NASDAQ Rallies On Big Tech Earnings
What promised to be a volatile week didn’t disappoint and the major averages finished the period mostly higher. While big cap technology stocks delivered blowout earnings the other sectors saw mixed earnings and were much more cautious on forward guidance. Interest rates were left unchanged as expected at the July FOMC Meeting, and Fed Chair Jerome Powell made it clear that the Federal Reserve would be there to support the market with every tool at its disposal. The 10-year Treasury eased to 0.53% on the comment, while the 30-year mortgage hit a record low, falling below 3%. Economic data was choppy and a second uptick in jobless claims revived fears of a second slowdown brought on by rising coronavirus cases. The NASDAQ outperformed the broader market as shares of Apple Inc (AAPL), Amazon.com (AMZN), Facebook (FB) and Qualcomm (QCOM) punched new highs after earnings and the tech heavy index finished just below its record high. The DJIA nudged lower for a second week brought down by disappointing earnings from Intel (INTC), Boeing (BA), Chevron (CVX) and 3M (MMM). Gold and silver continued on a tear with the Gold and Silver index (XAU) surging more than +6% on the week as gold hit a record high closing at $1992.30 an ounce on Friday. Crude oil prices backed off recent gains on slowing growth concerns, but held support at $40 a barrel. Technology (XLK), REITs (XLRE) and Communication Services (XLC) outperformed, but Energy (XLE), Materials (XLB), Financials (XLF) and Industrials (XLI) struggled and finished in the red. Finally, market participants stared in disbelief as Congress party bickering overrode additional stimulus relief as extended unemployment checks ran out on Friday. End of the month window dressing on Friday reversed an early dip in the major averages and the DJIA, S&P 500 and NASDAQ managed to post a fourth consecutive monthly gain coming off the March bottom.
For the period, the DJIA inched lower for a second straight week losing 41.57 points (-0.2%) to close at 26428.32. The S&P 500 hit a new closing recovery high adding 55.49 points (+1.7%) and settled at 3271.12. The NASDAQ outperformed jumping 382.09 points (+3.7%) to 10745.27, while the small cap Russell 2000 picked up 12.88 points (+0.9%) and finished at 1480.43.
Market Outlook:The technical condition of the market was mixed this week with the DJIA deteriorating, the S&P 500 little changed and the NASDAQ showing some improvement. The technical indicators showed Momentum, as measured by the 14-day RSI, positive to neutral, but slowing, which is likely to lead to sideways to lower trading over the near-term. The DJIA fell below its 200-day moving average (MA) during the week but held support at its 50-day MA and climbed back above its 200-day MA at Friday’s close. The big board has been showing negative divergence and last made a recovery high on June 6, almost two months ago. A break of the 50-day MA could see the blue chip index test its June low around 25,000. The DJ Transportation Index and Russell 2000 also deteriorated, with the small cap Russell 2000 pulling back to its 200-day MA but holding support. Breadth was positive with the NYSE Advance/Decline line hitting an all-time high on Wednesday showing most stocks were under accumulation. New highs were mostly in triple digits during the week on both the NYSE and the NASDAQ. Negative divergence however, was recorded in the Market Edge Strength Indexes which saw the DIA and QQQ slip into negative ground. The Strength Indexes measure the percent of stocks in the indexes that are under accumulation based on the U/D Volume calculations.
A chart of these indicators can be found by going to the Market Edge Home page and clicking on Market Recap, which is on the right-hand side of the page just below the Second Opinion Status numbers.
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 +2, unchanged from the previous week. The CTI was reset as of the week ending 4/03/20 and the bottom for the cycles was 3/23/20 indicating that a new bull market began on that date. Cycles C, D and E are bullish, while Cycles A and B are bearish. While we could see some sideways action over the next few weeks, cycles A and B are projected to reset to Bullish the first week of August indicating the market should remain strong into the fall.
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 +6, down a notch from the previous week. Breadth was positive at the NYSE as the Advance/Decline line added 740 units while the number of new 52-week highs out did the new lows on all five days. Breadth was mixed at the NASDAQ as the A/D line lost 713 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 65.5% vs. 72.5% the previous week, while those above their 200-day moving average increased to 48.1% vs. 46.9%. 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 7/29/20 shows outflows of -$3.8 billion. Currently, the Sentiment Index is Negative at -2, unchanged from the previous week.
Market Posture: Based on the status of the Market Edge, market timing models, the ‘Market Posture’ is Bullish as of the week ending 5/29/2020 (DJIA – 25383.11). For a closer look at the technical indicators and studies that make up the market timing models, check out the tables located below.
| Market Timing Models | Current Reading | Prior Week | Connotation | ||||||
| Cyclical Trend Index (CTI): | 2 | 2 | Positive | ||||||
| Momentum Index: | 6 | 7 | Positive | ||||||
| Sentiment Index: | -2 | -2 | Negative | ||||||
| Strength Index – DJIA (DIA): | 48.3 | 79.3 | Negative | ||||||
| Strength Index – NASDAQ 100 (QQQ): | 36.7 | 62.2 | Negative | ||||||
| Strength Index – S&P 100 (OEX): | 56.4 | 75.5 | Positive | ||||||
| Dow Jones Industrial Average (DJIA): | 26428.32 | 26469.89 | -0.2% | ||||||
| S&P 500 Index: | , | 3271.12 | 3215.63 | 1.7% | |||||
| NASDAQ Composite Index: | 10745.27 | 10363.18 | 3.7% | ||||||
Ask Mr. Seifert
Question: Where do the stock selection for the ‘Investors’ strategies come from and what is the criteria for them to be removed from a portfolio?
The selections for the ‘Investor’ strategies are limited to approximately 100 stocks which have listed weekly options. They are added to the various strategies based on their Market Edge Opinion. When one of these stocks is upgraded by Market Edge to either a Long or an Early Entry Buy candidate, they are considered for addition to one of the three strategies. Once a stock is added to a strategy, it remains in the portfolio until the Market Edge Opinion is downgraded to Avoid or the Score declines to -3 or -4. A stock can also be removed if the time period expires which is twelve weeks for the Low Cost Put Hedges and the Billionaire Risk Reversal trades and eight weeks for the 21st Century Covered Call plays. Another alternative method to close positions would be to use the Market Edge Sell Stops or if you are so inclined, your own sell stop .
‘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: | 07/24/20 | 3271.12 | S&P 500: | 07/24/20 | 3271.12 | ||
| S&P 500 Points Gain/Loss: | 785.38 | S&P 500 Points Gain/Loss: | 680.02 | ||||
| S&P 500 % Gain/Loss: | 31.6% | S&P 500 % Gain/Loss: | 26.2% | ||||
| Risk Capital: | $20,000 | Risk Capital: | $100,000 | ||||
| Optionomics Traders $ P/L: | $7,179 | Optionomics Covered Call $ P/L: | $32,051 | ||||
| Optionomics Traders % P/L: | 35.9% | Optionomics Covered Call % P/L: | 32.1% | ||||
| Last Week’s Traders % P/L: | 0.4% | 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: | 07/24/20 | 3271.12 | S&P 500: | 07/24/20 | 3271.12 | ||
| S&P 500 Points Gain/Loss: | 398.25 | S&P 500 Points Gain/Loss: | 363.71 | ||||
| S&P 500 % Gain/Loss: | 13.9% | S&P 500 % Gain/Loss: | 12.5% | ||||
| Risk Capital: | $100,000 | Risk Capital: | $50,000 | ||||
| Optionomics Put-Call Hedge $ P/L: | $20,440 | Optionomics Billionaire Trade $ P/L: | $6,159 | ||||
| Optionomics Put-Call Hedge % P/L: | 20.4% | Optionomics Billionaire Trade % P/L: | 357.2% | ||||
| Last Week’s Put-Call Hedge % P/L: | 0.0% | Last Week’s Billionaire Trade % P/L: | 0.0% | ||||
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