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Watch For The Reaction November 28, 2021

Posted by Tom in Thoughts.
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Nov. 26, 2020 –  The Thanksgiving week (in the US) was supposed to be quite and uneventful until new concerns about a new Covid variant came up in South Africa.  So “here we go again”.   Next week will give us a better idea just how serious the Omicron variant could potential be, especially for those who are already vaccinated.  But let’s keep things in perspective.

I start off with a chart weekly of the SPY (S&P 500 ETF) with a longer term +4 years perspective.  I’ve drawn channels that try and capture the “big picture” moves and breaks.   Well . .  we were at the top of the channel and venerable to a correction / drop.  In that case all it takes is bad news and we got it.

click to enlarge

I expect the markets to react poorly Monday morning, but the real “test” will come in the afternoon and the following days when raw emotion settles down and more facts emerge.  The big picture is that this market was venerable to any type of disappointment or bad news, and reacted as such.

The shorter term chart of the broad NASDAQ Composite is shown below.  I note that (in the short term) it has also reacted and is showing weakness, but keep in mind the very low volume late last week due to the holiday and short trading session.  Do we recover from the 15544 level or continue lower to 15198?  I’m thinking a push to 15198; maybe lower.  How this market reacts to this news will tell us just how strong it is underneath.

click on chart to enlarge

Tech sectors continue to lead and it will be interesting to hear about pre-Christmas sales from “Black Friday” shopping on Monday.  A poor sales figure in the US over the Thanksgiving holiday could prove to be a “double whammy” of bad news for this market.  This is a good time to watch and have a plan just in case folks start to abandon ship before the end of the year.

Have a good week and keep an eye open especially over the next 2-3 days.  How the market reacts will provide a good idea of just how strong it is underneath. ………… Tom …………..

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

Still “Chugging Along” November 20, 2021

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Nov. 19, 2021 –  This market continues to show strength though the rate of climb has eased off a bit, and that’s OK.  While I’m expecting some back and forth volatility into the end of the year, the general trend should continue to be positive / higher.

click on chart to enlarge

The indicators remain Bullish with the exception of Money Flow, which has slowed down with the drop off in trading volume.  We should not be surprised to see volume next week to be low going into the (US) Thanksgiving holiday.

 I’d like to make a few more observations about the overall economy and inflation.  First off as we know, over 70% of the US economy is driven by consumer spending and consumer spending is up over 70% from the pandemic low just a few months ago.  This very sudden rise in demand has caught inventories and manufacturing by surprise; they were geared for a slow “recession like” recovery lasting 18-24 months.  Demand exceeded supply, hence inflation of prices.  Basic Econ 101.  Now add to that low consumer debt, cash infusion by the Covid relief packages and mortgage / debt re-fi at historically low interest rates . . . well much more liquidity in the market place.  As “bad” as things seem to be, unemployment is actually low (4.6%); again adding to available cash out there.  Lastly, there has been a 29% reduction in ships waiting in the ports of Los Angeles to unload.  That along with domestic manufacturing picking up means supply is increase to meet that increased demand.  It just doesn’t happen quickly.

Here’s a chart on consumer debt from the St. Louis FED –

A quick look at where the stocks are in the broad S&P 1500 Index.  The pie chart indicates where stock prices are in relation to their 20 day moving average and their standard deviation volatility (i.e. Bollinger Bands).   Overall, fairly evenly spread out (pretty typical).

Lastly the Short Term Sector Strength table is shown below –

Technology sectors continue to lead the way with Consumer Goods & Service not far behind.  I am +90% invested but always looking for a possible pull back.  Don’t know when, but it shouldn’t be much of one as long as earnings remain strong and spending over the Christmas period is good.  We’ll see.  For those that celebrate it, have a Happy Thanksgiving and Stay Safe.    …… Tom …..

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

Inflation ! … or … ? November 13, 2021

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Nov. 12, 2021 – I’m going to start off a little differently this week and talk about sector strength and how it typically relates to major market tops.

The big word this week was Inflation.  Is its sudden and significant rise a sign of bad news for this market and what are the warning signs?  First off I want to emphasize the description of “major” as it relates to market tops.  These are not short term 5% to 10% corrections, but ones that are due to longer term weakness in the overall economy, and typically last at least 6 months but can go on for years.

Let’s look at a few signs of a major top.  Usually we’ll see that high quality (i.e. government) bonds out perform stocks.  We’ll also see “safe haven” sectors like Utilities and Consumer Staples out perform as well.   Another sign is that the VIX index (based on the put / calls in the options market) takes a sudden and big move up and it will stay there.  I note that (so far) that’s not the situation in this market . . . .  could be later, but not now.  One other characteristic that happens early on is if major investors see trouble ahead “Value” stocks will out perform “Growth” stocks.

What do we have now?  Well Call option activity is very, very high (a sign of optimistic / speculation).  Treasury bonds remain high historically (i.e. low interest rates).  VIX gyrates but does not stay very high for very long, and growth is out performing value.  Take a look at the relative strength comparison chart below over the past 6 weeks.

click to enlarge

Chart courtesy of Stock Charts

Small Cap(ital) growth stocks are doing better than Large Cap value; large cap value stocks which would be a “safer bet” for investors.  OK, perhaps a sign of speculation, which could be worrisome, but so far not a sign of weakness.

Next let’s look at the usual Short Term Sector Strength table below.

And what do we see?  Technology sectors strong as well as Mid cap and Small cap indexes.  Yes, Gold is up there as well and if inflation is to continue to be a worry gold should continue to do even better.  Gold would also be a bell weather for a market top driven by inflation; we’ll keep an eye on that. Lastly we’ll look at how the stocks in the S&P 1500 Index (considered to be the most “investable”) are doing right now.

Not much to get concerned about here at the present time.  The last chart is of the NASDAQ Composite Index, the chart I usually lead off with.  We’ve had a brief drop over the past 3 days with inflation concerns but markets don’t go up in a straight line either.

click to enlarge

Third quarter earnings have been pretty to very good.  Some corporations have given weak guidance for the 4th quarter so IF we are to see a big correction we may have to wait until after the 1st of the year if earnings falter.  As always, things can change quickly but let’s also keep things in perspective and not get carried away with headlines.

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

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

All Good for Now November 6, 2021

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Nov. 5, 2021 –  The market price action has been very positive and strong as earnings continue to be good to very good and the economic numbers show a continued rebound.  What’s there not to like?  Well really, not much.  Last weeks “Steady as She Goes Captain” title pretty much sums it up.  But the rate of upward movement is not typical, at least not for long.  I still think that we’ll see some volatility during the rest of the year.  Nothing terrible but some small pull backs.  Seeing renewed strength during these pull backs will serve as a positive confirmation of the overall trend continuation . . . . up.

click on chart to enlarge

A quick look at the chart above shows what I mean.  That 45 degree climb over the past 3 weeks has been great, but let’s not get too complacent about “that’s what it’s supposed to do”.  Our attention may rightful shift to focusing on whether sector rotation comes into play.  The general market indexes may be climbing to lofty heights but is the participation equal?  Also, is money shifting around from one sector to another as the leaders become “overvalued”?

It’s good to see the Technology sectors back in the lead, but the question is how long can that continue?  I think it’s wise to keep an eye open for slowing and stagnation in these groups over the next few months and pay attention to others that are rising.  My message is: don’t fall in love with any sector or stock.  It may be great now, but “tomorrow is promised to no one” and things can, and will, change.

For the time being let’s enjoy the ride, just don’t expect it to be always a smooth ride.  I am very nearly 100% invested.   Have a good week & Take Care.       ……..  Tom  ……..

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

Steady As She Goes Captain October 30, 2021

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Oct. 29, 2021 – What a difference a week makes (plus some pretty good earnings reports).  We’ve broken higher and the Advance / Decline line is very positive.  Why is that important?  Well simply, there are more stocks advancing (in price) than declining.  A month ago that was not the case with leadership narrowing to fewer and fewer stocks driving the indexes higher.

click on chart to enlarge

The chart above confirms the price enthusiasm via the increase in volume.  That rate of change can’t continue forever so I would not be surprised to see a drawdown back to around the 15198 level (very modest) or worse case the 15085 mark.  There . . .  we should expect buying to come in and a resumption of the push higher.  One caveat I note was some companies provided muted or poor earnings guidance going forward.  But that’s months away . .  just keep that in mind after early January when the next batch of reports get rolled out.  Things may be different.

Looking at the Short Term Sector Strength table below we note the grouping of Technology based sectors leading the way.

Expecting a Volatile Fall October 23, 2021

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Oct. 22, 2021 –  I’m expecting a slight pause / pullback before the broad market pushes higher.  Friday may (just may) have been the start.  Note the volume blip on Friday.  The earnings of NetFlix, Tesla, Snap pushed prices down.  Many of the internet companies that rely on ad revenue are seeing a challenge since advertisers don’t see a pressing need to generate demand when supply is presently constrained.  Inflation concerns continue as the supply / demand economic factor once again comes into play.  Not surprising.

click on chart to enlarge

The 15085 level was our first resistance, then 15380 above that.  Steady price action around 15085 would be bullish and a launching pad for a break higher.  14182 is the support level.

Interesting that more than 80% of the stocks in the S&P 500 Index are above their 10 day moving average.  Both the Dow and S&P 500 reached all-time highs with the NASDAQ Composite and “Q’s” a bit behind.  Margin debt is below its previous high, and that’s good, as buyers appear to be stepping back into the markets.  This remains a volatile environment with the inflation concerns (the Producer Price Index jumped up), earnings continue to roll in and of course the economic / political news continues.

The Short Term Sector Strength table is below –

I note the sudden jump of China and the continued lethargic action of Technology sectors.  Financials are doing well.  We just need a little more leadership out of Tech.

Overall I’m fairly positive about the prospects in the long run, but expect some setbacks over the next 2-3 months.  Take Care and have a good week.   ……….  Tom  ………..

Go For It . . or Wait For It October 17, 2021

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Oct. 15, 2021 -I saw the play “Hamilton” yesterday and it was a “Wow” even thought I was prepared via Lin Manual Maranda’s book. Impressive through and through. OK. let’s move on.

Last week I talked about a “Change of Character” in this market, making the case that we’ve been overvalued and the 50 day moving average was NOT a support / buying the dips level. All well and good but the last 2 days have been a little impressive. How so? (reference the chart)

click on chart to enlarge

First off, higher “highs” and higher “lows”, i.e. swing 3 is higher than swing 1 and swing 4 is higher than swing 2.  Next, volume is beginning to return / increasing.  I call out two possible scenarios going forward:  in yellow, we stay in a trading range, in green, a breakout higher and a retest of the breakout before moving higher still.  A “Change of Character” would support a trading range between 15085 and 14182, this could likely be a period of re-accumulation before an eventual breakout higher.

In either case, this next week should give us a clue.  A diverse group of companies report earnings: JNJ, NetFlix, airlines, Tesla, financials and P&G; the broad waterfront is covered.  Good news drives us toward the green line, disappointing news drives us toward the yellow.

The Short Term Sector Strength table is below –

In particular, Financials and Technology sectors moving higher is a big plus. Keep an ear open for earnings reports and how the stock and markets react. That will provide some insight on whether to Go For It or Wait For It. Have a good week. … Tom …

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

Two Steps Backwards & One Forward October 9, 2021

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Oct. 8, 2021- The title sounds “bass ackwards” but that’s the point.  This time we’ve taken two steps backwards and we’re not anywhere near two steps forward.  Taking a look at the chart below, Sentiment, Dollar and Volume Flows and Price Strength are Bearish.  The Trend Channel is sloping down; not positive signs.  Take a look at the volume over the last 2-3 days during a “mild” rebound . . . very low, no commitment by traders.  Bottom line: it’s still a weak market.

click to enlarge

Richard Wyckoff would call this a “change of character”; that is the market is not responding in the way that it used to recently.  There are many signs of this, so if you’re interested just “Google” it.  But here’s one of my favorites.  The chart below shows how the S&P 500 responded to selling pressure by touching the 50 day moving average, then rebounding and continuing the stair steps higher.

click to enlarge

I’m not saying that we’re into a bear market or even a major correction, at least not yet, but traders are not rushing back into this market . . .  yet.  There are just too many issues challenging and too many unknowns for them to be comfortable.  Besides, third quarter earnings are just around the corner.  How companies report will be a big factor in how the market proceeds.  It is overvalued right now.  Two areas to look for are how Technology and Consumers Discretionary companies report and respond.  They were the previous market leaders.  Next comes Financials and Healthcare.  We need to regain leadership to move higher.

I’ve been raising some Cash, and if things get worse will raise some more.  But this could just be a pause and a re-accumulation phase.  Watch both bar strength and volume for clues.  Have a good week.  …  Tom  …

charts by MetaStock, table by http://www.HighGrowthStockInvestor. Used with permission.

Lions and Tigers and Bears, Oh My! October 2, 2021

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Oct. 1, 2021 – Apologies to The Wizard of Oz but this market got “spooked” this week.  Yes the overall market breath (the number of stocks leading the indexes higher) was getting narrower and narrower.  The old adage comes back: “When the market is weak, it reacts poorly to bad (or perceived bad) news, and if strong, it ignores it.”  This market is weak.

There is plenty to worry about: FED tapering, Inflation, Supply Chain issues, Debt Ceiling and the Pandemic.  While all of this could become serious to economic growth the current economy is doing pretty darn good.  But, the stock market lives in the future and is looking out 6 to 12 months ahead.

click on chart to enlarge

Thursday the NASDAQ Composite Index dropped below the 14530 support level but recovered on Friday.  That puts us back to mid-August and mid-July levels.  14178 is the next support level, and I need to see strength above 15380 (resistance) before I’m comfortable with an “all clear”.  Putting it into perspective, the NASDAQ has dropped 5.19% and the S&P 500 3.93% since the (about) 9/3/21 peak.  A 4% to 5% correction is pretty minor; at least so far.  I’m sounding optimistic because late this week ETF’s saw a net inflow of dollars, and the biggest increases went to small cap and the leveraged “Q’s” (tech index).  Sounds like some folks are also optimistic and “buying the dips”.  But not so fast investors.  The Money and Volume Flow indexes are still pretty negative.  Let’s wait for confirmation; it shouldn’t take very long.  Look for volume increases on up bars.

The Short Term Sector table is shown below –

That’s about it for now, be careful and observant.  Plus, scale into positions as conditions warrant.  Have a good week.   ………..  Tom  ………….

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

A Slow Recovery . . . (?) September 25, 2021

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Sept. 24, 2021 – Last Monday the bottom feel out and the NASDAQ Composite Index (chart below) dropped below my first level of Support at 14896. My general rule is to use the low of the bar that closes below that first level of support as my guide to hedge / close positions going forward . . . unless the volume of that day is very high (folks rushing toward the exit). This drop has been generally expected for weeks now and all it took was for the Chinese real estate developer Evergrande to rumor a series of loan defaults. That “lit the fuse”. But notice that the volume was not excessive, a little above average (dashed blue line) but not up into the red line (average + 30%). In short, “orderly”.

At this time this just looks like a slow recovery, but make no mistake, this IS a different market than the previous 9 months.

I came across an interesting presentation. Here’s the short of it. The US economy is made up of 74% consumer spending activity. This drives the potential for corporate profits; i.e. spending = profits. Next, who (& what) drives spending? Well the segment that has the highest income and needs / desires. That age segment are those between the ages of 35 and 55; the ages where they have the most income & needs. Right now we’re seeing the biggest population / age segment are the Millennials. They are the ones currently between ages 35 and 55. The bottom line is their consumption / spending will continue through the year 2034 (roughly). The theory is that the behavior of those between 35 and 55 . . and if that segment is large enough, will drive a secular Bull market.

Now, that does not mean or even imply that there will not be volatile corrections that are significant. It only implies a recovery from a short term drawdown in the markets. OK, it’s an interesting theory and only a theory. Back to “what’s happening”.

Let’s look at manufacturing as a gage of this economy. The chart below shows recovery; it’s not a straight line but it never has been either.

I guess one could say, “so far, so good”, even with that recent dip lower. Likely driven by supply and semiconductor shortages and not by lack of demand. (my Thanks to Doug Short & Advisor Perspectives for this chart)

The Short Term Sector Strength table below shows the initial recovery of Technology sectors late last week. That must continue plus adding Financials and Small Caps would be a big plus too.

That’s about it for this week. Continue to Take Care and keep an open mind on what this market is telling you. ………… Tom ………….

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

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