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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.

Due For A Pull Back August 13, 2022

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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.

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