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Back To Reality June 11, 2022

Posted by Tom in Thoughts.
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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.

Welcome to Volatility . . . We’re There Now January 22, 2022

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Jan. 21, 2022 – I was expecting volatility but wow, this was a quick flush down.  It looks like just to many things started to pile up: FED raising interest rates, Ukraine conflict, earnings disappointments (i.e. Netflix, Peleton) and of course an overvalued market.  Add to this options expiration on Friday (where the most people “need to be” wrong).  But, right now, this looks like a typical correction pattern and not a major market peaking pattern.  But that could change.

click on chart to enlarge

The chart says it all.  There is a lot of red there.  So now what?  Monday will likely be a flush out of the remaining sells that found out about this over the weekend.  Then two possible scenarios:  Monday afternoon or Tuesday, a recovery / relieve bounce back up to around 14533.  This could take a couple of days. 

  1. Then a pause then recovery to higher ground, forming a consolidation pattern before a move higher.
  2. A bounce up to around 14533 on light volume (no demand), with a final “scare the pants off” drop lower maybe even near the 1300 level (that would be bad).  This could happen quickly with news of a Ukraine invasion.

But let’s keep things in perspective.  The average drawdown in a “normal market” (i.e. between 1989 and 1999) is about 10%; we are there now.  Also, a drop to around the 200 day moving average is also “typical”; see chart below . . .  we’re there now.

click on chart to enlarge

This is a chart of the weekly S&P 500.  That gives us some perspective.  But make no mistake.  Holding the line here is Bullish, a flush through is Bearish.  With the overall economy is pretty good shape, I’m thinking this is just a normal correction and perhaps a buying opportunity.  We’ll  see, and it won’t take long.

The Short Term Sector Strength table is shown below; FYI.

This market is oversold in the near term.  The big question is will buyers come back to snap up bargains at lower prices?   Have a good week & Take Care.         …….  Tom  ……

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

Should I Go or Should I Stay ? January 15, 2022

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Jan. 14, 2022 –Apologies to pop culture but if anyone is saying that they got this market figured out, run, don’t walk away from them.  Consolidating price formations are not easy to figure out and they really shouldn’t be.  Right now there is a case to be made for Bearish and Bullish, but for, now neither is that terribly clear.

click on chart to enlarge

I remain in the camp that says price action is in a consolidating trading range.  Yes, the NASDAQ Composite Index did close below my 14860 support level but then pop right up above it on Friday.  Also I note that larger volumes are coming in on up bars like on Monday of this week.  (“buying the dips”?)

So what to do in this situation?   I rotate out of weakness (Technology & Growth) toward what’s doing better (strength).  That would be Energy and Financials / Banks.  South American sectors are showing early signs of a rebound too.

Things to keep in mind:  Fourth quarter earnings are starting and the ongoing Covid and Ukrainian situations.  Inflation is a ‘pesto issue’ IMHO because did anyone really think that interest rates could stay this low, for this long without increasing?  Prices will be going up, but likely not as much as the current rate of increase.  The Fed’s mandate of full employment has been met; next step is to keep inflation to around 2%.  Since we’ve been increasing at a 7% rate that means increasing rates to slow things down.   Hence Energy and Financials like that environment.

I’m about 75% invested and watching for some news item to throw a monkey wrench into this equilibrium.  There are a lot of moving parts out there and the investors are not sure if they should go, or stay.   Have a good week.         ………..  Tom  …………

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

Flirting with a Bottom January 8, 2022

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Jan. 7, 2022 – This report will be short and to the point since I’ve got a lot of things going on.  To start with let’s look at the market overall; chart below.  Market Sentiment = Bearish, Money and Volume Flow = Bearish and Price Strength is Weak.  Overall not a good environment for investing.

click on chart to enlarge

But as I look to the volume bars at the bottom I see that volume has been dropping off over the past 3 days.  To me this indicates selling is also dropping off and we now have to consider “No Demand” (i.e. no appetite for buying) right now.  As the market flirts with touching the previous low near the 14860 level there are 3 scenarios:

  1.  Investors getting concerned even more and we drop below the Support level.
  2. We enter a trading range where prices consolidate for a few weeks; zig-zag.
  3. The market bounces off the Support level forming a triple bottom pattern and heads back higher.

My preference at this time is scenario #2, a consolidation pattern.  This will give the market time to sort out Covid, geo & domestic politics and the upcoming earnings for the 4th quarter.  I can’t help thinking that a good chunk of this selling right after the first of the year was related to taxes.  Sell & book those profits and reload while delaying long term gains for 12 more months.  Just a feeling, especially with how well the markets have done over the past 12-24 months.

The Short Term Sector Strength table is shown below.  What got me here was that Technology is at the bottom.  OK in the short term but not so much in the long term. (note ‘Bear’ Treasury bonds are inverse to the bond)

I’m keeping a close eye on the 14860 level on the NASDAQ Composite Index.  That has shown support twice before & that’s important.  Have a Good Week.   ………  Tom  ……….

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

The Year in Review January 2, 2022

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Dec. 31, 2021 – First off . .  Happy New Year !  Since this was a very low volume and shortened trading week I’ll suspend my normal market comments this week and go right to the chart of the NASDAQ Composite Index.

click on chart to enlarge

The indicators and price action are looking better but we need to break and close above the 15901 resistance level soon.  Then of course go on to challenge the previous high.  The next 2 weeks will give us an idea if a new bullish trend is beginning or we we’re just falling back into congestion.  Stay tuned. 

The next chart is a relative strength chart of key international indexes for 2021.  (all start at the same 0% point on December 31, 2020; chart courtesy of StockCharts.com, used with permission)

click on chart to enlarge

Now for all of those trading Crypto I decided not to put that on the chart (i.e. ETF GBTC).  The reason is that it was EXTREMELY volatile.  Case in point: starting 12/31/20 at 0%, at peak for the year of +77% on 2/19/21, then -25% for the year on 7/20/21, then back up to +67% for the year on 11/9/21, before finishing at +7% for the entire year overall.  I dare say that the daily volatility in between was exceptional too.  If one trades crypto, one must be exceptionally nimble and have a plan.   (i.e. sure sounds like “day trading” to me . . . . not my style at all)

About the only thing that I can say is that 2022 will likely not be the same as 2021.  I am expecting more volatility in the stock market.  Wishing you success and Good Health in 2022.  ……..  Tom …….

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