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Interest Rate Freak-Out February 27, 2021

Posted by Tom in Thoughts.
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Feb 26, 2021 – A rough week for the stock markets (worldwide). We knew that stocks were over valued and we knew that (in the USA) many accounts were over leveraged using Call options and margin (borrowed money), so the stage was set for a quick “dump”. And we got it. The catalyst was the rather quick jump in the 10 year Treasury Bond rates. Going up over 1/2% in a week is a lot in that short a time. Many read this as “inflation ahead !”, so they got out.

The question is are we done yet. I’m thinking that we are, or very close. Two things: 1) The number of new lows in the stock market is higher, but not that or very high. 2) The volume (note chart below) was very low late in the week. Activity is drying up; not much buying but not much selling either. Monday morning may see a bunch of selling as weekend investors note the drop in prices, especially in Technology and Growth stocks. In the afternoon or Tuesday, we may (just may) start to see some bargain hunting buying coming in. The key thing is to “Wait for it”. Volume will confirm price in this case. Otherwise, we will likely be in for some back and forth price movement that really doesn’t go much of anywhere.

click to enlarge chart

We’re very near a key support level of 12985, so next week will be important for where the markets may head off to next. We can see in the table below the short term sector strength:

Note at the top of the list the inverse / Bearish Treasury fund and where some of the Tech sectors ended up at. I highlighted the 5 & 10 day return column and for comparison to the 15 and 21 day columns. Just by colors you can see how things have changed over the past month.

I have taken the opportunity to close out some lagging positions and am about 40-50% invested now. Next week that amount will likely change either up or down as the down trend is either confirmed or rebuked by investors. But interestingly I have not put a hedge on just let; close, but not quite there yet.

Have a good week. ………. Tom ……….

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

A Fallback to Center Channel: OK February 21, 2021

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Feb. 19, 2021 – This week the market pulled away from the upper trend channel (purple parallel lines) and is hovering around the center. And that’s OK. A continued drop to the lower line would not be surprising in view of how far we’ve come and so quickly.

click on chart to enlarge

As long as we stay above 12895 there may be concern, but not danger. Also of note is the drop in volume; lack of demand. And that’s OK too. What is interesting is the previous leaders, Technology sectors, are now just doing OK. The short term leaders are Material, Financial and Oil sectors. It’s to soon to say this is a significant sector rotation, but it’s something to keep an eye on. At least Semiconductors continue to be strong under the Tech umbrella.

A chart of a wide selection of industry sectors (46 of them) and how they performed over the past 5 days is shown below.

5 Day % Return: of 46 Major Industries

Looking at the over sum of “green” and “yellow” performance compared to the “red” actually confirms the idea of a pause to refresh right now. Everyday can’t be a rip roaring “Up Day” for everything . . . it just can’t last very long.

So I remain invested and doing minor changes to go with the current trend. If this trend toward a more defined move continues we’ll just naturally go there too. But this could be a concern driven by rising interest rates & inflation, it which case Materials and Financials could just be a short term blip. Stay Tuned as they say.

Have a good week. ……….. Tom …………

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

Upward, but expect Volatility February 13, 2021

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Feb. 12, 2021 – First, a little “house keeping”. I’ve done weekly entries on this blog site for over 4 years, and to my knowledge, have not missed a week. New entries are made over each weekend and the date displayed at the beginning shows the most current data. Thus don’t expect comments during the week. The one possible exception would be IF I see a major change in my model during mid-week. In the case I’ll do a short post.

Next, I’ve made some changes to the weekly chart of the NASDAQ Composite Index (see below). The idea is to make it a little easier on the eye and easier to read. Just use common sense to interrupt it; arrows up are Bullish, down are Bearish, red is a Bearish color, Green is Bullish. The bottom line is we’re looking for a confluence or a propensity of indicators to show the same thing. A “one off” is just a warning to pay more attention. I’m happy to receive comments about what is helpful to readers.

click on chart to enlarge for easy viewing

Now back to the markets. Overall, I’d expect this year to be fairly good and positive. COVID will likely get under control and more people will start working and spending money (like normal) again. The markets see that likelihood by way of continued higher prices and a recovering economy. Add to that the possible increase in the minimum wage and that spells more expansion for the economy. Why? Because +70% of the U.S. economy is fueled by consumer spending. It’s simple. The more money consumers have, the more they spend thus creating demand/expansion. (Putting more money in the hands of the top 1-2% won’t make a difference; there’s only so much stuff an rich individual can buy. Just say’in.)

So the trend is up and higher but please remember that we can also expect a volatile market. The cause is speculation and right now there are a lot of people thinking the markets only go up. They don’t. Case in point is the amount of margin loans that are outstanding. This is fuel for a shake out.

Many don’t realize that then their stock holdings go down and they are on margin, they may be told about a “margin call” in their portfolio. That means come up with addition cash NOW to cover loses or the broker will automatically sell your stock. (And Yes, you have agreed to that; read the fine print.) This force or automatic selling drives weak prices even lower and quickly. But if the economy remains positive, it’s a great time to go bargain hunting. The moral is, be careful. Sometimes it’s not a good idea to react quickly to falling prices. Most recently the Game Stop fiasco. We’ll try hard to look for signs of a long term decline before severe damage sets in (a.k.a. intuitional / “smart money” liquidating near the “top”.)

Stocks in the S&P 1500 Price Strength:

About 60% are “green”, 30% Neutral and roughly 10% “red”. A pretty strong market.

Short Term Sector Strength:

So that’s about it for this week. Take Care & have a good week. ………… Tom ………..

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

Steady but Volatile Markets Excepted February 6, 2021

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Feb. 5, 2021 – Not much new to say this week. The market continued a steady climb, but indicators show that while the climb may continue it will likely be volatile. Overall I continue not to see any near term problems with a major correction or pull back.

click on chart to enlarge

Of note is the trend channel lines (purple) that point upward. On the negative side Money Flow remains lethargic. I am debating whether to change this weekly chart to add what I think is an improved market timing graphic. More to come, it just takes extra time.

Let’s take a quick look at near term sector strength below:

Looking at the 5 day price change column (“% Pr Ch 5-“) it was a very good week for just about everything. I note that the previous leaders, namely Technology based sectors, were good, but not in the lead. We could be rotating to more of a “value” sector play; keeping an eye on that. It’s looking more and more to be a “stock pickers market” where being in the right sector and stock are the more important thing than just being invested.

That’s it for now. Have a good week. ……….. Tom ………

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

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