Bouncing into Next Week May 28, 2022
Posted by Tom in Thoughts.add a comment
May 27, 2022 – First off, Happy Memorial Day (for those in the US). This is especially rough with the shootings in Texas and a war raging in Ukraine. We’ve got to do better.
The market is beginning to show some signs of strength. Sentiment is Neutral, Money & Volume Flows are Bullish, Price Strength is Bullish and Volume is low (possibly due to the holiday in the US).
Next week we need to see a commitment with closes above 12202 (roughly 420 on the SPY), that’s the first line of resistance for prices to move higher. The next spot is 12985 on the NASDAQ Composite Index. I’ve drawn in 3 scenarios, Green is the most optimistic, Yellow shows a consolidation phase and Red is a retest of the lows. I’m favoring the Green right now but the pattern may develop at the 12202 level and not the higher 12985 level. The question will be does a substantial move higher last for more than a couple of weeks? I question that.
The low volume last week may be due to the holidays or due to lack of commitment by large intuitions. We’ll know that on Tuesday. I continue to see a large number of “protective Puts” in the market most expiring the 3rd week in June. The big guys have not given up on downside protection yet.
The Short-Term Sector Strength table is below:
It’s encouraging to see sectors other than Energy strengthening, but again, that’s short term.
Have a good week and watch for volume coming back into this market, it will confirm one scenario or the other. ………. Tom …………..
Price chart by MetaStock; table by http://www.HighGrowthStock.com. Used with permission.
A Possible Rally (?) May 21, 2022
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May 20, 20200 – Just when you thought all is lost . . . comes a (possible) recovery. That’s my feeling right now that Friday was a possible short term capitulation day in the immediate term. Market breath is “so bad, that it’s good”; in that so many stocks are washed out that we’re due for a surprise rally next week. Now that may only be a short-term rally, we’ll have to gauge its strength and breath IF it does come but I’m seeing early signs of divergences in a number of indicators. My concern is it could just be a brief “got-sha” rally to lure folks back in before we head back down. That would be more typical than not.
I note in the chart above a positive “Money Flow” indicator and just average volume. A true capitulation sell off would be on high volume, but Friday was options expiration day with many Puts expiring so that could mask volume in the background since futures are involved with many options writers.
One thing that doesn’t help is that a couple of large hedge funds are calling it quits and now must liquidate shares to redeem clients back into cash. Also a sign of extremes are the prices of wheat and corn. They are at / near all-time highs due to the Ukraine war; it’s not just oil (Thanks Vladimir).
To give us an idea of where we are in the typical stock market cycle I borrowed this chart from Doug Short at Advisor Perspectives.
And the Short-Term Sector Strength table shows us that the more defensives sectors are the strongest ones currently.
And so we will be patient as next week develops and be open to a possible short term rally. The big question is how long will it last. J Have a good week. ….. Tom ….
Price chart by MetaStock; pie chart & table by www.HighGrowthStock.com & Advisor Perspectives.com. Used with permission.
Drop then Pop May 14, 2022
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May 13, 2022 – Happy Friday the 13th. 🙂 Another interesting week on Wall Street, but since I’m on the road, I’ll make this to the point. Sure, there are many pundits that at predicting / calling for a bottom here . . . and they may be right. But what I’m looking at is how “the big money” is positioned, and right now, they remain hedged with large Put positions. You can say that they won’t pick the bottom (or top), but these are professional money managers and they are quite happy to harvest the middle 80 to 90% of a trend move without taking on undue risk.
Keep in mind that in previous bear markets there have been 30 to 50% bounces up within the general a down trend. What we’ve seen this week is a “drop then pop” which is accentually short covering by those who are heavily hedged. They buy because they were heavily short speculative stocks . . . it’s called a “short squeeze”.
The question is: are these stocks “viable companies”, by that I mean do they make money? One or two days (or more) of a rally in heavily shorted stocks does not mean a new bull market. I’ll wait for confirmation via the “big money” continuing to buy good companies (those with + P/E’s). Right now, this is a traders market and unless you are nimble I would just let it go for now. A near term rally is a strong possibility with volume picking up on down bars (capitulation) so next week could start off on a positive note . . . but will it continue?
The Short Term Sector table is shown below –
Have a good week, but be aware of a possible short term rally in the next few weeks that totally surprises everyone; we’re due for it. ………….. Tom ………….
Price chart by MetaStock; & table by http://www.HighGrowthStock.com. Used with permission.
Building a Low Base May 7, 2022
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May 6, 2022 – Quite a week. The markets are showing their true color (as if we didn’t figure that out months ago). Wednesday was FED announcement day and since there were no surprises (the ½% rise was expected) the market ripped higher. Make no mistake; the rip was caused by short / hedge covering and computer algos. The “big guys / gals were not taking positions. The phrase “Buying begets Buying (& Selling begets Selling) was in full swing. It didn’t last long. The next day reality set in and we went right back to where it started. Many are waiting to “Buy the Dips” . . . this ain’t it!
Market bottoming is a messy process and it typically takes time when you have significant economic issues in the background that weren’t there before. I am expecting a significant up and down volatile market through May with maybe (a key word) the re-accumulation of stocks and a base forming in the mid to late summer. Europe is heading into recession, China is on lock down, supply chains are stretched, inflation, the war in Ukraine and there are signs that US consumers are delaying “wants, but don’t needs” items.
The chart below puts it in perspective with short term and long(er) term trend lines drawn in. Also . . . for those still majorly invested . . . we’re now back to the level of December . . . 2021!
Yes, I know the phrase “There’s always a Bull Market somewhere” and the sector table below indicates those areas, but right now . . . the wind in not at our backs and one should be uber careful especially since many stocks in those strong sectors have already been bid up. Any news would tip the apple cart.
I haven’t shown the number of stocks in the S&P 1500 Index that are above their 20 day moving averages, so I’ve added that below.
The strong stocks are in the strong sectors. Tolling for unusual “opportunities” will be risky in this environment. Well, that’s about it for now. I’m lightly invested in defensive sectors/ stocks; there is “value”, but not much “growth” currently . . . “this too will change”. …. Tom ….
Special Risk Capital Management LLC 