Another Good Day for the Bulls

After a number of short-term victories for the bulls over the past week, the Dow Industrials and Dow Transports scored new all-time highs together, triggering a Dow Theory confirmation or buy signal on Wednesday. While the Dow Industrials were the lone major stock market index to see fresh highs so far, I expect the S&P 500 to follow suit shortly. The S&P 400 and Russell 2000 should not be far behind which would add even more credence to my forecast of limited downside. However, I still do not believe that stocks are ready just yet to blast off on another leg higher. As the NASDAQ 100 repairs itself, I think the stock market remains in a trading range which will eventually be fully resolved to the upside.

Participation in the rally remains very, very broad and strong no matter what you hear differently from the pundits. These are the same pundits who were negative after BREXIT and the election last year and continue to scream about a major decline or bear market starting. The chart below says it all. The NYSE A/D Line is once again at all-time highs. While it’s not 100% perfect, this indicator rarely looks so strong as a bull market is ending. When I say “rarely”, I believe it has only failed once in the modern era. In any case, with high yield bonds stepping up again and the other evidence I continue to point out, buying weakness is the correct strategy until proven otherwise.

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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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Semis & NASDAQ 100 at Odds

On Tuesday, the Semiconductor Index as well as its ETF counterparts hit new lows for 2015. This is important for two main reasons. First, historically, as go the semis, so goes the NASDAQ. And as goes the NASDAQ, so goes the broad stock market. It is an intermediate to long-term concern that the semis are more than just struggling. Bull moves typically do not continue without support from the semis.

sox

Below you can see the NASDAQ 100 which is anything but struggling right now. While it has pulled back to the top of the previous trading range from April through June, the index hasn’t done anything wrong technically to warrant specific concern. As you know, however, I have been concerned about the stock market in general for several months.

qqq

This divergence between the semis and the NASDAQ 100 is not likely to continue. The odds favor the NASDAQ 100 losing its grip, at least in the short-term, and following the semis lower.

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Apple’s Good Earnings Impacting Market

Earlier this week, Apple released a very solid earnings report beating analysts estimates on the top and bottom line, meaning the company had more revenue and profits than forecast. On the surface that should be a good thing and intuitively, you would think a boon to the stock. Apple opened at fresh all-time highs on Tuesday only to sell off immediately and close in the lower end of its daily range.

 
aapl

Data miners have uncovered a solid trend that when the NASDAQ 100 is at or near new yearly highs when Apple reports, it becomes a selling opportunity for  both the stock and NASDAQ 100 index over the short-term. This further supports what I have written about for several weeks that the short-term is somewhat murky for stocks, but the intermediate and long-term remain solid.

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Don’t Count the Bulls Out to Begin 2015

Welcome to 2015! Wishing you and your family a very Happy, Healthy, Safe and Peaceful New Year!

Stocks finished 2014 with a whimper rather than a bang as the lack of liquidity allowed sellers to move prices sharply lower on Wednesday. The last two days of December have become somewhat of a headwind lately, but that weakness is supposed to be reversed next week. As bullish as I was over the past few weeks on the small cap Russell 2000, the trend is now to own the S&P 500 and Nasdaq 100 to begin the year. It’s also the time when the cheap, beaten down stocks from 2014 are supposed to get a bid and see higher prices over the coming 1-2 weeks.

I am sure the bears will come in to 2015 all fired up having won the battle on Wednesday, but I suggest caution in getting too negative too quickly. The time for that should come multiple times this year and possibly as soon as the next  few weeks, just not right now. The first week of so of the New Year usually sees some crosscurrents not limited to the previous year’s leaders being laggards and vice versa. I am focused squarely on the energy sector for signs that trend is taking shape. Crude oil looks like it can bounce to begin 2015, but it doesn’t yet exhibit signs of THE bottom just yet.

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