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Green Shoots December 24, 2021

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Dec. 23, 2021 – At the close for the week (Thursday) we saw the possible beginnings of “Green Shoots” from our indicators.  Now I take this with more than a “grain of salt” due to the low volume with many traders on vacation this week and next.  Thus I wonder just how much of a commitment there is.  I tend to be skeptical until after the New Year.  This was a short week and my comments will be short as well.

click on chart to enlarge

As mentioned I started to plot my new indicator of Market Strength lightly in black on top of Price Strength on the chart.  I’ll go over it in more detail after the first of the year but you’ll kind of get a handle on it even now.

Keeping the past year in perspective, I show the S&P 500 ETF (SPY) in the chart below.

click on chart to enlarge it

Over all it was a great year, but just take a look at the 6 “scares” that closed below the 50 day simple moving average.  It was good to “buy the dips and sell the rips” but there will come a time when that will be disastrous.   Thus we need to look at the overall market and not just price actions.  Thus my work on a master multiple indicator to help gauge the market.  BTW, nothing is totally fool prove and works all of the time, but at the hard right edge of the chart it sure helps to have something to use to confirm a position change.  More explanations to come.

In the meantime, enjoy the holidays and get ready for 2022.  I’m thinking that next year will be more challenging than last and it’s a good idea to get prepared.  Take Care.    ….  Tom  ….

COVID Concerns Return December 18, 2021

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Dec. 17, 2021 – With the immediate focus off of the FED and a return to concerns about Covid, plus continuing debates about inflation, the market returned to showing weakness this week.  We’re back to the swing lows of 14931 on the NASDAQ Composite Index.  A break above 16626 would be bullish but that might not happen until we get past Christmas.  We sure could use some good news too.

click on chart to enlarge

Most of my indicators on the chart are negative and even “Price Strength” is barely positive.  Not a great environment for stock prospecting.  This is a shortened trading week and volume will drop off the closer we get to Christmas.  But be careful; low volume can be volatile.

After the New Year I’ll be making a few changes to this blog to improve content.  I’ve been working on some overall market strength signals plus I’m considering adding detail to sectors by showing specific ETF’s.  More to come.

The Short Term Sector Strength table is shown below –

That’s about it.  Wishing all that celebrate it a Merry Christmas.     ……….  Tom  ………..

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

Market Consolidation December 11, 2021

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Dec. 10, 2021 – It sure looks like this market is in a consolidation phase.  We’ve gone through a period of weakness and bounced back a bit.  Overall, things don’t look that bad but the market is not convinced just yet . . .  and that’s OK.  The chart below shows that weakness and partial recovery with the market concerned about 3 things: Inflation, Covid and the Evergrande bond default.

click on chart to enlarge

The Evergrande default is all about a very large Chinese real estate developer who overbuilt and now can’t make the interest payments on its bonds / loans.  Concerns about it rippling through the Chinese, then Emerging Market economy is what it’s all about.  The Chinese government will (likely) not let that happens.  Next, Covid.  This remains a wild card but there are signs that it may not have an outsized effect on the economy.  It remains a genuine concern and requires our attention.

Lastly, inflation.  The sudden spike upward has caught many by surprise, but it’s really about the sudden surge in demand.  During the past 2 years businesses have throttled back due to lack of demand and a fear of recession.  That was real.  But now demand has quickly increased and the supply chain can’t turn on a dime.  The chart below shows the inflation rates over the past +60 years.  I’ve drawn a line across the current rate to see what happened at that inflation level.

The times of roughly equivalent inflation rates were the mid 1970’s and early 1980’s.  How did the markets hold up during that time and afterward?

In the big picture, market dips but nothing very dramatic.  Of note is that the previous peaks of inflation were preceded by high interest rates and excessive supply, but not excessive demand; a big difference.  This market has come a long way and quickly.  It’s overdue for a breather / consolidation of prices.  Unless Covid spikes up and threatens the economy, this spike of inflation is likely a passing thing.  Demand being greater than supply is very much an economic stimulate.  We’re not likely to slip into a recession, at least not yet.

Have a good week.   ………..   Tom  …………..

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

At The Point December 5, 2021

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Dec. 3, 2021 –  At the close Friday we’re at / near an import support level, both from a previous price level and a few other technical prices levels (50 ma, Fibonacci, etc.).  The next couple of days are where we will find out whether the market stops and at least stabilizes or continues to show weakness.

click on chart to enlarge

The most obvious issue is the COVID Omicron strain and the Russian activity on the boarder of Ukraine. “A weak market will react badly to bad news while a strong market will ignore it.”  This market is overvalued and needs a breather even though we’re in a strong seasonal period.  If we can’t hold near this level the next line in the sand for support is the early October lows of 14182.  The VIX remains high indicating more Put buying than Call buying so traders are in full bore hedge mode buying protection.  The other concern is the FED.  Will they cut back (i.e. taper) the purchase of bonds and how much?  This market is addicted to cheap money, no doubt about it.

The pie chart of where the 1500 stocks in the S&P 1500 Index is shown above.  This relates to each stocks price position to its own Bollinger Band (20 day volatility bands).   Not surprising the amount of red, but weakness can also indicate future opportunity.

The short term sector strength table above shows strength in defensive sectors like Utilities, Materials, Financials and Consumer Staples.  Surprisingly Technology, especially Semiconductors, are holding up well.  Be on the lookout for retail sales and a few bell weather earnings reports coming out this week.  This news could influence the market direction in a significant way.

Have a good week & Happy Holidays.     ……….  Tom  ………..

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

Watch For The Reaction November 28, 2021

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Nov. 26, 2020 –  The Thanksgiving week (in the US) was supposed to be quite and uneventful until new concerns about a new Covid variant came up in South Africa.  So “here we go again”.   Next week will give us a better idea just how serious the Omicron variant could potential be, especially for those who are already vaccinated.  But let’s keep things in perspective.

I start off with a chart weekly of the SPY (S&P 500 ETF) with a longer term +4 years perspective.  I’ve drawn channels that try and capture the “big picture” moves and breaks.   Well . .  we were at the top of the channel and venerable to a correction / drop.  In that case all it takes is bad news and we got it.

click to enlarge

I expect the markets to react poorly Monday morning, but the real “test” will come in the afternoon and the following days when raw emotion settles down and more facts emerge.  The big picture is that this market was venerable to any type of disappointment or bad news, and reacted as such.

The shorter term chart of the broad NASDAQ Composite is shown below.  I note that (in the short term) it has also reacted and is showing weakness, but keep in mind the very low volume late last week due to the holiday and short trading session.  Do we recover from the 15544 level or continue lower to 15198?  I’m thinking a push to 15198; maybe lower.  How this market reacts to this news will tell us just how strong it is underneath.

click on chart to enlarge

Tech sectors continue to lead and it will be interesting to hear about pre-Christmas sales from “Black Friday” shopping on Monday.  A poor sales figure in the US over the Thanksgiving holiday could prove to be a “double whammy” of bad news for this market.  This is a good time to watch and have a plan just in case folks start to abandon ship before the end of the year.

Have a good week and keep an eye open especially over the next 2-3 days.  How the market reacts will provide a good idea of just how strong it is underneath. ………… Tom …………..

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

Still “Chugging Along” November 20, 2021

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Nov. 19, 2021 –  This market continues to show strength though the rate of climb has eased off a bit, and that’s OK.  While I’m expecting some back and forth volatility into the end of the year, the general trend should continue to be positive / higher.

click on chart to enlarge

The indicators remain Bullish with the exception of Money Flow, which has slowed down with the drop off in trading volume.  We should not be surprised to see volume next week to be low going into the (US) Thanksgiving holiday.

 I’d like to make a few more observations about the overall economy and inflation.  First off as we know, over 70% of the US economy is driven by consumer spending and consumer spending is up over 70% from the pandemic low just a few months ago.  This very sudden rise in demand has caught inventories and manufacturing by surprise; they were geared for a slow “recession like” recovery lasting 18-24 months.  Demand exceeded supply, hence inflation of prices.  Basic Econ 101.  Now add to that low consumer debt, cash infusion by the Covid relief packages and mortgage / debt re-fi at historically low interest rates . . . well much more liquidity in the market place.  As “bad” as things seem to be, unemployment is actually low (4.6%); again adding to available cash out there.  Lastly, there has been a 29% reduction in ships waiting in the ports of Los Angeles to unload.  That along with domestic manufacturing picking up means supply is increase to meet that increased demand.  It just doesn’t happen quickly.

Here’s a chart on consumer debt from the St. Louis FED –

A quick look at where the stocks are in the broad S&P 1500 Index.  The pie chart indicates where stock prices are in relation to their 20 day moving average and their standard deviation volatility (i.e. Bollinger Bands).   Overall, fairly evenly spread out (pretty typical).

Lastly the Short Term Sector Strength table is shown below –

Technology sectors continue to lead the way with Consumer Goods & Service not far behind.  I am +90% invested but always looking for a possible pull back.  Don’t know when, but it shouldn’t be much of one as long as earnings remain strong and spending over the Christmas period is good.  We’ll see.  For those that celebrate it, have a Happy Thanksgiving and Stay Safe.    …… Tom …..

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

Inflation ! … or … ? November 13, 2021

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Nov. 12, 2021 – I’m going to start off a little differently this week and talk about sector strength and how it typically relates to major market tops.

The big word this week was Inflation.  Is its sudden and significant rise a sign of bad news for this market and what are the warning signs?  First off I want to emphasize the description of “major” as it relates to market tops.  These are not short term 5% to 10% corrections, but ones that are due to longer term weakness in the overall economy, and typically last at least 6 months but can go on for years.

Let’s look at a few signs of a major top.  Usually we’ll see that high quality (i.e. government) bonds out perform stocks.  We’ll also see “safe haven” sectors like Utilities and Consumer Staples out perform as well.   Another sign is that the VIX index (based on the put / calls in the options market) takes a sudden and big move up and it will stay there.  I note that (so far) that’s not the situation in this market . . . .  could be later, but not now.  One other characteristic that happens early on is if major investors see trouble ahead “Value” stocks will out perform “Growth” stocks.

What do we have now?  Well Call option activity is very, very high (a sign of optimistic / speculation).  Treasury bonds remain high historically (i.e. low interest rates).  VIX gyrates but does not stay very high for very long, and growth is out performing value.  Take a look at the relative strength comparison chart below over the past 6 weeks.

click to enlarge

Chart courtesy of Stock Charts

Small Cap(ital) growth stocks are doing better than Large Cap value; large cap value stocks which would be a “safer bet” for investors.  OK, perhaps a sign of speculation, which could be worrisome, but so far not a sign of weakness.

Next let’s look at the usual Short Term Sector Strength table below.

And what do we see?  Technology sectors strong as well as Mid cap and Small cap indexes.  Yes, Gold is up there as well and if inflation is to continue to be a worry gold should continue to do even better.  Gold would also be a bell weather for a market top driven by inflation; we’ll keep an eye on that. Lastly we’ll look at how the stocks in the S&P 1500 Index (considered to be the most “investable”) are doing right now.

Not much to get concerned about here at the present time.  The last chart is of the NASDAQ Composite Index, the chart I usually lead off with.  We’ve had a brief drop over the past 3 days with inflation concerns but markets don’t go up in a straight line either.

click to enlarge

Third quarter earnings have been pretty to very good.  Some corporations have given weak guidance for the 4th quarter so IF we are to see a big correction we may have to wait until after the 1st of the year if earnings falter.  As always, things can change quickly but let’s also keep things in perspective and not get carried away with headlines.

Have a good week.    ………..  Tom  ……………

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

Steady As She Goes Captain October 30, 2021

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Oct. 29, 2021 – What a difference a week makes (plus some pretty good earnings reports).  We’ve broken higher and the Advance / Decline line is very positive.  Why is that important?  Well simply, there are more stocks advancing (in price) than declining.  A month ago that was not the case with leadership narrowing to fewer and fewer stocks driving the indexes higher.

click on chart to enlarge

The chart above confirms the price enthusiasm via the increase in volume.  That rate of change can’t continue forever so I would not be surprised to see a drawdown back to around the 15198 level (very modest) or worse case the 15085 mark.  There . . .  we should expect buying to come in and a resumption of the push higher.  One caveat I note was some companies provided muted or poor earnings guidance going forward.  But that’s months away . .  just keep that in mind after early January when the next batch of reports get rolled out.  Things may be different.

Looking at the Short Term Sector Strength table below we note the grouping of Technology based sectors leading the way.

Expecting a Volatile Fall October 23, 2021

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Oct. 22, 2021 –  I’m expecting a slight pause / pullback before the broad market pushes higher.  Friday may (just may) have been the start.  Note the volume blip on Friday.  The earnings of NetFlix, Tesla, Snap pushed prices down.  Many of the internet companies that rely on ad revenue are seeing a challenge since advertisers don’t see a pressing need to generate demand when supply is presently constrained.  Inflation concerns continue as the supply / demand economic factor once again comes into play.  Not surprising.

click on chart to enlarge

The 15085 level was our first resistance, then 15380 above that.  Steady price action around 15085 would be bullish and a launching pad for a break higher.  14182 is the support level.

Interesting that more than 80% of the stocks in the S&P 500 Index are above their 10 day moving average.  Both the Dow and S&P 500 reached all-time highs with the NASDAQ Composite and “Q’s” a bit behind.  Margin debt is below its previous high, and that’s good, as buyers appear to be stepping back into the markets.  This remains a volatile environment with the inflation concerns (the Producer Price Index jumped up), earnings continue to roll in and of course the economic / political news continues.

The Short Term Sector Strength table is below –

I note the sudden jump of China and the continued lethargic action of Technology sectors.  Financials are doing well.  We just need a little more leadership out of Tech.

Overall I’m fairly positive about the prospects in the long run, but expect some setbacks over the next 2-3 months.  Take Care and have a good week.   ……….  Tom  ………..

Go For It . . or Wait For It October 17, 2021

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Oct. 15, 2021 -I saw the play “Hamilton” yesterday and it was a “Wow” even thought I was prepared via Lin Manual Maranda’s book. Impressive through and through. OK. let’s move on.

Last week I talked about a “Change of Character” in this market, making the case that we’ve been overvalued and the 50 day moving average was NOT a support / buying the dips level. All well and good but the last 2 days have been a little impressive. How so? (reference the chart)

click on chart to enlarge

First off, higher “highs” and higher “lows”, i.e. swing 3 is higher than swing 1 and swing 4 is higher than swing 2.  Next, volume is beginning to return / increasing.  I call out two possible scenarios going forward:  in yellow, we stay in a trading range, in green, a breakout higher and a retest of the breakout before moving higher still.  A “Change of Character” would support a trading range between 15085 and 14182, this could likely be a period of re-accumulation before an eventual breakout higher.

In either case, this next week should give us a clue.  A diverse group of companies report earnings: JNJ, NetFlix, airlines, Tesla, financials and P&G; the broad waterfront is covered.  Good news drives us toward the green line, disappointing news drives us toward the yellow.

The Short Term Sector Strength table is below –

In particular, Financials and Technology sectors moving higher is a big plus. Keep an ear open for earnings reports and how the stock and markets react. That will provide some insight on whether to Go For It or Wait For It. Have a good week. … Tom …

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

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