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Markets Continue the Climb January 23, 2021

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Jan 22, 2021 – With all of the active news items (especially in the USA) it is amazing that these markets have not slowed down let alone corrected lower. Let’s see: virus deaths continue higher, vaccine in short supply, (US) government still “dynamic”, margin debt extremely high, option call activity at all time highs and money pouring into small speculative stocks. I might add that the ratio of stock prices to earnings is very high too. What could go wrong? Disappointment; and earnings season has just begun. So far the banks have held there own as well as NetFlix . . no so much with IBM though.

click on chart to enlarge

As we can easily see prices continue higher and at the top of their channel. Trading volume is high and the Money Flow is the only indicator that’s negative. The result is we have to follow the trend, but remain cautious for any signs of weakness in the broad market. My market internals model (not shown) shows a slight slowing in momentum but no signs yet of a correction.

Just how strong is this market? The pie chart below is of all of the stocks in the S&P 1500 index. The color relates to where the price is in relation to the Bollinger Bands of each stock (i.e the standard deviation / volatility based off of the 20 day moving average). Generally, this looks pretty positive with not too many in the red zone. Again, so far, so good.

Taking a look at what sectors are doing in the short term via the table below:

Of note is the strength of China and continued strength of Small Cap stocks. The columns to the far right show per cent return over 5, 10, 15 and 21 days. Not much more to say except “stay the course”. I’m continuing to research market correction warning signs and hope to provide some insight into that to avoid account draw downs. Remember, in order to make up a 50% lose, you need to have a 100% gain just to come back to break even. We need to avoid big losses as much as trying to get big gains. With all of these caution signs things may turn very quickly.

Have a good week and Stay Safe ! ……….. Tom …………

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

Momentum Slowing, Due for a Pause January 16, 2021

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Jan. 15, 2021 -Regardless of the reason(s), this market appears to be slowing its rise and maybe consolidating the recent gains. We see that in the % returns over the past 5 days pie chart at the bottom but also in Price Strength in this chart, which is back to Neutral.

Click on chart to enlarge

Money Flow remains down but Sentiment and Volume Flow are positive; thus a mixed bag. I draw attention to the heavy increase in volume since the first of the year (bottom of the chart). Volume shows activity (“Effort”) but not much Price movement (“Results”) in Wyckoff terms. Possible indications of Buying being absorbed by Selling. At this stage it could be a pause / minor correction or something bigger. Right now I don’t see anything “bigger”, but it’s good to be on guard for it.

Earnings (4th quarter) begin to ramp up now and that is always a catalyst for movement in either direction. Something to pay attention to since this market is rather highly valued and all ready anticipates good earnings. We closed Friday near the first level of support (12963) so failing to the next level (12652) would be a minor reaction. How investors react to disappointing earnings and news will tip their hand as to where things could go.

The reason for increased concern is the excessive optimism in the market. The chart below shows that in a historical context. We’re back to levels seen in 2000/2001 and that ending badly.

Not to say next week or month all Hell will break out, but once things start moving it could very well snow ball. Another chart shows the more recent bubbles of optimism. I’m not “dis-ing” BitCoin but there are times when evaluation (price) exceeds value of the underlying security. Then things correct back to “normal”. I’ll sure try to provide readers with a “heads-up” if I see excessive selling coming into the markets.

Here’s that 5 day return pie chart I was mentioning at the top.

Notice a slowing from last week (less green), but still half of the stocks are showing gains. So far, so good.

Lastly the short term sector strength –

Right now the more defensive sectors are not showing strength, but I’m seeing fewer “buy candidates” in my daily stock scans. So I’m pretty darn cautious in here. Mostly because I’m close to fully invested and that always makes me extra watchful. There is a lot of positive news out there but we may have to wade through the bad stuff first. Take Care and have a good week. …………. Tom ………….

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

Amazing Markets Continue Up January 9, 2021

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Jan. 8, 2021 – After this weeks events I (and likely many others) are amazed that the US markets did not correct significantly. I refer to the adage “Strong market remain so with bad news, where Weak markets react quickly” (or something to that effect). This market continues to be strong; so be it.

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Money Flow remains rather dormant and continues its sideways move but everything else is, well, positive. I have been working on a sensitive market internals model that combines advance / decline momentum with up/down volume and volatility of the VIX (put / call ratio) compared to the market. For a week it went from Bullish to Neutral, but on Thursday (much to my surprise) it returns to Bullish. I’ve been researching ways to provide an advanced “heads up” to changes in the market. Nothing is perfect but this may have some potential. The works continues.

Just how strong is this market? The pie chart below shows the percent of stocks in the S&P 1500 Index and their 5 day % change. There is a lot of green down there.

What could be driving this? Well the only things that I know for sure is there is more demand than supply. One theory I’ve heard is that money from the stimulus payments from those with jobs is flowing into the markets. This perception of “easy money” does concern me, but I have to trade what I see and not what I feel. I remain uneasy about the increase of new “investors” into this market (see previous posts), but we need to see some amount of smart money distribution before I’m ready to withdraw or hedge. It will come, just don’t know when.

Here are the sectors that are doing well in the Short Term –

What I find interesting is the Treasury Bond going down (bear going up), which indicates an increase in interest rates. Likely a short term phenomenon, but something to watch in the coming weeks.

I’ve made minor changes this week. Selling a couple of things that have lagged the market advance and picking up a few that have showed strength. If this trend continues for a few days I may add to my Index model a Mid Cap ETF; we’ll see.

That’s it for now. If you like something or want to see something else let me know. Otherwise Take Care and Stay Safe. We’re not “There” yet; patience. Have a good week. …………. Tom …………

Wobbly Market January 1, 2021

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Dec. 31, 2020 – Not a whole lot new this shortened and light week. I am seeing some early signs of market internals weakening, so that’s my “story” about a “Wobbly Market”. I’ve got more work to do to verify this early signal indicator, plus the full market and it’s participants will be back next week, and that may verify the condition.

The chart below shows a calm market and my concern about tax selling in the final days of 2020 did not materialize. Money Flow dropped off but that is likely a symptom of low holiday volume in the between Christmas and New Years market. I note the Low price on Thursday is a near term support level with 12525 being the significant one.

click to enlarge

With the market rather quite I thought I’d give readers a little perspective on the economy and the market in general. First there is optimism in this market and that’s fine but where does the economy stand? The US economy is based on consumer spending and over 20 million Americans remain unemployed currently.

This chart just give perspective on how fast employment recovers from a recession, and by economic definitions, we are in a recession. The bottom line is that it will take years, not months to recover jobs. Once the vaccinations become effective in the second half of the year, things should kick into a higher gear. Corporate earnings (outside of on-line merchants, select technology and pharma companies) will take awhile to recover. 2021 will likely be a selective and focused market place.

Next who is in this market and are they prepared?

With the combination of “Covid stay at home” and “zero” commissions (which aren’t really zero BTW) activity in small volume call option orders has increased dramatically. The idea is that the market only goes up . . . it doesn’t. When reality hits this could cause panic and a bow wave of selling and margin calls (borrowed money), which drives the market down due to the late overreaction. Any news item could set this into motion.

This doesn’t have to keep us up at night but something to consider and be aware of. 2021 could very well be a very volatile market with changes happening quickly. OK, that’s it for 2020 and happy to see it go. 2021 brings hope but let’s stay focused on what we see and not just what we hope will be.

Take Care & Happy New Year ! ………………. Tom……………..

Price chart by MetaStock, used with permission. Sources as noted on charts.

A Pause & Indecision December 24, 2020

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Dec. 24, 2020 – I’m writing this about an hour before the close on Thursday (at 11:00 am EST) and the US markets are closed tomorrow, so it’s basically the end of the week. Wednesday saw a large volume spike likely driven by Trump’s refusal to sign a bill to fund the government and another to fund the second round of stimulus for COVID relieve. I try (hard) not to be political but . . . . really? Where the Hell has he been the last 4 weeks when all of this was being negotiated ! The “end” can not come soon enough, IMHO (I won’t get started on pardons, that’s another story).

click on chart to enlarge

That big spike on Wednesday and the very high volume bar (labeled “Activity”) had me worried that Supply was quickly coming into the markets. As of this morning, the market indexes are up modestly; so far no follow through. But in general the market breath is weak, mostly because of this rally is long in the tooth.

Last week I showed a chart of the S&P 500 and the average P/E ratios (price/earnings). I follow up on that with a chart of similar fundamental metrics.

click to enlarge chart

The stocks in the index are divided into two groups, those with traditionally low P/E ratios (green) and those with high ratios (red). I’ve put in a dotted yellow line at the 50% level as a sort of bench mark. Now just because prices are high compared to earnings that doesn’t mean prices can’t go even higher, but we are in an over valued state which leaves the market open for disappointment. Bad news will do it. Any sign of a sustained slowing of the economy will bring a response from investors. I’m watch two areas: 1) Any excess tax selling (on increased volume) between now and the end of the year. 2) Post Christmas retail sales numbers (a direct sign of consumer spending & confidence). We won’t have to wait long for either one of these news bites; next week. The stage is set for reaction to news. Time for caution.

Here’s the table of Short Term Sector Strength

Wishing all of my readers a very Happy Holiday Season ! Take (extra) Care. ………. Tom …………

Chart by MetaStock; table by High Growth Stock Investor

Trend Continues . . . . Slowing December 19, 2020

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Dec. 18, 2020 – Well the trend up continues though there are signs of slowing. Concerns about the economy include consumer spending and rising unemployment. Retail sales numbers after Christmas should be a telling indicator. In any case the pressure is on Congress to “do something” and Trump has basically given up on the presidency (i.e. no involvement or interest).

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The 12217 level would be a mild pull back after Christmas as there would (likely) be some tax selling before the end of the year (concerns that taxes will increase next year). It’s pretty basic: until the virus is under control the economy will not recover, but it looks like help is on the way. The Friday “blip” in volume was options & futures contracts expiring & thus rebalancing stocks. This and next week activity should be low as we head into the holiday season so volume will be light and trading liquidity light as well. Prices can move more quickly in this environment and so volatility will likely increase.

Looking at sectors. Here’s the very short term strength over the past 5 days in pie chart form:

And the same sectors in a lightly long term table form:

I note that consumer goods and the software element of technology are doing well. Interesting in this environment so we’ll see just how long these sectors can continue to show gains.

Nothing else very exciting so enjoy the holidays as best you can. Take Care. …… Tom …..

Chart by MetaStock, table by High Growth Stock Investor; used with permission.

Up Trend Pausing December 12, 2020

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Dec. 11, 2020 – Things have been going fairly well recently, but Wednesday the market stalled. This could be just a pause or something worse so let’s keep an eye on it. As shown on the chart below we’re bouncing near the first level of support at 12217 on the NASDAQ Composite Index. Volume is light so it appears to more of a “lack of buyers” than significant selling. The indicators remain positive.

click to enlarge chart

What the cause of this slow down is immaterial but likely the stalling of the stimulus talks in Congress and the continued Trump tirade (yes tirade, because enough is enough !). Brexit is looming on the international front as well. Were we stand from an evaluation perspective is a major underlying concern too. This market is not cheap. Looking at the Price to Earnings ratios below points this out clearly. This market is priced to perform and if earnings disappoint there will be some form of reckoning.

We are well above the high 20’s / low 30’s in the P/E ratio where long term investors begin to take note an buying can retreat. If there are fewer buyers than sellers, well the prices fall. Pretty straight forward. Again, this is not calling a top, but I do like to keep the overall market in perspective.

The table below shows short term sector strength. I’ve added a few columns to show what prices have done over the past 5, 10, 15 and 21 days. This adds to understanding trends.

The good news is that Small Cap and Mid Cap sectors are leading. That typically shows optimism for future gains. I remain “long” and try to focus on the strength in the market, but I like to look over my shoulder every so often. Thats about it for now. Have a good week. ……….. Tom ………..

chart by MetaStock, table by High Growth Stock Investor, P/E table by Doug Short / Advisor Perspectives; used with permission

Steady As She Goes December 5, 2020

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December 4, 2020 – Last Friday the NASDAQ Composite Index (below) broke above the previous high / peak of 12074; OK good, but we needed confirmation. We got confirmation on Monday of this week with a test of that 12074 level at the low and then a higher close.

click to enlarge chart

The rest of the week was “up and away” with volume above average. Obviously the markets are driven by optimism about the economies of the world improving over the next 6-12 months, so great, right? Well, absolutely good news but two things loom. 1) Tax selling in the weeks ahead: The likelihood of taxes going up next year and this year being pretty good can mean investors will “ring the cash register”. Watch for selling in the coming weeks, it could be minor or something worse. 2) The market is priced for perfection: That is the valuations of many stocks are getting ahead of their revenue growth. The Price to Earnings ratios (P/E ratio) are near all time highs. That leaves the market open to disappointment, but that would likely be with 4th quarter earnings early next year.

For the time being we have no real choice but to follow the rising trend and watch for signs of a reversal. I am watching the VIX put/call indicator for signs of professionals buying put options for protection. Right now there is far more call (bullish) buying that put buying (bearish). But that can change very quickly.

Here’s a pie chart that I have been working on that needs some refinement, but the idea is to show what sectors are moving in the near / short term. (I’ll try to rearrange and add some data to it soon.)

And here is a table showing the same sectors but in an indicator weighted format:

So that’s it for this week. Have a good week and please stay safe ! 🙂

……………… Tom ………………

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

At the Top November 26, 2020

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Nov. 25, 2020 – I’m writing this with very low speed internet and it’s painful, so it will be short; just like this week. In the US Thursday is a holiday and Friday is a half day so not much the rest of this week.

On the chart below you will note that on Friday we just barely crested over the previous top / trading range on very light volume. Thus next week will either confirm the breakout or reject it. Careful now.

click to enlarge

All indicators are positive and the general feeling is cautious optimism so higher seems to be the direction though likely not in a straight line.

Here’s what is doing well in the short term –

Interesting that Energy, Small Cap and Banks / Finance are in the lead. Small Cap looks like a “risk on” indicator so that is a plus. Banks . . . it’s about time; Energy, I’d be cautious.

That’s it for a short week. Happy Holidays to all but please Take Care out there.

…………….. Tom …………..

Still Within (trading) Range November 14, 2020

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Nov. 13, 2020 – Monday sure started off as a break away rally day with the election out of the way and a COVID vaccine announcement, but it quickly turned into a Distribution Day (red down arrow on the chart).

click to enlarge

The opening kissed the previous high at 12074 and then quickly headed “south”. This on high volume. It’s like many investors just wanted to get back even. The rest of the week was basically a drift higher but on low volume, with support at 11425. Thus prices remain in a broad trading range bound by the purple channel lines.

Money Flow is negative, not recovering from the previous sell off, but Volume flow is slightly positive. Price Strength is Neutral. I’m seeing a mixed bag from my other technical indicators. Market breath is neutral while overall price momentum is positive. I’d like to see these two areas in sync before getting completely back in. Thus I’m still holding a fair amount of Cash right now.

One reason for being hesitant is that we’re still in earnings season and next week major retailers report 3rd quarter earnings & maybe projections too. This will be an indicator of consumer confidence and a sign (perhaps) of what to expect for holiday sales that are right around the corner. Sure, political drama does continue but few doubt the results, though Georgia could swing the Senate and provide a smoother time for the Biden administration. That will bear out January 5 so we’ve got some time on that.

One bright spot is the strength in small and mid cap sectors. Aslo banks and Finance areas picked up after lagging behind for so long. Also select countries are showing some early strength. Something to watch.

Short Term Sector Strength –

That’s about it for now . . . a mixed bag with prices in a trading range. This could be a stock pickers market with only a few sectors really performing well. (note: I’ve added a market performance indicator to the sector chart above; this is strength relative to the S&P 500 Index.)

Have a good week. ……….. Tom ………

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

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