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Due For A Pull Back August 13, 2022

Posted by Tom in Thoughts.
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August 12, 2022 – This was a good week for the stock market . . . a steady march higher.  My momentum / statistical indicators show that it is likely to pull back shortly.  I feel that it will either be a short pull back then resumption higher (in green) or a pull back and the start of a consolidation pattern (in orange).  In either case it sure is looking like the bottom is in, well, at least for now (the next couple of months).

click on chart to enlarge

Our task now is to identify where to put investable funds, especially if that pull back happens soon.  That’s where “Top Down Analysis” comes in.  First determine the overall market Trend, then identify what Sectors are leading that Trend.  Next what stocks in those sectors are the strongest.  Scaling into positions is recommended; no need to jump into the deep end all at once.  The Short Term Sector Strength table below gives us the information for the second step.

Overall we’re seeing some insider buying of their shares, the % of stocks above their 50 moving average is Bullish and Small Cap stocks are strong.  With Technology strong and Financials gaining that appears to be “Risk On” mode.   It’s been a busy week for me and I’ve still got a lot to do, so this will be a short posting, but the three steps that I outlined are important and deserve some careful thought by investors. 

Have a good week.       ……….  Tom  ………..     Comments are always welcome.

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

Anticipation August 7, 2022

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August 5, 2022 – A good week for the market, but let’s take a step back to catch our breath.  And speaking about market breath (yes, a play on words) last week was very positive.  Whether you look at the number of stocks above their 50 day moving averages or up / down volume things were looking pretty darn good.  The advance was broad, across large to small cap stocks, and deep, just about everything participated.  But (and there’s always a ‘but’), the Fed is still going to raise interest rates and inflation for now is still present.  Is the market anticipating good things happening in the next 6 months, because it always looks ahead, or were we just ‘oversold’ and due for a snap back rally?

click on chart to enlarge

I’ve drawn in roughly two scenarios in green and red on the chart above.  The green is the optimistic route.  The low is in and interest rates will increase but not by much with inflation slowing.  The red route is a less optimistic view with things improving at a slower rate, with perhaps one more trip lower.  I’m thinking that the low for the year maybe ‘in’ but we can expect volatility so that a steady rise will not be ‘in the cards’.  What is the strategy right now?  I favor a “scale in” approach where we put money to work an increment at a time and place it in areas / sectors that are leading the way.  It’s still a time to be cautious and selective.

Looking at the Short Term Sector Strength table below –

Seeing Technology based sectors at the top of the list provides us with a number of opportunities to invest in market leading companies.  One step at a time, this likely will not be a straight line to a new top.  What could mess this up?  Well, next week we continue with earnings reports and new CPI (Consumer Price Index) data comes out Wednesday morning.  Any of these could spook the market and a pullback would be typical.   Let’s watch the volume on down bars for clues as to whether the selling is minor or indeed profit taking after a strong rally.

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

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

Was That ‘The’ Bottom ? July 30, 2022

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July 29, 2022 – The question on the mind of many is: “Was that the bottom?”  I’ll get right to it with a definitive ‘Maybe’.  I’ll list the Pro’s and Con’s so you can decide:

The Bottom Is In

  • Prices made it up through the 50 day moving average.
  • The Advance / Decline line has improved quite a lot.
  • Small Cap stocks are showing strength & moving higher.
  • Many indexes have bottomed out at their 200 day moving average.
  • Bond interest rates have actually come down over the past weeks.
  • The FED “appears” to be more “dovish” (leaning toward less increases).

The Bottom Is Not In

  • The recently rally was due to short positions being covered / bought back.
  • Volume on Up bars is modest at best; not a surge of buying (yet).
  • New High vs. New Lows is just OK, not showing strength.
  • Prices are now at a resistance point back to the previous highs in early June.
  • Volume on Friday’s big move was pretty darn anemic.

So now what?  I’m expecting a pull back early next week.  The amount of that pullback and the volume that it creates should be an indication of the strength of this market.  I found it curious that oil / energy and consumer discretionary sectors were doing very well last Friday.  Not exactly what you’d expect to see if an economy was going into a recessionary period.  Short covering or is somebody getting very optimistic early? 

click on chart to enlarge

Right now I’d say what we are seeing is a ‘Tradable Bottom’ within a Bear market, which means that a retest of the lows is likely.  I could be wrong, but I’ll wait for a firm(er) confirmation on my daily chart.

The Short Term Sector table is below –

Let’s keep an eye on the price action next week.  If things are truly strong any dip will be bought and we may have an improved price structure to work with for the rest of the year.  But right now, I’m not totally convinced.   Have a good week.        ………  Tom  ………

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

A Good Week June 25, 2022

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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.

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.

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.

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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