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Steady As She Goes Captain October 30, 2021

Posted by Tom in Thoughts.
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Oct. 29, 2021 – What a difference a week makes (plus some pretty good earnings reports).  We’ve broken higher and the Advance / Decline line is very positive.  Why is that important?  Well simply, there are more stocks advancing (in price) than declining.  A month ago that was not the case with leadership narrowing to fewer and fewer stocks driving the indexes higher.

click on chart to enlarge

The chart above confirms the price enthusiasm via the increase in volume.  That rate of change can’t continue forever so I would not be surprised to see a drawdown back to around the 15198 level (very modest) or worse case the 15085 mark.  There . . .  we should expect buying to come in and a resumption of the push higher.  One caveat I note was some companies provided muted or poor earnings guidance going forward.  But that’s months away . .  just keep that in mind after early January when the next batch of reports get rolled out.  Things may be different.

Looking at the Short Term Sector Strength table below we note the grouping of Technology based sectors leading the way.

Expecting a Volatile Fall October 23, 2021

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Oct. 22, 2021 –  I’m expecting a slight pause / pullback before the broad market pushes higher.  Friday may (just may) have been the start.  Note the volume blip on Friday.  The earnings of NetFlix, Tesla, Snap pushed prices down.  Many of the internet companies that rely on ad revenue are seeing a challenge since advertisers don’t see a pressing need to generate demand when supply is presently constrained.  Inflation concerns continue as the supply / demand economic factor once again comes into play.  Not surprising.

click on chart to enlarge

The 15085 level was our first resistance, then 15380 above that.  Steady price action around 15085 would be bullish and a launching pad for a break higher.  14182 is the support level.

Interesting that more than 80% of the stocks in the S&P 500 Index are above their 10 day moving average.  Both the Dow and S&P 500 reached all-time highs with the NASDAQ Composite and “Q’s” a bit behind.  Margin debt is below its previous high, and that’s good, as buyers appear to be stepping back into the markets.  This remains a volatile environment with the inflation concerns (the Producer Price Index jumped up), earnings continue to roll in and of course the economic / political news continues.

The Short Term Sector Strength table is below –

I note the sudden jump of China and the continued lethargic action of Technology sectors.  Financials are doing well.  We just need a little more leadership out of Tech.

Overall I’m fairly positive about the prospects in the long run, but expect some setbacks over the next 2-3 months.  Take Care and have a good week.   ……….  Tom  ………..

Go For It . . or Wait For It October 17, 2021

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Oct. 15, 2021 -I saw the play “Hamilton” yesterday and it was a “Wow” even thought I was prepared via Lin Manual Maranda’s book. Impressive through and through. OK. let’s move on.

Last week I talked about a “Change of Character” in this market, making the case that we’ve been overvalued and the 50 day moving average was NOT a support / buying the dips level. All well and good but the last 2 days have been a little impressive. How so? (reference the chart)

click on chart to enlarge

First off, higher “highs” and higher “lows”, i.e. swing 3 is higher than swing 1 and swing 4 is higher than swing 2.  Next, volume is beginning to return / increasing.  I call out two possible scenarios going forward:  in yellow, we stay in a trading range, in green, a breakout higher and a retest of the breakout before moving higher still.  A “Change of Character” would support a trading range between 15085 and 14182, this could likely be a period of re-accumulation before an eventual breakout higher.

In either case, this next week should give us a clue.  A diverse group of companies report earnings: JNJ, NetFlix, airlines, Tesla, financials and P&G; the broad waterfront is covered.  Good news drives us toward the green line, disappointing news drives us toward the yellow.

The Short Term Sector Strength table is below –

In particular, Financials and Technology sectors moving higher is a big plus. Keep an ear open for earnings reports and how the stock and markets react. That will provide some insight on whether to Go For It or Wait For It. Have a good week. … Tom …

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

Two Steps Backwards & One Forward October 9, 2021

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Oct. 8, 2021- The title sounds “bass ackwards” but that’s the point.  This time we’ve taken two steps backwards and we’re not anywhere near two steps forward.  Taking a look at the chart below, Sentiment, Dollar and Volume Flows and Price Strength are Bearish.  The Trend Channel is sloping down; not positive signs.  Take a look at the volume over the last 2-3 days during a “mild” rebound . . . very low, no commitment by traders.  Bottom line: it’s still a weak market.

click to enlarge

Richard Wyckoff would call this a “change of character”; that is the market is not responding in the way that it used to recently.  There are many signs of this, so if you’re interested just “Google” it.  But here’s one of my favorites.  The chart below shows how the S&P 500 responded to selling pressure by touching the 50 day moving average, then rebounding and continuing the stair steps higher.

click to enlarge

I’m not saying that we’re into a bear market or even a major correction, at least not yet, but traders are not rushing back into this market . . .  yet.  There are just too many issues challenging and too many unknowns for them to be comfortable.  Besides, third quarter earnings are just around the corner.  How companies report will be a big factor in how the market proceeds.  It is overvalued right now.  Two areas to look for are how Technology and Consumers Discretionary companies report and respond.  They were the previous market leaders.  Next comes Financials and Healthcare.  We need to regain leadership to move higher.

I’ve been raising some Cash, and if things get worse will raise some more.  But this could just be a pause and a re-accumulation phase.  Watch both bar strength and volume for clues.  Have a good week.  …  Tom  …

charts by MetaStock, table by http://www.HighGrowthStockInvestor. Used with permission.

Lions and Tigers and Bears, Oh My! October 2, 2021

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Oct. 1, 2021 – Apologies to The Wizard of Oz but this market got “spooked” this week.  Yes the overall market breath (the number of stocks leading the indexes higher) was getting narrower and narrower.  The old adage comes back: “When the market is weak, it reacts poorly to bad (or perceived bad) news, and if strong, it ignores it.”  This market is weak.

There is plenty to worry about: FED tapering, Inflation, Supply Chain issues, Debt Ceiling and the Pandemic.  While all of this could become serious to economic growth the current economy is doing pretty darn good.  But, the stock market lives in the future and is looking out 6 to 12 months ahead.

click on chart to enlarge

Thursday the NASDAQ Composite Index dropped below the 14530 support level but recovered on Friday.  That puts us back to mid-August and mid-July levels.  14178 is the next support level, and I need to see strength above 15380 (resistance) before I’m comfortable with an “all clear”.  Putting it into perspective, the NASDAQ has dropped 5.19% and the S&P 500 3.93% since the (about) 9/3/21 peak.  A 4% to 5% correction is pretty minor; at least so far.  I’m sounding optimistic because late this week ETF’s saw a net inflow of dollars, and the biggest increases went to small cap and the leveraged “Q’s” (tech index).  Sounds like some folks are also optimistic and “buying the dips”.  But not so fast investors.  The Money and Volume Flow indexes are still pretty negative.  Let’s wait for confirmation; it shouldn’t take very long.  Look for volume increases on up bars.

The Short Term Sector table is shown below –

That’s about it for now, be careful and observant.  Plus, scale into positions as conditions warrant.  Have a good week.   ………..  Tom  ………….

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

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