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This May Take Some Time February 25, 2023

Posted by Tom in Thoughts.
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February 24, 2023 –  Earnings season is winding down with a mixed bag.  Generally earnings were OK but the forward guidance was poor; i.e. the expectations of poor earnings in the future.   This along with continued concerns that inflation may not be under control and high interest rates will persist, has put a damper on the recent rally.

Click On Chart To Enlarge

We broke out of the trading range in early February and that’s a ‘Sign of Strength’.  But now we’re back in the range that was established in mid-November, 2022.  This “backing off” could be what Wyckoff called a ‘Last Point of Supply’ (11223 level) and a lunching point going forward . . . or . . . a retreat back into the trading range.  If price continues to fall below 10805, well then, the market is in serious trouble and ‘This May Take Some Time’ to recover.  There are two camps: a) the low is in and b) we’re headed back toward the October low.  In any case there really hasn’t been much progress since the early Fall of 2022.

There is a lot of FOMO (Fear Of Missing Out) and ultra-short term options trading that added excessive volatility to this market structure.  I’m not seeing much long term money coming back in right now.  And yes, this is a News Driven Market, whether it’s geo-political or economic, it’s just not a stable environment right now.

The Short Term Sector Strength table –

I note the strength of the US Dollar (not bullish for US stocks) and interest rates beginning to inch back up again.  Take Care and have a good week.   ………….  Tom  …………….

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

Market Neutral February 18, 2023

Posted by Tom in Thoughts.
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February 17, 2023 – I’m away from my home office, so this will be short and sweet.

If you look at the price chart of just about any index, not much happened last week except volatility.  The big concern (along with interest rates and inflation) is 0DTE (zero days until expiration) options.  These are one day to same days options that expire.  You can call them “Day Trades” or gambling, but in any case there volume is growing and significant.  The Wall Street dealers and market makers are getting concerned that the “tail is wagging the dog”.  The reason is when an option order is placed, the option writer takes out a position to maintain “Delta Neutral”.  Think of it as a method of minimizing risk of the option being exercised / profitable.   Thus we have short term gyrations in prices.  The concern is a major swing because “buying begets buying and selling begets selling”.  i.e. The option dealers would be forced to sell to maintain Delta Neutral in a falling market which leads to more selling.

The Short Term Sector Strength table is shown below –

Obviously thisis is not investing, and could hurt the markets.  What to do?  Actually not much until some type of trend is established to make such activities less profitable. Have a Good Week. …………… Tom …………..

Beak Out with a Backup February 12, 2023

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February 10, 2023 –  Last week not a whole lot progress but a whole lot of up & down action.  A few things are starting to emerge: market breath is improving; more stocks are generally going higher than lower.  We have broken out of the last trading range, but not decisively just yet. 

I’ve drawn 2 scenarios on the chart.  The first is the Green idea where we drop a little lower before resuming a general up trend.  In Wyckoff terms that would be a backup to the Last Point of Support (LPS), which would be around 11492 on the NASDAQ Composite Index.  Next is the Red idea which would call out a failed breakout and a fall back into the trading range.  I am slightly favoring the Green scenario right now; but staying flexible.

click on chart to enlarge

I do note that in the “big picture” there is significant resistance to any price movement near the 1300 level above, so that would likely be a near term target and with a pause to consolidate.

What could be a big factor next week is the CPI report on Tuesday.  The market is expecting a ½% rise for January / a 6% yearly rate.  That would be OK, showing that inflation could be slowly coming down.  Much of anything above that would likely throw cold water on any market rally.  And of course earnings continue this week, so that could surprise too.

The Short Term Sector Strength table is shown below –

That’s about it for now.  This market is news driven with many issues still up in the air.  I have taken small positions out and looking for actual confirmation, especially on the weekly time frame.   Have a good week.       …………  Tom  ………..

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

A Possible “Good Start” February 4, 2023

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February 3, 2023 –  A nice breakout of the trading range, but significant weakness was shown on Friday.  There are a number of positive momentum and breath indicators out there but markets (very) rarely go up or down in a straight line.  Thus I’m expecting a retracement back to around the 11492 price level.  After a retracement we will have a much better idea of the true strength of a potential rally higher.

(click on chart to enlarge)

Earnings or potential earnings are what drives the stock market over the long term and this week was not a good one for US Tech companies.  While Meta (a.k.a. facebook) had a good report, Google, Amazon and Apple did not.  These companies did “OK” but gave poor earnings guidance going forward. 

The US jobs report is one reason for providing the fuel for the past weeks market performance.  The hope is for a “soft landing” and the FED helped that out with Powell indicating maybe only two more small rate increases this year.  That’s all it took for the move higher with the FOMO (fear of missing out) bringing the quick surge higher.  (“The Bottom Is In”)  I doubt if it will last based on the rather modest volume during the week.  This leads one to think that the price surge was driven more by the options market (covering options short positions) than by “real buying”.

The US Dollar dramatic move higher on Friday certainly did not help this market sustain the move.  Next week should be interesting to see if there is a follow through of Bullish Dollar sentiment.  (Note: Dollar higher is generally not Bullish for US stocks.)

The Short Term Sector Strength table is shown below –

So I’m getting more Bullish in the long term but expecting a correction in the short term, at least back to the breakout levels, perhaps lower.  The economy remains strong but earnings will continue to be stressed.  And . . .  the deficit crisis would really throw a major monkey wrench into the whole thing.  Sad, but true.   Have a good week.        ………….  Tom  ……………….

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

More information at: www.Special-Risk.net .