jump to navigation

Market Neutral, but Could Change Quickly June 27, 2020

Posted by Tom in Thoughts.
Tags: , ,
add a comment

June 26, 2020 – This will be an unusual posting, in that I’ll cover a few extra market indicators that I look at. But first the market as shown via the NASDAQ Composite Index below.

click to enlarge

You can see that the broader market has not gone very far over the past 3 weeks. The upward momentum has definitely slowed way down and indicators are either neutral or negative. The overall question is this a pause within an up trend or the beginning of a correction? And IF it is a correction, how far down will it go? Actually, no one really knows the answer to either question. I am watch the price levels shown for support.

I’ve labeled a possible Buying Climax (bc?) and and an UpThrust (UT?) on the chart. What should really draw our attention is the big volume on Friday . . much larger than the Friday before (which was caused by option expiration). High volume = High activity, and a down bar would indicate more selling than buying. So even though my main model is “Neutral” (cash) I did put on a small hedge via an inverse ETF. I can always increase or close it out.

But here’s what else concerns me: What is going on in the broader market breath indicators. I’ll only give you a quick explanation, but if you study these, you’ll see what I mean.

Cumulative Up/Down Volume –

click to enlarge

The S&P 500 is shown in the background as a white line for reference. I look for breaks above or below the channel, then confirmation them the following day above / below the signal bar. The lower indicator helps to draw attention to a possible signal.

McClellan Summation Index –

click to enlarge

Same basic principle. A break of an envelope with confirmation. For those interested, you can “Google” these indicators for more information. The idea is to develop an early warning system to detect when the risk is increasing and money is moving out of the market. The “Smart Money” will typically sell into rising prices / a rally, and not wait for things to get weak and prices begin to soften.

The third confirming indicator is the VIX. It is basically a ratio of put to call options volume. Options are the cheapest & quickest way for traders to hedge out their positions and “buy insurance” when they begin to get concerned. It looks like the easy money is done for the time being.

I should note that none of these indicate how far prices will go, just that things are getting “soft”, and extra caution is warranted. Onward to sectors.

Of note above is the decline in Technology sectors and the rise of Treasury Bonds and Precious Metals. It’s early, but things appear to be getting more defensive.

That’s it for this week. Have a good and safe 4th of July (USA readers) and continue being safe with this virus. It’s NOT over. … Tom …

Price charts by MetaStock & TC2000/Warden Brothers; table by http://www.HighGrowthStock.com. Used with permission.

“Steady as She Goes” June 20, 2020

Posted by Tom in Thoughts.
Tags: , ,
add a comment

June 19, 2020 -There are many things that could trip up this market, but (apparently) many very positive things as well. I can’t help feeling that looking only at a market index will only tell us part of the story, especially going forward. What I’m saying is that this will likely turn out to be a “stock pickers market”. But also a specialized sector market as well. Likely not every company stock will do well over the coming year or so. We’re going to need to be selective.

That said I’ve recently broadened my ETF candidate list significantly to not just cover the major sectors but to drill down deeper. I do note that any instrument that I trade must be “liquid”, that is, have sufficient daily volume / activity to absorb both buy & sell orders so that the spread between the Bid & Ask price is reasonable. With trading costs extremely low this makes sense, especially in an IRA type of account where there is no short term tax consideration.

click to enlarge chart

The chart above shows a continuation of the current move. Still within the up sloping channel (purple lines), though it looks like the “bullishness” has subsided recently. This market is not “cheap” if you look at the overall price to earnings it is rather expensive. The true test with begin in mid July & August when the second quarter earnings start to come in. Then we should see what effects the virus & shut down have actually had on earnings. I doubt if many will escape some level of reduced revenue and hence profits. A late summer slump could likely be in the offing. By then we should have a handle on an virus up tick as well. BTW, the volume spike on Friday is the result of options expiring & settling up; nothing unusual.

So, I remain cautious and extra mindful of money flow in the market breath indicators for signs of Distribution. So far, so good, but it does look like the major buying is behind us. I note in the chart above that the near term support price has been moved higher to follow price action.

Short term sector strength looks like this-

We see a number of Technology sectors up there along with a resurgence of BioTech and China. If you want to maximize sector rotation you can drill down even more and see what is the best sub-sector. Case in point is Software within Technology. Just a suggestion.

So . . . . that’s about it for now. “Steady as She Goes” but be aware of ice bergs. There are a few of those out there Captain. 🙂 Have a good week. …… Tom ……

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

Market Neutral (for now) June 13, 2020

Posted by Tom in Thoughts.
Tags: , ,
add a comment

June 12, 2020 – OK, an interesting week. What we knew going into the week was that the market was “over bought”, both technically (gap up and too far, too fast), plus fundamentally (valuations, earnings & revenues) are excessive in the historical context. The bottom line is there was too much money chasing stocks prices higher for . . . . . what reason?

The two big contributors are the FED with easy money . . . . . it’s got to go somewhere with companies not investing in themselves right now. The other is a very unusual phenomena of a big surge of retail investors. The surge is likely driven by the “stay a home” virus situation. Need money? Trade at home; it’s easy. The recipe for a bubble ready to burst.

So now what? My model is near the Neutral point, and will likely confirm that with a close below the low on Thursday. (9560 level)

Click on Chart to Enlarge

From the chart above (click on it to enlarge) we see the top indicators remain positive / bullish. The bar color is neutral (a warning). The low price pretty much held at the 9560 level, well at least for now. On the plus side I note the volume has been dropping off. Two observations: one, a sign of No Demand (lack of buying) but there is not a major rush for the exits. At least not yet. We’re still in the “Buy the Dips” mode apparently.

IF we get a major news item, such as the number of virus cases sky rocketing or similar, the correction could just be starting. Time to have a plan to exit IF need be. I have lightened up positions that were showing weak relative strength to the market and I’m ready to get more liquid as needed.

One thing I noticed, is the number of “Put” options being bought, likely as a hedge, increased significantly on Wednesday afternoon and Thursday morning. At the Friday close some of that had unwound, but remains relatively high. Looks like the “Pros” are not taking any chances.

Short Term Sector Strength is shown below.

I note the number of International sectors that are holding up. Perhaps a rotation or maybe just diversifying. We’ll see it that holds into next week.

That’s about it for now. Don’t rush, but keep an eye on the exit door. Have a good week. …………. Tom ……….

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

A Pause or A Correction ? May 3, 2020

Posted by Tom in Thoughts.
Tags: ,
add a comment

May 1, 2020 – “Hooray Hooray, the 1st of May !” So far earnings have been a mixed bag, even in the Technology sector. Some have been pretty good considering, while others poor, with even worse guidance. The big issue is what will happen over the next 2-3 months with the impact of the virus. No one knows. But with states opening up we should get a glimpse into the future over the next 2 weeks. Do the number of cases increase, stay the same or decrease? I think that metric will be key for the next 6-9 months.

In the mean time the long anticipated pause / correction appears to have started on Friday. I show two scenarios on the chart below.

NASDAQ Composite Index; click to enlarge

Scenario #1 is a very mild drop to the 8215 support level which I would call a “pause” before a general up trend resumes. Scenario #2 is more severe with a drop to around the 7288 level. I note that the volume on Friday (the last bar) was rather light; “no demand”, but not significant selling either. So far it looks like option #1 is the most likely but be aware that if we get bad news #2 could definitely be in play as well.

So far most indicators remain “bullish”, with Price Strength being “neutral”. We should have a good idea about the strength of this market over the next 2-3 days. I’m watching the price (of course) but also volume; which would confirm price.

The short term sector strength table is shown below.

I’m still wary of the energy sector, but if anything will lead this market high it will probably be Technology in one form or another. Banks and Finance would come in as a second.

I just have this feeling that the complete effects of the Corona Virus have yet to be fully appreciated. Will it be just jump back to the “old normal” or transition into something else? Will everyone get their old jobs back? (I doubt it.) Will restaurants, airlines, cruise ships and casinos pick up where they left off? Very doubtful ! The economy, not to mention the Federal debt load, will feel the effects for years to come. I’m cautious.

Have a good week and watch price and volume (activity). But mostly, Take Care. ………. Tom ………

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

Volitility Continues, No Clear Direction March 29, 2020

Posted by Tom in Thoughts.
Tags: , , ,
add a comment

March 27, 2020 – Sorry about being late last week.  The post was completed but only in Draft form.  It took until mid-week before I found that out.  I’m now back to using the “classical editor” and should happen again (I hope).

Yes, back to volatile up and down swings.  Each move seems to begin with news, then gets amplified by computer algos.  And so it goes, back and forth.  I’ve laid out two possible scenarios.  The first is “bullish” and is shown via dashed green line.  The logic is the NASDAQ Composite Index retreats back to roughly a 7194 “mid point”, then rallies higher nexy week.  This puts in a “higher low” price swing, which is positive.  The “bearish” version is shown with a dashed red line.  It just continues back to the previous low.  At that point it just oscillates between Resistance & Support areas or, worse yet, heads even lower.

It all depends on virus and corporate news.  Which in this environment is not a surprise.  The markets are weak and nervous, and just about anything will send them off in any direction.  No value in trying to predict but knowing key price patterns can help decipher overall directions; if only for the short term.

The table below tries to show short term sector strength.  Though it’s hard to read too much into these right now.  (Who would have thought Utilities / Defensive would be right near Semiconductors – Aggressive?)

That’s about it for now.  I’m trying to avoid jumping into things too quickly, but also trying to remain optimistic as well.  Have a good week.   ……….  Tom  ………

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

The Three Scenarios March 7, 2020

Posted by Tom in Thoughts.
Tags: , ,
add a comment

March 6, 2020 – Another volatile week in the world markets.  But the question is always, “What Next?”  Right now there are 3 scenarios / possibilities.

1) Could we just rally from here go back up?  Sure, but not likely.  There has been a lot of damage done; a lot of money has been pulled out of the markets.  Just look at the volume on down bars.  2) Could we fall down even further?  Again, that’s possible and it all depends on news and the revenue streams coming into companies.  Thus, a time to be extra careful and watching price and volume.

3) Could we just remain in a trading range going back and forth with blips in the headlines?  In my opinion that’s the most likely direction; bouncing between 9070 at the top end and 8438 at the low end.

It looks like the markets are building a base / in consolidation.  But then again . .  it all depends on how badly business are feeling the virus effects on their revenue stream.  The virus scare impacts both supply of goods (manufacturing) and demand (will consumers buy?).  The virus effects on people is terrible and unfortunate, but one thing is fairly certain: the markets will recover.  The only question is when.  I’m watching for the results on consumer confidence & company revenue guidance for clues.  If there is a close below 8264, then more downside is likely.

The pie charts below tell the story of how the sell off has effected the stocks in the broad S&P 1500 index.

% in Accumulation / Distribution –% Price Strength –

BTW, what stocks were considered “Strong” in the S&P 1500 Index?  Only six.  Those six below –

The table below paints a lot of red as far as short term sector strength is concerned:

I am heavy in Cash with the remaining mutual fund holding completely hedged.  Have a good week and try to be patient.  Likely this is not going to get resolved soon or quickly.   …  Tom  …

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

Wait For It ! February 29, 2020

Posted by Tom in Thoughts.
Tags: , , ,
add a comment

Feb. 28, 2020 –  The British (I’m told) have a saying:  “Wait for it!”.  And now it’s all about being patient.  This week was significant in many ways, but if we’re temped to “buy the dip” we might want to be extra cautious even though that has worked well in the past +3 years.  You see . .  it’s all about the perception of earnings growth, which is derived from revenue.  If demand remains high and supplies are disrupted (i.e. China), revenue falls.  If supplies are good (high), but demand for products and services drop (low consumer confidence), well . .  revenue drops.

The corona virus has many folks in both the product and service sectors very concerned.  Even with the “bullish bar” on Friday, that doesn’t necessarily mean that the worst is over.  Markets don’t go up in a straight line, nor do they go down in a straight line (assuming this is not a “dip”).

As you can see the drop started on Monday and just continued all week.  Volume was significantly high as investors sold and computer amplified the selling automatically.  Now I’m looking at 8438 as support and 8943 as resistance levels on the NASDQ Composite Index.

How bad was this drop?  On the S&P 500 blue chip index, you would have to go back to Oct. 10, 2019 to find the same price level.  Every gain in between was wiped out.  You could also go as far back as Sept. 20, 2018 (a year and a half ago) to see nearly the same level.  When things like this happen I like to go back and see if there was any clear signs of an impending drop.  The chart below stood out to me.

The indicator is the Cumulative Volume indicator which measures volume of Up bars to the volume of Down bars.  (click on chart to enlarge)  The gray line is the closing price of the S&P 500 Index.  Note that all during the month of February while the S&P made new highs, the indicator was falling.  For all 500 stocks, there was more volume on down bars that up bars; an indication of Distribution (selling).  Only a few big names were propelling the index higher.

I could post a table on sectors, but in all reality the only one doing well was Treasury Bonds.  A flight to safety.  Even Gold and Gold Miners began to fall by mid week.  So now what?  “Wait for It !”.

There are too many things going on to assume the all clear.  This is a news driven market, so watching how markets react to news will give a clue.  Remember: “Weak markets react badly to bad news, while strong markets ignore it”.  Watching the bar strength (price and volume) will confirm that folks are trying to return.  I’d expect a small rally around mid week.  If that holds, maybe we start to consolidate prices within a low range for a few weeks while the true impact of this virus is felt. Maybe in a few weeks we’ll see a rebound, or if bad news continues we could see a resumption of lower prices.  At this point, it’s all about revenue and what corporations project for the future.  This is NOT the garden variety “buy the dip” situation.  Too much damage has been done.  It will take a while to recover.

I put on a light hedge a week ago Friday, then added to it last Monday.  Through the week I just had to sell stocks and ETF’s.  I am now pretty much “Cash Neutral” with hedges, holding only a few good mutual funds.  I took some losses, but managed to dodge most of it.   Have a good week and keep your powder dry !   🙂    …………  Tom  ………..

Price chart by MetaStock  & TC 2000.  Used with permission.

Buy the Dip ? (or not) February 22, 2020

Posted by Tom in Thoughts.
Tags: , ,
add a comment

Feb. 21, 2020 – The S&P 500 lost 1.25% for the week, which is not very dramatic since it’s had such a terrific run up over the past 6 weeks.  The rate of increase is really not sustainable so this downward “correction” is not a surprise.  These “corrections” have typically been where buyers begin to step back in for the anticipated run higher.  At some point, this will not happen.  Then things get interesting in that, does panic set in or just a wait and see type of back and forth consolidation.  In the long term, earnings (or the hope of increased earnings) drive the market.  What effects the Corona Virus has on Chinese and World economic growth is still TBD, but market makers will anticipate the direction no matter which way it goes.

The 9493 level on the NASDAQ Composite Index (red line) is where some concern begins to get generated.  (click on chart to enlarge)  It is the low of a previous important up bar and it is at the low end of the price channel (purple lines).  The earnings guidance from some tech companies (like Apple) have been muted, and thus the growth rate is a cause of near term concern.  So far the volume has increased on down bars, but not to an alarming level.  Money Flow remains neutral and the Price Strength indicator has come off of a “Strong” level.  Time to be extra watchful next week.

No surprise that Gold & Silver have risen along with other more defensive sectors.  The ranking in this table is sensitive and short term, so it can turn quickly in either directions.  But in any case it may be time to take some money off the table.  As of Friday, I backed off to being 50% Long, and will put a hedge on early next week IF the weakness continues.

Like anything else, whatever went up quickly seems to fall back quickly. Time to be careful and nimble.   Have a good week.        ………. Tom  ………..

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

Continuation Higher . . . For Now February 16, 2020

Posted by Tom in Thoughts.
Tags: , ,
add a comment

Feb. 14, 2020 –  This will be short because there’s really not much to add from the previous 2 weeks; this market just continues higher.  Regardless of the reason / cause, it just continues . . . . until it doesn’t.  (tongue in check comment)

As shown in the above chart, prices continue to hug the upper trend channel.  That’s a little concerning because of the potential of being “over bought”.  All indicators confirm a continuation, so we must abide and be invested, at least for the time being. (click on chart to enlarge)  I have moved the support level up to 9493 on the NASDAQ Composite Index.  That would be the level where things start to peak my attention of a possible change; but until then.

Sector strength is relatively unchanged.  Technology related sectors continue to do well, but Real Estate has moved up too.

That’s about it for this week.  Continuing on, but be watchful of a change of character in this market.  When it does happen, it will happen quickly.   …………..  Tom  ……………..

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

Climbing The Wall February 8, 2020

Posted by Tom in Thoughts.
Tags: , , ,
add a comment

Feb. 7, 2020 – This market continues to “Climb the Wall of Worry” and keeps on going.  We’re half way through earnings season and so far its been pretty good, though a number of companies have given weaker guidance going forward.  Market Sentiment (chart below) has returned to positive, but Money Flow remains negative.  I’ve labeled the current price formation a possible Up Thrust.  This occurs at new highs with narrow bars (buying = selling) and light volume (decreasing demand)(click on chart to enlarged it for easier viewing)

Nothing is chiseled in stone so we’ll have to wait but this does indicate a reluctance to push higher in the immediate / short term.  The news will likely be a catalyst should any significant move up or down occur; trader are nervous.  Also I’ve moved the support level up to 9123 on the NASDAQ Composite Index.

Other than that, the table of short term sector strength is shown below.  Of note is the recent strength in the BioTech sector, likely driven by the Corona Virus scare.  The next couple of week will be a critical time for the virus.  It will either show signs of containment, or not.  The infection rate is pretty high right now.

Now much else to say.  I am “lightly long” mostly because it’s getting harder to find good stocks to buy.  This is born out by the fact that fewer and fewer stocks are driving the market indexes higher.  The majority are being left behind.  I’ll post a chart on that next week to illustrate the point.  Until then, have a good week.   …..  Tom  …..

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

%d bloggers like this: