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Break Out or Shake Out ? January 28, 2023

Posted by Tom in Thoughts.
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January 27, 2023 –  Well now, this was the week that saw trading above my “trading range rectangle”.  The question now is this a breakout to new highs or just a shakeout of the shorts in the market?

click on chart to enlarge it

Market Breath (advance / decline, new Highs vs. new Lows, Up/Down Volume and corporate & junk bonds vs. Treasuries) are showing positive signs.  But on the opposite side, actual trading volume was modest / average on Friday with the close near the low.  I’ve heard that much of this recent move was caused by the options market dealers unwinding short positions and not “actual” position buying.  IF that’s the case we’ll know early next week.  Plus the FED will announce their next action on Wednesday, February 1.  Will it be + ½% or just ¼%?  If it’s above ½%, the market will definitely drop hard.

I’ve laid out two scenarios on the chart above.  The Red is the shake out idea and the Green is the more Bullish idea of going up to new swing highs.  I tend to favor the Green route, but I am expecting a minor retracement lower before a spring higher in that case.

The Short Term Sector Strength table is shown below –

So this could be a significant turning point, so IF that were to happen I’ll be taking modest positions in the strongest sectors and if that continues, I’ll add to positions.  I’ve been happy to be in Cash up till now.  But as the British would say, “Wait For It !”. And I will.

Have a good week and be especially watchful on Wednesday afternoon around 2pm EST; the chairman speaks.   …  Tom  …

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

With In Range January 22, 2023

Posted by Tom in Thoughts.
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January 20, 2023 – A lot of gyrations back and forth but not much overall movement.  Take look at the chart below and you’ll see a blue rectangle enclosing the price action from mid-September to the present.  This is . . . volatility in the flesh; a short term traders dream (“rise and repeat”).

Click on Chart to Enlarge It

This is all being driving by fears of future problems, then back to the fear of missing out (FOMO).  Traders and investors alike are trying to find some indication of what’s next for the economy, the economic sectors and of course stocks worldwide.

Earnings will over the long haul drive stock profits which drives stock prices (or at least the hope of future earnings).  Last week we saw the big banks report and it was a mixed bag.  Generally last quarter wasn’t that bad but future guidance was not very positive.  And then, came NetFlix.  Earnings per share were very bad, but they added far more subscribers than anyone imagined, so up it went.  (Surely big profits can’t be far behind . . . can they?)  Next week will be important with Big Technology firms starting to report.  That starts on Tuesday through Thursday, then resumes the week after.  I’d say it’s not so much about the current earnings; it’s more about what they don’t say, and what any comments are made about the future.

So what is doing pretty well right now?  Consumer Discretionary, Financials, Industrials and Materials are (currently) above their 50 and 200 day moving averages.  Investors are betting on no or a light recession and are in anticipation mode.  If the recession comes to pass that surely will change, so all eyes are on the FED and interest rate projections.  The Producer Price Index (PPI) has been slowing down, indicating that from a production stand point, inflation is slooowly dropping.

The Short Term Sector Strength table is shown below –

I am cautious.  Until we break out of this range (and that could happen quickly), I’m not tempted to jump back with “both feet”.  I’m being selective and it seems like the best opportunities right now are in Europe and Asia, but only with small positions.  Have a Good Week !    ………  Tom  ………..

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

Building a Base . . . Getting There January 14, 2023

Posted by Tom in Thoughts.
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January 13, 2023 –  Time to revisit “The Big Picture”.  Right now investors are caught between being optimistic and pessimistic.   Let’s review.

Optimistic / Bullish –

  • The ratio of Advancing stocks compared to Declining stocks is positive; more are advancing.
  • The US Dollar continues to weaken, so US goods and service are more competitive.
  • US Bonds (for now) are holding their own, up from the lows in early November.

Pessimistic / Bearish –

  • Market reactions continue to be ruled by “FED Speak”.  News drives a weak market.
  • 4th quarter bank earnings were good, but forward guidance was poor.
  • The politics of the US debt are on the horizon; possible default?

Let’s look at the weekly chart of the broad NASDAQ Composite for some clues.

Click On Chart to Enlarge

Three Bullish Things to Watch-

What I’m showing is a downward sloping trending line (blue) draw from the market high and touching recent swing peaks.  Two consecutive weekly closes above that line would be Bullish.  That’s one.  Then I draw a 38 week simple moving average (purple).  Again, having two consecutive weeks closing above it is Bullish.  That’s two.  Lastly, we need a weekly close about a resistance level (green arrow).  That Level currently is 11492 and would indicate a breakout; if it’s on high volume that would confirm.  That’s three.

Right now all I can say is that we’re still in a wide trading range and hopefully building a base to launch a move higher.  But . . . that could all change, see the Pessimistic items above.  For the time being I’m seeing strength in the rest of the world.  Specifically select European and Asian countries.  I’m “dipping my toe in” with small positions there.

The Short Term Sector Strength table is shown below –

I don’t expect this market to turn on a dime, but once a breakout does come (not yet) we’ll know that by wide up bars on heavy volume day after day, then minor pull backs on light volume.  That’s it for now.  Have a good week.   ………..  Tom  ………….

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

Note: This blog is updated on weekends, hopefully by Sunday night at the latest.

Off We Go ? January 7, 2023

Posted by Tom in Thoughts.
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January 6, 2023  The US Markets had a pretty good week, up about 1 ½%, with most of that coming on Friday.  Once the Labor report came out we were off to the races.  The US Dollar dropped like a rock (bullish for stocks) and the Treasury Bonds rocketed higher (lower rates; bullish).  Add to that added volume of traders covering short positions due to the higher hedging in the markets. 

click / double click on chart to enlarge it

The broad NASDAQ Composite Index (shown) has really been in a wide trading range since mid-September.  A short term traders dream but not for longer term investor that are anticipating a change in the market trend.  This market is waiting for two things: a positive / Bullish FED announcement (which many are trying to anticipate and front run) and 4th quarter earnings.  As the economy slows the effects on earnings become more of a factor.  In the long run, corporate earnings drive stock prices.

The table below shows the reporting dates for key corporate stocks that could drive the market in one direction or the other.

The Short Term Sector Strength table is shown below –

So I’m looking for continued signs of a follow through from Friday before contemplating dipping my toe into the market.  The sector strength table does not exactly support a “risk on” market, so I’m skeptical right now.  Have a good week and a very Happy & Prosperous New Year.    ……  Tom  ……

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