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Break out or “Over Throw” ? August 8, 2020

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Aug. 7, 2020 – Last last week the markets (NASDAQ shown below) broke above their multi-week horizontal price consolidation / price channel. Now the question is whether it is a breakout higher or just a price “over throw” above the upper channel (purple lines), with the price coming back within the channel?

My feeling is that it is an “over throw” of the channel and prices will come back down within the channel. The support for this logic is that volume did not increase on Friday with the close well above the upper channel; folks were not in a hurry to buy. So early next week will tell us. A correction back to the 10412 level is likely, especially with the news over the weekend. Support is at the 9663 level. Breaking that (on a close) would be cause for concern. But, overall, the chart below looks very positive.

click to enlarge

Sector Strength remains strongest in the “Tech” sectors and small(er) cap stocks. (table below).

Not much else to contemplate except how the markets will react to the stand off in Washington. I just got that feeling that the markets (in the US) can’t go much higher without some form of social stimulus package. (the response to the virus has not been handled well at all)

That’s it for now. ……………….. Tom ……………….

Still . . Horizontal August 1, 2020

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July 31, 2020 – For the past month (+ 4 weeks) this market has gone basically nowhere . . . . in a horizontal channel (purple line below). With all of the news, both good and bad, still no defined trend.

click to enlarge chart

Volume has not been unusually high or low, so trying to find a hint of a demand signature is tough. Is this re-Accumulation or Distribution? Right now it just appears to be a consolidation of recent gains. Technology earnings are great, but what about the entire economy where Gross Domestic Product feel by over 30% last quarter? There is more than enough “bad news” to spook the market, but with liquidity (i.e. easy money) available at near 0% for big banks what is there not to like? At the first sign of the FED cutting back on loans, that will be the hour of reckoning.

I see “structure” in the lower half of market breath indicators giving me concern that only a few names are holding the market indexes higher. It just seems that things are great for a few big companies, but that good feeling does not go very far down the list. I keep thinking an international exposure may be a good idea, but nothing has developed just yet.

In the means time we just have to invest in what we have & what we see. I’m only about 50% invested and the rest in Cash. I’d love to buy more, but putting all money in just a few similar sectors is not a good risk control method. I feel like it’s a version of Musical Chairs. And when the music stops . . . Here’s a table of short term sector strength:

Not much more to say except be watchful of the leaders and signs of them “falling out of bed”. Take Care and have a good week. … Tom …

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

Steady but Weakening July 25, 2020

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July 24, 2020 – From the chart below we see that the broad NASDAQ Composite Index is in a horizontal trading range (purple channel limes). Not much really happened last week.

click on chart to enlarge it

The trend channel is nearly horizontal, Money Flow is OK / Bullish but Sentiment, Volume Flow and Price Strength are now Neutral. This market is “treading water” waiting for something (likely news of a stimulus package); it may have to wait longer . . . it’s the Senate.

Price Strength of stocks in the S&P 1500 Index (pie chart below) look fairly neutral / healthy with a reasonable amount in all three categories. Looks pretty strong.

But . . . what is not very evident is the underlying sector rotation (at least in the short term). The Technology sectors that have lead the entire market higher are now falling back.

Noting that Precious Metals, Basic Materials & Utilities moving higher in the rank with Tech falling near the bottom is not a sign of overall market strength. I’m finding very few stocks to even consider to purchase; on Fridays close there were none.

This could be a good time to “buy some insurance” just in case the market reacts to some bad news. Coming up next week is the continuing saga of the next stimulus package, a Fed meeting and big cap Tech earnings; watch for guidance going forward. Then there is the virus and China. These continue to put a drag on the economy. “What could go wrong?” I’m getting more and more cautious.

That’s about it for this week. Take Care. ………… Tom ………….

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

Beginning of the Summer Doldrums” ? July 18, 2020

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July 17, 2020 – This will be short because not much has changed over the past week. Markets seem to be stuck at previous highs with little movement in either direction. Small investors are breaking records buying Call options (a ‘bet’ to go higher) and they love ‘penny stocks’ (very low priced stocks). Market breath is meandering back and forth and mixed signals abound.

click on chart to enlarge

So what to do? Right now, not much. Without a clear trend in either direction I just stay put. I do have a “light hedge” on as insurance, but nothing significant just yet. The table below shows that investors are taking a step back from Technology sectors. The NetFlix earnings report was a disappointment, as was Wells Fargo. So it is a mixed bag. It just seems that there is a lack of confidence to drive prices higher, but nothing firm to wave the red flag either.

What concerns me just a little is the defensive nature of some of these sectors. Looks like money is being parked for the summer, but that could sure change quickly with any breaking news item. News sensitive markets are not strong markets and this market just seems to be waiting.

Have a good week and stay safe. ……. Tom …….

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

Market Remains at a Crossroad July 3, 2020

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July 2, 2020 – This will be short since it’s a holiday weekend in the US.

My “Bearish Indicator” (Cumulative Up/Dow Volume) almost went Bearish last week; very, very close, then recovered a bit. In the chart below we see the Money Flow is Bearish but the remaining ones are still positive / Bullish. So be it.

click to enlarge chart

I’ve moved important price support levels up as shown. The low volume this week is not unusual since it was a shortened holiday in the US, so I’m not reading much into that. Thursday (last day) was a weak bar, so Monday and all of next week may be interesting.

I’m seeing the market leadership narrow right now. The indexes are primarily being driven by the large cap technology issues and the rest of the stocks are just in a holding pattern. Shown below is pie charts representing the 1500 stocks in the very broad S&P 1500 Index. (sections are % of total)

Price Strength (20 day) –

Those in Accumulation / Distribution –

Note how the green areas are shrinking compared to the red. Smaller number of stocks are leading; usually a Bearish sign. Caution.

Short Term Sector Strength –

Strength continues in the technology sectors. At this point I remain concerned but invested. Bad news will effect this market and that could happen very quickly.

For those in the US, Happy 4th of July. To all . . . have a good week. … Tom …

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

Market Neutral, but Could Change Quickly June 27, 2020

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June 26, 2020 – This will be an unusual posting, in that I’ll cover a few extra market indicators that I look at. But first the market as shown via the NASDAQ Composite Index below.

click to enlarge

You can see that the broader market has not gone very far over the past 3 weeks. The upward momentum has definitely slowed way down and indicators are either neutral or negative. The overall question is this a pause within an up trend or the beginning of a correction? And IF it is a correction, how far down will it go? Actually, no one really knows the answer to either question. I am watch the price levels shown for support.

I’ve labeled a possible Buying Climax (bc?) and and an UpThrust (UT?) on the chart. What should really draw our attention is the big volume on Friday . . much larger than the Friday before (which was caused by option expiration). High volume = High activity, and a down bar would indicate more selling than buying. So even though my main model is “Neutral” (cash) I did put on a small hedge via an inverse ETF. I can always increase or close it out.

But here’s what else concerns me: What is going on in the broader market breath indicators. I’ll only give you a quick explanation, but if you study these, you’ll see what I mean.

Cumulative Up/Down Volume –

click to enlarge

The S&P 500 is shown in the background as a white line for reference. I look for breaks above or below the channel, then confirmation them the following day above / below the signal bar. The lower indicator helps to draw attention to a possible signal.

McClellan Summation Index –

click to enlarge

Same basic principle. A break of an envelope with confirmation. For those interested, you can “Google” these indicators for more information. The idea is to develop an early warning system to detect when the risk is increasing and money is moving out of the market. The “Smart Money” will typically sell into rising prices / a rally, and not wait for things to get weak and prices begin to soften.

The third confirming indicator is the VIX. It is basically a ratio of put to call options volume. Options are the cheapest & quickest way for traders to hedge out their positions and “buy insurance” when they begin to get concerned. It looks like the easy money is done for the time being.

I should note that none of these indicate how far prices will go, just that things are getting “soft”, and extra caution is warranted. Onward to sectors.

Of note above is the decline in Technology sectors and the rise of Treasury Bonds and Precious Metals. It’s early, but things appear to be getting more defensive.

That’s it for this week. Have a good and safe 4th of July (USA readers) and continue being safe with this virus. It’s NOT over. … Tom …

Price charts by MetaStock & TC2000/Warden Brothers; table by http://www.HighGrowthStock.com. Used with permission.

“Steady as She Goes” June 20, 2020

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June 19, 2020 -There are many things that could trip up this market, but (apparently) many very positive things as well. I can’t help feeling that looking only at a market index will only tell us part of the story, especially going forward. What I’m saying is that this will likely turn out to be a “stock pickers market”. But also a specialized sector market as well. Likely not every company stock will do well over the coming year or so. We’re going to need to be selective.

That said I’ve recently broadened my ETF candidate list significantly to not just cover the major sectors but to drill down deeper. I do note that any instrument that I trade must be “liquid”, that is, have sufficient daily volume / activity to absorb both buy & sell orders so that the spread between the Bid & Ask price is reasonable. With trading costs extremely low this makes sense, especially in an IRA type of account where there is no short term tax consideration.

click to enlarge chart

The chart above shows a continuation of the current move. Still within the up sloping channel (purple lines), though it looks like the “bullishness” has subsided recently. This market is not “cheap” if you look at the overall price to earnings it is rather expensive. The true test with begin in mid July & August when the second quarter earnings start to come in. Then we should see what effects the virus & shut down have actually had on earnings. I doubt if many will escape some level of reduced revenue and hence profits. A late summer slump could likely be in the offing. By then we should have a handle on an virus up tick as well. BTW, the volume spike on Friday is the result of options expiring & settling up; nothing unusual.

So, I remain cautious and extra mindful of money flow in the market breath indicators for signs of Distribution. So far, so good, but it does look like the major buying is behind us. I note in the chart above that the near term support price has been moved higher to follow price action.

Short term sector strength looks like this-

We see a number of Technology sectors up there along with a resurgence of BioTech and China. If you want to maximize sector rotation you can drill down even more and see what is the best sub-sector. Case in point is Software within Technology. Just a suggestion.

So . . . . that’s about it for now. “Steady as She Goes” but be aware of ice bergs. There are a few of those out there Captain. 🙂 Have a good week. …… Tom ……

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

Market Neutral (for now) June 13, 2020

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June 12, 2020 – OK, an interesting week. What we knew going into the week was that the market was “over bought”, both technically (gap up and too far, too fast), plus fundamentally (valuations, earnings & revenues) are excessive in the historical context. The bottom line is there was too much money chasing stocks prices higher for . . . . . what reason?

The two big contributors are the FED with easy money . . . . . it’s got to go somewhere with companies not investing in themselves right now. The other is a very unusual phenomena of a big surge of retail investors. The surge is likely driven by the “stay a home” virus situation. Need money? Trade at home; it’s easy. The recipe for a bubble ready to burst.

So now what? My model is near the Neutral point, and will likely confirm that with a close below the low on Thursday. (9560 level)

Click on Chart to Enlarge

From the chart above (click on it to enlarge) we see the top indicators remain positive / bullish. The bar color is neutral (a warning). The low price pretty much held at the 9560 level, well at least for now. On the plus side I note the volume has been dropping off. Two observations: one, a sign of No Demand (lack of buying) but there is not a major rush for the exits. At least not yet. We’re still in the “Buy the Dips” mode apparently.

IF we get a major news item, such as the number of virus cases sky rocketing or similar, the correction could just be starting. Time to have a plan to exit IF need be. I have lightened up positions that were showing weak relative strength to the market and I’m ready to get more liquid as needed.

One thing I noticed, is the number of “Put” options being bought, likely as a hedge, increased significantly on Wednesday afternoon and Thursday morning. At the Friday close some of that had unwound, but remains relatively high. Looks like the “Pros” are not taking any chances.

Short Term Sector Strength is shown below.

I note the number of International sectors that are holding up. Perhaps a rotation or maybe just diversifying. We’ll see it that holds into next week.

That’s about it for now. Don’t rush, but keep 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.

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.

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