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A Good Week June 25, 2022

Posted by Tom in Thoughts.
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June 24, 2022 –  Last week was a good week for the stock market with some hopeful signs beginning to show.  The markets are oversold so that nice bounce on Friday was somewhat expected.  What is interesting was the very high volume on Friday.  This was likely caused but “short squeezes”, that is people who were short stocks and then having to buy them back to cover their short positions (to avoid losses); a.k.a. “buying begets buying”.  But another factor is there remains billions of dollars in Put options and some of them expired on Friday.  The question is: did these contracts “roll forward” (in time) or did they cover/close?  Lastly, we are approaching the end of the quarter and many funds will begin to rebalance their portfolios per their charters.  We’ll have a better idea on Monday.

click on chart to enlarge

There has been extreme investor pessimism and there are very early signs that the Technology and growth stocks are beginning to at least stabilize. I still favor a possible bottoming and basing formation over the next 6-8 weeks.  That process could be a positive if strength returns, or . . . if economies don’t show some improvements, a set up for another leg down that would be a flushing out and capitulation phase.  That basing area could be between 12290 at the top and 10560 at the bottom (NASDAQ Composite Index).

The Short Term Sector Strength table shows what a difference a week makes.  Energy at the bottom and select Technology sectors moving toward the top.  Note the strength in Chinese stocks.

The bottom line is really no change, we continue to be in a Bear market but we must also be open to that will eventually change.  The question is when, and it will likely take time over months.  I’m watching for a base and “stopping action” to form.   Have a good week.      …………  Tom  ……….

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

OK . . . What Next? June 18, 2022

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June 17, 2022 –  Interest rates are going up (no surprise) and will continue to go up (again, no surprise).  The question is how much and how fast, but really the bigger question is whether it will lead into a recession and just how deep and long it could be.  Oh yes . . . inflation is a major factor.

In general, a news item typically causes a minor short term effect on the stock market.  What REALLY concerns investors is a recession, because that has a major effect on profits, hence earnings.  Over the long run, it’s really all about earnings and the future growth of earnings.  Stock prices just reflect the “future hopes” (i.e. bets) of investors.  I’m NOT predicting, but I do like to anticipate possible market structural scenarios.  The idea is not to act on them now, but to be open to the possibility of movements so when they begin to unfold (or don’t) one can react quickly.  So, here we go:

click to enlarge chart

The Green lines represent a bounce up from where we are about now going way back to late September, 2020 (note the red arrow; this is a weekly chart).  The idea is that this level is a logical support level and then we spend the next 6 weeks or so in a trading range (then possibly another leg down).

The Red lines represent a continued move lower, perhaps much lower.  Sure, there will be small bounces, but the trend would be continued weakness for the foreseeable future.

The good news is that we shouldn’t have to wait much longer to find out.  I note that billions of dollars of Put hedges expired on Friday, and since the prices did not fall (indicating option exercising) they appear to have been rolled forward (i.e. close out the June contract and open a July one).  Why do we care?  Because the big investment houses are continuing to hedge, thus “buying insurance” in case the market falls further.  The big guys are cautious, I am too.

The Short Term Sector table is below:

China is showing some life and potential but much of the top sectors are defensive.  Note that Energy has dropped down; is it short term weakness?  That’s it for now.  Have a good week, looks like this will be lasting for a while, no V bottoms this time.        ……….  Tom  ………..

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

Back To Reality June 11, 2022

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June 10, 2022 – At the beginning of this week it appeared that a bottom might be in and a strong rally was underway, but . . . inflation data came out, retailers were reporting that their inventories were up 30 to 40%, consumer confidence continued to be low and (of course) gas prices crept even higher.  That was it, two days of big drops.  I was thinking that we were in-line for a pullback because of the low volume (a.k.a. low commitment) at the higher price levels and besides, nothing has materially changed either.

click on chart to enlarge

So what’s next?  I’m thing lower prices early in the week, then a recovery.  The strength of that recovery will be telling. But since the FED is meeting next week, and will put out a news release on Wednesday afternoon, not much will happen until late in the week.  The market is expecting two more (at least) ½% increases this year.  How Powell phrases ANY activity after the meeting will be an important factor on how the market reacts with anticipation.  Does he sound dovish or hawkish and to what degree, that is the question.  Then we need to evaluate how the market reacts and just how committed it appears.  Is volume increasing?  Is everything being affected or only a handful of sectors?  The bottom line is: Is this market ready to rally?

Looking at the Short Term Sector Strength table below we see the Energy complex and China showing the most strength.

I’ve added a small China position to my Energy & general commodities holdings but still have Cash to deploy IF & When that’s appropriate.  And when it’s time to take a position, scale into it.  Nobody gives you “extra points” for jumping in with both feet.   Have a good week.      ……………  Tom  ………….

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

Showing Life, but Not Commitment June 4, 2022

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June 3, 2022 – Interesting week, this past week.  In the media I’ve heard: “The bottom is in, time to back up the truck” and then, “An economic hurricane is coming, get prepared.”  Well . . . OK, looks like we’ve got two extreme predictions and the winner is: “Nobody really knows for sure.”  The saying “Even a broken clock is right twice a day” comes to mind.  Let’s look at the chart.

click on chart to enlarge it

What do I see?  I see a market that has many indicators positive and Bullish . . . but two things:  1. Look at the volume last week.  Very low.  You may say it was a holiday week, but in reality big trading firms have a staff on duty every week, regardless of vacations (they rotate throughout the summer) so there is always a trained staff manning the desks; they can’t afford not to.  2.  What has changed?  I mean has the Ukrainian war changed?  Has the economic outlook changed (inflation, interest rates, etc.)?  No and No.

What I’m getting at is let’s see IF the resent rally is anything to get happy about.  Low volume = low commitment; period.  Thanks but I’ll wait for at least some confirmation of a genuine rally before I get excited.  Let’s see what the sector table indicates.

I see the Energy sectors showing continued strength and maybe China is coming out of a funk, but that’s it.  No leadership from Technology or Finance or Consumer sectors.  Not a great vote of confidence.  Unless you’re day trading or in very short term trades, this remains an unfriendly market.  That could change, but not yet.  IMHO.

I remain in Energy and select Commodities, with a bit of Value exposure, plus Cash for the time being.  That could change, but I need to see more.  Have a good week.   ………….  Tom  …………

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

Market Uncertainty = Patience March 6, 2022

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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

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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

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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.

An Indecisive Market February 5, 2022

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February 4, 2022 –  This past week started out good, but fell back.  Again, there is no consensus on direction or market leadership.  Sentiment is neutral, Money Flow is neutral, Volume Flow is negative and Price Strength is positive; net result is fairly neutral right now.

click on chart to enlarge

A close above 14532 would be a bullish sign, but there is also a case to be made for a retest of the lows at 13097 and a ‘W’ type bottom.  Volume is light and that confirms the “No Commitment” side of this market.  We’ve had good economic news, earnings are mixed and it looks like the markets are factoring in multiple interest rate increases over the coming year.  So what gives?

Well markets don’t like not knowing what’s ahead.  Color that Ukraine, but mostly it’s about profits this year.  Inflation is up, commodities are up and wages are trending up . . .  this puts the squeeze on profits and that’s the concern.  The coming week will have two big impacts on the market.  First Wednesday is a Treasury bond auction.  Are investors (worldwide) concerned and bid prices higher (lower bond prices) or will they demand higher interest rates?  Then on Thursday we’ll get another inflation report and that could spook the market. 

I haven’t shown the health of the stocks in the broad S&P 1500 Index for a while.  The pie chart shows the number of stocks in relation to their 20 day moving average and where they are in relation to the standard deviation (a.k.a. volatility) from the mean.

Not surprising that most are either Weak or Neutral, but there is more ‘Strong’ than I would have expected.  Next is the Short-Term Sector Strength table:

Not a lot of strength there either, though Oil / Energy was done very well over the past month.  With oil around $90 / barrel it could be at the top of its range and maybe ‘running out of gas’ (pun intended).  Right now I’ve raised a lot of Cash and waiting for some indication of the next trend.  And in the short term it could go either way, though longer term things looks fairly bright economy wise.  This could be short term pain for long term gain.

Take Care and have a good week.   …………  Tom  …………

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

In a Bit of a “Box” January 29, 2022

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Jan 28, 2022 –  From the height of these daily bars last week we sure can see volatility, but we’re still in a “bit of a Box”, that is, a trading range / consolidation pattern.  Until we break out decisively no one is very certain about the next trend or the direction.  There is a case to be made for both

click on chart to enlarge

The chart remains Bearish and we’ve come down a fair amount and quickly:  42% of the NASDAQ Composite stocks have been cut in half, 70% of Healthcare stocks have been cut in half and 30% of all stocks are at 52 week lows.  Sounds terrible right?  Well . . . this can be a good place for a turn around with a quick up trend . . . it’s happened before and it’s not unusual.  Add to that support near the preverbal 200 day moving average too.  Could be a good launching pad for a move back up.

On the other side (Bearish), the yield curve on the 2 year and 10 year Treasury bonds has flattened (i.e the interest rate of the 2 Yr. increase more than the 10 Yr. last week).  Not a positive sign.  Add to that the Ukrainian situation, inflation and of course, Covid and there is way too much uncertainty out there.  And Wall Street does NOT like uncertainty (or things they can’t get inside information on).

So for the time being we’re in a box.  I’m looking for a break above 14182 to be more bullish or a break below 13002 to be Bearish.  BTW, the 13002 level on the NASDAQ goes way back to May 12, 2021.  Yeah . . .  I know.  Oh yes, I also note that volume is shallow, so it looks like a lot of waiting right now, few are willing to stick their necks out.

The Short Term Sector Strength table is shown below –

Right now I’m about 20% long and the longs I have are in the Energy and Value areas; growth and Technology have been clobbered.  

Have a good week and I think the key here is patience.   There’s no sense in fighting to get out of the Box right now. …………….. Tom ………………..

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

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