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Watching & Waiting November 20, 2022

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Nov. 18,2022 –  A lot of volatility back and forth this past week but not much commitment in either direction.  The number of Put hedges has dropped off significantly and it just “looks” like the markets “want” to go higher but need a good reason to do so.

We remain in a broad trading range that speaks of base building and thus a possible . . . change in trend.  As the 3rd quarter earnings wrap up the stage is set for the holiday season and that may (just may) be a spark.  The next FED meeting is December 14 and there is MUCH anticipation as to the next interest rate announcement (the bet is on ½%).

The Short Term Sector Strength table –

Semiconductors want to be loved along with Biotech but there is more smoke than fire in those sectors.  Next week will be a short trading week, so I’m not anticipating much will be happening.  For those in the US, Happy Thanksgiving.   …………..  Tom  …………..

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

The FED Strikes (back) November 5, 2022

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November 4, 2022 –  In the week leading up to the Fed announcement last Wednesday the markets we’re thinking (i.e. hoping) for some indications of a slowing interest rate increase.  Maybe ½% or at least some indication that the rates were approaching a peak.  That really didn’t happen.  Just a few “maybe in the future we’ll consider slowing the rate of increases”, then another ¾% increase.  This has been a steepest / fastest increase in FED funds rates ever in our history and it has the markets spooked.  We’ll have to wait until December to see IF there is some moderation.  In the meantime the markets remain concerned about interest rates and their effect on a possible recession.  It’s looking more likely.

Not much is going to happen until after the midterm elections have been called and that may take weeks, if not longer.   I see us in a range bound market between 11230 (top) and 10093 (bottom) on the NASDAQ Composite Index.  Right now it seems that there is more potential to go down than up.  We’re going to need to see some light at the end of the tunnel before prices can break (and stay) higher.

Folks wonder why I nearly always show the Sector Strength table (below).  It’s important in performing a ‘Top Down Market Analysis’.  These are the sectors / industries that are performing best and that’s where we need to consider taking or holding positions.  The idea is to “fish where the fish are” and not to cast a broad net everywhere.  The bottom line is to minimize risk and try to put the “wind to our back”.  It’s a focused part of trend following in an attempt to follow the bigger, long term investors.

The Short Term Sector Strength table is shown below –

The week coming up will be interesting to see just how strong or weak the markets are as the election results and the fallout is relieved to us.  It’s a good time to be heavy in Cash IMHO.  Have a good week (and VOTE !).  …  Tom  …

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

Still Within a Down Trend October 15, 2022

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October 14, 2022 –  There really isn’t much new to discuss.  Overall, the environment has not changed.  These massive one day moves are generally started with Put options and short covering (up) followed by short term day traders piling on.  After the “evening out” of short positions stops, reality returns and we just come back down.

click on chart to enlarge

The hedging activity remains high, the big intuitions remain concerned about a 10% drop and are not taking chances right now.  What is driving this are rising interest rate fears driven by the FED who is driven by inflation data, and we got two doses of that in the past week.

Ask ourselves:

  • Has inflation shown signs of slowing?
  • Has the FED indicated stable or slower rate increases?
  • Has the market trend changed?

I’m answering ‘No’ to all of these right now.  But all is not gloom & doom.  The number of stocks making new lows is slowing (selling drying up ?).  Retail investors are flooding into Cash; looks like capitulation.  The market (in general) is “oversold”.  But . . . “Selling begets Selling (& Buying begets Buying), so if we see a sustained amount of selling, that could be the final ‘blow off low’.  Right now I’m holding a heavy position in Cash and trying to be patient because the market will turn.  I sure would like to see it put in a base over a month or more before any spring higher happens, but one must stay flexible.

Short Term Sector Strength table –

I note the previous market leaders are at the bottom.  One bright spot is BioTech, but that could be a short term blip; we’ll see. Have a Good Week.        ………..  Tom  ………..

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

Bottoming Or Lower ? October 8, 2022

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October 7, 2022 –  Here’s my quick read of this market:  We are either in a broad “Bottoming” / base building process (scenario ‘A’, green lines) or headed lower (scenario ‘B’, blue lines).

click on chart to enlarge

The market rocketed up about 5% early in the week and then gave it all back late in the week.  This is typical of a nervous market where folks are trying to anticipate the next move, which causes ‘Shorts’ / Hedges to cover their positions and buy.   The technical term is a “Short Squeeze”.

What is causing this nervousness is the very fast rise in interest rates and a large amount of debt / loans that are affected by interest rates.  The market (according to CME interest rates futures) is expecting 80% chance of another .75% interest rate rise come November (Bearish).  Watch for the latest CPI (Consumer Price Index) data that will be coming out on Thursday.  That could be a big mover in either direction, as the FED is keying off of inflation data, and that drives their decision on interest rates.

What will confirm that a move has “legs” will be how the US Dollar and Treasury Bonds react.  A lower US $ and stable or high bond prices (lower rates) would be Bullish and support at least a longer run higher.  Of course the opposite is true too.

The Short Term Sector Strength table is shown below –

I am very heavy in Cash waiting for a sign of at least a ‘tradable bounce’ . . . . in either direction.  I’d like to think that the worst is behind us but proof of that is not easy nor plentiful.  This market is nervous and right now the institutions are staying hedged and away.  Me too.    Have a good week.   ….  Tom  ….

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

FED Freak Out September 24, 2022

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September 23, 2022 –  If anyone thought that this market was strong or getting stronger, they had their “head handed to them” after Wednesday afternoon.   Powell reinforced the FED Board’s hawkish stance that was stated earlier at Jackson Hole . . .  fighting inflation and whatever it takes.  Hopes of interest rate increases slowing and then going down in early 2023 were pretty much dashed.  My old adage: “Weak stock markets react badly to bad news, while strong markets sluff it off”.  Folks are nervous about corporate earnings.  The “bottom line” is in fact the bottom line.  Forward earnings guidance is generally not that good in a slow or receding economy.

click on chart to enlarge

This last rally was primarily driven by retail investor with FOMO (Fear Of Missing Out) clearly on their minds.  Rarely do we see a ‘V’ shaped bottom and if we do, we also see big institutional volume coming in.  This time there was only average volume.  Very typically institutions need time to accumulate shares so as to not affect prices and this takes time.  We’re not seeing that accumulation / base building phase yet.

My past anticipated move down to the 9400 level (blue lines) panned out OK, but what next?  I’m of two minds: 

Scenario A is we continue a little lower early next week then rally back up toward resistance at about 10565.  And then begin the process of building a base via the double bottom scenario.

Scenario B is that we bounce around late next week with a minor recovery (a.k.a. head fake) then head steadily lower to 11500 via a selling climax where everyone gives up on heavy selling volume.

A clue as to which one might develop is the US Dollar.  To simplify things, a strong US$ equals a weak stock market (yes, that includes crypto too).  A weaker US$ would support a stronger / basing stock market.  Precious metals, especially silver, will also provide some evidence.

And of course News is going to be a major driver.  Coming up on 9/30 we have the PCE data which is an indirect measure of inflation, then 10/13 the latest CPI data.  These are potential market movers in either direction.

The Short Term Sector table will also provide an idea if money is flowing into or out of growth sectors or defensives sectors (a.k.a. risk on or risk off).

Hope this provides some perspective (at least one guys view; I can be wrong) of the market.  Please feel free to comment.  Have a good week.      ……………  Tom  ……………..

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

A Hard Time September 17, 2022

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September 16, 2022 –  If you’re having a hard time figuring out this market you’re not alone.  There has been near record amounts of option hedge buying over the past couple of weeks by big institutions.  Since it’s VERY hard to liquidate their positions without affecting the prices in the market they try to reduce risk (of falling prices) by using option strategies.  Stats show many retail traders rushed in late July (about $2 billion) convinced that the bottom was in; boy did they get burned !

click on chart to enlarge

Friday was a day for September options to expire.  Monday we’ll get a chance to see just how many contracts closed out (expired) and how many just got “rolled forward” into the October month.  That will be an indication of how confident the “big guys/gals” are about the future.  I doubt that there will be a surge of optimism since the next FED meeting will wrap up on September 21.  Make no mistake . . . it’s all about recession fears and earnings, and interest rates give a hint about those key metrics.  The FedEx announcement of removing forward earnings guidance on Thursday put fear back into the market.

Another thing to watch is the US Dollar.  It’s very toppy now.  If the Dollar falls, the markets tend to go up, if it remains strong or higher, well . . . we could very well see lower prices.  My totally guess about the next couple of weeks is the interest rates go higher, recession fears rekindle, and we head toward the previous lows.  Just an opinion; we have to trade the market in front of us and not rely of opinions.

The Short-Term Sector Strength table is below –

Notice the “lack of green color” there.  When the Bear Treasury Bond and US$ are at the top that is not a good sign.  I remain heavy in Cash and trying to remain patient and objective about what I see.  This will end, the question is when.  Have a good week.          …………..  Tom  …………

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

A Dichotomy September 10, 2022

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September 9, 2022 –  di·chot·o·my, /dīˈkädəmē/ noun:

A division or contrast between two things that are or are represented as being opposed or entirely different.

A market dichotomy . . . and that’s what we’ve got.  One on hand the market is going up & up and on the other there are near record numbers of Put options being bought, presumably for hedging / protection.  The last three days have been impressive but beneath the surface it may be primarily driven by currency trading (the Euro and an overbought US dollar) and by short covering driven by computer algos that cover short positions when things start to look bad (prices rising when short).  The blue lines show my estimate of possible future movement.

click on chart to enlarge

So what to do?  Well next Tuesday we get some inflation data that could likely move the market one way or the other and on September 21 we have the next FED meeting.  While stocks are generally rising, I don’t see a rush to get onboard right now.  Volume is pretty average.  So while things (prices) are improving somewhat I remain cautious.  I’ll be a little more interested mid next week IF the strength continues, volume picks up and those Puts lurking below the current price start to dry up; and they can quickly.

The Short Term Sector Strength table –

I am lightly invested and heavy in Cash.   Have a good week.           ……………  Tom  …………..

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

Is The Market In Trouble ? September 3, 2022

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Sept. 2, 2022 –  The past couple of weeks have been a big disappointment for Bullish investors.  Many thought that “the low is in” and now they are beginning to question that.  Much of the positive assumptions about interest rates plateauing are beginning to be challenged.   But let’s step back a bit.  Other than “Assumptions” and “Predictions” has anything materially changed?  Not really.  The economy moves, but moves slowly and everyone wants to ‘get the drop on the turn’.

click on chart to enlarge

Bear in mind that the US economy is still pretty good but Europe and China are not.  With Russia cutting off nearly all of the natural gas supply to Europe that will cause major problems.  And who buys the most stuff from China?  The EU closely followed by the USA,  plus China remains a COVID question mark with sporadic lock downs.

I think that the recent rally off the market lows was primarily driven by FOMO, Fear Of Missing Out, those trying to pick the bottom.  If we begin to consolidate near current levels for a week or more that could be putting in a Bullish base.  If we see renewed selling next week we’re likely to go down to at least the 11,066 ish level . . .  or lower.  I noted that the volume during the rally was pretty low.  Not a sign of big investors wanting to jump back in.  The next big Consumer Price Index announcement is September 13 and that could be a news driver in either direction.  Lastly, I continue to see a fair amount of Put options below the current market price.  That amount is a sign that the ‘Big Guys & Gals’ are concerned and are hedging their portfolios.  I’d like to see more optimism in option positioning.

In the meantime, the Short Term Sector Strength table is shown below –

The markets in the US will be closed Monday but open everywhere else.  Keeping my eyes open and trying to reduce ‘Assumptions’.   (For those in the USA) Happy Labor Day.  Have a good week. ….  Tom  ….

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

Five Little Words August 28, 2022

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August 27,2022 –  All it took was five little words from Chairman Powell at the Jackson Hole meeting and the market dropped like a rock in less than 60 minutes on Friday morning.  Chairman Powell said “until the job is done” in reference to the question “How long will interest rates rise?”.  The markets were hoping for a hint of a pause in the rate hikes or at least a slowdown, but nope . . . not yet (apparently).   The chart below of the NASDAQ Composite Index for reference:

click on chart to enlarge

The orange zig-zag line is my previous thoughts on an expected retracement and the blue is my new ‘worse case’ prognostication.  Will the 12093 level hold on Monday or will it go further down the price support level to 11533, or (worse) lower?  I’m thinking Monday will be lower, then late in the day (or Tuesday) a retest of 12093, then lower. ( i.e. the blue line.)

Even though the large cap S&P 500 Index lost over 4% for the week I note that all in not lost.  Volume Flow is neutral and the total volume (lower chart) on the Friday sell off was well below the 20 day average of trading volume.  So panic has not set in, at least not yet any way.  Overall long term, I’m still Bullish, but this market needs to pause to reset.  Remember that the overall economic state and world conditions have not changed.  The market has got ahead of itself, and that’s OK, it needs a ‘breather’.

Energy is up with continued strength in defensive Utilities.  China has had a bounce due to the Chinese Bank lowering interest rates.  But lowering rates to stimulate a sluggish economy is not a very positive sign, so I’m skeptical about longer term Chinese strength. 

The Short Term Sector Strength table is shown below –

We’ll see how investors react early next week about this correction.  If volume comes in, it could get ugly.  Where is the strength (volume on up bars) and where is the weakness (volume on down bars)?  Have a good week and stay observant.     …………  Tom  ……………

Looking For A Modest Pullback August 20, 2022

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August 19, 2022 –  I’ve been expecting to see a modest pullback from the recent market rally for a couple of weeks, the question was ‘When’ would it start.  Well we got our answer late this week with what I think is that correction from an ‘overbought’ condition.  The S&P 500 Index has touched the declining 200 day moving average and that could have ‘spooked’ investors as prices have gone up rather quickly from the late June low.  Time for a pause to refresh.

click on chart to enlarge

This ebb and flow, back and forth of prices is to be expected especially when everyone is on “the same side of the boat”.  So while this may cause some concern, it is really ‘normal’.  Now, where will this go?  I’m initially thinking around the 12093 level on the NASDAQ Composite Index; that would be a ‘natural’ place to stop.  At that point we’ll have to see what volume has come in on down bars (selling), so far rather light, and what volume is coming in on up bars (buying).  Also is there an appetite for risk?  The small cap index (Russell 2000 / IWM) will give us an idea if folks are bailing out or seeing this as a buying opportunity.

This past week we’ve seen core and defensive sectors rise to the top and more aggressive sectors (technologies, pharma & biotech) fall off; less risk.  The Short Term Sector table shows this below:

Let’s see how this pullback develops as next week unfolds.  Many traders are on vacation in the Hamptons so volume is typically light which means it’s easier to move price, but price and volume remain as significant clues as to direction.  I’m still thinking that the “low is in” for this trend swing in the market, but that does not preclude a correction somewhere in between now and the previous low.

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

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

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