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A Pause & Indecision December 24, 2020

Posted by Tom in Thoughts.
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Dec. 24, 2020 – I’m writing this about an hour before the close on Thursday (at 11:00 am EST) and the US markets are closed tomorrow, so it’s basically the end of the week. Wednesday saw a large volume spike likely driven by Trump’s refusal to sign a bill to fund the government and another to fund the second round of stimulus for COVID relieve. I try (hard) not to be political but . . . . really? Where the Hell has he been the last 4 weeks when all of this was being negotiated ! The “end” can not come soon enough, IMHO (I won’t get started on pardons, that’s another story).

click on chart to enlarge

That big spike on Wednesday and the very high volume bar (labeled “Activity”) had me worried that Supply was quickly coming into the markets. As of this morning, the market indexes are up modestly; so far no follow through. But in general the market breath is weak, mostly because of this rally is long in the tooth.

Last week I showed a chart of the S&P 500 and the average P/E ratios (price/earnings). I follow up on that with a chart of similar fundamental metrics.

click to enlarge chart

The stocks in the index are divided into two groups, those with traditionally low P/E ratios (green) and those with high ratios (red). I’ve put in a dotted yellow line at the 50% level as a sort of bench mark. Now just because prices are high compared to earnings that doesn’t mean prices can’t go even higher, but we are in an over valued state which leaves the market open for disappointment. Bad news will do it. Any sign of a sustained slowing of the economy will bring a response from investors. I’m watch two areas: 1) Any excess tax selling (on increased volume) between now and the end of the year. 2) Post Christmas retail sales numbers (a direct sign of consumer spending & confidence). We won’t have to wait long for either one of these news bites; next week. The stage is set for reaction to news. Time for caution.

Here’s the table of Short Term Sector Strength

Wishing all of my readers a very Happy Holiday Season ! Take (extra) Care. ………. Tom …………

Chart by MetaStock; table by High Growth Stock Investor

Trend Continues . . . . Slowing December 19, 2020

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Dec. 18, 2020 – Well the trend up continues though there are signs of slowing. Concerns about the economy include consumer spending and rising unemployment. Retail sales numbers after Christmas should be a telling indicator. In any case the pressure is on Congress to “do something” and Trump has basically given up on the presidency (i.e. no involvement or interest).

click to enlarge

The 12217 level would be a mild pull back after Christmas as there would (likely) be some tax selling before the end of the year (concerns that taxes will increase next year). It’s pretty basic: until the virus is under control the economy will not recover, but it looks like help is on the way. The Friday “blip” in volume was options & futures contracts expiring & thus rebalancing stocks. This and next week activity should be low as we head into the holiday season so volume will be light and trading liquidity light as well. Prices can move more quickly in this environment and so volatility will likely increase.

Looking at sectors. Here’s the very short term strength over the past 5 days in pie chart form:

And the same sectors in a lightly long term table form:

I note that consumer goods and the software element of technology are doing well. Interesting in this environment so we’ll see just how long these sectors can continue to show gains.

Nothing else very exciting so enjoy the holidays as best you can. Take Care. …… Tom …..

Chart by MetaStock, table by High Growth Stock Investor; used with permission.

Up Trend Pausing December 12, 2020

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Dec. 11, 2020 – Things have been going fairly well recently, but Wednesday the market stalled. This could be just a pause or something worse so let’s keep an eye on it. As shown on the chart below we’re bouncing near the first level of support at 12217 on the NASDAQ Composite Index. Volume is light so it appears to more of a “lack of buyers” than significant selling. The indicators remain positive.

click to enlarge chart

What the cause of this slow down is immaterial but likely the stalling of the stimulus talks in Congress and the continued Trump tirade (yes tirade, because enough is enough !). Brexit is looming on the international front as well. Were we stand from an evaluation perspective is a major underlying concern too. This market is not cheap. Looking at the Price to Earnings ratios below points this out clearly. This market is priced to perform and if earnings disappoint there will be some form of reckoning.

We are well above the high 20’s / low 30’s in the P/E ratio where long term investors begin to take note an buying can retreat. If there are fewer buyers than sellers, well the prices fall. Pretty straight forward. Again, this is not calling a top, but I do like to keep the overall market in perspective.

The table below shows short term sector strength. I’ve added a few columns to show what prices have done over the past 5, 10, 15 and 21 days. This adds to understanding trends.

The good news is that Small Cap and Mid Cap sectors are leading. That typically shows optimism for future gains. I remain “long” and try to focus on the strength in the market, but I like to look over my shoulder every so often. Thats about it for now. Have a good week. ……….. Tom ………..

chart by MetaStock, table by High Growth Stock Investor, P/E table by Doug Short / Advisor Perspectives; used with permission

Steady As She Goes December 5, 2020

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December 4, 2020 – Last Friday the NASDAQ Composite Index (below) broke above the previous high / peak of 12074; OK good, but we needed confirmation. We got confirmation on Monday of this week with a test of that 12074 level at the low and then a higher close.

click to enlarge chart

The rest of the week was “up and away” with volume above average. Obviously the markets are driven by optimism about the economies of the world improving over the next 6-12 months, so great, right? Well, absolutely good news but two things loom. 1) Tax selling in the weeks ahead: The likelihood of taxes going up next year and this year being pretty good can mean investors will “ring the cash register”. Watch for selling in the coming weeks, it could be minor or something worse. 2) The market is priced for perfection: That is the valuations of many stocks are getting ahead of their revenue growth. The Price to Earnings ratios (P/E ratio) are near all time highs. That leaves the market open to disappointment, but that would likely be with 4th quarter earnings early next year.

For the time being we have no real choice but to follow the rising trend and watch for signs of a reversal. I am watching the VIX put/call indicator for signs of professionals buying put options for protection. Right now there is far more call (bullish) buying that put buying (bearish). But that can change very quickly.

Here’s a pie chart that I have been working on that needs some refinement, but the idea is to show what sectors are moving in the near / short term. (I’ll try to rearrange and add some data to it soon.)

And here is a table showing the same sectors but in an indicator weighted format:

So that’s it for this week. Have a good week and please stay safe ! 🙂

……………… Tom ………………

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

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