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Was That ‘The’ Bottom ? July 30, 2022

Posted by Tom in Thoughts.
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July 29, 2022 – The question on the mind of many is: “Was that the bottom?”  I’ll get right to it with a definitive ‘Maybe’.  I’ll list the Pro’s and Con’s so you can decide:

The Bottom Is In

  • Prices made it up through the 50 day moving average.
  • The Advance / Decline line has improved quite a lot.
  • Small Cap stocks are showing strength & moving higher.
  • Many indexes have bottomed out at their 200 day moving average.
  • Bond interest rates have actually come down over the past weeks.
  • The FED “appears” to be more “dovish” (leaning toward less increases).

The Bottom Is Not In

  • The recently rally was due to short positions being covered / bought back.
  • Volume on Up bars is modest at best; not a surge of buying (yet).
  • New High vs. New Lows is just OK, not showing strength.
  • Prices are now at a resistance point back to the previous highs in early June.
  • Volume on Friday’s big move was pretty darn anemic.

So now what?  I’m expecting a pull back early next week.  The amount of that pullback and the volume that it creates should be an indication of the strength of this market.  I found it curious that oil / energy and consumer discretionary sectors were doing very well last Friday.  Not exactly what you’d expect to see if an economy was going into a recessionary period.  Short covering or is somebody getting very optimistic early? 

click on chart to enlarge

Right now I’d say what we are seeing is a ‘Tradable Bottom’ within a Bear market, which means that a retest of the lows is likely.  I could be wrong, but I’ll wait for a firm(er) confirmation on my daily chart.

The Short Term Sector table is below –

Let’s keep an eye on the price action next week.  If things are truly strong any dip will be bought and we may have an improved price structure to work with for the rest of the year.  But right now, I’m not totally convinced.   Have a good week.        ………  Tom  ………

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

In Range, Building a Base July 23, 2022

Posted by Tom in Thoughts.
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July 22, 2022 –  OK we had a good week but there is still work to be done before we can confidently say that the low is in and we’re in an uptrend.  On the chart we can see that we’ve broken above near-term resistance but remain within my called-out trading range.

click on char to enlarge

Many short term indicators are positive but I note that volume during the last couple of days was low; no major commitment by traders just yet.  I’m seeing the hedge levels (Put options) dropping but that leads me to think that these short term up ticks are mostly driven by short covering to reduce the Put / Hedge exposure.  We need to see some follow through if this is in fact a change in trend.

Next Wednesday is the next FED announcement date.  And ALL eyes will be watching at about 2pm on Wednesday.  From what we’ve seen lately the initial move switches back quickly in the opposite direction; it pays to wait and see how the entire market reacts.  I am seeing some improvements in “Market Breath”, that is, the amount of volume during Up bars vs. Down bars.  There is still a bunch of down volume over the past month to “absorb” with buying but it is a start. Note: major earnings are being reported next week.

Remember that the stock market anticipates the economy and reacts to where the consensus thinks it is headed, not where it is now.  To that end the U of M Consumer Confidence chart shows that the market typically bottoms out as the consumer is the most negative on the economy.  That doesn’t mean that the market can’t go lower, but it shows that it may (just may) be getting closer to a bottom.

The Short Term Sector Strength table is shown below –

Semiconductors and Technology lead the market higher last week and much of that was news related, so let’s see if that strength can continue into next week.  Right now I’m Cash heavy with exposure in select Biotech stocks and I’m waiting for a better market indication before I phase into the market.  As I mentioned last week, the Treasury Bond auction went well and that’s a potential sign . . . but then again there is the FED and interest rates.  Are we done yet?  (not likely, IMHO)

Have a good week.   ……..  Tom  ………

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

Market Volatility: A Day Trader’s Dream July 16, 2022

Posted by Tom in Thoughts.
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July 15, 2022 – This market decline has turned into a day trader’s dream, they thrive on volatility in both directions.  Witness what we saw on Wednesday morning (below, a 4 day 30 minute bar chart).

From the market open on Tuesday down to the low on Wednesday, back up to the close on Friday was a “round trip” of over 30 points on the SPY (S&P 500 ETF).  That move (if perfectly timed) would be worth $15,000 with one e-mini futures contract and $75,000 on a full sized futures contract.  Now I’m definitely NOT an advocate for day trading, but my purpose is to bring forward just how volatile this market can be, especially around major economic announcements.  For position traders and investors, volatility signals caution.  When moves quickly appear in the market, they can easily disappear, and quickly too.  My last point is that these types of moves feed on themselves.  i.e “Buying begets buying, & selling begets selling.”  The futures and options markets do move the stock markets as the writers of these contracts react to lower their risk by buying/selling the underlining stocks.  There is a lot of portfolio hedging using leverage contracts out there right now.  Hence, volatility as people scramble to adjust exposure on the fly.  We’ll see more of that as “the big guys & gals” cover their short positions (hedges) driving the markets up . . . for awhile . . .  then . . .   Our task is to evaluate and respond to investment trends, not short term volatility.  I’ll feel a lot better when I see the amount of Put contracts decrease.

One other point to bring up is the 30 year Treasury Bond auction this week.  With the FED raising interest rates one would think that the prices would be going down (interest rates rising), but . . .  that did not happen.  The auction was quite successful.  There was demand for the US bonds and prices went up (buyers willing to accept a low interest rate).  Why would anyone want to tie up money for 30 years at this low interest rate?  Two ideas:

  1. Investors assume that the FED has reached a near term peak of increasing rates.
  2. Major concern about the world economies; a flight to safety.

As the old saying goes, in times of economic stress, “investors are more concerned about the return of their money more than the return on their money”.  The rise of the US dollar compared to the world currencies does not help these concerns either.  It makes US exports more expensive, thus a strain on the US economy.  And it really throws a “monkey wrench” into the world markets.  The US$ is now worth more that the European Euro and that’s very unusual indeed; not a stabilizing factor.

These are interesting times.  There are some signs of a market trying to at least find a base.  The question is: is this a sign of the re-accumulation of shares or just a pause below another down leg.  Watch the volume on up bars (& down) for clues, especially on market stalwarts.  Are investors buying or selling?

The Short Term Sector Strength table is shown below-

Have a good week, but be careful out there.   …………  Tom  …………….

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

Summer Doldrums July 9, 2022

Posted by Tom in Thoughts.
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July 8, 2022 –  Since last week not a whole lot has changed.  My opinion is that we’re in a trading range that is building a base for the next significant move and that move could go either way.  Hence my reference to the Summer Doldrums (the “Doldrums” refers to the area in the Atlantic where the wind just stops blowing and sailing ships have to wait for a change in the weather).  The chart below shows my thinking going forward in that back-and-forth price structure (blue lines).

click on chart to enlarge

Why do I think not much is going to happen?  Well 3 questions (and opinions):

  1. Is the FED showing signs of slowing interest rate increases?  A: No
  2. Are there indications that inflation is under control?   A: No
  3. Is the stock market (which anticipates change) trending up?   A: No

So, until at least two of these show signs of resolution . . . “not a, whole lota” is likely to change in a significant way.  Our next action point is coming on Wednesday with the release of the Consumer Price Index (CPI) numbers; an indication of inflation.  Slowing inflation will be a plus for this market, no doubt, but keep in mind that inflation is a worldwide issue not just in the USA.  A bunch more good news on that front over weeks will be needed to confirm a trend, it’s not going to “turn on a dime”.  If the economy really gets into a recession with negative GDP and increasing unemployment we could see another leg down, likely this Fall. 

I haven’t shown the pie chart of stocks in the S&P 1500 Index relative to their 20 day Bollinger Bands so that’s shown below.  We’re seeing more green and a lot of yellow and that supports the hypothesis of a possible base building phase.

And lastly the Short Term Sector Strength table –

Have a good week and watch how the market (thinks that the FED will) react to the CPI data.  It has the potential for a good indication of where we go over the next 4-6 weeks.   ……..  Tom  ………

Basing and “Going 4th” July 2, 2022

Posted by Tom in Thoughts.
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July 1, 2022 – OK folks . . . a little play on words 4th of July style but my feeling is that we’re getting close to stabilizing the selling in this market.  Heck, if you’re not ‘out’ it’s just a tad late to be think ‘bout it now.  That said I’m seeing signs of capitulation or at least slowing of the selling in here.  That’s the first step in building a base so that the market can have a chance to go higher over the long run.  The old saying: “When everyone that’s going to sell, sells, the market will (recover and) go higher.”  So when everyone that wants out, gets out, the next step is building and stabilizing for the next run.

click on chart to enlarge

The big question is whether and base building is just that or only a pause before another round of selling.  And that, no one knows the answer right now.  IF we’ve hit an economic bottom then the answer is basing and up.  If things continue to deteriorate further then the answer is no, we’ve got some problems ahead.  Buyers will come in if they see value / growth potential ahead and a glimmer of light at the end of the tunnel.  We’re not there yet, but let’s take it a step at a time . . . first building a base.

This all depends on the FED and interest rates (we’re expecting 2 more increases this year at least), how the consumer reacts and to some extent the war in Ukraine / oil / food prices.   All of these are important to the economy and hence the stock market.  But one should not wait for the economy to lead.  By then it’s too late because the stock market will already be ahead of the economy.

The Short Term Sector table is below –

The fact that we’re seeing some early signs of strength in other than 100% defensive sectors and Energy falling down is encouraging. It’s early to be excessively Bullish, just hopeful and watchful for now.  Make no mistake, all of my trend indicators show a Bear market currently, but some have soften over the past week.   Have a good week & Happy Independence Day for those in the USA.    ………  Tom  ……….

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

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