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Not Much Buying Demand October 5, 2019

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Oct. 4, 2019 –  A pretty dismal week with a blip up on Friday.  The problem is the volume on Friday was very low, i.e. “No Demand”.  Looks like a simple short covering rally to me.  We are very close to the last swing low and the moment of truth is near.  Does this level hold (7663 support) or do we break down even lower.  It’s mixed and could be resolved via a news item.  But the US economy is slowing and with it corporate earnings.  The market is looking for stability and a good reason to rally back to the previous high.  With BREXIT and Impeachment looming in the background that doesn’t look all that great.  In addition, “price action” remains weak & “in the noise” without a clear direction.  (see last week for a description or in the “publications” page)

The market likes the idea of lower interest rates, but that usually means things are not that good and the economy needs help.  A double edged sword so to speak.

When you see government bonds, Utilities and Real Estate as strong sectors you know that (in the short term) things are not that great.  Here’s the table below:

Not much more to say.  I’m heavy in Cash with a light hedge on as insurance.  Have a good week.     ………… Tom …………

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

Tough Call, but Markets are Weak September 28, 2019

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Sept. 27, 2019 –   No doubt about it, the news is driving this market and driving it hard.  Yes, the turmoil in Washington is significant, but perhaps more important is the loss of creditability of the administration in other areas such as trade and the economy.  There have been so many tweets and brief comments about China trade negotiations (that never panned out) that traders are beginning to doubt the comments coming out of the Trump administration.  (Are talks really starting again in October?)

Any way all we have to go on is price, volume and time and that’s where charts come into play.  We’re now back to a likely bearish trend with a possible low of 7643 on the NASDAQ Composite Index.  Momentum has all but dried up.  All one has to do is look at what sectors are strongest to see, that in the short term, playing defensive is in order.

(click on graphics to enlarge them)

I’ve been skeptical about this latest price structure for a month for reasons that I explain below.  The Price Action did not confirm the Price Movement.  Take a quick look at my explanation about Price Action and Trends and you’ll see what I mean.

Sector Strength is shown below –

What concerns me is that a desperate president might “pull a rabbit out of his hat” in the form of a quick China trade deal in order to look better.  The “deal” doesn’t have to be “good”, just bringing an end to the tariff war would be bullish for most US and World businesses.  So . . .  beware the news and a desperate administration that is looking to deflect from it’s own deeds.  At any sign of price weakness I will “hedge out” the light positions that I have in our portfolios (Cash is OK).  This is not the time to be brave, but discreate.

Have a Good Week.   ………….  Tom  …………..

Ideas About Market “Price Action and Trends” Sept. 2019
First, let’s look at an old definition of trends of both stocks and indexes. It can quickly be summed up as if the security is making higher Highs then it is in an “Up Trend”, but if it is making lower Lows it is in a “Down Trend”. A “High” or “Low” is typically defined as a swing high or low and not necessarily a bar price high or low. For the purpose of illustration on the chart below, the blue “zig-zag” line shows a closing price movement of 2% or more. This “zig-zag” helps to visualize the swing highs and lows of price action.
Confirmation of an up trend change would not be just a break of a previous swing high level, but also a swing low that was higher than the last swing low. The opposite holds for confirmation of a down trend. The advantage of this conformation is to filter out brief price level breaks during a period of congestion, or sideways movement. The disadvantage is a delay waiting for that confirmation.

The red lines on the chart above show points where a swing low (level) was broken/failed; the green lines show where a swing high (level) was broken/failed.
Next let’s take a look at an indicator (top window) that attempts to factor price and volume over a short period of time to confirm “price action strength” early in a price move. I put a filter of “3” on the indicator to show if the movement is in the “noise” level of price movement or if above 3, a potential significant move. You can probably guess that the red is bearish movement and the green line is bullish movement.
I note that in the cases where a price swing high or low price level was broken, the indicator confirmed it at or before that point, except for Sept. 5, 2019, where the bullish price strength was below the “3” level and therefore considered “noise”. Currently both the indicator and break of a swing low level indicate a “bearish” short term trend in the NASDAQ Composite Index.

At Resistance; Next Move ? September 22, 2019

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Sept. 20, 2019 – (editorial comment)  I just returned from spending 4 weeks in Europe, both Northern & Southern. I saw a lot of infrastructure projects in full bloom, and (IMHO) an absorption of immigrants into their society; it hasn’t been easy, but they are doing it. (I saw a north African man speak pretty good Finnish, and take it from me, that’s not an easy language to learn.)  🙂

NASDAQ

US market trend in the short term is up, but again, the price action is not that favorable. Looks like we’ve hit a resistance at the 8172 level on the NASDAQ Composite Index; volume is about average but I’m thinking a “lack of demand”. Next week should be interesting. I think we’ll see a significant move one way or the other.

Sectors

All of the sectors have a ranking below 200, which makes me a bit uneasy as far as trend strength is concerned. (table attached) So, I’m continuing to be cautious here with any big positions.

A short post today, more as I recover from jet lag.  🙂  Have a good week.

…………  Tom  ……….

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

Uneasy Market September 14, 2019

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Sept. 13, 2019 – OK, the NASDAQ Composite Index (i.e. “market”) made it above the 8048 resistance level, but the price action remains poor. This type of condition is very unusual so I’m calling it an “Uneasy Market” for now. Thus I’m not taking an aggressive / fully invested position right now. What would change my mind is a close above 8243, the “3 bar reversal” level.

I’m going to be brief; on a short term cell phone wi-fi network. Let’s look at sector strength:

An unusual combo of strong sectors: Banks, Energy, Small Cap stocks.

That’s it for now. Be cautious and have a good week. …… Tom ………

Better, But Not “Out of the Woods” September 7, 2019

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Sept. 6, 2019 – OK, the general U.S. market has recovered and is above my short term resistance level of 8048 (green line, chart below), but other indicators are not confirming this breakout.  This is unusual.  The “price action” is just poor.  Normally I’d remove all hedges and be in Cash ready for the next (likely) “Buy” signal.

I have reduced my short / hedge positions but still am keeping a light position open for some protection.  Note that “Money Flow” has turned back down.  This market is just too dependent on news to suit me; one news comment and off the market goes on a 2-3% move based on hope.  Not the sign of a strong market.

My “fall back” level is 7847.  That’s where I’d re-enter a significant hedge for increased portfolio protection.  My focus tends to be shorter term since I’m managing retirement funds without any tax consequences.  I remain is a strong Cash position now with only a few “longs”.

The chart below from Bloomberg is interesting on two fronts.  First, it shows that generally the estimates of EPS (red line, Earnings Per Share) for stocks are lower than what the actually are (blue line).  I guess you can call it “worse case” estimating.  Secondly, and important now, is that we see EPS falling in 2019 (green circled).  Regardless of what is said, earnings growth is slowing.

And that slowing is what I believe is behind the stalling in the market.  After all in the long run what effects the price of a share of stock is it’s earnings per share.  Short term is another story.

Lastly the table below shows what sectors in the US markets are doing in the short run.

Many of the defensive names have dropped off the top; Technology, China and Telcom are in the immediate lead now.

That’s it for now.  It will be an interesting week to see if this market can hold onto the breakout of it trading range that it was in.  Have a good week.        ……………..  Tom  …………….

 

Showing Early Positive Signs August 31, 2019

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Aug 30, 2019 – OK, this will be short and to the point.  I’m now seeing signs of possible “stopping action” for this correction.  The chart below shows Market Sentiment (top) followed by Money Flow and Volume Flow beginning an up trend.  That’s encouraging, but we still need confirmation.  I feel that confirmation will be when the NASDAQ Composite Index closes above the 8048 level (dashed green line; click to enlarge chart).

That could come early next week as many traders return from the (US) Labor Day holiday.  Until price action confirms we must assume continuity, that is a market in a trading range with a negative bias.

One thing that helps confirm a possible market change is the table below.  I note that the more defensive sectors have moved out of the top ranks.  I have begun to nibble on a few stocks that have shown good strength relative to the overall market, plus have good price action.

Have a good week; even though the US markets will be closed on Monday, foreign market will be open and will give us an idea how the US markets will open on Tuesday.     ……..  Tom  ………

Chart by MetaStock; table by http://www.HighGrowthStockInvestor.com.  Used with permission.

 

Weak Markets in a Trading Range August 24, 2019

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Aug. 23, 2019 – First a short note:  I’ll be away from my office for the next 4 weeks.  In the past 5 years I haven’t missed a weekly report, but . .  that may happen over the next month.  Plus my posts will likely be rather short; so just a “heads up”.

Markets that are weak tend to react (or over react) to bad news, while strong markets usually ignore the news.  With just a few minutes of his time and one “tweet”, Trump can send the market down over 2%.  Bamb !  Not to get political, but this action shows just how on edge many investors are.  And, the algo computers continue to amplify any significant move.  This is a hard market to trade.  A look at the chart below shows the trading range that I believe we are in.  (click on the graphic to enlarge)

As a Wykoffian I’ve labeled the Buying Climax (bc), Selling Climax (sc), Automatic Rally (ar) and the Secondary Test (st).  The reaction at the top of the range on narrow bars and very light volume showed that there was no demand; i.e. no buying interest at that level.  Friday was a large bar down on heavy volume.  The next thing to watch is how this market acts around the 7643 level.  Do investors see this as a “buy the dips” opportunity or does the selling continue?

Again, we’ll analyze the spread of the daily bar and the volume behind it (effort = volume and ease = price action).  Effort with little Ease of Movement (price movement) tells us that buying (or selling) pressure is being absorbed and change is likely to happen next.  The other scenario is that we just continue to trade with little conviction between 8041 and 7643 until after Labor Day, or another piece of news crosses the wire.  In any case right now there is no clear trend in the near term.

Looking at the table below we note that defensive sectors are at the top of the list.  (note that these ranks are short term based)

I am holding a few stocks that so far are doing well compared to the general market, but also I have a light hedge on via being short the NASDAQ 100 & Small Cap Indexes.  I’m keeping an eye on a few mutual funds and will scale out to Cash if they show weakness relative to the overall market.  So far, they are doing OK.

That’s it for now.  Have a good week.       ……….  Tom  ……..

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

Short Term: Stuck in the Middle; Long Term: Down ? August 16, 2019

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Aug. 16, 2019  A quick look at the chart below shows the market in a trading range / consolidation between 8041 and 7643 (green & red dashed lines).  Major damage was done during the latest drop and once again volatility has returned.  In my opinion this volatility is being driven in a major way by “algo” / computer trading, as once a move starts we see volume coming into the markets to amplify it (in either direction).  The computer programs basically “dog pile” into and out of the market.  It’s something we have to live with, and the way to look at it is what has happened over the past 5-10 days and not just the last 2 or 3.  (click on chart to enlarge)


Market Sentiment, Volume and Money Flow indicators remain Bearish.  The short term Price Strength is Neutral.  The question is are we in a consolidation / base building phase or just a pause?  Until the price closes with a break in either direction we won’t know.  But my “guess” is we have more room below than we do above at these levels.  All that’s needed is a news item (like China trade or Iraq) and away we go; and go quickly.  That quick response makes managing a portfolio a lot harder.  But there is an old saying, “It’s better to be out wishing you were in, than in wishing you were out !”.

I remain in a fairly hedged out / cash neutral status for now.  A look below to the sector strength table shows why.  The majority of the top sectors are defensive (China being the exception).  Not exactly an endorsement for a strong, growing equity market right now.


So, not much else to say except try to keep some powder dry and if things get worse, I may go slightly short (net overall).  Watch the daily volume and what the price bar does on those high or low volume days.  Direction wise, but also the spread of the bar and where it closes within the range.  Is the volume being absorbed or is it pushing price in a direction easily?  These will be the clues on who is doing what.  So far the big holders have not liquidated much, but if they do, we’ll see it and act accordingly.

Have a good week.  ………….  Tom  …………..

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

Market Neutral August 10, 2019

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Aug. 9, 2019 –  After the fall comes the moment of truth.  Is this “buy the drips” (which has worked many times before) or the start of something more substantial?  No one knows for sure, but we do know that “algos” (algorithmic trading) accentuates just about any move of more than 1% in a day, either up or down.  Damage was done via the large chuck of volume traded last week, so we’ll have to see IF buying comes back.  The last couple of days look like short covering rallies.

My key levels are 8041; a close above this would put me into CASH and sell my bear fund insurance.  And 7643; a close below that would have me add to my bear fund insurance and consider exiting a few more stocks.  Other indicators remain “bearish” due to the volumes that were traded on the down bars.

Looking at the broad S&P 1500 stocks and how they are fairing-

Price Strength:Weakness far exceeds strength.  Pretty much what is expected right now.

Accumulation/Distribution:A fairly even distribution of Accumulation (buying), Distribution (selling) and Neutral percentages of stock.  Thus not wholesale selling and more characteristic of a minor correction or a congestion of prices going forward.

Sector Strength:

The more defensive sectors remain at the top of the sector strength table.  It just seems that this market remains “on edge”, looking for direction.  Most of the earnings are now in and has been a few great and poor ones.  What concerns this market is the future and the future looks like a continuation of a trade war and geo-political  turmoil (red N. Korea, Iran, Brixit, slowing and lethargic world economies.  This is the time to be very selective and more short term focused; IMHO.

Have a good week.    ……… Tom ……..

Back to Caution August 3, 2019

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Aug. 2, 2019 – Just 2 short weeks ago I titled this blog as “Caution”.  Then the market went to new highs; go figure.  And this past week, in just 3 days we’ve seen that cautious position pan out.  All it took was the FED to “only” reduce short term rates by .25% instead of the much hoped for .50%. And then a Trump tweet on tariffs put the icing on the preverbal cake.  I remember the old quote that “strong markets sluff off bad news, while weak ones quickly react”.   What I find strange is that we’re a little over half way through earnings for the 2nd quarter and they have been generally pretty good.  It must be nerves about the future.

 

In any case we blew through the early warning “3 bar reversal” level at 8771.  I note that volume picked up during the price drop but not to panic levels.  My inclination is that we’ll approach the next level down at 7812 for a shallow but quick correction.  Looks like the big guys “sold at retail” and are looking to “reload at wholesale” prices.  When we start to see strength returning in the Technology and Internet sectors that will likely be the bell weather that strength is returning overall.

Let’s look at the very broad S&P 1500 stocks to see how much damage was done:

Price Strength – Accumulation/Distribution – 

No doubt that the percentage of stocks in the index has taken a hit with over half below their 20 day moving average or very close to it.  The number in Accumulation or Distribution is much more even, leading me to think that this is likely a “normal” correction.

Short term sector strength is listed below:

No surprise to see Bonds and Defensive sectors showing the most strength.

I have lightened up on stocks that were showing weakness greater than the market and have reduced sector holdings.  Since news is driving this market one must not get to confident that everything will return to previous highs.  We may just flop around in a narrow range until after Labor Day.  And so we go “Back to Caution” for the time being.

Have a good week.  ………..  Tom  ………..

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

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