short term only (IMHO). I’m “passing” on it.

I’m “dancing close to the door” in case “the parties over”. That about it for now. Have a good week. ………… Tom …………

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

A Pause or A Correction ? May 3, 2020

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May 1, 2020 – “Hooray Hooray, the 1st of May !” So far earnings have been a mixed bag, even in the Technology sector. Some have been pretty good considering, while others poor, with even worse guidance. The big issue is what will happen over the next 2-3 months with the impact of the virus. No one knows. But with states opening up we should get a glimpse into the future over the next 2 weeks. Do the number of cases increase, stay the same or decrease? I think that metric will be key for the next 6-9 months.

In the mean time the long anticipated pause / correction appears to have started on Friday. I show two scenarios on the chart below.

NASDAQ Composite Index; click to enlarge

Scenario #1 is a very mild drop to the 8215 support level which I would call a “pause” before a general up trend resumes. Scenario #2 is more severe with a drop to around the 7288 level. I note that the volume on Friday (the last bar) was rather light; “no demand”, but not significant selling either. So far it looks like option #1 is the most likely but be aware that if we get bad news #2 could definitely be in play as well.

So far most indicators remain “bullish”, with Price Strength being “neutral”. We should have a good idea about the strength of this market over the next 2-3 days. I’m watching the price (of course) but also volume; which would confirm price.

The short term sector strength table is shown below.

I’m still wary of the energy sector, but if anything will lead this market high it will probably be Technology in one form or another. Banks and Finance would come in as a second.

I just have this feeling that the complete effects of the Corona Virus have yet to be fully appreciated. Will it be just jump back to the “old normal” or transition into something else? Will everyone get their old jobs back? (I doubt it.) Will restaurants, airlines, cruise ships and casinos pick up where they left off? Very doubtful ! The economy, not to mention the Federal debt load, will feel the effects for years to come. I’m cautious.

Have a good week and watch price and volume (activity). But mostly, Take Care. ………. Tom ………

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

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