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Off We Go ? January 7, 2023

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January 6, 2023  The US Markets had a pretty good week, up about 1 ½%, with most of that coming on Friday.  Once the Labor report came out we were off to the races.  The US Dollar dropped like a rock (bullish for stocks) and the Treasury Bonds rocketed higher (lower rates; bullish).  Add to that added volume of traders covering short positions due to the higher hedging in the markets. 

click / double click on chart to enlarge it

The broad NASDAQ Composite Index (shown) has really been in a wide trading range since mid-September.  A short term traders dream but not for longer term investor that are anticipating a change in the market trend.  This market is waiting for two things: a positive / Bullish FED announcement (which many are trying to anticipate and front run) and 4th quarter earnings.  As the economy slows the effects on earnings become more of a factor.  In the long run, corporate earnings drive stock prices.

The table below shows the reporting dates for key corporate stocks that could drive the market in one direction or the other.

The Short Term Sector Strength table is shown below –

So I’m looking for continued signs of a follow through from Friday before contemplating dipping my toe into the market.  The sector strength table does not exactly support a “risk on” market, so I’m skeptical right now.  Have a good week and a very Happy & Prosperous New Year.    ……  Tom  ……

The Year in Graphic Form . . . Down ! December 31, 2022

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December 30, 2022 –  This was a low volume week that Santa Clause decide to skip (ref. “The Santa Clause Rally” Effect).  The chart below is the NASDAQ Composite Index on a weekly basis.  We remain in a down trend.  So . . .  IF one must buy stocks, I would recommend only in select, strong sectors and hold them for a short period of time on a short leach.  This is NOT a Bull market.  There is no reason to “buy & hold” or to be patient.

I am expecting a small / modest rally after the first of the year, likely running into mid-January, then another leg lower.  Why?  Because earnings from the 4th quarter 2022 will be reporting and they will very likely show muted results.  Of course, I could be wrong, but if you think about it, it’s a rather logical expectation.  In the meantime, inflation (maybe) slowing but still high, interest rates are increasing, Ukraine remains a “wild card” and the Congress will likely become dysfunctional with personalities trying to grab the camera & microphone for the next 2 years.  (editorial: Wonderful !)

So let’s think short term and be very selective.  Until then and all year long . . . .  Happy New Year !

Price chart by MetaStock; used with permission.

The Year Winding Down December 25, 2022

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December 23, 2022 –  Well we’re almost there . . . the end of 2022 is right in front of us.  And the most impactful categories were Ukraine (oil & commodities) and Inflation (interest rates & economy).  The biggest question is just how much and how fast will the world economies react to the economic slowdown driven by central banks increasing interest rates.

The whole idea is to dampen consumer demand without over doing it; a delicate balance.  Slowing economic growth will also slow revenues which hit profits / earnings, and we know that in the long run, profits (or the hope of them) drive stock prices.  2023 looks to be a very tepid year and hopefully no worse than that.  With the possibility of a recession comes a likely leg lower in the markets.  It’s hard to say that current stock prices are considered a “Value” since the price to earnings ratio remains above historic levels in most cases.

I’ve randomly select stocks in major sectors to compare their performance over the past year (to date).  As you can see about the only place to ride out 2022 was in the Energy sectors. Ouch ! (click on chart to enlarge)

The Short Term Sector table is shown below –

That’s about it.  Next week will be a low volume period with many folks on vacation.  And with low volume can also bring volatility in prices.  We’ve likely seen all of the year-end tax selling by now.  I think we’ll have to wait until 2023 begins to get a feel of where things are likely headed.  I’m heavy in Cash for the time being.

Wishing you & your family a Happy Holiday Season and a Prosperous New Year.   ………  Tom  ………..

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

FED Is In It For The Long Haul December 17, 2022

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December 16, 2022 –  The FED raised rates ½% as expected and the market initially thought that the end of rising rates was near, but Chairman Powell’s press briefing but that “to bed” quickly.  He stated that elevated rates will be here for “awhile”, likely well into 2023 before there will be a possible lowering.  The markets didn’t care for that and reverted back down.

How much lower?  That all depends.  We’re in the final stages of tax selling and we’ll need to see the options structure after Fridays “quad witching” of futures and options.  Going into Friday the amount of Puts and Calls was about equal, with large option volumes at strike prices just above the closing prices on Friday.  Did these options get “rolled forward” into next month or were they closed out?  We’ll get an indication of that on Monday.  But the call buyers got burned on Friday (strike prices above the Friday close).

In reality from an economic stand point not much has changed.  It’s going to take months to tame inflation and we’ll very likely get another ¾% to full point increase in 2023.  Recession is becoming more of a reality.  Let’s keep an eye on the Bond market and small cap index for clues as to an indication of whether big money is actually getting more optimistic.  Bond prices rising (like they have been) and the US Dollar falling is Bullish; will that continue?  The opposite is Bearish.

The chart shows that prices are back to the mid-June, 2022 levels (on the way down) and the mid-July, 2021 levels (on the way up).  Sure does make a case for active investing.

The Short Term Sector Strength table is shown below:

Next week will be slow with low trading volumes, but that can breed volatility, so be careful.  I’m likely not going to be very active, but areas I like are in Pharma / Biotech and Healthcare.  These are more defensive but can participate IF the market price structure improves.  Have a Good Week & Take Care.  ……  Tom  ……

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

Lying In Wait December 11, 2022

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December 9, 2022 – The markets are in a trading range and it sure looks like everyone is waiting for Mr. Powell to announce what the FED is doing with interest rates on Wednesday afternoon.  The feeling is he’ll back off to ½% rise and the market “feels” like it wants to go higher, but . . .  there still is a lot of negative economic news.  The concern is that we’re just now entering into a recession and consumers will throttle back spending after the holidays, which the FED is trying to get done.  The spin off effects on earnings is the main concern.  Lower inflation by reducing demand equals lower earnings.  Ouch. Note the relative sideways price action over the past 2 weeks (purple channel). 

Investors are really trying to like China, thinking that the Covid lockdowns will be lifted and China gets back to work.  We see that “front running” of China and Asian sectors in the short term Sector Strength table below.  How long will that last is debatable.

A final note is next Friday we’ll have monthly options expire.  Lately there has been a near equal mix of Puts & Calls right around the current market prices.  Will these options be continued (“rolled forward”) or just settled?  Is the big money hedged, long or short?  I expect next week to rather volatile as we head into Christmas and perhaps relative calm.  Have a good week.     ……..  Tom  ……..

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

At The Previous High December 3, 2022

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December 2, 2022 –  Despite all of the glowing reports on this market, we’re actually at the previous high of 11492 back on November 15 on the broad NASDAQ Composite Index.  (see chart below)

Thus we really have not had that big breakout that many have proclaimed.  Since we’re technically “over bought” I’d expect a pullback early in the week.  Any move after that would be a better indication of a new trend.  However, December 14 looms in the background.  That’s when the FED announces its next interest rate move.  Powell is alluding to a ½% increase but that’s still an increase.  The economy remains strong and consumers continue to buy with Christmas retail sales increasing.  This is NOT a sign of inflation slowing down, as much as we’d like to see it.

What’s moving in the short term?  The table below shows the Short Term Sector Strength

And so we watch and wait for the preverbal “Santa Clause Rally” . . . if it comes.  Beware of end of the year tax loss selling; that’s the Grinch.  Have a good week.      ……  Tom  ……

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

Watching & Waiting November 20, 2022

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Nov. 18,2022 –  A lot of volatility back and forth this past week but not much commitment in either direction.  The number of Put hedges has dropped off significantly and it just “looks” like the markets “want” to go higher but need a good reason to do so.

We remain in a broad trading range that speaks of base building and thus a possible . . . change in trend.  As the 3rd quarter earnings wrap up the stage is set for the holiday season and that may (just may) be a spark.  The next FED meeting is December 14 and there is MUCH anticipation as to the next interest rate announcement (the bet is on ½%).

The Short Term Sector Strength table –

Semiconductors want to be loved along with Biotech but there is more smoke than fire in those sectors.  Next week will be a short trading week, so I’m not anticipating much will be happening.  For those in the US, Happy Thanksgiving.   …………..  Tom  …………..

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

Breakout or Shakeout ? November 12, 2022

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Nov. 11, 2022 – I’m a little under the weather, so this will be brief:

With the release of the CPI data (Consumer Price Indicator) premarket on Thursday, the market shot up big time.  Instead of coming in at 7.9% annual, it came in at 7.7% and that’s all it took.  The markets are having a hard time dealing with expectations.  Is that the bottom? 

Well no one knows if the buying will continue . . . I doubt it.  Disney had lower revenues, Meta & Twitter are laying off and we’re experiencing “Crypto Collapse”.  Economically, things are slowing down and everyone would like to see the FED slowdown interest rate hikes.  The market anticipates economic events and what we saw could very well be short covering.  I expect a buying surge Monday morning then a modest pullback.  What happens after that will give us a clue at to how strong the market really is.

Short Term Sector table –

Have a good week and be just a little skeptical.       ……….  Tom  ………..

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

The FED Strikes (back) November 5, 2022

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November 4, 2022 –  In the week leading up to the Fed announcement last Wednesday the markets we’re thinking (i.e. hoping) for some indications of a slowing interest rate increase.  Maybe ½% or at least some indication that the rates were approaching a peak.  That really didn’t happen.  Just a few “maybe in the future we’ll consider slowing the rate of increases”, then another ¾% increase.  This has been a steepest / fastest increase in FED funds rates ever in our history and it has the markets spooked.  We’ll have to wait until December to see IF there is some moderation.  In the meantime the markets remain concerned about interest rates and their effect on a possible recession.  It’s looking more likely.

Not much is going to happen until after the midterm elections have been called and that may take weeks, if not longer.   I see us in a range bound market between 11230 (top) and 10093 (bottom) on the NASDAQ Composite Index.  Right now it seems that there is more potential to go down than up.  We’re going to need to see some light at the end of the tunnel before prices can break (and stay) higher.

Folks wonder why I nearly always show the Sector Strength table (below).  It’s important in performing a ‘Top Down Market Analysis’.  These are the sectors / industries that are performing best and that’s where we need to consider taking or holding positions.  The idea is to “fish where the fish are” and not to cast a broad net everywhere.  The bottom line is to minimize risk and try to put the “wind to our back”.  It’s a focused part of trend following in an attempt to follow the bigger, long term investors.

The Short Term Sector Strength table is shown below –

The week coming up will be interesting to see just how strong or weak the markets are as the election results and the fallout is relieved to us.  It’s a good time to be heavy in Cash IMHO.  Have a good week (and VOTE !).  …  Tom  …

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

Still Within a Down Trend October 15, 2022

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October 14, 2022 –  There really isn’t much new to discuss.  Overall, the environment has not changed.  These massive one day moves are generally started with Put options and short covering (up) followed by short term day traders piling on.  After the “evening out” of short positions stops, reality returns and we just come back down.

click on chart to enlarge

The hedging activity remains high, the big intuitions remain concerned about a 10% drop and are not taking chances right now.  What is driving this are rising interest rate fears driven by the FED who is driven by inflation data, and we got two doses of that in the past week.

Ask ourselves:

  • Has inflation shown signs of slowing?
  • Has the FED indicated stable or slower rate increases?
  • Has the market trend changed?

I’m answering ‘No’ to all of these right now.  But all is not gloom & doom.  The number of stocks making new lows is slowing (selling drying up ?).  Retail investors are flooding into Cash; looks like capitulation.  The market (in general) is “oversold”.  But . . . “Selling begets Selling (& Buying begets Buying), so if we see a sustained amount of selling, that could be the final ‘blow off low’.  Right now I’m holding a heavy position in Cash and trying to be patient because the market will turn.  I sure would like to see it put in a base over a month or more before any spring higher happens, but one must stay flexible.

Short Term Sector Strength table –

I note the previous market leaders are at the bottom.  One bright spot is BioTech, but that could be a short term blip; we’ll see. Have a Good Week.        ………..  Tom  ………..

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

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