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Back Again July 24, 2021

Posted by Tom in Thoughts.
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July 23, 2021 – What a week. Last week Thursday and Friday were major down days (especially Friday). Monday opened a big price gap lower then recovered over the rest of this week. So, we’re basically back to where we were a week + ago.

click on chart to enlarge

I note that prices gapped right through the 14371 (gray line) level on Monday then bottomed out very near the 14196 level (red) before recovering to close just above the 14804 level. All pretty much holding the previously drawn support and resistance levels.

The Money & Volume Flow indicators are now positive, but the dip on Friday of the Market Sentiment indicator could be a concern IF it continues to show weakness. Also note the very low trading volume (lower chart pane), volume tapered off as the week progressed. This does not show a commitment by traders or investors to this market rally. More of a skeptical “wait and see” approach I’m thinking.

I did close out the Bullish Market Index portion of my portfolios as a precaution on Monday Morning, didn’t go short, but I’m not quite ready to re-enter that portion just yet. Most of my positions in sectors and stocks have held, so not much of a change there. Let’s look at sector strength.

The positive news is that our “old friends” the Technology sectors (less semiconductors) are in the lead and that’s encouraging. But recall that the overall market is narrowing leadership to those specific sectors (not so positive) and it sure would be nice to see Financials and / or Industrials joining in. We’re early in the second quarter earnings reporting cycle and so far things are looking good. But (again) ‘good’ to ‘very good’ is expected. This market does NOT want to be disappointed by earnings or news, and Covid is still in the mix. The next 2-3 week will be important and possibly set the stage for the Fall.

That’s it for now. Continue to be cautious but realistic about this market environment. Have a good week. … Tom …

A Skittish Market Remains Vulnerable July 18, 2021

Posted by Tom in Thoughts.
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July 16, 2021 – I know that (by now) I sound like a “broken record” repeating the same thing. The markets have internal weakness. We’re seeing glimpses of that with headline news stories. Whether it be concerns about inflation, Covid resurgence or political issues they all have some effect on the market. But for now, minor and short term; folks are nervous. The latest are fears of a second outbreak of Covid. To be super sure, that could be a very real and significant issue and have a major effect on the overall economy. It brings to mind a saying that I’m particularly fond of: “It’s not what happens, it’s what you do about it.” I don’t wish to be a victim of a complacent market.

So, is this market trying to tell us something? We’ve been on a very long run; to be sure, a recovery run. But are we getting ahead of ourselves and expecting too much for the current and near term conditions? The market is rich and priced for an economic come back. Here’s a chart from “Advisor Perspectives” and an old aquaintcy, Doug Short.

Now this chart goes back a waaay long time (1870) but it’s a reminder that “trees don’t grow all of the way to the sky . . . just toward it”. The red line is the normalize regression line (i.e. “average”) and the lower histogram shows the deviation from that line. You may have heard the term “regression to the mean”, well the “mean” is that red line. It’s like a rubber band that snaps back to it’s relaxed state. Anyway . . . . in historical terms, we’re extended.

As J.P. Morgan once said: “The markets can stay irrational longer than I can stay liquid.” (or something to that effect). Meaning that this can go on farther than anyone expects. But as mentioned previously, the leadership (the # of stocks) that are propelling the indexes higher are getting smaller and smaller. It looks like an “All Amazon & Apple, all of the time” type of market. (not that these are bad companies)

The chart below does start to show some areas of weakness:

click to enlarge chart

From top to bottom- Sentiment: beginning to weaken, Money Flow: Bearish, Volume Flow: close to a crossover, Price Strength: lightly Bearish, Trend Channel: Price breaking below, Trading Volume: light. I’m keeping an eye on the first 14371 level (NASDAQ Composite Index) for an indication to “lighten up”. IF we continue to correct, I’ll lighten up some more. This is the summer and things tend to slow down (volume wise), so a knee jerk reaction to news could send things down in short order. For now, I’m following the trend, but cautious about where we are in the typical cycle. Just a reminder, we are beginning the reporting cycle of second quarter earnings and much is expected.

Have a good week. ………. Tom ……… Price chart by MetaStock, used with permission.

A Weak (overall) Market Continues July 10, 2021

Posted by Tom in Thoughts.
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July 9, 2021 – Few “old adages” hold true but I think this one is toward the top of the “believe it” list: ‘Weak Markets React Poorly to Bad News, While Strong Market Just Sluff It Off’. We saw evidence of that on Thursday when the market opened much lower, then recovered; concerns about Covid regeneration. By Friday we where generally back to the old highs. Just about anything could and will trigger the nervous holders in this market. We know why, the market is overvalued, margin debt is high and speculation (ROBO Call buyers) is near an all time high. Most ‘Buyers’ have already bought. Just a little selling triggers more selling.

click on chart to enlarge

But, other than the sensitive red price bars above, things remain positive. Note the low volume so there’s not much enthusisium in either direction; likely the reason why the selling was brief. But damage was done in the overall market.

The pie chart below shows the price weakness of stocks in the broad S&P 1500 Index.

Neutral means stocks are hovering near their 20 day simple moving average. Strong and Weak refer to where their prices are in relation to their Bollinger Bands (20 SMA +/- standard deviation volitivity). So no red flags, but no green ones either. Perhaps we’re in the Summer Doldrums where not much happens either way . . . unless a news item generates a move. Making money in this environment won’t be easy.

Let’s look at where the broad market indexes have been over the past year:

click to enlarge

Red = the S&P 500 (large cap); Blue = the Russell 2000 (small cap); Green = the broad NASDAQ Composite Index; and purple = the NASDAQ 100 index (tech heavy). Small cap’s where the place to be over the past year. But . . . .

click to enlarge

Small cap’s were NOT the place to be over the past 90 days. A good example of rotation in the market. Small cap’s are generally considered to be most speculative and it looks like the “smart money” is preferring the large cap and more well known stocks. This supports the idea that the breath of the market is narrowing, where fewer (big cap) stocks are driving the Index averages higher. Characteristic of a mature market.

Lastly the Short Term Sector Strength table:

Technology sectors in general still are near the top. Note the returns over the past 5, 10, 15 and 21 days are pretty positive. I do note again that the stogy Treasury Bonds are fairly high on the list with interest rates falling. Interesting that now inflation is not a concern . . . . is this a flight to a safe haven? Not sure why interest rates are falling in a strong economic recovery. Something to monitor.

So, if you’d like to see other topics covered, let me know via a response to this post. That’s it for now, have a good week. …………. Tom ………….

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

Mixed Signals Continue July 3, 2021

Posted by Tom in Thoughts.
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July 2, 2021 – First off, Happy 4th of July to all of those in the USA. (Be Safe Y’all !)

I continue to see mixed signals as to the overall market strength. From a macro perspective this market is richly overvalued. Case in point, the P/E (price to earnings ratio) of the stocks in the S&P 500 is 38; typically anything above 23 to 25 is considered “overvalued”. “Overvalued” is from a historical view since stocks have been below 10 during a recession and more “typically” hang out in the upper teens to low twenties. 38 is rich; very.

Yes, we are at record highs but leadership continues to be held in a smaller group of stocks. 48% of stocks in the S&P 500 are below their 50 day moving average, and only 30% of stocks outperformed the S&P 500 Index. Narrowing participation is a precursor to a market correction. Next, small retail option traders (called ROBO traders) continue to buy naked calls to open, while hedge funds are . . well hedging.

In pending doom? No, because the price trend remains up / higher, but caution is advised. I’m a trend follower so I’ll stay the course, but no one gives me “brownie points” for being patient when (not IF) a corrections does come.

click on chart to enlarge

The chart above shows the trend. Everything looks good right now. What I think we’re seeing is primarily a slow down in the overall market and summer time is the perfect time (seasonally) to slow down. Having the market catch up to itself is a good thing, so I’m thinking we’re just in those summer doldrums and may not be headed for anything serious. But a major news flash could change that. The market is vonerable to bad news in here.

The good news is that we’re back to a more reasonable state where stocks out perform Treasury Bonds. Note that Technology sectors are back near the top of short term sector strength. A positive sign.

That’s about 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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