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Lethargic Market October 24, 2020

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Oct. 23, 2020 – This market just seems to be waiting for something to happen; stimulus, election, earnings, pandemic . . . . et al. Volume is down, Money Flow and Volume Flow are lethargic and prices don’t want to really trend in either direction. Indecision. It just seems like there is enough potential good news to maybe (just maybe) outweigh the bad, but maybe not.

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The upward trend channel (purple lines) have been broken, the bars are now colored red so that upward trend is no longer in play. But a downward trend has not really started either; we’re in a broad trading range for the time being. My other master indicators show the Accumulation of shares has slowed, but Distribution has not really taken off either, prices are not strong, but they’re not very weak either. What to do? Maybe nothing. I am about 75% invested but I’m having a hard time finding good places to deploy the other 25% . . . . and I’m get more concerned about the potential for loosing hard fought gains in a blink of an eye with the release of bad news. Thus, this market is not strong and can’t determine which way to go. Earnings continue to be reported and they are mixed at best. As mentioned before this market is “not cheap” earnings wise, which leaves it susceptible to a correction.

Other factors: I run a program which ranks major sub-sectors by strength but also internals (like volume / demand, number of stocks in the subsector advancing, etc.) and usually I filter out about 3 to 10 (out of 48) that have strong stock candidates. This week (again) I found none. Lethargic market.

Here’s a pie chart of major sectors and what they did as a whole last week:

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OK not bad, more green than red but in a number of cases only a few stocks in those sectors were actually strong. Also 5 days does not a trend make.

Here’s another view with a little broad time frame and factors other than price:

I note that the previous market leaders, those technology based, have fallen. The prices of tech has proceeded their value in many cases. There is reluctance to pour more money into those areas without some justification. Keep an eye on earnings.

That does it for now. Take Care, and for those in the USA . . VOTE !

………. Tom ……….

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

Market Hitting “Pause” October 16, 2020

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Oct. 16, 2020 – Well the week started with a bang and a price gap up. This on hopes of a stimulus package and looking forward to corporate earnings . .. . hint: the banks did well & hoping the rest follows. But the last 3 days were less than impressive.

The chart below shows “price strength” back to neutral and the price action seems to bounce back & forth within the price channel. Volume during the last half of the week was low, just not much demand. There could rightfully be a concern about reaching back to early September at the high of 12074, a logical resistance level (green line).

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The first level of price support is 11572 (red line), then 11124 (where things start to get concerning) and the recent swing low of 10519 (if the wheels start coming off).

It appears that the market is comfortable with a Biden win and the stimulus being delayed until after the election. But if a package doesn’t get done in early November it could be a different story. The consumer is not as healthy as many think.

Sector strength (short term) is shown in the table above. Tech continues to show strength but Utilities are a little surprise. And lastly the 5 day % price return for the top sectors is shown below. This provides a view of how broad / narrow price strength is.

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Please feel free to leave a comment. Always interested in what you like, dislike or would hope to see. Have a good week. ………… Tom ………..

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

So Close . . . October 2, 2020

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Oct. 2, 2020 – On Thursday . . . we were Oh So Close to breaking out higher. Then came Friday with news that Trump got the Covid virus. Now I’ll admit that I did start to nibble on a few strong (i.e. tech based) ETF’s, but the volume doesn’t really confirm a strong price action. And so the wise thing to do is to take small positions (i.e. “scale in”) or just wait for confirmation.

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Note that Volume Flow is light (green circle, must be some hesitation here) and Money Flow remains weak. I point to the near break out on Thursday (green arrow). I’d like to see at least two consecutive closes above 1130 and preferable on some increasing volume (buying). The world is not coming to an end so maybe we’ll see some follow through early next week.

The pie chart below shows the % number of stocks in the S&P 1500 Index and how they did last week. Overall pretty good; more green than red at least.

And the table below shows where the near term strength is by sector.

Technology was doing fairly well until Friday, so I’d watch that sector closely for signs of strength & recovery going forward. Not much more to say except we may (just may) be close to a breakout or falling back into a trading zone. There just doesn’t seem to be an appetite for stocks with the uncertainty of the virus and the looming election. We may just have to wait it out.

Oh Yes, one more thing: IF you’d like to see & hear an interview that I did with a web developer & ex-hedge fund manager . . it would be here: https://youtu.be/tuqbhiZXo5s on YouTube. 🙂

Take Care & Have a Good Week! ………….. Tom ……………..

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

At (or Near) The Point . . . September 26, 2020

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Sept. 25, 2020 – Well my feeling is that we’re at or near an inflection point. On the chart below you can see that prices (near term) are bouncing up and down with no clear trend. Yes, Friday was a very positive day that closed above the downward sloping channel (purple lines) but we need far more confirmation. A positive break above the 11300 level would be bullish for going higher (green arrow) but also a break below 10412 would be bearish (red arrow). And of course, we could just continue to bounce back and forth between the two levels until after the election (in yellow). Is this a pause in a down trend or re-accumulation? Watch volume and a broadening leadership within the market.

click to enlarge chart

The leadership lately has been “all Tech, all the time” and that’s not a recipe for a strong continuing market. Besides there are many economic headwinds to overcome and right now they are being ignored (IMHO). Here’s one thing that concerns me: in general, strength is being shown in only a few stocks, and these are large cap Tech stocks that have a major effect on the indexes.

The pie chart above shows the number of industry sectors (48 in total) and their 5 day % return on price. 44 of them had a negative week (shades of red). One week does not a trend make, but if this continues . . . . well, not good. Narrow leadership.

Last point is the valuation of this market. The chart below shows the P/E (price/earnings) ratio from a historic perspective. i.e. “Are stocks cheap or expensive?”

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The yellow line is roughly where the classical point is between expensive and cheap (about a P/E ratio of 23). So looking at stocks in the S&P 500 index, the current evaluation is not “cheap”. Not to say that over valuation can’t continue, but we are in that “expensive” region.

My thinking is that we’ll hover around these levels until after the election . . and then we’ll see (or maybe after the first debate on Tuesday?). Until then I’m very cautious and only dipping my toes in certain areas and only in small amounts.

Sector Strength table –

I note a number of defensive sectors toward the top.

Have a good week. ……. Tom …….

Pushing On a Rope September 19, 2020

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Sept. 18, 2020 – This market continues to consolidate with no clear trend. I see folks trying hard to guess the next move either up or down. I feel that getting involved with that logic is like “Pushing On a Rope”; it’s just not going to work. Sure, some will guess correctly and others not, but that’s not investing IMHO.

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Looking at the chart above we note the trend indicators are all Bearish / negative. I’ve labeled three price bars 1,2,3 to show that the close of those bars are all very nearly the same. A “triple bottom”? Perhaps, but it does indicate to me that (on a closing basis) that the level around 10728 is gaining in importance. A close below the 10412-ish level would likely move the market lower. A close above the 11300 level would be a bullish breakout. The third scenario is shown by the gray bracket, and that is prices would remain within the trading range for a while, bouncing back and forth.

Typically one would look to the volume for confirmation but this Friday was options expiration day so there was (expected) high levels of volume as option writers “squared up”. We’ll have to wait until next week and with all of the political cross currents there is uncertainty. And markets don’t like uncertainty. Any breakout, in either direction, may take awhile.

Short Term Sector Strength –

None of these sector are very strong trend wise (i.e. values under 200).

And so it goes. I’m heavy into Cash with a light hedge. No need to “jump the gun” or “Push on the Rope” here trying to make something happen, or worse let, trying to be a hero. Patience.

Have a good week & Take care. ….. Tom ….

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

Price Consolidation September 12, 2020

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Sept. 11, 2020 – A quick look at the chart below of the broad NASDAQ Composite Index shows signs of price consolidation near the current levels. The dashed blue line is the near term support. If we drop (especially on the close) below this level we’re in for further weakness.

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Yes, this chart is rather “Bearish” with all indicators indicating the same, but when I look at the “cause” of this sudden drop, I’m not so sure. The chart below shows the dramatic increase of small trader (less than 10 contracts) call option buying (light blue line; S&P 500 in black).

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This certainly shows wild speculation and was likely driven by many people sitting at home due to the virus. (Nothing to do? Make lots of money trading options!) Funny how this fell apart days after Apple & Tesla split their stock, and . . SoftBank revealed that they had $ Billions in call options. The stage was set; everybody had “bought in”.. I’m thinking we’ll bounce around until next Friday (Sept. 18) when those call options expire. Then we may have an opportunity to reset and see just where we go from here. This sudden move was driven more by news and the market itself. An economic awakening may yet to occur and will likely happen over weeks and not days.

Sector Strength table below:

I remain heavy in Cash right now. Looking for the market to decide, and yes, it can go either way. Let’s see if these levels can hold and this market takes a “breather” perhaps into the election. Earnings will not be great, so folks will be cautious for a while.

Have a good week. …. Tom ….

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

Start of a Correction or “Buy the Dip”? September 7, 2020

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Sept 4, 2020 – A significant and violent sell off last last week. The big question will be is this just the start of a correction or an opportunity to “Buy the Dip”?

As a background, this market, especially Tech stocks, were way overvalued. Note the “typical” price earnings ratio for major / S&P 500 stocks is around 22-23 for a Price -Earnings ratio when they get “over bought”. Apple (for example) had around a 34 P/E ratio earlier last week. And then we have Tesla, semiconductors, etc. So the stage was set, the question was really “when” a sell off would occur. The Japanese tech conglomerate Softbank was reported to have billions $ in U.S. tech company options and that started to raise big concerns. Regardless of “why” the market just sold off quickly.

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The 11090 level held on a closing basis, and that is important. Money & Volume Flow indicators did show weakness, but volume was not excessive for this range of a price movement. The stage is now set for a bounce come Tuesday late morning. But we’ll have to wait until Wednesday / Thursday to see if any bounce has “legs” to continue. Right now this could just be an opportunity to buy at lower prices or the early stages of a more meaningful correction. Currently it looks like a short term thing. We need to see what the major traders do in the next few days. Is there support here, or does more selling & volume come into play.

We do have some retail companies reporting earnings this week and those could set the tone for what shape the economy is in. The “back to school” shopping is a big unknown and not likely to be strong.

Stocks in the broad S&P 1500 index did surprisingly well. More more red and yellow, but the green / strong section still is in evidence.

Sector Strength showed a big change with the Tech leading sectors falling dramatically; now #22 on the list. The more defensive sectors rose to the top.

So a time to be cautious because this market will likely turn in either direction quickly. I did sell out much of the tech holdings on Thursday and placed a “light hedge” on the remaining positions. Very rarely do markets turn this quickly with little time for the “smart money” to sell into strength, so we may be in for a modest consolidation going into the U.S. elections.

Have a good week. …………. Tom ………..

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

Slow Summer Grind Higher August 28, 2020

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Aug. 28, 2020 – The markets just grind higher. Nothing dramatic, just a slow & steady grind. It seems like nothing really matters. The economy (looking past that), earnings (looking off into the future), social unrest (been there) or politics (waiting until October). As long as there is very cheap money, not much matters. A big geo-political event might have an impact, but it looks like the real danger is earnings. I doubt that this market has “felt” the 38% decline in the Gross Domestic Product . . . . yet.

Just keep in mind that fewer and fewer stocks are holding up these index values. If it wasn’t for the Technology sectors, well then things would be a lot different. A single mis-step by a tech darling would bring a reawakening I feel. Until then we just have to be extra careful.

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Sentiment is neutral but nearly everything else is positive. Prices climb the upper price channel (purple) while volume is dropping. Not much buying, but not any selling either. I think this is the “summer doldrums” with many traders “out” until after Labor Day (Sept. 7 in the U.S.). I remain invested, but have extra Cash to deploy; it’s just not a great environment to do that now.

No surprises here. It’s mostly Technology leading the way. I do note that Treasury bonds have been moving lower (interest rates increasing a little) over the past couple of weeks.

Not much else to dwell on. Have a good week. ……. Tom …..

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

Narrowing Market Leadership August 22, 2020

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Aug. 21, 2020 – Last week my writing theme was what is fueling this market (especially in the U.S.). The bottom line was & is cheap and available money (especially for big banks) and optimism for a Corona virus vaccine (and soon).

The logic is that the world in general is either in recession or an economic depression. Valuations of common stocks are high (as measured by the price/earnings ratio) and the guidance going forward is mixed at best. Since the U.S. economy is roughly 70% based on consumer spending, what will stimulate corporate earnings in the immediate future? Back to the vaccine idea. So this market is overvalued but very hopeful. That sets the stage for disappointment IF things don’t work out. That could mean a slow rollout of a vaccine (distribution worldwide) and a slow economic recovery.

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I note in the chart above that Sentiment has turned negative as well as Price Strength. Another observation is the very narrow bars over the past 7 days. This being an indication that buying and selling are about equal. Make no mistake, the big guys sell into a strong market when they have buyers. Is this the beginning of a correction? No one knows for sure but I did come up with a new way to look at market strength and overall breath.

The pie chart below shows the percent of stocks in the S&P 1500 Index that had a price movement in 3 categories over the past 5 days (the last week). As a reference I note that the index itself showed a increase of 0.5%.

Of interest is that over 76% of these stocks did not participate in the move and only 9% had a significant move. My conclusion is that this is (again) a time for caution. Let’s look at sector strength to see what ares are moving the market.

We see the Technology sectors well represented. Not surprising that they are typically the ones least affected by this virus economy. I am surprised about Consumer Goods & Services though. Keep a close eye on these sectors for weakness; the “canaries in the coal mine”.

That’s about it for now. I have throttled back just a little on Friday, but keeping an eye on the exit door. Have a good week. …. Tom ….

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

So Bad, and Yet So Good ! (?) August 15, 2020

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Aug. 14, 2020 – With the price to earnings multiple at near nose bleed levels, the outlook for future profits doubtful, how can the stock market be at / near all time highs? The answer is money, and lots of it.

We all know that the stimulus programs have pumped lots of money into consumers, the unemployed and business but what about the stock market? Well, if you could borrow at near 0% interest all of the money that you wanted and could get 5-10% return in a week . . . that would be called a “good deal”. And that’s the deal that the big banks have got. The hope is the cheap money will be loaned out and keep the banks balance sheets healthy but there is nothing to stop them from “investing”.

Let’s look at the Federal Reserve data on the U.S. Monetary Base below. The Monetary Base is the sum of all money in circulation and deposits at commercial banks. (i.e. “commercial banks” = big & bigger banks)

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Talk about a sudden increase in the Monetary Base ! The concern is how long this can continue without some form of “debasement”; is the US dollar still worth the same to everyone in the world . . . or not? (note: the $ has fallen as of late)

There has been a lot of talk about unemployment and how the rate of new claims is slowing. That’s good, but the real issue is the continuing claims. The chart below tries to put that into perspective.

About the only thing I can gather is that unemployment is not getting worse, but it sure isn’t getting better either.

Lastly, I’ll leave the reader with a write up by John Mauldin which talks about how this economy will recover.

https://www.mauldineconomics.com/frontlinethoughts/the-second-great-depression-but-not-really

It is eye opening in that the economy will recover, but VERY Slowly, and it will not be the same economy. The service industry will not fully recover.

OK, here’s the NASDAQ Composite chart (below). We have inched a little higher last week, but the last 3 bars / days show a very narrow range on low volume. Buying = Selling and (volume) there’s not much of either; a dull market. Looks like we’re back to “wait & see” mode.

I note Money Flow is softening as well as Price Strength. Let’s take a quick look at Sectors:

I remain about 50% invested just because of concern that reality of the US economy will come back into focus. And when it does it will be a rapid adjustment. Much hangs on the new stimulus package. Without it many people (think over 31 million unemployed) will have major problems. And since the US economy is 70% based on consumer consumption, that WILL effect nearly all areas and businesses.

I am watching the VIX and Treasury Bonds for clues about big money taking a defensive position. Take Care and have a good and safe week. ………. Tom ……….

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

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