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Tough Call, but Markets are Weak September 28, 2019

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Sept. 27, 2019 –   No doubt about it, the news is driving this market and driving it hard.  Yes, the turmoil in Washington is significant, but perhaps more important is the loss of creditability of the administration in other areas such as trade and the economy.  There have been so many tweets and brief comments about China trade negotiations (that never panned out) that traders are beginning to doubt the comments coming out of the Trump administration.  (Are talks really starting again in October?)

Any way all we have to go on is price, volume and time and that’s where charts come into play.  We’re now back to a likely bearish trend with a possible low of 7643 on the NASDAQ Composite Index.  Momentum has all but dried up.  All one has to do is look at what sectors are strongest to see, that in the short term, playing defensive is in order.

(click on graphics to enlarge them)

I’ve been skeptical about this latest price structure for a month for reasons that I explain below.  The Price Action did not confirm the Price Movement.  Take a quick look at my explanation about Price Action and Trends and you’ll see what I mean.

Sector Strength is shown below –

What concerns me is that a desperate president might “pull a rabbit out of his hat” in the form of a quick China trade deal in order to look better.  The “deal” doesn’t have to be “good”, just bringing an end to the tariff war would be bullish for most US and World businesses.  So . . .  beware the news and a desperate administration that is looking to deflect from it’s own deeds.  At any sign of price weakness I will “hedge out” the light positions that I have in our portfolios (Cash is OK).  This is not the time to be brave, but discreate.

Have a Good Week.   ………….  Tom  …………..

Ideas About Market “Price Action and Trends” Sept. 2019
First, let’s look at an old definition of trends of both stocks and indexes. It can quickly be summed up as if the security is making higher Highs then it is in an “Up Trend”, but if it is making lower Lows it is in a “Down Trend”. A “High” or “Low” is typically defined as a swing high or low and not necessarily a bar price high or low. For the purpose of illustration on the chart below, the blue “zig-zag” line shows a closing price movement of 2% or more. This “zig-zag” helps to visualize the swing highs and lows of price action.
Confirmation of an up trend change would not be just a break of a previous swing high level, but also a swing low that was higher than the last swing low. The opposite holds for confirmation of a down trend. The advantage of this conformation is to filter out brief price level breaks during a period of congestion, or sideways movement. The disadvantage is a delay waiting for that confirmation.

The red lines on the chart above show points where a swing low (level) was broken/failed; the green lines show where a swing high (level) was broken/failed.
Next let’s take a look at an indicator (top window) that attempts to factor price and volume over a short period of time to confirm “price action strength” early in a price move. I put a filter of “3” on the indicator to show if the movement is in the “noise” level of price movement or if above 3, a potential significant move. You can probably guess that the red is bearish movement and the green line is bullish movement.
I note that in the cases where a price swing high or low price level was broken, the indicator confirmed it at or before that point, except for Sept. 5, 2019, where the bullish price strength was below the “3” level and therefore considered “noise”. Currently both the indicator and break of a swing low level indicate a “bearish” short term trend in the NASDAQ Composite Index.

Weak Markets in a Trading Range August 24, 2019

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Aug. 23, 2019 – First a short note:  I’ll be away from my office for the next 4 weeks.  In the past 5 years I haven’t missed a weekly report, but . .  that may happen over the next month.  Plus my posts will likely be rather short; so just a “heads up”.

Markets that are weak tend to react (or over react) to bad news, while strong markets usually ignore the news.  With just a few minutes of his time and one “tweet”, Trump can send the market down over 2%.  Bamb !  Not to get political, but this action shows just how on edge many investors are.  And, the algo computers continue to amplify any significant move.  This is a hard market to trade.  A look at the chart below shows the trading range that I believe we are in.  (click on the graphic to enlarge)

As a Wykoffian I’ve labeled the Buying Climax (bc), Selling Climax (sc), Automatic Rally (ar) and the Secondary Test (st).  The reaction at the top of the range on narrow bars and very light volume showed that there was no demand; i.e. no buying interest at that level.  Friday was a large bar down on heavy volume.  The next thing to watch is how this market acts around the 7643 level.  Do investors see this as a “buy the dips” opportunity or does the selling continue?

Again, we’ll analyze the spread of the daily bar and the volume behind it (effort = volume and ease = price action).  Effort with little Ease of Movement (price movement) tells us that buying (or selling) pressure is being absorbed and change is likely to happen next.  The other scenario is that we just continue to trade with little conviction between 8041 and 7643 until after Labor Day, or another piece of news crosses the wire.  In any case right now there is no clear trend in the near term.

Looking at the table below we note that defensive sectors are at the top of the list.  (note that these ranks are short term based)

I am holding a few stocks that so far are doing well compared to the general market, but also I have a light hedge on via being short the NASDAQ 100 & Small Cap Indexes.  I’m keeping an eye on a few mutual funds and will scale out to Cash if they show weakness relative to the overall market.  So far, they are doing OK.

That’s it for now.  Have a good week.       ……….  Tom  ……..

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

Yellow Flag – Caution July 20, 2019

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July 19, 2019 – First off, there are a couple of sensitive indicators that are showing caution and a possible down turn here (started on Friday).  Some are price based and a few are more general based on indications of weakness driven by a lack of continued buying.  In any case it’s not necessarily time to bail out or hedge, but a time to be more observant.  (click on chart to enlarge it)

IF price on the NASDAQ Composite Index closes below the low on Friday, I’ll consider putting my Index model into Cash.  If it continues to drop below the support level at 7915 I would consider putting on a “light hedge” for protection.  Further weakness would increase the hedge to protect the rest of the portfolio.  On the stock and ETF side I’m looking for signs of weakness, especially in reference to the broad market.  The idea is to detect Distribution of shares; i.e. liquidation / selling.  Price weakness on increasing volume is not a good sign.

A lack of buying (Accumulation) doesn’t necessarily mean selling, but it could lead into that.  I’ll watch the VIX Index, which shows the ratio of call volume to put volume.  If these option traders are getting concerned, that’s usually a good sign that I should be too.  The question is always just how far.  The bottom line is no one really knows until buying resumes.  Remember, prices only go higher if there are more buyers than sellers.  Buyers need to see the possibility of even higher prices to buy now.  Earnings continue next week and we’ll see what effects they will have on the overall market.  Microsoft was good; Netflix not so much.  So far, a mixed bag.  Momentum is slowing; that much is known.

Right now Technology, Consumer Goods and Banks are in the lead in the short term.

That’s about it for this week.  Yellow flag is flying . . . watch for Red.  Have a good week.  ……  Tom  ……

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

No Demand June 15, 2019

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June 14, 2019 – For those that are new to my blog, I update over the weekend (Saturday or Sunday).  I try not to miss a week, but if I’m on the road, postings will be a little briefer than “normal”.

OK, last week was interesting, especially the last 3 days.  Looking at the chart below I note very narrow bars that are in an unusually tight grouping.  This indicates that buyers equaled sellers; i.e. little net price movement.  That coupled with lower volume would indicate “No Demand”, at least in the short term.

It just looks like everyone is waiting for a sign to either go back to buying or to go back to selling.  Since so much of trading now is affected by computer algorithms it is interesting to see what the volume actually is when there is not a clear cut trend (up or down) or a “reversion to the mean” (over bought or over sold) condition.

Market Sentiment has improved as well as Volume Flow, but Money Flow remains negative and Price Strength neutral.  My more advanced market model is giving similar signals; lightly net positive but far from being fully committed to the Long side.  A close above 7965 would be a positive and a close below 7292 would be negative.  It just seems like there is to much uncertainty out there + it’s summer time to boot.

Looking at a longer term view of the pie charts of the percent of stocks in the “investable” S&P 1500 Index . . . . . .

% of stocks in Accumulation / Distribution :
% of stocks with Strong / Weak prices (past 20 days):

The A/D is about evenly balanced; a normally healthy sign.  The strong/weak is biased toward Strong to Neutral.  No major warning sign yet.  The sector analysis table shows a little different picture (IMHO).

I note the rise in more defensive sectors of Utilities, Real Estate and Healthcare.  Something to monitor as concerns about growth both in the US and worldwide seem to have investors on edge.  Broadcom (internet & cell phone parts supplier) estimated down their earnings due to the China tariff war and semiconductor companies are doing the same.  If Technology earnings fall flat in the second quarter (reporting in July) that would be a significant blow to the entire US market.

I am modestly long, but will take some “off the table” early next week if markets continue to weaken or cannot show a clear sign.   Have a good week.  ……..  Tom  ……..

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

Between a Rock and a Hard Place May 18, 2019

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May 17, 2019 – I was temped to title this “Between Iraq and China”, but decided to drop the idea of a pun.  This market continues to be majorly influenced by news.  To be bouncing between a trade war and a fighting war is not a recipe for a stable investing environment.  Nuff said.  But the real “Rock” is the 7645 level (green dashed line; price support) and the “Hard Place” is 7965 (red dashed line; price resistance); note chart below (NASDAQ Composite Index).

The indicators are mixed: Money & Volume Flow are negative, Price Strength positive and Sentiment negative.  I find it interesting that prices did stop near the 7645 area, that’s where the last “buying” occurred, and that was drawn in quite awhile ago.  The same for the 7965 level, where selling came into the market.  These are “weekly significant bars”; not true Wyckoff, but inspired by his work.  This is a fairly narrow range in between these levels so we won’t have to wait very long for something to happen.  I should point out that on an intraday basis, we should be on the lookout for a “shake out” if market makers try to do a “head fake” at either level and then head the other way.

The table below shows where the market is strongest in the short term.  Namely Telecom, Wireless, US Treasurer Bonds, Real Estate Utilities, etc.  The trend I see here is that these are generally speaking, defensive sectors.  Sure, Tech and Internet stocks have recovered, but so far they are not registering.  Note how low the Semiconductor sector ranks.  Major weakness continues in Latin America, China and Emerging Markets.

Currently I have a light hedge on portfolios as a defensive tactic, but that will come off if I see a strong close above 7965 & then go to Cash while I wait for an “all clear” signal.  Time to get ready for a possible break, the question is which way, but it seems most are thinking defensive right now.

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

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

A Minor Pause February 10, 2019

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Feb. 8, 2019 – This week we saw a minor pause in this steady advance; that is expected and overdue.  Though one may think of this as an Upthrust (of price) I really doubt it due to the lack of volume.  In fact the volume this past week was generally edging lower.  It just looks like any future buyers are just waiting.

This pause around the 7485 level (dashed green line) is a logically place to rest at.  An oscillation of prices between 6930 and 7485 would be rather “normal” if it comes to pass.  Everything else appears fairly positive for the time being.  One chart I found of interest was the amount of funds withdrawn from mutual funds in December (chart below).Once again the casual investor just does not like volatility and their market timing is pretty poor.  That withdrawn money represents “new money” that has potential for driving price up once it decides to come back in.  As the old saying goes “The market will continue to go higher until the last person buys it”, or something like that.  No doubt that we live in volatile times and the computer trading programs seem to amplify any move even more.

A quick look at the short term sector strength table below:

I’m trying to stay in the leaders by avoiding the lower (red) percentile sectors.  Again, this is short term so a fall from the top rank is not necessarily a terrible thing since it can be just a pause and the raw score may indicate a minor move anyway.  Not much else to say.  I remain very near fully invested with many stocks in those strong sectors.

Have a good week.     ………. Tom  ……….

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

At The Point (level) . . . . January 12, 2019

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Jan. 10, 2019 – The market (NASDAQ Composite Index) has risen to the level (6930) where we likely will see at least a pause if not a rejection on the move.  This is the level on a weekly time frame where we last saw selling / weakness come into the market.  The short name is price resistance.  It will either break through and go higher after a short pause or selling will enter and the price will retreat.  (OK, no kidding.)  So our attention has increased looking for signs.

One thing I note on the volume bars below the price bars is a steady drop off in volume.  I can make a case for “No Demand” and in that situation, without buyer, prices will fall back towards support.  The yellow Zig-Zag line paints that scenario  of a back and forth structure that stays in a trading range.  I think that’s what will happen.  If I’m wrong an the market takes off the dashed green line shows a break of resistance with prices headed back toward 7500.  We shouldn’t have to wait very long to see which story plays out.  In any case this market is being whipped around by news and fear; not a sign of strength.

The overall market of stocks in the S&P 1500 has improved.  Price Strength (below) shows most stocks moving above their 20 day moving average.  With a lot of green showing and very little red; bullish in the short run.

The pie chart of the same 1500 stocks paints a more cautious picture.  Fewer stocks are in the Accumulation phase (strong price AND volume).

I refer again to the volume coming into this market during the past couple of weeks.  Many investors will be watching for more participation before committing more funds and buying more stock; I think that’s what we’re seeing right now.  Wyckoff price structure would say that we’re in a base building / Re-Accumulation phase before going higher.  That can always change to a re-Distribution phase IF the market breaks below 6130 for any length on time, especially on high volume.  A “Constitutional Crisis” could provide that scenario.  And that is likely why the interest / volume is low right now . . .  wait & see.

I am “lightly long” right now, unwilling to jump back in with both feet.  Have a good week.   ……….  Tom  ……….

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

“Riding the Range”: in Congestion November 16, 2018

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Nov. 16, 2018 – I’ve talked before about the “need” to build a base if this market is to go higher; Wyckoff would call it “building a cause”.  That’s what appears to be the case right now.  A quick look below at the chart shows prices in a well defined “short term price channel” (purple lines) and that channel is nearly horizontal.  One thing to note is that causes don’t necessarily need to be perfectly straight horizontal to effectively build a base for re-accumulation and hence a move higher.

We’ve seen prices having a hard time breaking through the 7443 level (green line) and stalling out around the 7520 level.  Those define the top or resistance areas.  6880 defines the lower support level (red line) for the time being.

Earnings guidance for the coming quarters was mixed, some OK while others (notable Apple) are less optimistic.  This market was priced for continued “gang buster” profits and when those appeared to slow down so did this market.  The question is this market now “fairly priced” for slower growth?  Good question.  What will drive direction now is more news related since 3rd quarter earnings are now out of the way.  All eyes will be on the Fed and G20 meetings in December.  Interest rates and trade tariffs are making investors more nervous than at anytime in the last 3-4 years; this is new business and uncharted territory.

While we observe how the market interprets the news we’ll have to be on guard because the next significant move will come fast.  For now the table below shows sectors that are ranked by strength.  I note that the past leaders are down toward the bottom of the list and more defensive and consumer related at closer to the top.

I am “lightly long” here and cautious since a clear trend is not well defined at the moment.  Next week in the U.S. will be light due to the Thanksgiving holiday at the end of the week and trading volume will fall off significantly.  More than likely we’ll have to wait until December for any significant market moving news.

Wishing all in the U.S. a Happy Thanksgiving and everyone a good week.  Take Care.   ……….  Tom  ………..

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

2 Steps Forward and One Back November 10, 2018

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Nov. 9, 2018 – This market took “two steps forward and one back” this week.  I’ve got “that feeling” that we’re not out of the woods just yet.  While many are assuming a “V” shaped bottom and the only direction now is straight up I’m not nearly that confident.  The chart below shows Market Sentiment back to Bearish (top) and the Volume Flow is very anemic at best.  Sure Money Flow is Bullish and the green “strong price” bars are back coloring in the chart.

So what could be a problem?  Well for one thing, this sudden correction did a lot of damage as witnessed by the heavy volume on those nasty red bars.  Logic would tell us that after such heavy selling the markets need to consolidate / build a base before any resumption of an up trend.  Though the Short Term Trend Channel has been broken that’s only valid in the short term anyway, and we got that bounce higher.  Prices met resistance near the 7520 level (green dashed line) and that was a reflection of a “significant bar”; that is where buyers last came into this market.  We need to see closes above this level to validate buyers coming back.  Otherwise, we could be headed back to the 7443 level (dashed red line) and set up for that trading range / consolidation.

Consumer Goods, Healthcare and Wireless sectors continue to show strength; Financials and Banks are beginning to looks better too.  Tech had a short burst higher, but now looks tired.  The table below shows what the near term sector strength is:

Overall the stocks in the very broad S&P 1500 Index are improving with a improved split between Strong & Weak and those in Accumulation / Distribution.

Price Strength –   

Accumulation / Distribution –

I’m slowly and selectively re-entering this market with the aid of a cautious eye.  The price structure just does not provide me with enough confidence to jump in with both feet.  My main market model is slightly positive, but only slightly.  Maybe the coming week will shed some light on the next significant move . . . in either direction.

Note that this blog gets updated over the weekend with the data and perspective of Fridays close, so looking at it late in the week is just a little “stale”.  Don’t hesitate to make any comments, always happy to hear back.  Have a good week.        ………….. Tom ……….

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

Expecting a Bounce Higher, then . . . October 14, 2018

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Oct. 12, 2018 –  Well now, quite a week !  This was not a surprise but the speed that it unfolded was rather rapid to say the least.  With the number of “Algo Traders” (a.k.a. computers that trade without human intervention) we shouldn’t be surprised by how fast market can move now a days.  So what next?

We started to see potential issues with this market over a week ago when it struggled to make a new high; I’ve labeled that point “Failure” on the chart above.  All of the indicators on the chart are Bearish but let’s look at price levels.  Yes, we blew through the 7700 level and are now (possibly) stalling out in the 7443 area.  Friday had a good close, so it’s reasonable to expect a bounce higher soon.  Going back up to around 7700 would be a likely estimate for a bounce higher, and possibly all the way up to 7933 just to fake everybody out.

The real test will be what happens during that bounce.  Will sellers use that as an opportunity to sell into strength (watch volume), and then head back down again?  We won’t know until that shows itself but we shouldn’t have to wait long to find out.  My next (lowest) support level is 7205.  Folks are getting nervous about stocks being overvalued and the continued issue of high tariffs with China.  BTW, those 25% tariffs won’t click in until after the new year.  Will importers “front load” to beat them?  Watch for inventories and not shipping tonnage.

Sector wise there’s not anything worth talking about except for Rising Rates and perhaps Rising Dollar funds.  I’m still watching Latin America; it is volitile.  Right now I’ve cut back on stocks and have a fairly substantial hedge on the rest of the portfolios.  “Hedge” meaning short the Russell Small Cap index and the NASDAQ 100 Index.  Both small caps and technology got hammered; it’s the value thing again.

That’s all for now.  Have a good week.     …………  Tom  ………..

chart by MetaStock; used with permission

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