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A Softer Market May 15, 2020

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May 15, 2020 – The markets were down lightly this week. I’m seeing some increasing volume coming in on down bars. Now that doesn’t mean that we’re headed for a correction, it just indicates softening for the time being. I continue to watch other market breath indicators for weakness. IF they appear & confirm I’ll move to a more defensive position.

It seems that everyone has been so conditioned to “buy the dips” for the past (many) years that it will take a significant issue to break that habit. Jerome Power of the FED had an effect on the market, but so far not that much has become of it.

A follow up on last weeks commentary about how just a few (primarily tech) stocks have driven the indexes higher. Here’s another perspective on it courtesy of Goldman Sachs.

The darker line plots the average of the top 5 tech stocks in the S&P 500 Index, while the lighter line plots the remaining 495 stocks. Since Tech has been in the lead now for quite sometime it is important to watch the top 5 for signs of weakness. Tech is a “crowded trade” and then it starts to turn sour watch out. The rest of the market will follow.

click on chart to enlarge

As you can see we just touched the lower channel trend line so things are intact for now. I’ve move my warning level up to 8705; that’s the first line of support.

The major technology sectors remain high on the short term sector strength list. With everything being so focused in that area I’m getting more concerned that the markets are venerable. I’ve cut back some exposure in that group.

That’s it for now. Take Care & have a good week. ……. Tom …….

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

Tale of Two Markets May 9, 2020

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May 8, 2020 – There is a fair amount of speculation that we are looong overdue for at least a modest correction. Last week I showed two possible scenarios. So why haven’t these played out? Well the chart below pretty much answers that question:

click to enlarge chart

The result, especially this week, is that “the market” is being lead higher by Technology stocks and the large cap stocks really haven’t moved all that much (note dashed arrows).

Two things I’ve read this week:  new account openings are at a high at retail on-line brokers & the number of shares (outstanding) for the SPY ETF has decreased significantly over the last 2 weeks.   Now . . . . I’m not drawing conclusions, but one has to wonder if this rally is being fueled by “stay at home” amateurs and that the SPY ETF is in redemption.   (note: search for redemption / creation of ETF’s for more information). Hummmm. I am watching market breath very closely for signs that the big guys are selling.  So far no, but the Up/Down volume is getting “light”.

click on chart to enlarge

I note that “money Flow” has turned lower, but other than that the NASDAQ Composite Index (the super set of the top 100) is holding up well. I’ll keep my support & resistance levels where they are. I remain concerned that stocks are venerable to bad news, either on the virus side or earnings side.

The short term sector strength table is shown below –

We see Tech sectors at or near the top and also Energy. With oil demand low and supply high I’d be very careful with that sector right now. Small positions & short term only (IMHO). I’m “passing” on it.

I’m “dancing close to the door” in case “the parties over”. That about it for now. Have a good week. ………… Tom …………

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

Next Week Will Be Important April 25, 2020

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April 24, 2020 – Taking a quick look below; well . . not much happened this week. Most indexes are bouncing near resistance levels which are approximately at the 50% retracement level of this correction. Next week is important in that the big 4 of technology (Google, Facebook, Microsoft and Amazon will be reporting. What is of interest going forward is their “guideline”.

click on chart to enlarge

From above I note that “Price Strength” has gone neutral, but the remaining indicators are still positive / bullish. My more “advanced” model (not shown) is bullish, but backed off to a “neutral” reading. So, time to watch for a trend change . . . maybe.

The table below shows short term sector strength. But note: I would avoid “Energy” due to the excessive volatility in the oil market. ETF’s in this sector may not be able to track the underline commodity.

Not much else to say right now. But be aware of this resistance level and watch for a significant break in either direction. I am lightly invested, but will add more if this trend continues.

Have a good week. …….. Tom ………

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

The FED Jumps in with Both Feet April 11, 2020

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April 9, 2020 – Thursday was an important day, not because the market went higher but because of why it did. Accentually the FED announced that it would start buying corporate bonds at par value. This has not happened before; the FED has only purchased US Treasury bonds . . until now. What is implied by this action is that the FED will do “whatever it takes” to prevent a major bankruptcy. The market is also reading into this statement that junk bonds and ETF’s are now provided instant liquidity & a parachute if needed.

Obviously this is bullish news and the market reacted as such. So, next week will be interesting to see IF there is any follow through to the upside or if it is a “one & done” type of move. (editorial: for the Conservatives out there . . is this corporate welfare and “socialism”?)

The other implied statement is that the impact of the virus has a much deeper impact on the economy and the lives of our citizens than many originally thought. Yes . . . it is serious, very serious.

NASDAQ Composite Index

This could be an Up Thrust in the price structure (we’ll know that soon) or truly a genuine move higher. The closes above 7878 are telling. But I continue to be wary of at retest of the lows and the potential for a “double bottom”. The market reaction to Trump’s announcement next Tuesday about reopening the economy may just be a catalyst for the next move in either direction.

The pie charts below do show just how broad and strong this latest move has been to the stocks in the very broad S&P 1500 Index.

Percent of Stocks in Accumulation or Distribution:

Percent of Stocks Above / Below their 20 day Moving Average:

The short term sector strength table is shown below:

Banks, Financial and Real Estate reacted very strongly to the FED announcement (i.e. we won’t let you fail).

That about it for this week. MY main market model just turned back to Neutral, but I may wait until after the Tuesday announcement & reaction before I remove my hedge and consider small selective buys. Careful now !

Have a good week and Happy Easter for those to celebrate the holiday. In the mean time, Take Care & Be Safe. ………. Tom ………

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

Volitility Continues, No Clear Direction March 29, 2020

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March 27, 2020 – Sorry about being late last week.  The post was completed but only in Draft form.  It took until mid-week before I found that out.  I’m now back to using the “classical editor” and should happen again (I hope).

Yes, back to volatile up and down swings.  Each move seems to begin with news, then gets amplified by computer algos.  And so it goes, back and forth.  I’ve laid out two possible scenarios.  The first is “bullish” and is shown via dashed green line.  The logic is the NASDAQ Composite Index retreats back to roughly a 7194 “mid point”, then rallies higher nexy week.  This puts in a “higher low” price swing, which is positive.  The “bearish” version is shown with a dashed red line.  It just continues back to the previous low.  At that point it just oscillates between Resistance & Support areas or, worse yet, heads even lower.

It all depends on virus and corporate news.  Which in this environment is not a surprise.  The markets are weak and nervous, and just about anything will send them off in any direction.  No value in trying to predict but knowing key price patterns can help decipher overall directions; if only for the short term.

The table below tries to show short term sector strength.  Though it’s hard to read too much into these right now.  (Who would have thought Utilities / Defensive would be right near Semiconductors – Aggressive?)

That’s about it for now.  I’m trying to avoid jumping into things too quickly, but also trying to remain optimistic as well.  Have a good week.   ……….  Tom  ………

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

The Three Scenarios March 7, 2020

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March 6, 2020 – Another volatile week in the world markets.  But the question is always, “What Next?”  Right now there are 3 scenarios / possibilities.

1) Could we just rally from here go back up?  Sure, but not likely.  There has been a lot of damage done; a lot of money has been pulled out of the markets.  Just look at the volume on down bars.  2) Could we fall down even further?  Again, that’s possible and it all depends on news and the revenue streams coming into companies.  Thus, a time to be extra careful and watching price and volume.

3) Could we just remain in a trading range going back and forth with blips in the headlines?  In my opinion that’s the most likely direction; bouncing between 9070 at the top end and 8438 at the low end.

It looks like the markets are building a base / in consolidation.  But then again . .  it all depends on how badly business are feeling the virus effects on their revenue stream.  The virus scare impacts both supply of goods (manufacturing) and demand (will consumers buy?).  The virus effects on people is terrible and unfortunate, but one thing is fairly certain: the markets will recover.  The only question is when.  I’m watching for the results on consumer confidence & company revenue guidance for clues.  If there is a close below 8264, then more downside is likely.

The pie charts below tell the story of how the sell off has effected the stocks in the broad S&P 1500 index.

% in Accumulation / Distribution –% Price Strength –

BTW, what stocks were considered “Strong” in the S&P 1500 Index?  Only six.  Those six below –

The table below paints a lot of red as far as short term sector strength is concerned:

I am heavy in Cash with the remaining mutual fund holding completely hedged.  Have a good week and try to be patient.  Likely this is not going to get resolved soon or quickly.   …  Tom  …

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

Wait For It ! February 29, 2020

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Feb. 28, 2020 –  The British (I’m told) have a saying:  “Wait for it!”.  And now it’s all about being patient.  This week was significant in many ways, but if we’re temped to “buy the dip” we might want to be extra cautious even though that has worked well in the past +3 years.  You see . .  it’s all about the perception of earnings growth, which is derived from revenue.  If demand remains high and supplies are disrupted (i.e. China), revenue falls.  If supplies are good (high), but demand for products and services drop (low consumer confidence), well . .  revenue drops.

The corona virus has many folks in both the product and service sectors very concerned.  Even with the “bullish bar” on Friday, that doesn’t necessarily mean that the worst is over.  Markets don’t go up in a straight line, nor do they go down in a straight line (assuming this is not a “dip”).

As you can see the drop started on Monday and just continued all week.  Volume was significantly high as investors sold and computer amplified the selling automatically.  Now I’m looking at 8438 as support and 8943 as resistance levels on the NASDQ Composite Index.

How bad was this drop?  On the S&P 500 blue chip index, you would have to go back to Oct. 10, 2019 to find the same price level.  Every gain in between was wiped out.  You could also go as far back as Sept. 20, 2018 (a year and a half ago) to see nearly the same level.  When things like this happen I like to go back and see if there was any clear signs of an impending drop.  The chart below stood out to me.

The indicator is the Cumulative Volume indicator which measures volume of Up bars to the volume of Down bars.  (click on chart to enlarge)  The gray line is the closing price of the S&P 500 Index.  Note that all during the month of February while the S&P made new highs, the indicator was falling.  For all 500 stocks, there was more volume on down bars that up bars; an indication of Distribution (selling).  Only a few big names were propelling the index higher.

I could post a table on sectors, but in all reality the only one doing well was Treasury Bonds.  A flight to safety.  Even Gold and Gold Miners began to fall by mid week.  So now what?  “Wait for It !”.

There are too many things going on to assume the all clear.  This is a news driven market, so watching how markets react to news will give a clue.  Remember: “Weak markets react badly to bad news, while strong markets ignore it”.  Watching the bar strength (price and volume) will confirm that folks are trying to return.  I’d expect a small rally around mid week.  If that holds, maybe we start to consolidate prices within a low range for a few weeks while the true impact of this virus is felt. Maybe in a few weeks we’ll see a rebound, or if bad news continues we could see a resumption of lower prices.  At this point, it’s all about revenue and what corporations project for the future.  This is NOT the garden variety “buy the dip” situation.  Too much damage has been done.  It will take a while to recover.

I put on a light hedge a week ago Friday, then added to it last Monday.  Through the week I just had to sell stocks and ETF’s.  I am now pretty much “Cash Neutral” with hedges, holding only a few good mutual funds.  I took some losses, but managed to dodge most of it.   Have a good week and keep your powder dry !   🙂    …………  Tom  ………..

Price chart by MetaStock  & TC 2000.  Used with permission.

Buy the Dip ? (or not) February 22, 2020

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Feb. 21, 2020 – The S&P 500 lost 1.25% for the week, which is not very dramatic since it’s had such a terrific run up over the past 6 weeks.  The rate of increase is really not sustainable so this downward “correction” is not a surprise.  These “corrections” have typically been where buyers begin to step back in for the anticipated run higher.  At some point, this will not happen.  Then things get interesting in that, does panic set in or just a wait and see type of back and forth consolidation.  In the long term, earnings (or the hope of increased earnings) drive the market.  What effects the Corona Virus has on Chinese and World economic growth is still TBD, but market makers will anticipate the direction no matter which way it goes.

The 9493 level on the NASDAQ Composite Index (red line) is where some concern begins to get generated.  (click on chart to enlarge)  It is the low of a previous important up bar and it is at the low end of the price channel (purple lines).  The earnings guidance from some tech companies (like Apple) have been muted, and thus the growth rate is a cause of near term concern.  So far the volume has increased on down bars, but not to an alarming level.  Money Flow remains neutral and the Price Strength indicator has come off of a “Strong” level.  Time to be extra watchful next week.

No surprise that Gold & Silver have risen along with other more defensive sectors.  The ranking in this table is sensitive and short term, so it can turn quickly in either directions.  But in any case it may be time to take some money off the table.  As of Friday, I backed off to being 50% Long, and will put a hedge on early next week IF the weakness continues.

Like anything else, whatever went up quickly seems to fall back quickly. Time to be careful and nimble.   Have a good week.        ………. Tom  ………..

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

Continuation Higher . . . For Now February 16, 2020

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Feb. 14, 2020 –  This will be short because there’s really not much to add from the previous 2 weeks; this market just continues higher.  Regardless of the reason / cause, it just continues . . . . until it doesn’t.  (tongue in check comment)

As shown in the above chart, prices continue to hug the upper trend channel.  That’s a little concerning because of the potential of being “over bought”.  All indicators confirm a continuation, so we must abide and be invested, at least for the time being. (click on chart to enlarge)  I have moved the support level up to 9493 on the NASDAQ Composite Index.  That would be the level where things start to peak my attention of a possible change; but until then.

Sector strength is relatively unchanged.  Technology related sectors continue to do well, but Real Estate has moved up too.

That’s about it for this week.  Continuing on, but be watchful of a change of character in this market.  When it does happen, it will happen quickly.   …………..  Tom  ……………..

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

Climbing The Wall February 8, 2020

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Feb. 7, 2020 – This market continues to “Climb the Wall of Worry” and keeps on going.  We’re half way through earnings season and so far its been pretty good, though a number of companies have given weaker guidance going forward.  Market Sentiment (chart below) has returned to positive, but Money Flow remains negative.  I’ve labeled the current price formation a possible Up Thrust.  This occurs at new highs with narrow bars (buying = selling) and light volume (decreasing demand)(click on chart to enlarged it for easier viewing)

Nothing is chiseled in stone so we’ll have to wait but this does indicate a reluctance to push higher in the immediate / short term.  The news will likely be a catalyst should any significant move up or down occur; trader are nervous.  Also I’ve moved the support level up to 9123 on the NASDAQ Composite Index.

Other than that, the table of short term sector strength is shown below.  Of note is the recent strength in the BioTech sector, likely driven by the Corona Virus scare.  The next couple of week will be a critical time for the virus.  It will either show signs of containment, or not.  The infection rate is pretty high right now.

Now much else to say.  I am “lightly long” mostly because it’s getting harder to find good stocks to buy.  This is born out by the fact that fewer and fewer stocks are driving the market indexes higher.  The majority are being left behind.  I’ll post a chart on that next week to illustrate the point.  Until then, have a good week.   …..  Tom  …..

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

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