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Waiting for News, Either Good or Bad April 17, 2022

Posted by Tom in Thoughts.
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April 14, 2022 – This was a shortened holiday week due to Good Friday and activity (volume) was light, but has been falling off for a few weeks anyway.  Likely cause is four big weeks coming up on first quarter earnings plus concerns about the push of Russia restarting in Ukraine.  The environment is unstable, hence low volume and little commitment by traders.  The earnings forecasts by corporate America will have a big influence on where the market goes from here . . .  and it could go either way.  We’re kind of at a point where a little news could have a big effect.

click on chart to enlarge it

Note in the chart above of the NASDAQ Composite Index is in a bearish condition.  Not exactly a good time to deploy any funds into the market.  I’m holding off until there are some better signs of “good health”.  Interestingly, “seasonality” is positive for the next couple of months, but I doubt if that will have an over powering effect on this market.  News & earnings “trump” seasonality IMHO.

The Short Term Sector table below shows what’s doing best right now.  No surprise that defensive sectors are at the top.  I do have positions in those sectors, but also in Cash.

And so we wait for earnings and Putin over the next 3-4 weeks.  It may be a “nail biter”; we could use some good news for a change.  Have a good week.   …………  Tom  …………..

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

It’s All About Earnings & The FED April 9, 2022

Posted by Tom in Thoughts.
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April 8, 2022 – I get asked “Why isn’t the stock market recovering (fast)?  Must be (fill in the blank, usually political)!”  Actually it’s all about earnings (a.k.a. profit), now and in the future.

The market likes constant / stability.  Stable good or bad is OK as long as “they” (investors) can evaluate what it is and what it affects in the market.  Thus money rotates were it will do best in the future; or at least everyone’s best guess of the future.  With unemployment low and the economy on fire why aren’t we roaring to all-time highs?  The unknown is the answer, and that’s what makes Wall Street very uncomfortable.  So much so that the big guys / gals buy Put options and Futures to hedge (protect) their portfolios.  These instruments have expiration dates and must be “unwound” before those dates.  That means volatility during the settling process.  Then the question is will that protection be renewed / rollover again.  Make no mistake about it, options and futures activity does affect the stock market.  And big pension portfolios & mutual funds need a lot of these to offset their holdings; billions in short order.

Now getting back to market concerns and future corporate earnings.  Companies big and small are faced with a rapid increases in demand and a limited supply.  “Happy days are here again” style demand came very quickly via Covid case drop offs, that with many having added savings in the bank created demand, a.k.a. “Back to Normal”.  But companies have limited supplies.  They are faced with limited labor, higher wage demands, supply chain issues and higher costs.  With inflation concerns by the consumer being an issue, can they raise prices or absorb these problems without affecting profits?

I’m thinking that the FEDs policy on May 4 could be a significant event.  The markets have priced in interest rates rising, but how much and how fast?  The bigger issue is under the surface, and that is liquidly.  The FED has purchase soooo much public and private debt that it intends to sell (or retire) back into the markets.  How fast that happens will definitely affect liquidity in the capital markets.  Note the sudden spikes in the FED balance sheet chart below. 

There is a lot of money / capital up in that chart that the FED intends to deal with to fight inflation.  Just how they go about doing it is a key factor for the future.  I don’t know and the markets don’t know either; “unknown”.  Liquidity,  the availability of capital, is the life blood of a capitalistic economy and  that’s why this matters.  That’s the reason why the next FED meeting and the current corporate earnings projections will be important.  Current earnings should be “OK” but the forecast of earnings will be something that everyone on Wall Street will be closely watching.

What next?  The war in Ukraine is terrible, but basically a “known”.  COVID is rising is some areas, but now we have therapeutics; “a known”.  Domestic politics continue; “a known”.   Back to the “unknown”.  I think corporate earnings / profits will be OK to good this quarter.  The markets will like that short term.  Thus a possible scenario would be a rise toward the previous high (though not making it) into the May 4 FED meeting.  Then my feeling is it could drop back to test the previous lows.  And many will be surprised and left holding “the bag” near the top. In the mean time we have to trade the chart in front of us and look at it with an open and unbiased mind (difficult!).   The table below shows what is happening in the Short Term with sector rotation.

Well . . .  that’s my big picture forecast for now.  Have a good week.           ………  Tom  ………..

table by High Growth Stock Investor, used with permission.

Strong but A Little Tired April 2, 2022

Posted by Tom in Thoughts.
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April 1, 2022 –  This market is showing significant strength based on many indicators but the one the stands out the most is the McClellan Oscillator which measure market breath.  No doubt about it, more stocks are advancing than declining and thus money is flowing back in, but likely at a cautious rate.  Note the low volume on the chart below.  It appears that a good bit of the recent strength was generated by the “unwinding” of put options that were placed as a hedge during the correction.  That’s behind us now.

click on chart to enlarge it

So the question is whether this market can continue higher.  I’m thinking that it is due for a small dip down or at least a base building period before moving significantly higher.  First quarter earnings are in front of us so that could provide a spark . .  or disappointment.  Of course the wild cards in any market move is the unknown . .  that being Ukraine and COVID.  I don’t think the interest rates or inflation bothers investors very much; they were generally expected.

The Short Term Sector Strength table is shown below –

I see that Utilities and Real Estate are higher that Financials and Technology.  Not exactly a sign of confidence in the growth area right now.  This move may take a while and be rather selective in nature unlike the previous 2 years where just about everything did pretty darn well.

I’m about 70% invested right now and looking for more opportunity but I’m not in a big hurry.  Have a good week.        ………..  Tom  ………..

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

OK . . . . but March 26, 2022

Posted by Tom in Thoughts.
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March 25, 2020 – A good week for the markets.  Up past my “mid-line” and every indicator on the chart below is positive / bullish.  But . . . Ukraine still holds over the market, as does inflation and “fear” of interest rates rising.  The market seems to say “OK, I’m feeling better, but not entirely well”.  Note the rather low volume, below the 20 day average . . .  no rushing to jump back in by institutions.

click on chart to enlarge it

The big factor will be the upcoming corporate earnings reports.  If the majority can show modest growth then I think we’ll be “off to the races”, or at least firmly toward new highs.  How profitable companies are in this environment really says it all since skepticism abounds in the long term.  But employment is at an all-time high, interest rates are very low by historic measure and inflation was expected coming off the COVID lock downs.  Oh yes, COVID could be a wild card in the entire scheme of things.

So what to expect?  In short, the unexpected.  The war . . . who knows what Putin will do.  COVID . . . we’re in much better shape to deal with it now.   Inflation . . . slowly getting under control late in the year as supply chains improve.  Corporate earnings . . . pretty darn good, except for some pockets of poor.  I’m thinking that the next 2-5 years will be a stock / industry sector pickers market; everything will not be going higher at the same rate, nor at the same time.  Those days are behind us (I think).

How to handle this is via a “Top Down” analysis approach.  Starting with market health, then sector strength, then industry strength and lastly stocks in those industries.  More on this later.  For the time being here’s a look at the Short Term Sector Strength:

Note the rise Technology sectors.  Let’s see if that continues since they were beaten down so much.  (Note the “%Cl/52” column on the far right, that’s the % Close from the 52 week high price..)  So that’s it for now.  I’m cautiously taking position in those strong industries & sectors.

Have a good week.     …… Tom  …..

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

At The Turn ? (Patience Young Jedi) March 19, 2022

Posted by Tom in Thoughts.
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March 18,2022 – I see possible indications that we could be at a market turning point of this correction.  My major market model (not shown) is giving me a “heads up” to watch carefully next week.  But why?

First off this market has already priced in the major news issues in the short term.  The terrible situation in Ukraine, the FED interest hike and recent COVID uptick are known.  As long as the “unknown” doesn’t creep in or takes take an unexpected turn for the worse, we could be “OK”.  This is where patience comes in. 

click on chart to enlarge it

Take a look at the chart above: broken channel up, Close above the “mid-line”, Volume & Money Flow Bullish, Price Strength (black line) Bullish. Time to pay attention, with care.

Friday I was hearing many knowledgeable amateur investors talk about a “follow through day” (a major up on high volume, off a major swing low formation).  Well yeah, that might be but that volume was due to the “triple witching” of stock & futures options and futures contracts.  Make no mistake: most of these contracts were hedges placed to protect portfolios in a down market.  That volume was contract settling, but were there any actual positions taken?  Let’s wait for confirmation next week before we assume anything.

How will we know?  I’d say watch the institutions.  If they think the worst might be over, they will be putting money to work where they can quickly and easily.  Read that as liquid big mega cap technology companies.  Is money flowing out of the fear stocks (metals, staples, defense, utilities, etc.) and into more speculatives?  I’d also keep an eye on the Russell 2000 index (IWM) for hints in comparison to other indexes.  Again . . .  patience, because it’s not all going to happen in a day or two.

The Short Term Sector table gives us some indication of that possible rotation –

That’s it for now.  ‘May the Momentum be with You’ Young Jedis.    Have a good week.  ……  Tom  …….

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

News Dominates the Markets March 12, 2022

Posted by Tom in Thoughts.
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March 11, 2022 – Needless to say (but I will) news continues to dominate the market and investor behavior.  The western world is in crisis with the near term future unknown.  An irrational authoritarian making irrational decisions that affects millions . . .  for absolutely no good reason.  Not a good environment for putting finds at risk.  For the week, S&P 500: -2.88%; NASDAQ “Q’s”: -3.82%; Dow Industrials: -1.99%; NASDAQ Composite: -3.53% and Bonds (corporate): -1.82%.

click on chart to enlarge

Looking backwards, let’s take a statistical look at market drawdowns / corrections.  A “mild” correction has generally been 10 to 15% drawdown off the previous high.  “Major” (i.e. recessionary) drawdowns are typically 25 to 45% off the highs.  Right now we’re at about 11 to 15% depending on which index you look at.  So . . .  for the time being we’re right at the edge of a “mild” correction.  A break below the 1300 level on the NASDAQ Composite could signal another possible leg down.  Conversely, at break (mulit-day) above the 13837 “mid line” may (just may) indicate a bottoming formation in the price structure.

On deck next week is the March meeting of the Federal Reserve, so watch for news coming out Wednesday afternoon.  Will they raise rates ¼% or ½% or not at all?  The market appears to have factored in at least a ¼% in March and perhaps another ¼% in May . . . but who knows?

There are some possible signs for the future.  First off Tech company insiders are buying their own stock.  Volatility is high and the Implied Volatility of options is at a near term high as expected.  This high of Implied Volatility can be an indication of an extreme in market pessimism (a fear index) so perhaps it is ‘darkest before the dawn’.  Overall, I’m looking for a bottoming / basing formation but fully aware that things could get worse as well; holding a big chunk in Cash.

The Short Term Sector Strength table –

(Note: for “Trend”, L=Long term, M=Medium term, S= Short term.  “A/D” is a ratio of Accumulation and Distribution. “%Cl/52 Hi” is the current % price off of the 52 week high.)

That ‘bout it for now.  Stay nimble but patient.  Have a good week.     ……….  Tom  …………

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

Market Uncertainty = Patience March 6, 2022

Posted by Tom in Thoughts.
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March 4, 2022 – I’m still waiting for a better indication that we are not headed lower.  The simple definition is a “higher High & a higher Low” of price swings.  So far we remain in a “lower High and a lower Low”.  Some indicators are a little more positive but the news is uncertain and the market and its investors don’t like uncertainty, hence we’re still in a range.

click on chart to enlarge

The weight of Ukraine the effects on the Western economies and overall inflation fears are the major factors overshadowing great job numbers and very low unemployment.  Right now it’s “all about” energy, commodities (metals & grains), consumer staples and utilities.  That’s where I’m at with the rest in Cash.  The pie chart below shows the % of stocks in the broad S&P 1500 Index in various states of Accumulation and Distribution.  The stocks in Accumulation are the previously mentioned. 

The Short Term Sector Strength table is shown below:

Is this a good time to “bottom fish”?  Only if you are willing to take that risk and accept a possible drawdown.  Likely the market will click lower to take out resting stops before it rockets higher . . .  that’s just the way that it works.  I’d wait and then react quickly, but Tech is on sale now.  I prefer to spend time doing research at times like this and not try to “push on a rope” trying to pick a bottom in an environment that is unstable.  But, “To each, their own”.

Have a good week and pray for the people of Ukraine.  They did not deserve this !   …..  Tom  ….

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

Are We (“There”) Yet?   (OK to Buy?) February 26, 2022

Posted by Tom in Thoughts.
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Feb. 25, 2022 – Last Thursday was a “face ripper”.  A massive gap down (overnight) followed by a big rally into the afternoon.  So . . . that’s “it”, right?  First off, no one knows, but let’s take a step back and see what happen.  On Thursday morning with the world markets in a free fall, as the US market opened there were sell order in place and virtually no buy orders.  The market went lower.  A few minutes later “sell stops” (resting sell orders) where hit; the market drops more.  And the whole thing repeats since no one wants to step in front of a moving train.  This continues until all of the stops are hit, then a brief moment of calm, then short term traders see opportunity and step in to buy.

click on chart to enlarge

Note that the volume on Thursday was very high touching the red line, but on Friday it came back to the 20 day average (the blue line).  So Yes, there was a big reversal that flushed out all of those stops and Friday continued higher but only in an “average” way.  Likely we’ll see a “test” of a lower price, maybe the low of Friday or mid-range of the Thursday bar, but if something breaks over the weekend, well that’s a different story.  My point is that we need confirmation and right now we don’t have it.  I’d like to see longer term traders / investors return first before re-entering this market.  Oh and yes . . .  volatility is not dead.  We’ll likely see some pretty sharp ups and downs over the next 2-4 months.

One thing that I am looking at is the appetite for risk.  I’m watching the spread (difference between) the large cap SPY vs the small cap IWM.  We’re starting to see that in the very short term reflected in the table below.  Longer term investors consider small cap stocks risker because they are less liquid and more susceptible to economic hardship; they are more exposed.

Short Term Sector Strength –

(note: VPA “trends” are L=long, M=medium, S=short term.)

I’m not going to be a hero in here.  I’ll be a little more patient until I see some confirmation of a trend change.  Perhaps a base being built as a stable point.  My metals and energy related holdings have held up well and I’m happy to be holding Cash.  I’ve done some significant changes to areas that are interest rate sensitive since rates are very likely to rise over the next 1-2 years.   Have a good week and stay flexible.   …. Tom ….

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

Waiting for the “Other Shoe to Drop” February 19, 2022

Posted by Tom in Thoughts.
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Feb. 18, 2022 – This market has been in a very large trading range which I’ve labeled as “The Box” on the chart below.  I’ve broken it down into the “Upper Range” and the “lower Range”.  The “Upper Range” is where the trades go when the market leans toward optimism, the “Lower Range” where it gets more pessimistic.

click on chart to enlarge

You’ll note that with the latest news about Ukraine that we’ve returned to the Lower level.  Since the U.S. markets are closed on Monday (keep an eye open for indications in the international markets) we’ll have to see how they react to the news that came out after the market close on Friday.  I’m thinking that we’ll see the lower end of that low range.  13097 (previous swing low) / 1300 levels look very “do-able” right now. 

But then what?  If the economy was weak, I’d say we were in for more of a drop, but it isn’t.  Note the rather low volume late last week . . . . Traders are waiting; they’re not buying or selling much.  Leads me to think that we’ll make a double bottom then recover IF things don’t spiral out of control in Eastern Europe; a big “IF”.  Friday was options expiration day and there were a lot of Puts just below the previous lows.  These were likely bought as protection.  The question was this protection rolled over (renewed) or just left to expire?   If the markets go much below the lows there could be an “air pocket” taking the market lower.  I think it all depends on how “hot” the news is out of Ukraine.

On the bright side, we could easily see a big move up on positive news.  We have to stay nimble and keep things in perspective.  The world may have “issues” but is not necessarily falling apart.  The U.S. is in an enviable position of having a strong, growing economy and low unemployment.  Not exactly conditions for a major crash.

The Short-Term Sector Strength table is shown below:

(note: the letters “L,M,S” above the columns “VPA” indicate Long, Medium & Short term trends.)

That’s it for this week.  Watch the S&P 500 futures Sunday night & Monday (index futures trade 24/6) and also what the European markets are doing on Monday.  A clue to what may be coming our way on Tuesday.        ……………  Tom  ………………

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

Concerns Continue February 13, 2022

Posted by Tom in Thoughts.
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February 11, 2022 – This market is pretty much “over” Covid, concerns linger about inflation and rising interest rates, but the hot topic next week (or more) will likely be Ukraine.  A quick thought dump:

  • Hedging is at a 22 year high (i.e. buying of Put options)
  • Evaluations of stocks remain high (P/E metric, revenue to growth, etc.)
  • The spread between Junk and Treasury bonds are increasing (risk off for bonds)
  • Rising interest rates into a slowing economy (major caution sign)

So these are a few topics that raise the hair on the back of Wall Street’s neck (so to speak).  The path forward is unclear and that’s what concerns investors.  A time for caution particularly if you’re buying securities.  I’m a fan of “scaling in” to any position.  You don’t have to jump in with both feet even if you’re 100% sure / optimistic about it.  Be selective.  To use a phrase “We’re closer to the top than to the bottom”.

click on chart to enlarge it

It looks like 14532 is resistance and 13097 / 1300 is support.  That’s about where the trading range box is right now.  Investors that were counting on a ‘V’ shaped bottom will likely be disappointed.  A double bottom (or worse) looks like a possibility.

The Short Term Sector Strength table is shown below –

That’s about it for now.  I’m lightly in some Energy and Bank sectors.  I’m waiting for more signs of leadership before entering in a bigger way.  BTW, if you hold bonds or interest rate sensitive securities, it may be a good time to re-evaluate them . . .  interest rates are making a major turn as signaled by the Federal Reserve.

Have a good week and be careful.        …………..  Tom  ………….

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

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