jump to navigation

Slow Summer Grind Higher August 28, 2020

Posted by Tom in Thoughts.
Tags: , ,
add a comment

Aug. 28, 2020 – The markets just grind higher. Nothing dramatic, just a slow & steady grind. It seems like nothing really matters. The economy (looking past that), earnings (looking off into the future), social unrest (been there) or politics (waiting until October). As long as there is very cheap money, not much matters. A big geo-political event might have an impact, but it looks like the real danger is earnings. I doubt that this market has “felt” the 38% decline in the Gross Domestic Product . . . . yet.

Just keep in mind that fewer and fewer stocks are holding up these index values. If it wasn’t for the Technology sectors, well then things would be a lot different. A single mis-step by a tech darling would bring a reawakening I feel. Until then we just have to be extra careful.

click to enlarge

Sentiment is neutral but nearly everything else is positive. Prices climb the upper price channel (purple) while volume is dropping. Not much buying, but not any selling either. I think this is the “summer doldrums” with many traders “out” until after Labor Day (Sept. 7 in the U.S.). I remain invested, but have extra Cash to deploy; it’s just not a great environment to do that now.

No surprises here. It’s mostly Technology leading the way. I do note that Treasury bonds have been moving lower (interest rates increasing a little) over the past couple of weeks.

Not much else to dwell on. Have a good week. ……. Tom …..

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

Narrowing Market Leadership August 22, 2020

Posted by Tom in Thoughts.
Tags: , ,
add a comment

Aug. 21, 2020 – Last week my writing theme was what is fueling this market (especially in the U.S.). The bottom line was & is cheap and available money (especially for big banks) and optimism for a Corona virus vaccine (and soon).

The logic is that the world in general is either in recession or an economic depression. Valuations of common stocks are high (as measured by the price/earnings ratio) and the guidance going forward is mixed at best. Since the U.S. economy is roughly 70% based on consumer spending, what will stimulate corporate earnings in the immediate future? Back to the vaccine idea. So this market is overvalued but very hopeful. That sets the stage for disappointment IF things don’t work out. That could mean a slow rollout of a vaccine (distribution worldwide) and a slow economic recovery.

click to enlarge

I note in the chart above that Sentiment has turned negative as well as Price Strength. Another observation is the very narrow bars over the past 7 days. This being an indication that buying and selling are about equal. Make no mistake, the big guys sell into a strong market when they have buyers. Is this the beginning of a correction? No one knows for sure but I did come up with a new way to look at market strength and overall breath.

The pie chart below shows the percent of stocks in the S&P 1500 Index that had a price movement in 3 categories over the past 5 days (the last week). As a reference I note that the index itself showed a increase of 0.5%.

Of interest is that over 76% of these stocks did not participate in the move and only 9% had a significant move. My conclusion is that this is (again) a time for caution. Let’s look at sector strength to see what ares are moving the market.

We see the Technology sectors well represented. Not surprising that they are typically the ones least affected by this virus economy. I am surprised about Consumer Goods & Services though. Keep a close eye on these sectors for weakness; the “canaries in the coal mine”.

That’s about it for now. I have throttled back just a little on Friday, but keeping an eye on the exit door. Have a good week. …. Tom ….

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

So Bad, and Yet So Good ! (?) August 15, 2020

Posted by Tom in Thoughts.
Tags: , ,
add a comment

Aug. 14, 2020 – With the price to earnings multiple at near nose bleed levels, the outlook for future profits doubtful, how can the stock market be at / near all time highs? The answer is money, and lots of it.

We all know that the stimulus programs have pumped lots of money into consumers, the unemployed and business but what about the stock market? Well, if you could borrow at near 0% interest all of the money that you wanted and could get 5-10% return in a week . . . that would be called a “good deal”. And that’s the deal that the big banks have got. The hope is the cheap money will be loaned out and keep the banks balance sheets healthy but there is nothing to stop them from “investing”.

Let’s look at the Federal Reserve data on the U.S. Monetary Base below. The Monetary Base is the sum of all money in circulation and deposits at commercial banks. (i.e. “commercial banks” = big & bigger banks)

click to enlarge

Talk about a sudden increase in the Monetary Base ! The concern is how long this can continue without some form of “debasement”; is the US dollar still worth the same to everyone in the world . . . or not? (note: the $ has fallen as of late)

There has been a lot of talk about unemployment and how the rate of new claims is slowing. That’s good, but the real issue is the continuing claims. The chart below tries to put that into perspective.

About the only thing I can gather is that unemployment is not getting worse, but it sure isn’t getting better either.

Lastly, I’ll leave the reader with a write up by John Mauldin which talks about how this economy will recover.

https://www.mauldineconomics.com/frontlinethoughts/the-second-great-depression-but-not-really

It is eye opening in that the economy will recover, but VERY Slowly, and it will not be the same economy. The service industry will not fully recover.

OK, here’s the NASDAQ Composite chart (below). We have inched a little higher last week, but the last 3 bars / days show a very narrow range on low volume. Buying = Selling and (volume) there’s not much of either; a dull market. Looks like we’re back to “wait & see” mode.

I note Money Flow is softening as well as Price Strength. Let’s take a quick look at Sectors:

I remain about 50% invested just because of concern that reality of the US economy will come back into focus. And when it does it will be a rapid adjustment. Much hangs on the new stimulus package. Without it many people (think over 31 million unemployed) will have major problems. And since the US economy is 70% based on consumer consumption, that WILL effect nearly all areas and businesses.

I am watching the VIX and Treasury Bonds for clues about big money taking a defensive position. Take Care and have a good and safe week. ………. Tom ……….

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

Break out or “Over Throw” ? August 8, 2020

Posted by Tom in Thoughts.
Tags: , ,
add a comment

Aug. 7, 2020 – Last last week the markets (NASDAQ shown below) broke above their multi-week horizontal price consolidation / price channel. Now the question is whether it is a breakout higher or just a price “over throw” above the upper channel (purple lines), with the price coming back within the channel?

My feeling is that it is an “over throw” of the channel and prices will come back down within the channel. The support for this logic is that volume did not increase on Friday with the close well above the upper channel; folks were not in a hurry to buy. So early next week will tell us. A correction back to the 10412 level is likely, especially with the news over the weekend. Support is at the 9663 level. Breaking that (on a close) would be cause for concern. But, overall, the chart below looks very positive.

click to enlarge

Sector Strength remains strongest in the “Tech” sectors and small(er) cap stocks. (table below).

Not much else to contemplate except how the markets will react to the stand off in Washington. I just got that feeling that the markets (in the US) can’t go much higher without some form of social stimulus package. (the response to the virus has not been handled well at all)

That’s it for now. ……………….. Tom ……………….

Still . . Horizontal August 1, 2020

Posted by Tom in Thoughts.
Tags: , ,
add a comment

July 31, 2020 – For the past month (+ 4 weeks) this market has gone basically nowhere . . . . in a horizontal channel (purple line below). With all of the news, both good and bad, still no defined trend.

click to enlarge chart

Volume has not been unusually high or low, so trying to find a hint of a demand signature is tough. Is this re-Accumulation or Distribution? Right now it just appears to be a consolidation of recent gains. Technology earnings are great, but what about the entire economy where Gross Domestic Product feel by over 30% last quarter? There is more than enough “bad news” to spook the market, but with liquidity (i.e. easy money) available at near 0% for big banks what is there not to like? At the first sign of the FED cutting back on loans, that will be the hour of reckoning.

I see “structure” in the lower half of market breath indicators giving me concern that only a few names are holding the market indexes higher. It just seems that things are great for a few big companies, but that good feeling does not go very far down the list. I keep thinking an international exposure may be a good idea, but nothing has developed just yet.

In the means time we just have to invest in what we have & what we see. I’m only about 50% invested and the rest in Cash. I’d love to buy more, but putting all money in just a few similar sectors is not a good risk control method. I feel like it’s a version of Musical Chairs. And when the music stops . . . Here’s a table of short term sector strength:

Not much more to say except be watchful of the leaders and signs of them “falling out of bed”. Take Care and have a good week. … Tom …

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

%d bloggers like this: