Major Averages Push To New Highs
The following is an excerpt from this week’s ‘Weekly Market Letter’ from Market Edge (www.marketedge.com).
| The major averages traded higher for a second straight week as better than expected earnings countered the effects of the Coronavirus. Investors bought growth and dividends as yields inched lower. REITs (XLRE) and Utilities (XLU) outperformed, while Consumer Discretionary (XLY) and Technology (XLK) were also strong, up more than +2%. Every sector except Energy (XLE), Materials (XLB) and Healthcare (XLV) hit new highs during the week, and all sectors were positive. Energy (XLE) rebounded after crude oil prices bounced off the $50 a barrel level but oversupply fears loomed. The DJIA, S&P 500, NASDAQ, NASDAQ 100, DJ Utility Index and Philadelphia Semiconductor Index all hit new highs during the week but most finished overbought with the S&P 500 trading 11% above its 200-day moving average. That’s the most overbought the index has been since January 2018 and could lead to profit taking over the near-term. However, the trend remains bullish.
For the period, the DJIA traded higher for a second straight week adding 295.57 points (+1.0%) and settled at 29398.08. The S&P 500 rose 52.45 points (+1.6%) to finish at 3380.16. The NASDAQ outperformed on a +4.9% spike in semiconductors, gaining 210.67 points (+2.2%) and finishing at 9731.18, while the small cap Russell 2000 picked up 30.80 points (+1.9%) and closed at 1687.58. Market Outlook:The technical condition of the market improved during the week, but the overhang of the Coronavirus still weighed on the market. The technical indicators for the different indexes remain bullish, but momentum, as measured by the 14-day RSI, slowed. Despite the market’s advance, negative divergence in the RSI was showing for the DJIA, S&P 500 and NASDAQ suggesting that the market could consolidate some of the recent gains over the short term. In addition, the NASDAQ ended the week the most overbought on a weekly chart that it’s been since January 2018. It took the stock market until April of that year before it was able to work off the overbought condition and break out to new highs. That adds to the likelihood that the major averages may struggle here. The DJ Transportation Index traded back above its 50-day moving average during the week but failed to hold that support level and is still lagging the broader market. Breadth was positive with the NYSE Advance/Decline hitting new highs during the week and new 52-week highs on the NYSE and NASDAQ also remained at bullish levels showing there is still decent participation in the rally. 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 Positive at +7, up 11 notches from the previous week. The counts for Cycles A, B, C and D are bullish while the count for Cycle E is bearish. The negative cycle posture was completed the week ending 1/31/20 and cycles A and B were reset to Bullish generating the positive count. The CTI is expected to stay positive into April. 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 Positive at +7, up four notches from the previous week. Breadth was positive at the NYSE as the Advance/Decline line gained 2284 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 added 1926 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 was unchanged at 56.6% vs. 56.6% the previous week, while those above their 200-day moving average increased to 67.0% vs. 66.7%. 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 2/12/20 shows inflows of $4.8 billion. Currently, the Sentiment Index is Negative at -1, down a notch from the previous week. Industry Group Rankings : What’s Hot (40) – What’s Not (51). Of the 91 Industry Groups that we track, 40 are rated as either Strong or Improving while 51 are regarded as Weak or Deteriorating. The previous week’s totals were 35-56. The following are the strongest and weakest groups for the period ending 2/13/20. Strongest: Semiconductors & Related, Advertising, Automobile Manufacturing and Casinos. Weakest: Aluminum, Steel, Food and Food Retailers. To review all of the Industry Group Rankings, click on the Industries tab. ETF Center: The top performing ETF categories for the week ending 2/13/20 were: Sector-Alternative Energy (+5.65%), Blend-Small Cap (+6.12%), Sector-Technology (+3.26%), Sector-Consumer Discretionary (+2.65%) and Growth-Small Cap (+2.51%). The weakest categories were: Shorts (-2.94%), Bond-Government Long Term (-0.31%) and Bond-Multisector Aggregate (-0.08%). Market Posture: Based on the status of the Market Edge, market timing models, the ‘Market Posture’ is Bullish as of the week ending 2/14/2020 (DJIA – 29398.08). For a closer look at the technical indicators and studies that make up the market timing models, check out the tables located below.
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Ask Mr. Seifert
What is a collar and how does it protect my portfolio?
A collar can be used in many ways. It is used to avoid paying taxes in this period on a stock position that has a large profit in it. However, it can be used for any purpose where you want to keep the stock and have no market risk. The collar is put in place by selling a call above the current market price of the stock and buying a put below the price. As an example, you own 100 shares of TSLA that you bought at $150. The stock is now trading $300 but you don’t want to sell it. To put the collar in place, you would sell the $305 call and buy the $295 put. They both will have the same amount of premium so whatever you lose in the call you make in the put and vice versa. You have collared the stock and locked in its value at $300. When you want the stock to trade freely again you can either let the options expire if they are both out of the money or you can buy back the collar if one or the other is in the money. In either case you have protected your investment for the time involved with the option serial that you used.
‘Traders’ And ‘Investors’ Results
| ‘Traders’ Results | 21st Century Covered Call Results | ||||||||
| Performance Since Week Ending 1/04/19 | Performance Since Week Ending 11/06/17 | ||||||||
| S&P 500: | 01/04/19 | 2485.74 | S&P 500: | 11/06/17 | 2591.10 | ||||
| S&P 500: | 02/14/20 | 3380.16 | S&P 500: | 02/14/20 | 3380.16 | ||||
| S&P 500 Points Gain/Loss: | 894.42 | S&P 500 Points Gain/Loss: | 789.06 | ||||||
| S&P 500 % Gain/Loss: | 36.0% | S&P 500 % Gain/Loss: | 30.5% | ||||||
| Risk Capital: | $20,000 | Risk Capital: | $100,000 | ||||||
| Optionomics Traders $ P/L: | $8,280 | Optionomics Covered Call $ P/L: | $28,318 | ||||||
| Optionomics Traders % P/L: | 41.4% | Optionomics Covered Call % P/L: | 28.3% | ||||||
| Last Week’s Traders % P/L: | 0.1% | Last Week’s Covered Calls % P/L: | 0.0% | ||||||
| Put-Call Hedge Results | The Billionaire Risk Reversal Results | ||||||||
| Performance Since Week Ending 1/26/18 | Performance Since Week Ending 04/12/19 | ||||||||
| S&P 500: | 01/26/18 | 2872.87 | S&P 500: | 04/12/19 | 2907.41 | ||||
| S&P 500: | 02/14/20 | 3380.16 | S&P 500: | 02/14/20 | 3380.16 | ||||
| S&P 500 Points Gain/Loss: | 507.29 | S&P 500 Points Gain/Loss: | 472.75 | ||||||
| S&P 500 % Gain/Loss: | 17.7% | S&P 500 % Gain/Loss: | 16.3% | ||||||
| Risk Capital: | $100,000 | Risk Capital: | $50,000 | ||||||
| Optionomics Put-Call Hedge $ P/L: | $11,198 | Optionomics Billionaire Trade $ P/L: | $5,361 | ||||||
| Optionomics Put-Call Hedge % P/L: | 11.2% | Optionomics Billionaire Trade % P/L: | 214.4% | ||||||
| Last Week’s Put-Call Hedge % P/L: | 0.1% | Last Week’s Billionaire Trade % P/L: | 2.3% | ||||||
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