A bull case for 3500 in S&P plus weekly review

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Not bad for 74 days, eh?

the source for this article is delta market investment newsletter Screen Shot 2019-04-13 at 11.10.57 AM

Delta continue : “For the market to return to its previous high, it will advance about 1.7% from current levels.  This is hardly a compelling upside story.  Is there a case to be made for the S&P 500 index to run materially higher than 2,940 in the next year?  The bullish price action of the stock market year-to-date suggests there is upside to consensus earnings and growth estimates.

One simple, time-tested rule of investing is the Rule of 20.  The Rule of 20 says the S&P 500 Price/Earnings (P/E) multiple equals 20 minus inflation.  The Federal Reserve currently measures inflation at 1.4%.  20 less 1.4 equals 18.6.  If we apply the 18.6 P/E multiple derived from the Rule of 20 to the consensus S&P 500 2020 earnings forecast of $187.42, we arrive at a price target of roughly 3,500 on the S&P 500 about one year from now.  That is 21% upside from current levels.”

IBD says this : “Leadership in the stock market is still centered on software, electronics, computer and chip sectors. They are showing no signs of weakness.”

Fidelity Weekly Ending Friday April 12th 2019barchart weekly Ending Friday April 12th

even for this week, except for health care and energy sector, all other sectors ended the week at the top of the trading range

Happy trading !

 

weekly stock market review as of Week ending Friday March 15th 2019

barchart sectors 5 days performance as of Closing Friday March 15th 2019Screen Shot 2019-03-18 at 12.54.55 PMfidelity end of 5 days as of Friday March 15th 2019

the top 5 sectors closed at the week’s highs. IWM – Russell 2000 ETF after last weeks red candle and down week has been picking up and again this week might test the 50 days Simple moving average (SMA).

according to IBD “The Nasdaq sprinted 0.8%, leading the market largely on strength in semiconductor stocks. The S&P 500 and Dow Jones Industrial Average each added 0.5%. The small-cap Russell 2000 rose nearly 0.3%. Volume rose sharply due to the simultaneous expiration of options and futures.”

IBD continues “During the week, leadership was broadly based. A dozen and a half groups scored weekly gains of 5% or better, according to preliminary data. They included medical stocks, retail, tobacco, semiconductors, computers, oil and transportation ships.

Note the variety: This is not a narrowly based uptrend, and that’s good news. Bulls prefer diversified leadership because it protects the indexes against one-off outcomes.

The S&P 500 index and Nasdaq composite recouped the prior week’s losses and hit their best levels of the current stock market rally, climbing 2.9% and 3.8%, respectively, for the week.”

Overall the market is in good health. Small caps are rising, and most importantly growth stocks are behaving extremely well.

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happy trading!!

 

Palo Alto Networks (PANW); Why price is the true north star

Palo Alto Networks is a super high flying stock. It is a sector leader, it is in IBD 20 big cap growth stock, and in the top 50 growth stocks in the USA.

It jumped on earnings 20 dollars on 2/25/2019. By yesterday by 4 trading days it lost about 20 dollars. Why?

there was no bad news, market was not overly selling away. So we do not know. But price does have all the info that we need to trade!

We do not know why sometimes. But what does that matter!

Cut your looses short and move on. I did that and sold on March 1st and went long on QLD. Why? because the market is in uptrend.

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Past one month Feb 2019

when market is topping and breaks down, then the top sectors and  top stocks begin to breakdown. The small stocks in Russell 2000 breaks down

But as of now this is not the case and it is the 10th week in a row the NASDAQ has gone up.

Russell 2000 just crossed the 200 days SMA. Now all indices are above their 200 days SMA!

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The BEAST has acted (and thus speaks)

  • NASDAQ about to breakout.
  • Conservative estimates 100-200 points imminent in the next few days.
  • UBNT Ubiquiti Networks. TWLO Twilio. TTD The Trade Desk. PAYC Paycom Software, Inc.  Leading growth stocks.

When a Godzilla or KingKong is moving and running, it is common sense not to second guess what you see.

There is a trading maxim i learnt a few years ago – trade what you see and not what you think. at present it looks like its going to take off! 2 days the KingKong the beast called NASDAQ closed above its 200 days Simple Moving average

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you see in the following charts – the first chart is OBV – On balance volume of QLD – DOUBLE NASDAQ 100 ..when on 10/04/2019 it was 53 million shares. Just yesterday we are 12 points below the close on 10/04 and we hit 53 million shares. Accumulation.

Secondly, look at the second chart of NQH19 futures contract. Incredible ascending triangle! Breakout imminent on NASDAQ.

other signs – Both S&P and DOW Jones have easily surpassed the 200 day SMA recently which just acted like token resistances (according to IBD)

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the behavior of the beast

In the mind, as in life, it is always 20-20 looking back (hindsight is always clearer). In Trading the philosophy of this blog is always 20-20.

the closing price itself is the most significant. Why? yesterday (again 20-20) is a prime example. NASDAQ opened 106 points down – around 1.4 %. went down 124 points compared to the previous day’s close (1.73%) but then closed at 7085 about 12 points higher than it opened. Look at the following 5 min chart. It is range bound and closed at upper part of the range.

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Now look at the chart below. It is S&P 500 Stocks Above 50-Day Average ($S5FI)

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on 1/22/2018 this very reliable portent dropped by more than 11%. that was a good scare. Now on that day (Tuesday, right after MLK holiday) NASDAQ dropped by 136 points (1.9%)

screen shot 2019-01-29 at 11.05.50 am

Now look at the behavior – both days. the charts indicate the behavior. on 1/22 clear down trend and 136 point drop and $S5FI dropped 11 + % points. that is why IBD said on 1/23 day end – “Stock market bulls breathed a sigh of relief Wednesday as Wall Street endured another whipsaw session.”

Yesterday though the drop was significant. the volume was lower compared to 1/25 (Friday). it was a range bound day and closed at upper end of the range. and $S5FI dropped by only 1.6 % points.

and also both yesterday and on 1/22 the volume fell on both NASDAQ and NYSE exchanges.

another good sign for NASDAQ is that the candles are bouncing above their 10 days SMA.

as a side-note : NASDAQ volume is about 2.4 billion and the dollar volume is 120 Billion daily!! Now we let the Big dogs like pension funds, and mutual funds and Quant automatic computerized trading, ETF managers, hedge funds play it out in the day.

We are concerned only with end of the day price and the behavior during the day and psychological important Moving averages like 50 Days and 200 days. Somehow this along with major support and resistances. It gives us great relief and mental rigor when we avoid the fight during the day. 

I am continuing to be in the market. Long QLD.

Happy trading !

 

 

market is still not out of woods

last week, the day after Christmas we have had the best one day show in about 10 years in the market. But it was not convincing, why? because there was so small rise in the number os stocks going above the 50 days SMA in S&P 500. On the big day it went up by 3.39 which is insignificant compared to the drops (look at the big red candle o Dec 4th – one day drop of 23%!!)

Screen Shot 2018-12-29 at 12.49.46 PMScreen Shot 2018-12-29 at 12.53.15 PM

also checking QLD – we see that on the same close at 12/20 the OBV was 56 million and on 12/26 the OBV was 53 million. this is divergence and hence the market is going to go down further.

on the COMP 6630 is the next resistance (weekly low on the week of Feb 5th 2018)

One positive thing is the DMSI – quoting them “The Delta Market Sentiment Indicator (MSI) declined to 7.5% this week.  The range on the Delta MSI is from 0% to 100%.  A 7.5% reading is very low and a sub-10% reading has only occurred during four periods (including this week) in the past 15 years (a longer history is shown this week instead of the usual 12 month review).  Historically, the stock market has shown strong performance over the next twelve months post a sub-10% reading.”