Dow Bumps 29000
The following is an excerpt from this week’s ‘Weekly Market Letter’ from Market Edge (www.marketedge.com).
| Investors shrugged off the spat between Iran and the US and continued to pile into equities this week. An overnight 400-point drop in the DJ Futures on Tuesday after Iran took aim at US bases in Iraq was bought at Wednesday’s open and the DJIA jumped 373.22 points (+1.3%) over a two-day period as tensions failed to escalate. The major averages rallied to new all-time highs and the DJIA briefly crossed 29,000 on Friday before traders took some profits. Big cap technology names fed investor appetite for risk and the FANG stocks outpaced the broader market with Apple Inc (AAPL), Alphabet (GOOGL) and Facebook (FB) all up about 5% for the week. Communication Services (XLC), Technology (XLK) and Healthcare (XLV) outperformed, while Energy (XLE) and Materials (XLB) lagged. Crude oil prices and gold backed off recent highs. Gold briefly traded at $1573 on heightened Mideast tensions, its highest level since 2013. The bulls went into the weekend looking winded after a volatile week, but the major averages finished the period at or just below record highs. For the period, the DJIA snapped back from the previous week’s loss to post a gain of 188.89 points (+0.7%) and settled at 28823.77. The S&P 500 picked up 30.50 points (+0.9%) ending at 3265.35. The NASDAQ outperformed and extended its weekly win streak to five jumping 158.09 points (+1.8%) finishing at 9178.86, while the small cap Russell 2000 was lower for a third consecutive week losing 3.23 points (-0.2%) and closed at 1657.64.
Market Outlook:The technical condition of the market was little changed during the week but remained bullish as every dip was bought and the DJIA, S&P 500, NASDAQ and NASDAQ 100 all recorded new all-time highs. Negative divergence in the small cap Russell 2000 continues to flash a warning, but the technical indicators for the different indexes remain bullish but overbought. Fast stochastics for the big three indexes were in the high 90’s on Friday. In addition, the 14-day RSI for the NASDAQ was at its highest level since January 2018, which triggered a sell-off. Finally, the S&P 500 was +9.6% above its 200-day moving average (MA) this week which historically has led to a pullback. Internal breadth is positive and the NYSE Advance/Decline line, a leading indicator of market direction, made another new high on Thursday. The advance in the NASDAQ Advance/Decline line though has slowed significantly showing less participation in the upside. New 52-week highs on the NYSE and NASDAQ expanded during the week which is a bullish indicator. Lastly, Sentiment shows investors are too bullish and complacent. That doesn’t necessarily signal a market top but does indicate the market is getting ahead of itself. Cyclical Trend Index (CTI): The underlying premise of the CTI is that the market, as measured by the Dow Jones Industrial Average (DJIA), tends to move in cycles that often resemble sine waves. There are five identifiable cycles, each with different time durations at work in the market at all times. Presently the CTI is Negative at -3, unchanged from the previous week. The counts for Cycles A, C and D are bullish while the counts for Cycles B and E are bearish. The CTI is expected to remain in negative ground through January. Momentum Index (MI): The market’s momentum is measured by comparing the strength or weakness of several broad market indexes to the DJIA. Readings of -4 and lower are regarded as bearish since it is an indication that a majority of the broader based market indexes are weaker than the DJIA on a percentage basis. Conversely, readings of +4 or higher are regarded as bullish. The Momentum Index is Neutral at +3, up two notches from the previous week. Breadth was positive at the NYSE as the Advance/Decline line added 553 units while the number of new 52-week highs out did the new lows on all five days. Breadth was also positive at the NASDAQ as the A/D line gained 591 units while the number of new highs beat the new lows on each day. Finally, the percentage of stocks above their 50-day moving average fell to 68.3% vs. 72.5% the previous week, while those above their 200-day moving average eased to 70.5% vs. 71.7%. Readings above 70.0% denote an overbought condition, while below 20% is bullish. Sentiment Index (SI): Measuring the market’s Bullish or Bearish sentiment is important when attempting to determine the market’s future direction. Market Edge tracks thirteen technical indicators listed below that measure excessive bullish or bearish sentiment conditions prevalent in the market. In addition, we track money flows into and out of Equity Funds and ETFs which as of 1/08/20 shows outflows of $9.2 billion. Currently, the Sentiment Index is Negative at -5, down a notch from the previous week. Market Posture: Based on the status of the Market Edge, market timing models, the ‘Market Posture’ is Bearish as of the week ending 1/03/2020 (DJIA – 28634.88). For a closer look at the technical indicators and studies that make up the market timing models, check out the tables located below. Industry Group Rankings : What’s Hot (61) – What’s Not (30). Of the 91 Industry Groups that we track, 61 are rated as either Strong or Improving while 30 are regarded as Weak or Deteriorating. The previous week’s totals were 80-11. The following are the strongest and weakest groups for the period ending 1/09/20. Strongest: Advertising, Semiconductors & Related, Pharmaceuticals and Medical/Bio Technology. Weakest: Media-Publishing, Household Products (Non-Durable), Real Estate Investments and Savings & Loans. To review all of the Industry Group Rankings, click on the Industries tab. ETF Center: The top performing ETF categories for the week ending 1/09/20 were: Sector-Internet (+3.37%, Sector-Technology (+2.47%), Growth-Large Cap (+1.86%), Sector-Alternative Energy (+1.57%) and Sector-Healthcare (+1.51%). The weakest categories were: Commodity-Energy (-2.77%), Sector-Energy (-1.71%), Sector-Basic Materials (-1.45%), Commodity-Blend (-1.40%) and Bond-Government Long Term (-1.05%). To review all the categories in the Market Edge universe, click on the ETFs tab. Calendar of Technical Events:
**The above listed technical events occurred for the DIA on the date indicated. DIA is the ETF for the Dow Jones Industrial Average (DJIA). Market Posture
|
|||||||||||||||||||||||||||||||||||||||||||||||||||
| Market Timing Models | Current Reading | Prior Week | Connotation | ||||||||||||||||||||||||||||||||||||||||||||||||
| Cyclical Trend Index (CTI): | -3 | -1 | Negative | ||||||||||||||||||||||||||||||||||||||||||||||||
| Momentum Index: | 3 | 1 | Neutral | ||||||||||||||||||||||||||||||||||||||||||||||||
| Sentiment Index: | -5 | -4 | Negative | ||||||||||||||||||||||||||||||||||||||||||||||||
| Strength Index – DJIA (DIA): | 53.3 | 60.0 | Positive | ||||||||||||||||||||||||||||||||||||||||||||||||
| Strength Index – NASDAQ 100 (QQQ): | 58.2 | 55.1 | Positive | ||||||||||||||||||||||||||||||||||||||||||||||||
| Strength Index – S&P 100 (OEX): | 47.4 | 51.5 | Negative | ||||||||||||||||||||||||||||||||||||||||||||||||
| Dow Jones Industrial Average (DJIA): | 28900.00 | 28634.88 | 0.9% | ||||||||||||||||||||||||||||||||||||||||||||||||
| S&P 500 Index: | , | 3274.00 | 3234.85 | 1.2% | |||||||||||||||||||||||||||||||||||||||||||||||
| NASDAQ Composite Index: | 9203.00 | 9020.77 | 2.0% | ||||||||||||||||||||||||||||||||||||||||||||||||
| **Connotation is Positive or Negative Divergence from the DJIA | |||||||||||||||||||||||||||||||||||||||||||||||||||
Ask Mr. Seifert
What is Volatility and how does it affect my portfolio?
Investors know that volatility exists but how is it calculated? Is there a formula that is used to determine how much prices will fluctuate over any given period or is just a guesstimate? Volatility is calculated as “the rate at which the price of a security increases or decreases for a given set of returns. It is derived by calculating the standard deviations from the current mean.” To the average investor that definition doesn’t mean that much but if you watch the progress of your portfolio you should notice when we are in a high volatility environment and when volatility is low. Although 2017 has been a good year for equities it has come on record low volatility. In other years when prices have had an enormous gain, it usually comes on big price swings. As a rule, volatility will go up when the market is breaking and will be down when it is rallying. Right now, we are having one of the largest rallies in history and volatility is at record lows. There is no fear in the world and until something changes you can expect more of the same.
FREE Two-Week Trial Subscription
The option Trades and Strategies offered by the Optionomics Group are unique in that they all have limited risk while creating great leverage. Our basic Bullish – Bearish Credit Spread Trade lets you control 100 shares of a $200 stock, a $20,000 position for less than $500 or 40:1 leverage. Your maximum risk is always limited and our strategies produce winning trades in three out of four possible outcomes. Check out The Scoreboard on the home page to see our results.
Optionomics let you become the casino whereby you have a mathematical edge that enables you to grind out consistent returns. These strategies are designed to produce good returns over short to intermediate-term time frames in any type of market environment.
Optionomics offers a FREE Two-Week trial to its entire web site with no cost or strings attached. Each of the strategies are explained in a 5-7 page booklet which includes detailed explanations and sample recommendations. You can see how the strategies are performing every week by clicking on The Scoreboard tab on the Home page. During the trial, you can paper trade the various strategies and get a feel for the deal without risking a penny. Simply click on the appropriate tab on the Optionomics’ Home page to access the informative booklets and then sign up for the trail. As a special offer, you can download a FREE copy of my latest book, “Trading Options My Way”. I doubt that you have ever read anything like this.
The ‘Traders’ Subscription Includes The Following:
- The Bullish – Bearish Credit Spread Trade: A basic strategy to trading weekly credit spreads.
- The One Day Wonder Trade: A one day trade with great consistency and upside potential.
- The Blow Off Top – Bottom Trade: A lot of action and big moves too.
- The Earnings Season Trade: Potential big movers with little or no downside risk.
The ‘Investors’ Subscription Includes The Following:
- The 21st Century Covered Call Strategy: A modern day alternative to the old fashioned covered call strategy.
- The Low Cost Put-Call Hedge Strategy: Sleep at night knowing your portfolio is protected for little or no cost.
- The Billionaire Risk Reverse Strategy: Big time leverage – small time risk.
Each Monday morning by 11:00 EST, the recommendations for each strategy are posted on the Optionomics’ web site. In addition, the updated results from the previous week are posted on the Optionomics’ Scoreboard. I also have a webinar on Thursday afternoon where I discuss various option strategies, what is happening on the trading floors and answer any questions that you may have. Don’t worry if you miss the show. They are archived on the site. Sound Good? Good! You can subscribe to either the Traders or the Investor plans at an introductory special of only $39.95 each per month on a month to month basis with no contract or strings attached. That’s $10.00 off the regular subscription rate ($49.95). If you subscribe to both it is only $64.95 per month. I think you will agree that this is a super offer so give it a try. Go to www.optionomicsgroup.com and get started today doing what the pros do –
“Don’t Buy Them – Sell Them”.
Mr. Seifert