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.
Ps: a blog on my travels
DMZ zone North Korea
The stock market does not like uncertainty. Uncertainty is a component of how the stock market discounts future earnings back to a price today. The discount rate is the denominator of the equation. Just as 1/10 is a smaller number than 1/5, stock prices are lower as uncertainty rises.
Whether we look at the relative performance of stock market components based on exposure to foreign trade or the CBOE Volatility Index (VIX), it is evident stock investor anxiety is on the rise. How concerned should we be?
We look to the credit market to see if lenders are also feeling anxious. The debt market is substantially larger than the stock market and often provides a more reliable and leading indicator of broad investor sentiment. Specifically, we monitor the high-yield spread. If the differential between junk-debt interest rates and treasury rates is 5% or greater and rising, we get worried about the stock market
Currently, the high yield spread is about 3.6%. 3.6% is down from about 3.8% a month ago and 4.1% a year ago. If the bond market were the British Government, it would be telling us to “keep calm and carry on.” (source : delta market sentiment )
Having said that – based on our trading philosophy – the price is the true north star
on Monday March 19th 2018 market fell very badly
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
5 days of stalling and no progress
2 days of high volume selling
100 points loss in 2 days in high volume
Top leaders down in high volume
( first photo source : trading view )
FFTY etf a proxy for top 50 beat stocks in the market down by 2%
I would like to thank Helga Sweeney and Alex for their observations on “pesky charts”
what about supply and demand for NASDAQ? or for that matter DOW and S&P ?
Before i answer that – lets look at some basic fundamental traits in the charts for 2017 and till now 2018
what did the pundits say – This is a valid dictum – Do opposite what the pundits say and you will be alright !!
look at what IBD said “Since 1963, the S&P 500 delivered 19 years in which it rallied more than 15%. But each year following those big gains averaged a more modest 7.5% advance.” and “investment strategists and fund managers expect more modest stock price gains in 2018.”
I respect IBD a lot; In fact the big picture column is fantastic and is a daily read for me to gauge the “Big Money flow”- which is nothing but this : How is the price performing wrt the volume on a daily basis. How are leading stocks like YY, AMZN and others performing? For we know that with first signs of big selling the leading stocks lose first and then the volume increases to overall stock market as it falls.
NASDAQ’s number of distributions days (high volume selling) is just 1 in the last 30 days and It is up 7.3 % till Jan 22nd 2018! we haven’t even finished one month yet!
The S&P 500’s 2017 return was more than double the big-cap bogey’s 8.50% average annual gain over the past 10 years. The Nasdaq composite index shot up 29.64% and the DOW jones gained 25.08%!
Only once in the lasts 25 YEARS the S&P is up more than 6 % in Jan (1997 – 6.7%). the S&P just hit 6.00 % just yesterday !!
the delta market sentiment indicator is approaching 74% (74 % of around 2500 stocks are above they mid term moving average)
the leading economic indicators (LEI) is healthily positive last one year
the stock market is healthy and going strong with no head winds at all
For the first time since almost 30 years – the entire world is seeing +positive grown for 12 months!
Of the top ten largest corporations in the world in 2009, only one was a technology company – Microsoft. Today, seven of the ten largest companies worldwide are technology companies including Apple, Google/Alphabet, Microsoft, Facebook, Amazon, Alibaba and Tencent. The shift to a technology dominated economy provides a boost to earnings growth rates.
Over a fifth of the S&P 500 is represented by the technology sector. Consensus revenue growth for the technology sector in 2018 is 9.4% which should drive 35% earnings growth. In the past month, the revenue growth forecast was revised up from 8.7% to the current 9.4%.
The earnings per share for the MSCI AC World Index (ACWI) is above $30. In the U.S., the S&P 500 consensus earnings estimate is expected to advance by about 11% year-over-year on revenue growth of about 5% off of record levels reached in 2017.
If the P/E remains constant as it has for the past two years, the S&P 500 should be up in-line with earnings or about 11%.
Source : Delta market sentiment