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Watch For The Reaction November 28, 2021

Posted by Tom in Thoughts.
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Nov. 26, 2020 –  The Thanksgiving week (in the US) was supposed to be quite and uneventful until new concerns about a new Covid variant came up in South Africa.  So “here we go again”.   Next week will give us a better idea just how serious the Omicron variant could potential be, especially for those who are already vaccinated.  But let’s keep things in perspective.

I start off with a chart weekly of the SPY (S&P 500 ETF) with a longer term +4 years perspective.  I’ve drawn channels that try and capture the “big picture” moves and breaks.   Well . .  we were at the top of the channel and venerable to a correction / drop.  In that case all it takes is bad news and we got it.

click to enlarge

I expect the markets to react poorly Monday morning, but the real “test” will come in the afternoon and the following days when raw emotion settles down and more facts emerge.  The big picture is that this market was venerable to any type of disappointment or bad news, and reacted as such.

The shorter term chart of the broad NASDAQ Composite is shown below.  I note that (in the short term) it has also reacted and is showing weakness, but keep in mind the very low volume late last week due to the holiday and short trading session.  Do we recover from the 15544 level or continue lower to 15198?  I’m thinking a push to 15198; maybe lower.  How this market reacts to this news will tell us just how strong it is underneath.

click on chart to enlarge

Tech sectors continue to lead and it will be interesting to hear about pre-Christmas sales from “Black Friday” shopping on Monday.  A poor sales figure in the US over the Thanksgiving holiday could prove to be a “double whammy” of bad news for this market.  This is a good time to watch and have a plan just in case folks start to abandon ship before the end of the year.

Have a good week and keep an eye open especially over the next 2-3 days.  How the market reacts will provide a good idea of just how strong it is underneath. ………… Tom …………..

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

Still “Chugging Along” November 20, 2021

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Nov. 19, 2021 –  This market continues to show strength though the rate of climb has eased off a bit, and that’s OK.  While I’m expecting some back and forth volatility into the end of the year, the general trend should continue to be positive / higher.

click on chart to enlarge

The indicators remain Bullish with the exception of Money Flow, which has slowed down with the drop off in trading volume.  We should not be surprised to see volume next week to be low going into the (US) Thanksgiving holiday.

 I’d like to make a few more observations about the overall economy and inflation.  First off as we know, over 70% of the US economy is driven by consumer spending and consumer spending is up over 70% from the pandemic low just a few months ago.  This very sudden rise in demand has caught inventories and manufacturing by surprise; they were geared for a slow “recession like” recovery lasting 18-24 months.  Demand exceeded supply, hence inflation of prices.  Basic Econ 101.  Now add to that low consumer debt, cash infusion by the Covid relief packages and mortgage / debt re-fi at historically low interest rates . . . well much more liquidity in the market place.  As “bad” as things seem to be, unemployment is actually low (4.6%); again adding to available cash out there.  Lastly, there has been a 29% reduction in ships waiting in the ports of Los Angeles to unload.  That along with domestic manufacturing picking up means supply is increase to meet that increased demand.  It just doesn’t happen quickly.

Here’s a chart on consumer debt from the St. Louis FED –

A quick look at where the stocks are in the broad S&P 1500 Index.  The pie chart indicates where stock prices are in relation to their 20 day moving average and their standard deviation volatility (i.e. Bollinger Bands).   Overall, fairly evenly spread out (pretty typical).

Lastly the Short Term Sector Strength table is shown below –

Technology sectors continue to lead the way with Consumer Goods & Service not far behind.  I am +90% invested but always looking for a possible pull back.  Don’t know when, but it shouldn’t be much of one as long as earnings remain strong and spending over the Christmas period is good.  We’ll see.  For those that celebrate it, have a Happy Thanksgiving and Stay Safe.    …… Tom …..

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

Inflation ! … or … ? November 13, 2021

Posted by Tom in Thoughts.
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Nov. 12, 2021 – I’m going to start off a little differently this week and talk about sector strength and how it typically relates to major market tops.

The big word this week was Inflation.  Is its sudden and significant rise a sign of bad news for this market and what are the warning signs?  First off I want to emphasize the description of “major” as it relates to market tops.  These are not short term 5% to 10% corrections, but ones that are due to longer term weakness in the overall economy, and typically last at least 6 months but can go on for years.

Let’s look at a few signs of a major top.  Usually we’ll see that high quality (i.e. government) bonds out perform stocks.  We’ll also see “safe haven” sectors like Utilities and Consumer Staples out perform as well.   Another sign is that the VIX index (based on the put / calls in the options market) takes a sudden and big move up and it will stay there.  I note that (so far) that’s not the situation in this market . . . .  could be later, but not now.  One other characteristic that happens early on is if major investors see trouble ahead “Value” stocks will out perform “Growth” stocks.

What do we have now?  Well Call option activity is very, very high (a sign of optimistic / speculation).  Treasury bonds remain high historically (i.e. low interest rates).  VIX gyrates but does not stay very high for very long, and growth is out performing value.  Take a look at the relative strength comparison chart below over the past 6 weeks.

click to enlarge

Chart courtesy of Stock Charts

Small Cap(ital) growth stocks are doing better than Large Cap value; large cap value stocks which would be a “safer bet” for investors.  OK, perhaps a sign of speculation, which could be worrisome, but so far not a sign of weakness.

Next let’s look at the usual Short Term Sector Strength table below.

And what do we see?  Technology sectors strong as well as Mid cap and Small cap indexes.  Yes, Gold is up there as well and if inflation is to continue to be a worry gold should continue to do even better.  Gold would also be a bell weather for a market top driven by inflation; we’ll keep an eye on that. Lastly we’ll look at how the stocks in the S&P 1500 Index (considered to be the most “investable”) are doing right now.

Not much to get concerned about here at the present time.  The last chart is of the NASDAQ Composite Index, the chart I usually lead off with.  We’ve had a brief drop over the past 3 days with inflation concerns but markets don’t go up in a straight line either.

click to enlarge

Third quarter earnings have been pretty to very good.  Some corporations have given weak guidance for the 4th quarter so IF we are to see a big correction we may have to wait until after the 1st of the year if earnings falter.  As always, things can change quickly but let’s also keep things in perspective and not get carried away with headlines.

Have a good week.    ………..  Tom  ……………

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

All Good for Now November 6, 2021

Posted by Tom in Thoughts.
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Nov. 5, 2021 –  The market price action has been very positive and strong as earnings continue to be good to very good and the economic numbers show a continued rebound.  What’s there not to like?  Well really, not much.  Last weeks “Steady as She Goes Captain” title pretty much sums it up.  But the rate of upward movement is not typical, at least not for long.  I still think that we’ll see some volatility during the rest of the year.  Nothing terrible but some small pull backs.  Seeing renewed strength during these pull backs will serve as a positive confirmation of the overall trend continuation . . . . up.

click on chart to enlarge

A quick look at the chart above shows what I mean.  That 45 degree climb over the past 3 weeks has been great, but let’s not get too complacent about “that’s what it’s supposed to do”.  Our attention may rightful shift to focusing on whether sector rotation comes into play.  The general market indexes may be climbing to lofty heights but is the participation equal?  Also, is money shifting around from one sector to another as the leaders become “overvalued”?

It’s good to see the Technology sectors back in the lead, but the question is how long can that continue?  I think it’s wise to keep an eye open for slowing and stagnation in these groups over the next few months and pay attention to others that are rising.  My message is: don’t fall in love with any sector or stock.  It may be great now, but “tomorrow is promised to no one” and things can, and will, change.

For the time being let’s enjoy the ride, just don’t expect it to be always a smooth ride.  I am very nearly 100% invested.   Have a good week & Take Care.       ……..  Tom  ……..

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

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