The Markets ended up higher again today. The Dow was up +58 pts, the S&P +7, and the NASDAQ +21 and were up 3/4%, 1%, and 1% respectively. The volume was fairly light though. The NYSE traded 3.8 billion shares just before the market closed and the NASDAQ traded 1.5 billion shares. For a continued rally, we need increased buying ON expanding volume. Volume will be key next week so pay attention to volume.
From a technical perspective, many short term indicators have and are turning positive (these apply only to short term traders who watch the markets daily). The 14 Day Stochastic crossed above its 3 day moving average on both the NASDAQ and the NYSE.
Also, Selling Pressure is trending downward and the rate is increasing, while the Buying Power has remained somewhat strong as measured by Lowrys (see attached graph). The rate of change of the slope of the line (the 2nd derivative) is important. Notice Selling Pressure is going down at a steep angle while Buying Strength is turning upward also with a decent incline. These are both bullish signs. We need to pay close attention and watch for a reversal in the slopes of these lines. Selling Pressure and Buying Power are intermediate indicators measuring trends, and a change in directions of both Buying Strength and Selling Pressure will demonstrate the trend reversing and will give strong clues to the next bear market.
As I have stated before, earnings should be good, but after that, fundamentals of the global economy, deficits and debts of governments will begin to occupy peoples’ minds. The US Congress is already talking about another stimulus plan (because the all the prior stimulus packages or bailouts worked so well). This will not bode well for longer term bonds but will be good for gold.
Have a good weekend and keep studying,
Dan Stewart CFA®
Yesterday did qualify for a 90% Up Volume day on the NYSE, but narrowly missed on the NASDAQ. The NYSE had a 94% Up Volume day and the NASDAQ had a 88% Up Volume day. Overall volume (shares traded) was fairly strong, but on the 90% Up day, you would like to see more volume and definitely higher than the 30 day moving average. I said yesterday we would have to see if we get some follow through.
Well, we had another good day on Wall Street. The Dow was up +120 to 10,138, the S&P was up +10 to 1070, and the NASDAQ was up almost +16 to 2175. The Dow and the S&P were up around 1% and the NASDAQ around 3/4%. 10 Year Treasury yields went above 3% for the first time in a few months. Therefore, investors were moving out of bonds and into stocks. This is a bullish sign. We need to pay attention to see if this trend continues.
The economic story that sparked the market was that Initial Jobless Claims came in better than expected at 454,000 and the survey was for 460,000. Continuing claims also came in better than expected. However, the margin of error is quite large and the numbers are always revised later. Remember, companies are accelerating their earnings into this year so this earnings season over the next few weeks should be good. Therefore, we may get a sustainable rally.
The European markets were up across the board with their banks leading the way. However, after their markets closed, their Stress test came out and European banks need an additional 114 Billion dollars worth of Euros to recapitalize. Also, we feel their test were pretty mild and were not calibrated for a “black swan” event, but for a fairly mild contraction and regular economic slowdown. Anyway, it will be interesting to see how their markets react tomorrow to the additional capital needed.
Our strategy remains intact to watch the follow through of the markets closely and to lighten up when the momentum and buying volume subsides. This is called “fading the rally.” This is the most prudent move with all the overall global economic data coming out negative.
It is very important to pay close attention over the next few days to see if we continue to get a follow through in the markets. Volume will play an important role, so pay attention to the volume.
Keep studying,
Dan Stewart CFA®
What To Do Next…
Yesterday, it looked like it was going to be a good day with a strong market. Then the market sold off late morning and was down for most of the remainder of the day. With less than an hour left in trading, it staged a small rally and the major indices ended up marginally positive.
Seemed to be a good day on the surface. However, looking underneath at the market internals, tells a different story. The NYSE had a 61% Up Volume day, NASDAQ actually had a 52% Down Volume day. So even though the NASDAQ was up marginally, more than 1/2 of the NASDAQ stocks were down.
The broader markets were, in fact, down. Both the S&P Small Cap Index and the Russell 2000 Index were down almost 1 1/2%. As of last week, of all the S&P Industry sectors, 96% were below their 26 week moving average. The markets are extremely oversold as can also be demonstrated by both the 14 Day and 14 Week Stochastic momentum indicator. These are just a few of the many indicators with oversold readings.
Does this mean we will get a bounce, or is it an inflection point and we are entering into a bear market?
Well, today, we finally got a strong rally a good volume. In fact the market trended upwards without much pause throughout the day, and with less than a half hour left, we are approaching 5 billion shares on the NYSE. We blew through the support level we broke through last week at 1040 on the S&P and around 9770 (9800 rounded). I have attached a one day chart (today) of the Dow just going into the close so you can see the strong trend.
Currently, just before the close, the Dow is up almost 275 points, the S&P up 32, and the NASDAQ up 65. This translates into about a 3% gain give or take for all the major indices. The reading and analysis provided early tomorrow morning by Lowrys Research will almost certainly show a 90% Up Volume day on both the Dow and the NASDAQ.
What does this mean. It means you need to watch closely over the next few days and see if we get some follow through. We got our strong demand today that we needed. We still need to see some increase in demand/buying coupled with some good economic date or earnings (I wouldn’t count on good ecomonic data, but I would count on good earnings).
We will also get a “short squeeze” where all of the shorts are scrambling to cover their positions. This happened some at the end of the day today. I believe that is why you didn’t see the market trail off and pull back some late in the day.
The next few days might give you an opportunity to lighten up once the momentum loses steam. Again, I believe we will have a decent earnings season, but after that, most of data point in the negative direction.
You should be thinking about cash, short term bonds, or shorting. Get you plan of action ready in advance.
Keep studying,
Dan Stewart CFA®
The markets opened up strong with all three indices up strongly on good volume. Then late morning, two economic reports came out to dampen the early rally. The Institute of Supply Management (ISM) reported the service sector growth was slowing and Citi’s revised negative outlook on the retail sector sent stocks lower, especially retail stocks.
The markets sold off hovering around the breakeven and then remained negative for most the afternoon. A late day rally salvaged the day with the Dow ending up +57, the S&P up +5 1/2, and the NASDAQ up +2 on overall, decent daily volume.
With more economic data coming out, it looks more and more as if the double dip recession is coming. In the short term, we still have earnings season. And remember, with taxes going up next year, companies will accelerate earnings into this year. Therefore, we will probably have one more good Quarterly earnings season before the slowing economy will affect the bottom line of most companies.
Keep a close eye on your stocks over the next few days. Likewise, it is a good time to lighten up if you are overweighed in stocks.
Also, for those of you who missed out on gold earlier or are looking to increase you exposure, you may find another entry point very soon.
I have attached a graph of spot gold so you can see how it is hitting a bottom trend line.
These are my thoughts for today.
Keep studying,
Dan Stewart CFA®
Currently, the markets are marginally up, but we really need some buying on increased volume to get investor’s attention and a resumed interest in buying. The ADM Private Employment numbers came out this morning and were actually negative. The economist were looking for a positive number. We really need some good economic news to help jump start this market if we are to resume the rally. The problem, all of the economic data point to a slow down globally and a double dip recession.
If most of the G-20 nations actually follow through with their “austerity” plans (cuts), this will definitely cause a recession in the shorter term even though it is the right thing to do. We need to watch their actions to see if they actually cut, or keep spending. Their actions will determine which investments you will want to own.
Assets based upon a deflationary cycle, or assets based upon an inflationary cycle. Again, fundamentally, we are rate of growth is slowing and we are heading for a recession. By the way, so are most of the other industrialized nations. This is why I have a defensive posture.
Yesterday was the 3rd 90% Down Volume Day (90% down) in the past week and a half (we have had 90% Up Volume Days as well therefore extreme volatility). The NYSE had Down Volume of 98% and the NASDAQ 97%, therefore selling was intense. Volume was also heavy at 6.3 billion shares traded versus the 30 DMA of 5.8 billion on the NYSE, and 2.8 billion versus 2.4 billion 30 DMA on the NASDAQ.
Technically speaking, as I have stated before, historically after a 90% Down Volume Day, statistically you get a 2-7 day rally as sellers are exhausted and this is what “experts” call capitulation. Everyone who would sell has done so. That remains to be seen, but holding a fair amount of cash and bonds seems prudent. I do not agree with this statement, especially at turning points (I will explain further).
We may get another “leg” up and the market resumes its bull run. However, we are turning directions in the rate of growth and the expansion is reversing. Technical analysis works and works and works, until it doesn’t. When you get major reversals or inflection points in the markets, the same technical analysis may not work. This is why price and volume, in my opinion, work better than any technical analysis. By the way, all technical analysis is based upon price and/or volume. So if you can read price and volume, you are one step ahead of the game.
This is a very difficult market to navigate and it is better to error on the side of caution and be holding some cash.
Two other explanations of selling is “window dressing” at the end of the quarter and net redemptions both for mutual funds. Every sector in the S&P is down this quarter, and even “safe,” high dividend Utilities are down 5.4%, the rest of the sectors worse. Mutual funds are selling their losers at the end of the quarter so you don’t know or think they were holding the security. Net redemptions means people are asking for their money back and we are starting to see net outflows of the stock markets. This is bearish.
You need to remain diligent and cautious. A few stocks, a lot of cash, some bonds, gold & silver is how I am playing it at the current time. If selling volume follows through after yesterday, then I will take action. Selling is not, however, intense today.
Keep studying,
Dan Stewart CFA®
The US markets are following the overseas markets. The European markets are currently down around 3 1/2 to 4% and it is good to be short the European markets. The Asian markets were down less for the most part with the exception of Shanghai which was down significantly.
The risk over the holiday weekend, in my opinion, is significant. Consumer confidence just came out and dropped significantly over concerns about the viability of the Global recovery. Tensions in the Middle East are heating up quickly. The Saudis, with our consent, have given the Israelis use of their airspace so their planes can reach Iran. Hopefully, this will just be a bluff. Additionally, just yesterday, the United Nations announced an gasoline embargo against Iran. Although Iran has plenty of oil, they do not have any of their own refineries. They are dependent upon others for gasoline.
Therefore, risk is elevated so if I you are not a client and are not already holding a lot of cash and bonds, I would be raising cash. Currently, I am holding some US equities with a double short on Europe, along with bonds and cash.
If you have a large proportion of stocks, you probably have too much.
Dan Stewart CFA®
It has been a mild roller coaster day but the markets spent most of the day on the upside. The markets started off positive, then quickly sold off and went modestly negative. Then about 10:45 turned positive and bounced around above the neutral line in positive territory. They sold off with a few minutes left just before the close of the day on a an increase in volume. The DOW was flat, and the S&P & NASDAQ were down just marginally. The NYSE Volume was 4.5 billion shares traded slightly below its 30 day moving average of 4.9 billion.
On the economic front, consumer spending was up slightly (.2%) month over month in May, and personal income was up .4% in May. Therefore, people are savings some & paying down debts. Deleveraging is what we call it, our government should take notice and follow the regular people’s lead. The only negative economic news was the Dallas Fed Manufacturing Activity was estimated at 3% and came out way below at -4%.
Globally, the G-20 Industrialized Nations got together this weekend and decided they WERE going to be collectively “fiscally responsible and cut budgets while “ensuring the global recovery remains intact.” They are still planning stimulus plans, so how do you spend and cut at the same time? Doesn’t this mean you will really have to cut drastically to be able to spend more on stimulus yet have a lower budget or deficit?
In any event, most of the global markets took this feel good rhetoric in a positive light, and Europe was up across the board. Asia was mixed however. Shanghai & Australia were down approximately -2/3%, and Japan was down -1/2%. The rest of the Asian countries were up marginally.
If countries do actually follow through (which I doubt), then it will slow global growth, force us into recession and Japan will have no way to “grow” themselves out of their debt problem. They probably don’t anyway, but this would be the nail in the coffin I think. In Japan, investors were fleeing stocks and going to the Yen for safety.
The argument with market “experts” is whether we are entering into a bear market or a “consolidation” phase and heading for a new leg up. The Supply-Demand midterm picture for stocks looks positive, but this could quickly with more bad economic news. Holding bonds and cash, along with some stocks is still prudent. Also, many companies will recognize income/profit this year with the lower tax rates than next year when corporate tax rates will be higher. Therefore, corporate earnings will probably be fairly good although this will be short-lived.
One last comment, gold sold off $17.60 which would confirm people believe the G-20 Politicians will follow through with what they are saying, slow down the economies, and kill inflation. A few more days of this and we may get a great entry point for gold. I have attached a graph of spot gold and would love to see it pull back some more close to its bottom trend line. I have been eyeing a few different Gold funds backed by Physical gold. I will discuss more about this on Wednesday if I remember. That reminds me, I will be out of pocket tomorrow at an all day Bloomberg research seminar so there will not be an Investor’s Daily Briefing tomorrow, but I will send something Wednesday.
Keep studying,
Dan Stewart CFA®
The markets yesterday finished down fairly significantly and it looked like they would qualify for a 90% Down Volume Day. However, both the NYSE and the NASDAQ fell just short with the NYSE at 89.3% and the NASDAQ at 89.1%.
The market breadth was also negative with the decliners outpacing advancers by approximately 3 to 1 on both the NYSE and the NASDAQ. Volume on the NYSE was 4.9 billion shares, well below its 30 day moving average of 5.8 billion. Likewise the NASDAQ was below its 30 DMA of 2.3 billion coming in at 2 billion shares traded.
This was the 4th straight down day and I am glad I am holding a lot of cash and bonds. Important to watch are selling pressure and buying strength. It looks like selling pressure is beginning to pick up momentum. If we don’t get a offsetting increase in buying strength or selling keeps increasing, it would be bearish for the markets.
I have attached a graph of the proprietary chart from the technical analysis firm of Lowrys, the most respected and decorated technical firm in the world. They have many trademarked indicators and methodologies they use which are extremely reliable. Their Selling Pressure and Buying Power is one of their most reliable indicators I have yet found.
I will explain in a later blog the background math to this chart, but suffice it to say, it measures the supply and demand for stocks on the NYSE. See for yourself and see if you think buying strength is “rolling over” and/or selling pressure is “increasing.” Both would be bearish signs.
You want the Selling Pressure to be sloping downward and the Buying Power to be sloping upward. The slope or direction is paramount, but also important is the “rate of change” of the slope of the line or how “vertical” the line is. The more vertical, the faster it is changing and the more you have to pay attention.
Today, the market reversed and ended on a positive note. The Dow was flat, and the S&P and NASDAQ were both up almost 1/3%. Volume, which has been very light compared to the 30 day moving average, increased significantly and was well above their 30 DMA on both the NYSE and the NASDAQ.
The revised GDP numbers came out during the day at 2.7%, below the 3% estimate. This put further doubts about the global recovery and Asia and Europe were both down. Our markets were also down but then our consumer confidence numbers came out positive and the markets turned around.
Investors are beginning to feel more trepidation about all the spending, debt, and economic problems the bailouts or stimulus didn’t solve. On the commodity front, oil spiked because of bad weather and the threat of hurricanes in the Gulf is going to shut down all the rigs soon. There are still tension in the Middle East so keep an eye on the price of oil.
Keep studying,
Dan Stewart CFA®
As I stated yesterday, Tuesday’s down market qualified for a 90% Down Volume day. Statistically, a 90% Down day is usually followed by a 2 to 7 day rally. This is usually due to bargain hunters entering the market, technical traders looking at oversold indicators, and short covering, However, yesterday, Wednesday, was essentially flat and Tuesday’s selling wasn’t enough to entice people pick up their buying.
Today, the Dow was down 145 points to 10,152, breaking through the important support level of 10,186. The S&P was down 18 points to 1073 also breaking through support of 1089. Additionally, the NASDAQ was down 36 to 2217 staying below its 200 day moving average.
The European markets were down significantly with Spain down over 3% and Italy & France down over 2%. The Asian markets were mixed, either marginally up or down. Shanghai was the worst down almost 1%.
The Fundamentals of our economy and the world economy is slowing. Therefore, the bailouts, excuse me, the stimulus didn’t work and create a sustained growth economy. People are worried about economic contagion from Europe and China is having troubles of her own.
Tomorrow, I will be watching very diligently to see if selling accelerates and buying dries up, or we get a bounce. The fundamental shift I have been speaking and writing about may come sooner than we think.
I have attached a graph of the Baltic Dry Index, which is a very good indicator of global economic activity and a good indication of growth expectations going forward. I have attached a long term chart and a short term chart so you can overlay and compare to the indices. Notice the near vertical decline over the past month.
Again, the next few days will give us a very good indication of the trend to come. Until we get some better clarification, I will continue to hold a lot of bonds, cash, and some stocks. Incidentally, I am short European stocks.
Keep studying,
Dan Stewart CFA®
Yesterday, the markets tried to respond to Monday’s failed rally. But again, in the afternoon the markets sold off. Yesterday qualified for a 90% Down day on the NYSE with 90.7% Down Volume. The NASDAQ, however, did not qualify and Down Volume was only 70%. Overall volume on the NYSE was 4.6 billion shares, below the 30 DMA of 5.9 billion.
All of the major indices are very close to support levels we must pay close attention too. For the Dow it is 10,186, the S&P 1089, & the NASDAQ 2242. Currently the Dow closed today at 10,298, the S&P 1092, & the NASDAQ 2254. The volume on the NYSE was 5.2 billion shares and picked up from the past few days.
The good news is the markets were resilient with the bad economic news coming out, namely the FED being cautious about the recovery and economic growth, and US home sales declining.
All of the technical indicators show the markets as being oversold and we should get a nice rally. However, the fundamentals are getting worse. Therefore, there is a tug of war and that is why I am holding some cash and not fully invested. Also, if I have to raise more cash, I will.
Now is the time to be diligent, watch closely, and let the markets show us which way the longer trend is going to be.
Keep studying,
Dan Stewart CFA®
