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Home Archive for category "Market Comments" (Page 49)
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What the Market Wants

With the announcement today from the Federal Reserve to purchase agency mortgage-backed securities and continue their current low interest rate policies (ZIRP) the S&P 500 Index gained over 1.6%.  This move pushed the SPX through the major resistance level of 1440.  This was a level where we saw a lot of tweets aggressively shorting.  In fact, 1440 has been mentioned so much over the last couple of weeks that we believe we’ll see a sizable short covering rally in the next few days or early next week.       If you were caught short today it’s important to remember that your beliefs aren’t as important as the market’s reaction. What you want isn’t important.  What the market wants is. Blair Jensen Nothing is more frustrating than building a market thesis, checking it against history and current market internals, placing your trade only to see it stopped out within a few days.  One thing I’ve learned from painful experience is that I can’t bend the market to my will.  So

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S&P 500 Stocks Above 200 DMA Promising

One of the things we look for in a healthy market is broad participation by many stocks.  Gauges like the Bullish Percent Index, the number of stocks making new 52 week highs, and the percentage of stocks above their 200 day moving average are all good indicators of market breadth. Recently the number of S&P 500 stocks above their 200 day moving average showed some promising signs.  In the chart above, notice that stock above their 200 DMA did not confirm the move higher in the S&P 500 Index coming out of the June lows.  From mid June till early August the chart traded sideways even though SPX was trending strongly upwards.  The early move in price was against a wall of worry where many stocks lagged the market as a whole.   The sideways movement in the number of stocks participating strongly in the rally stayed low as market participants bought quality or safe stocks rather than a broad number of securities.  It showed that people were still worried

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Market Overview 9/8/2012 – Cautiously Optimistic

Over the past week we saw improvement in almost all of the market health indicators that we track allowing us to move to a 100% long position in our hedging strategies.  Our measures of market quality improved slightly, market strength improved substantially, and our trend indicators finally confirmed.  Our measures of the economy turned positive, but are still on the weak side causing concern that the positive signal may not last long.  Our measures of risk remained positive, but flat, even as the market moved higher.       Positive Our Twitter sentiment indicator for the S&P 500 Index turned positive on a short term basis.  In fact, it had the highest reading to date on a daily basis.  This reading signified confirmation of the close on SPX above 1422.  Our smoothed sentiment indicator has strengthened over the past three weeks, but is still painting a series of lower highs for the entire rally out of the June lows. This comes as a result of many market participants tweeting over

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Double Top Broken

Three weeks ago amid the frenzy surrounding the bearish implications of the newly formed double top we posted that double tops are meaningless to intermediate term investors.  Our point was that trends tend to continue so a double top in an uptrend is broken to the up side much more often than price reversing and starting a new trend.  Price often stalls at previous price points and create opportunities for short term trades, but an intermediate or long term investor should use those dips to accumulate more shares. The price action today signaled a shift in expectations among market participants.  While most people were uncertain over the past month as evidenced by the sideways action in SPX, today showed some conviction buying.  This action in SPX and Nasdaq is encouraging for the bulls.  We still don’t have confirmation from DJIA or RUT but it should follow shortly if the market continues upward. We want to see the Russell 2000 confirm, but aren’t too concerned about the Dow Industrials.  The lag

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Value Stocks Serve as a Warning

A few weeks ago we highlighted Nasdaq new highs as one of the things that had us concerned that this up trend is in the late stages (rather than a new long term up trend off the June lows).  We like to watch several measures of market health to get a feel for where the S&P 500 Index or Nasdaq is headed next.  Another sign that we could be near the end of this up trend is the rotation to value stocks that started in April of this year. In the chart below we show Berkshire Hathaway (BRKB) as a proxy for value stocks compared to the S&P 500 Index (SPX).  Notice that the small sell off in April and the subsequent rally in May created a divergence between BRKB and SPX.  BRKB made new highs and SPX didn’t confirm.  The next leg down in SPX created a decent size correction, however, BRKB diverged again by not making a lower low.  This action showed money moving out of stocks in

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Russell 2000 Outperforming

At the end of July we posted our concern about the Russell 2000 not confirming the uptrend in the S&P 500 Index.  We mentioned that we’d like to see RUT close above 818.  Today we got that close.  We view the strength over the past two weeks in RUT vs. SPX as confirmation of the up trend.  Our view was helped by the reversal off the lows this morning by all of the major indexes.           Our Twitter Sentiment indicator for RUT (show in the top panel above) is also showing some encouraging signs as the smoothed indicator spent the last several days above zero.  It appears that smoothed sentiment is forming a higher high which is confirming the move in the index.  A few more days above 818 will add more evidence that we should be moving high enough on SPX to break out above the recent range.  For now it is one more thing making us comfortable with our 60% long exposure in our

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Market Overview 9/1/2012 – Wait and See

During the last few weeks while price on the S&P 500 Index consolidated we saw improvements in all of our indicators except for our Market Risk Indicator.  None of our indicators improved enough to change the position in our portfolio, leaving us at 60% net long. Positive Our economic indicators strengthened slightly this week.   They are still trying to create a bottom.  As we mentioned last week, previous attempts over the last 18 months have failed so we’re crossing our fingers that this time will be different. Measures of market quality are still positive and moving up a small amount.  Most of our market strength indicators are positive and improving significantly.  This makes us feel comfortable with our current positions going into September.   Mixed Our Twitter Sentiment indicator for the S&P 500 Index drifted lower all week as the market consolidated.  We prefer to see it strengthen during consolidations, but are encouraged that it isn’t deteriorating rapidly.  Our smoothed sentiment indicator still has a pattern of declining tops over

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Bullish Percent Index Mixed

As with many of the internal indicators for the market over the past several weeks the Bullish Percent Index of the S&P 500 Index is showing some indecision.  This index is one of our favorite broad market breadth indicators because it uses point and figure charts to determine if a stock is in an uptrend or down trend.  This method takes much of the ambiguity out of technical analysis. Currently the BPSPX is showing good strength as the market has rallied out of the June bottom.  It is increasing in value each week as more stocks enter up trends.  This is normal behavior for a sustainable rally that we’d like to see continue.  On a daily basis, the BPSPX has been trading sideways for the past several days, which is also normal for a healthy market that is consolidating.  We don’t want to see the daily turn down for any extended period of time.   One thing that concerns us is the negative divergence of the BPSPX with the value

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Market Overview 8/25/2012 – Slight Positve Bias

Twitter Sentiment, Support and Resistance August 24, 2012

This week we’re continuing to see a neutral market that is strengthening.  It is running into resistance at a previous top, but underlying conditions are strong enough to give us a slight positive bias.  We create our market views based on the health and strength of the current rally rather than on news and events.  We care about “how” the market reacts to news not the news itself, so we realize that we’re at odds with many other market prognosticators. We wholeheartedly agree with what most people think the market “should” be doing, but we’ve found that trying to force a market to our will isn’t a good investment strategy.  The news from Europe, tail risk of Israel vs. Iran, and stalling at resistance have us scared, but it hasn’t caused concern in the indicators we follow. Positive On the positive side we see our economic indicators trying to bottom.  Previous attempts to gain strength in our economic indicators since the beginning of 2011 have failed so we’re watching this

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Nasdaq New Highs and Lows a Concern

One thing that concerns us about the recent rally is the lack of new highs and the increasing amount of new lows.  If you look at the chart of the Nasdaq Composite below with its new highs in green and new lows in red you can see that all is not well with the index. We’re seeing negative divergences when we want to see confirmation of the rally.  An example of a positive divergence happened at the low made in early June.  As the market was breaking to new lows the number of stocks also hitting new lows was decreasing.  At the same time the number of stocks hitting new highs was increasing.  This was a positive divergence that gave hints that a good rally could follow.     Once the rally started the number of new highs and new lows on Nasdaq performed properly for a lasting rally.  Then we got a bad jobs report on 7/6/2012.  You can see in the chart the serious damage the jobs report

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