Dow Theory Says to BUY

After staving off early morning selling on Tuesday, the bulls followed through with a nice little day on Wednesday. As I have discussed, the NASDAQ 100 continues to bounce back and resume leadership. That’s an intermediate-term positive, especially if the index does not lead on the downside during the next pullback.

While the Dow was the only major index to score an all-time high on Wednesday, the Dow Theory crowd will point to the transports also hitting an all-time high. That’s considered a Dow Theory confirmation and portends higher prices ahead. In that regard, the bull market is alive and well.

Besides the good sector leadership, high yield bonds also seem to have ended their pullback. While they are not yet at new highs, their behavior is constructive.

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NASDAQ 100 Right on Schedule. Gold and Energy Opportunity

For the past month or so, I have focused much of my commentary on the NASDAQ 100 as it had been the far and away market leader before getting hit with the ugly stick from late May to early July. Late last week, things began to change and I saw the NASDAQ 100 looking a little better in the short-term. On Friday, the bulls, especially in tech and the NASDAQ 100 did step up with the anticipated bounce beginning. That’s continuing today and a good sign overall, even though there could be some more weakness ahead.

While I still do not see a full scale correction of 10% or anything close just yet, I do think stocks have settled or are settling into a trading range until at least later this quarter. For the nimble, rallies to the upper end of the range can be sold while declines to the lower end can be bought. As this is taking place, it will be important to watch which sectors lead and lag each tradeable move.

I have long mentioned energy finding a bottom at some point, but I wasn’t going to be brazen enough to pick it just yet. There is some evidence that the sector is hammering out at least a short-term low right here and now. That’s lining up with the gold stocks as well. And all that is without any large currency moves. Hmmmm…

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Slow Change in the Tide

As you know, the NASDAQ 100 and tech have been downright ugly overt the past 6 weeks. From leader and media darling, this huge sector, including the much vaunted FAANG stocks have been hit very hard although there hasn’t been significant technical damage done. I posted a few charts over the weeks showing a very defined trading range where a close outside the range would give the bulls or the bears the clear edge. Otherwise, a neutral stance was the easiest. I also forecast that a move below the May low would be the first sign to get me watching again for signs of leadership.

As you can see from an updated chart above, the NASDAQ 100 did a nice job of following the projected path I offered in light blue. However, it has yet to trade below the May low. Things continue to unfold without surprise and I still don’t believe the decline is over. One ray of sunshine in the very short-term has been the outperformance of the NASDAQ 100 and semis over the past few days. It’s not much for the bulls to latch on to, but it is a change in character, even if only for a few days.

Next week, I will be watching which index leads any bout of weakness. In a perfect world, I would want to see the NASDAQ 100 breach its May low but not lead the market lower. That would be very constructive.

As I wrap up this post, the June employment data just came out and exceeded expectations. For a while, I have believed that Q2 would look a lot better than Q1 and Q3 would be good as well. Not only did the economy create more than 200,000 new jobs, but there were significant upward revisions of the past few months. The only note of caution is that the U6 or “real” unemployment rate ticked up by .2%. I am not going to worry about a single data point, but it does bear watching over the coming months.

Remember, reality over rhetoric!

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Market Remains Uneven But No Big Decline Coming

I hope everyone had a festive July 4th holiday with family, friends, food and libations! Thanks to all those who have served to fight for and protect our freedom as the greatest nation on earth.

We pick up mid-week no different than on the holiday shortened Monday or last week. It’s a tale of two markets, the NASDAQ 100 and the rest of the major indices. On Monday, where I felt like one of the few who worked, the Dow scored an all-time high but was rejected into the close. None of the other major indices were that strong. The NASDAQ 100, however, was hit with the ugly stick once again, and the decline and period of underperformance continues. Apple in particular looks especially vulnerable to another wave of selling which could take it to visit the average price of the last 200 days near $130. Until better action is seen, selling rallies in this stock, sector and index are probably the best strategy.

Overall, stocks look like they are unevenly digesting and consolidating, biding their time for the next leg higher. I don’t think that happens right here, but I also do not see any decline of significance in front of us. While transports and banks have resumed leadership as I have mentioned several times, semis and discretionary are struggling, for now. I do not believe they have seen their bull market peaks yet, no matter how hard the bearish pundits scream otherwise. High yield bonds are settling into a trading range as well which also lends credence to my overall pause mode for the stock market. Participation remains strong.

Of note to close on, energy blasted higher on Monday, which should force some hands today as investors come back to work. At some point, the energy stocks will bottom and begin a huge rally. I just don’t think it’s right here. At the same time, defensive sectors like staples and utilities have been hit hard on prospects for additional rate hikes and a better economic climate.

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NASDAQ 100 Still Ugly

Those looking for volatility certainly got their wish this week as moves were seen Monday, Tuesday, Wednesday and Thursday. With Friday being the start of an unofficial four day weekend, I doubt there will be much action without a major news event. In Wednesday’s piece, I offered that stocks could bounce into the 4th holiday and then see some more downside, especially in the NASDAQ 100. Well, Thursday didn’t work out so well for that forecast!

At the open, all of the major stock market indices opened flat to a little higher except for the NASDAQ 100 which was hit by a wave of selling from 7am right through to 1pm. And it was UGLY! By the close, all of the indices had pared their losses somewhat, but there was still damage done. And as I mentioned the other day, it doesn’t appear to be all done.

On the good side, the NASDAQ 100, where the issue lies, reached my first downside objective by clearing out all of the sellers who congregated at or just below the June lows. The next stop should be the May low sometime in July.

Keep in mind that while the bears are loud and clear now about the lack of cash to propel the market higher and how everyone is “all in” and how tech looks like 2000, the bull market’s underpinnings remain very solid. Junk bonds continue to recover. The NYSE A/D Line is strong. Weakness should be bought until proven otherwise. The bull market ain’t over just yet!

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NASDAQ 100 to Bounce and then Fully Correct

As has been the case since the big “shock” day in the NASDAQ 100 on June 9, I have been a little cautious (neutral) on that index and more positive on the Dow and S&P as it looked like leadership was rotating. In healthy bull markets, this is normal and a good thing. The problem comes when leadership stops rotating into the more aggressive sectors and heads into the defensive ones like staples, utilities and REITs.

Tuesday saw follow through from Monday’s sharp reversal in the tech space, leaving a glaring and ugly day for the bulls to overcome in the NASDAQ 100. The same was not seen in the other major indices. With the NASDAQ 100 revisiting the June lows yet again, the bulls are going to be hard pressed to fend off sellers for long.

I think we can can generally see stocks bounce until after the 4th holiday, but then we could or should see the NASDAQ 100 and tech follow a path somewhat like I show below in light blue. There could be a stair step decline which will feel and look worse than I offer, but in the end, it will take the former leader below the first “shock” day in May. IF my scenario is even remotely correct, that should set the stage later in Q3 for the NASDAQ 100 and tech to resume leadership and soar beyond the June peak.

Regarding the other indices, I do not believe they will head higher with the NASDAQ 100 fully correcting, but I don’t believe there will be any decline of significance so soon. Keep a close eye on high yield bonds which have bounced back over the past few days. And don’t forget that the NYSE A/D Line hit yet another all-time high this week. Bull market don’t end this way regardless of what some of the idiots say publicly!

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Fakeout or Breakout

Friday saw the most constructive market action of the week with the little pullback seeming to come to an end. Early indications are that the bulls will continue moving stocks higher today. Starting with the NASDAQ 100, for now, until the June high or low is closed above or below respectively, I am going to remain in the neutral camp although I continue to believe that new highs will be eventually seen. It looks like the index’s leadership role has been diminished, again, for now. On the flip side, the Dow and S&P 500 continue to behave very well, however, the real story would be if the S&P 400 and Russell 2000 become leaders again. That could and should give the bull market another shot of energy to eclipse 22,000.

On the sector front, as technology has stumbled, industrials, healthcare, biotech, REITs, utilities and transports have all stepped up to pick up the slack. Without much of a decline, this kind of sector rotation is very healthy and usually portends higher prices for the major indices. Energy and energy related instruments are probably the biggest concern in the short-term with crude oil down to $43. I can easily make a case that sub $40 crude is right around the corner. That should further hurt high yield bonds, however, I do not believe we are seeing anything close to what happened in 2015 and early 2016. You should expect to hear cries of a global demand collapse putting the economic expansion in jeopardy. I totally dismiss that.

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Pretty Good Little Fight

It’s been 24 years since I moved out of New York City to the calm and quiet of CT. I love hearing nature at night in my pitch black bedroom instead of the horns and trucks driving down the avenues. I stayed in the city last night as I had an early conference for our custodian this morning at the NYSE and I wasn’t really interested in getting up at 4:30am to train in. Well, I forgot how loud the city is all night and I am operating on very little quality sleep. So, please excuse any typos, grammatical errors or just plain stupid comments.

Very quietly, the Dow and S&P 500 has been down three straight days. In this market, that could be accused of being a correction or even a bear market! While the S&P 400 and Russell 2000 have declined more, they look like they are in the very early stages of stepping up to lead. That would be a much welcomed development if it happens.

Meanwhile, the NASDAQ 100 is behaving in textbook fashion after the second “shock” day in a month. That index remains volatile but nowhere near so as two weeks ago. As the tech sector works through this consolidation, it’s interesting to note that essentially all trading activity has remained in that tall, red candle from the “shock” day as well as below the mid point of that day. Meanwhile, a very defined trading range has been established as you can see below. It’s tough to get really excited for the bulls or the bears until one end of the range is closed above or below. I do expect, however, that the ultimate resolution will be to the upside, regardless of what happens over the next month or two.

For the first time since March, my favorite canary in the coal mine, high yield bonds, is under pressure. While it would be very easy to dismiss this because of the collapse in energy prices, I usually don’t buy the whole “qualifier” argument. The energy sector has a significant percent of high yield bonds. Think about all those mid and small size U.S. energy companies drilling for oil in the shale. Many used debt to finance those operations and when oil goes down in price, their ability to profitably drill becomes an issues. If theses companies can’t drill profitably, their ability to service their debt gets called into question.

Anyway, junk bonds are falling and regardless of the reason, it’s a short-term cause for a little concern right here until they stabilize. If they continue lower, and some other pieces fall into place, I will have to reassess my intermediate-term forecast for stocks, but that’s putting the cart way before the horse. To counter the high yield bond concern, the NYSE A/D Line scored yet another fresh, all-time high this week.

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Seasonals Say No, But Bulls Say Yes

The major stock market indices closed last week on decent footing and should be poised for further gains with the Dow and S&P 500 seeing new highs first . Even the recently hit NASDAQ 100 hung in and remains above the line in the sand I drew last week. However, this week is a seasonally weak one as it’s the five days immediately following June option expiration. We’ll see how that plays out as pre-market indications show a higher open.

On the sector front, it remains the “bizarro” world with the opposites now in charge. As semis and discretionary ceded, the bears were all over this “collapse” in leadership. However, as has been the case so many times during this epic bull market, rumors of its demise have been greatly exaggerated! Transports, banks, healthcare and industrials are now leading stocks to Dow 23,000. High yield bonds are chugging along and there continues to be broad participation. Don’t overthink it. Buying the dips is the correct strategy.

FYI. I have received lots of emails regarding Amazon and should people buy it. My short answer is NO. I am not a fan at $1000 after seeing it rally more than 100% in 18 months. While it will ebb and flow with the NASDAQ 100, I think there are better risk/reward opportunities elsewhere.

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Bulls Still in Charge (as is Amazon!)

The major stock market indices put in a very constructive day on Thursday with stocks opening at their lows for the day and closing in the upper end of the range. The beaten down NASDAQ 100 saw the best behavior as it tries to repair itself from two unexpectedly large and volatile down days over the past month from all-time highs. One clue will be a weekly closing price for this index and the semiconductors near the high for the week. That won’t happen today. As long as the major indices and tech sector do not close at new June lows, the bulls have the ball, even if that means some sideways movement for a bit.

Leadership continues to rotate with the banks and financials really stepping up along with transports, industrials, REITs and healthcare. High yield and the NYSE A/D Line scored all-time highs this week. All of this gives me additional confidence that after this pullback ends, another leg to 22,000 is coming.

The big news of the day is Amazon’s proposed buyout of Whole Foods which is certainly a landscape changer. Amazon being the disruptor that it is getting into the grocery store business? That is not going to make Costco and Kroger’s and WalMart and Target very happy! It will be interesting to see what happens with the Blue Apron IPO. Who really wants to compete with Amazon? Look what WalMart did to its competitors!

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