Market analysis weekend of May 12 2018
The way employed here is always reactive not predictive. We do not forecast we just react to the market. For 6 weeks it indicated to us to be out in the sidelines. We look at the major indexes at the end of the day for 10-25 mins and based on price and volume we see if we enter or exit.
Price is the only true North Star. Volume indicates the commitment by 100s of institutional buyers with total of billions of dollars to buy.
#1 and only priority is preserving our capital at all costs check our method how and why
Market is in rally and things are looking good but I will explain why we should still wait 1 more week or less
53.4% of stocks in S&P 500 are above their 100 day SMA (say there are 100 stocks in entire market 53 stocks are above their price averaged over their last 100 days) 1st chart
This week delta market sentiment turned bullish after 6 weeks of bearishness
The Nasdaq closed above its 50-day moving average for a sixth session in a row. The S&P 500 did the same for a third session in a row.
The Nasdaq needs only a 1.3% advance to bump up against the 7500 price level. But the S&P 500 needs a 2.7% gain to test the 2800 level.
Dow 25000 is quite nearby
Accumulation distribution (A rating is top and E ratings is bottom ) for S&P is still D
NYSE advance decline line has made a new high. Above chart 2 . But you see, only on May 9th on above average volume with solid volume increase did S&P clear the 50 day Simple moving average (SMA )
It’s good to be cautious and not jump in.. we need to let it play. All the indexes are close to the Previous all time high potential resistances. Things just began to look up and this coming week will let us know
Both the 50 day SMA and 7200 level has been a good resistance for Nasdaq (pic 2 below)
Last week The S&P 500 came to within 4 points of its 200-day moving average, currently around 2,609.
It has now at the end of the week an Accumulation and distribution scale of D. the worst in the scale of A-E is E.
Look at volume – above the last 15 days but it has not budged Thursday and serious plunge on Tuesday. On Friday despite the wonderful slaughter of analysts expectations by AMZN stock.. AMZN actually declined by the end of the day !!
Amazon and Intel staged ugly reversals.
Amazon gapped up 7.9% but then retreated to a 3.6% gain. Intel rose 5.1% and then erased everything to close with a 0.6% loss.
Next The rising 10-year rate is causing the yield curve to steepen. In the past week and a half, the spread between the 10-year and 2-year treasury rates increased by 32% from 0.41% to 0.54%. Investors have been worried about the flattening of the treasury yield curve and the potential for a yield curve inversion (2-year treasury rate greater than the 10-year rate). An inversion of the yield curve has been a reliable signal that the economy is approaching a recession. Investors have also been worried about rising interest rates. (Source of this para and below pic is Delta market sentiment )
Sidelined for now – the picture is getting uglier
Happy weekend from Seoul, South Korea
As observed on April 13th, 2660 is a critical test for S&P. It passed with flying colors on Monday and Tuesday April 16th and 17th. In fact April 17th was a solid gap up (when the market opens well above the previous days price )
Look at the volume of the entire stock market at the bottom of thr above picture. This is the most beautiful pertinent information. Why? This is the sum Total of all actions of the entire 100s of money managers and pension funds and hedge funds. When the market is falling the volume is going up – red lines and when price is rising the volume in blue is not that great.. this last week it went up 80 points and gave back 80 points. So the volatility is still high and it’s up and down
About 47-50 % of S&P stocks are below their 100 day SMA (say there are 100 stocks in entire market 50 stocks are below their price averaged over their last 100 days) – 2nd picture
On Friday the market S&P and NASDAQ price sliced below their 50 day SMA
S&P 500 is back to testing the 2660. It is just a few points above it.
7300 is now shaping up to be solid resistance for NASDAQ
FFTY the 50 top growth stocks – last picture is back down its 10 days SMA (growth stocks are first bought by institutions when the market is healthy).. if growth stocks are not braking out in high volume..the market is not healthy
In the side lines for now. Let it play through.
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howdy folks from Beijing !
On March 20th we had observed in one of the posts that “S&P 500 solidly gave up the 50 Day MA under a clear gap down . Very close to 2700 support The 2800 was a solid resistance. Time to get in sidelines ”
This week Tuesday’s powerful move was masked amid the higher volatility. The Nasdaq and S&P 500 printed price bars that were actually smaller than several others in the past many days.
The March 27 high was easily today in nasdaq
But the S&P 500 is at a critical March 27 and April 5 highs.
Both are below the 50 day SMA ..
2660 is a critical test for S&P (1st chart below ) the advance decline line for S&P is flattening .. volume for S&P has steadily backed off
7050 is critical support for nasdaq
Sidelines for now.. let it play out further
I have noticed a few good folk are starting to follow this blog. So i thought i should clarify in a simple way things i do
- price is the true north star. Everything is reflected in the price. all opinion, hundreds of money managers, their actions and inactions, pension funds, all research all knowledge is finally shown in the overall market price which is S&P index or NADAQ composite. SPY or QQQ ETF. Why is this important? then you don’t have to frantically look for news and CNBC or hot tips and can spend more time with family and friends and meditate and swim or hike a mountain.
- Profit is made by avoiding loss. Loss is defined as ATR – average trading range. any simple chart on yahoo finance you can plot ATR 20 days. First decide how much can you afford to lose. 1 ATR or 2 ATR and so on so forth. If you are wrong just exit. why is this important? Look at the chart below: say you are only willing to lose 8-9 percent of your equity.
why is this important : Consider the math. Say you buy a stock at 50. For whatever reason, it drops 8% to 46 during the next few days. You promptly unload it and move on. To reclaim that loss, you need to make an 8.7% gain on your next purchase with your remaining capital, which shouldn’t be hard to do.
this is our #1 Priority : preserve our capital at all costs. Sell first after a small loss of 8% and then ask questions later.
why ATR : ATR is a measure of volatility. Let the market move up or down which is its nature. that’s what it does. If volatility spikes then be in sidelines till things settle down.
3) If market is in correction stay in sidelines – 3 out of 4 stocks lose money in correction. If a market is in rally then buy top rated stocks breaking out.
When is a market in correction? when 8-9 days of high volume selling in the overall market within a month.
when is the market in rally? Top rated stocks are breaking out in high volume. the great paradox of investing is that the ripest buying opportunities occur right after bear markets when markets have declined 20% or more.
FFTY is the fund that has the 50 leading stocks in the market. Since Feb 17th 2016 techs have been dominant leading index. the purple line is the 50 day simple Moving average (SMA) and the red line is 200 day SMA. If the leading stocks are testing their 200 SMA. Time to get to the sidelines and watch (as indicated in previous post) The volatility has been crazy!
on Monday The Nasdaq composite up 3.3%; the Dow Jones industrial average soared 2.8% and the S&P 500 jumped 2.7%. a pure dead cat bounce!! because on Tuesday The Nasdaq composite plunged 2.9% and undercut Friday’s low. The S&P 500 slid 1.7% !!
Both indexes’ price ranges Tuesday exceeded the prior day’s — a bearish behavior that’s known as an outside day!
semiconductor, software, internet have taken much more pounding as the stock market sees its second intermediate-level correction unfold so far this year.
The Nasdaq 100 slid 1.1% and pierced the 6500 level for the first time since Feb. 8.
The biggest winners fall 1-1/2 to 2-1/2 times as much as the major indexes do. What does this mean? With the Nasdaq at 6949, down 9% from its 7637 all-time peak, expect some of the leaders to fall anywhere from 14% to 23% from their own 52-week or all-time peaks.
look at the S&P index – a very robust broad and key index
It is in hair’s breath of the most important indicator 200 day moving average. Why is this most important indicator ? mutual funds, hedge funds, pensions, sovereign wealth funds see this level at 200 day MA as the key level to buy or sell.
there is no buying now – look at the triple top in the second chart above. Stay in sidelines and watch
Source of some of this article : IBD