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Steady but Weakening July 25, 2020

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July 24, 2020 – From the chart below we see that the broad NASDAQ Composite Index is in a horizontal trading range (purple channel limes). Not much really happened last week.

click on chart to enlarge it

The trend channel is nearly horizontal, Money Flow is OK / Bullish but Sentiment, Volume Flow and Price Strength are now Neutral. This market is “treading water” waiting for something (likely news of a stimulus package); it may have to wait longer . . . it’s the Senate.

Price Strength of stocks in the S&P 1500 Index (pie chart below) look fairly neutral / healthy with a reasonable amount in all three categories. Looks pretty strong.

But . . . what is not very evident is the underlying sector rotation (at least in the short term). The Technology sectors that have lead the entire market higher are now falling back.

Noting that Precious Metals, Basic Materials & Utilities moving higher in the rank with Tech falling near the bottom is not a sign of overall market strength. I’m finding very few stocks to even consider to purchase; on Fridays close there were none.

This could be a good time to “buy some insurance” just in case the market reacts to some bad news. Coming up next week is the continuing saga of the next stimulus package, a Fed meeting and big cap Tech earnings; watch for guidance going forward. Then there is the virus and China. These continue to put a drag on the economy. “What could go wrong?” I’m getting more and more cautious.

That’s about it for this week. Take Care. ………… Tom ………….

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

Market Neutral, but Could Change Quickly June 27, 2020

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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.

A Pause or A Correction ? May 3, 2020

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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.

Next Week Will Be Important April 25, 2020

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April 24, 2020 – Taking a quick look below; well . . not much happened this week. Most indexes are bouncing near resistance levels which are approximately at the 50% retracement level of this correction. Next week is important in that the big 4 of technology (Google, Facebook, Microsoft and Amazon will be reporting. What is of interest going forward is their “guideline”.

click on chart to enlarge

From above I note that “Price Strength” has gone neutral, but the remaining indicators are still positive / bullish. My more “advanced” model (not shown) is bullish, but backed off to a “neutral” reading. So, time to watch for a trend change . . . maybe.

The table below shows short term sector strength. But note: I would avoid “Energy” due to the excessive volatility in the oil market. ETF’s in this sector may not be able to track the underline commodity.

Not much else to say right now. But be aware of this resistance level and watch for a significant break in either direction. I am lightly invested, but will add more if this trend continues.

Have a good week. …….. Tom ………

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

Volitility Continues, No Clear Direction March 29, 2020

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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.

Wait For It ! February 29, 2020

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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.

Continuation Higher . . . For Now February 16, 2020

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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

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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.

Back Within the Channel January 25, 2020

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Jan. 25, 2020 – The price action on Friday afternoon took out all of the gains for the week.  We could kind of see it coming . .  narrow range bars that have overshot the top of the price channel.  A narrow bar shows that buying is being absorbed by selling and that they are nearly equal.  Bringing prices back within the channel can be considered a healthy sign.  I’m thinking that short term traders were nervous holding positions over the weekend, plus it’s always nice to “ring the cash register” every so often.  A little move was likely amplified by computer programs (a.k.a. “algos”) which instantly jump on a price move in either direction for a quick profit.  In & out.

Also of note is that the Money Flow indicator turn (barely) bearish and Sentiment has gone from Bullish to Neutral.  We’ll need to wait until Monday to see if there is any follow through past the first hour of trading.  We could go back to “buy the dips” mentality in short order.  So this test is a good one to gage the overall health of this market.  Sure, the virus and impeachment scare could be factors, but I’m hesitant to accept all of that right now.  (click on chart to enlarge it)

Broadly the 1500 stocks in the S&P 1500 looks like this . . .

Price Strength –

Accumulation/Distribution –Price Strength has weakened, but stocks in general have not succumbed to broad based selling (i.e. distribution) at this time.

Sector Strength –

I do note that some defensive sectors (Utilities and Real Estate) have moved up towards the top, though select Technology issues return strong (so far).  This correction is OK as long as it stabilizes at / near the support level of 9193 (red dashed line on the price chart) and it was expected.  We will know the actual strength early next week by observing the price bar spread (difference between high & low prices) plus the volume being traded.  Wide down bars on higher than average volume would confirm weakness.

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

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

Keeps Going and Going and Going . . . . January 18, 2020

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Jan. 17, 2020 – This market is like the TV “Every Ready Bunny” (a battery commercial).  It just keeps going higher and higher.  But . .  we know from experience that it WILL stop.  The only question is when.  So, for all practical purposes, there really is not much new to talk about.  A few earnings report last week (mixed) with the real activity starting next week.  All eyes will be on Consumer stocks earnings.  Nearly everyone is looking for the first signs that consumer spending is slowing.  Oh yes, the impeachment “wild card”; who knows?

What is of concern is that the price bars are hugging that upper trend channel line (purple).  The daily spread on those price bars are fairly narrow, indicating seller and buyers are about equal with the bias toward the buyer demand, thus prices increase.  Volume is back to “average”, so not much of a clue there.  (click on chart to enlarge for easy viewing)

Let’s look at the stocks in the broad S&P 1500 Index and see where they are in comparison to each other.

% of those in Accumulation / Distribution% of those with Price Strength

Yes, lots and lots of “green” in both pie charts.  The market IS strong with the majority of stocks participating in the move.  But (again) this is unusual in that it can not last for extended periods of time.  So, we must be careful.  Bad news of any kind will likely re-rail or at least  cause a cause / correction in this rally.  For now, we can only stay the course and closely monitor.  Looking for selling . . . .  wide range down bars on high volume.  Ouch !

Sector Strength

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.

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