CNBC has revised their Option Action show which is aired every weekday night at 5:30. They have really beefed up the Friday show to the point that we think it is one of the best option oriented shows on the air. Check it out.
The following is an excerpt from this week’s ‘Weekly Market Letter’ from Market Edge (www.marketedge.com).
Stocks Surge on Tech Earnings
Investors took a step back to start the week as a slew of earnings from big cap technology stocks and the Fed’s expected rate hike mid-week kept market participants cautious. The major averages traded mixed on Monday with weakness in semiconductors weighing on the NASDAQ, before a profit warning from Walmart (WMT) on Tuesday slammed retail stocks. The S&P SPDR Retail ETF (XRT) tumbled -4.1% as shares of Target (TGT), Amazon (AMZN) and others traded down in sympathy with Walmart. The different indexes were able to rebound on Wednesday however, as ‘less bad than feared’ earnings from tech heavyweights Microsoft (MSFT) and Alphabet (GOOGL) gave the market a boost. Strong earnings from Chipotle (CMG) and Waste management (WM) also helped bring buyers off the sidelines. While the Federal Reserve raised rates 0.75 point later in the day, as expected, Fed Chair Jerome Powell sparked a late rally as he laid out a clear and less hawkish strategy to navigate a soft landing for the economy. A broad-based run led by +4% plus moves in the Technology (XLK) and Communication Services (XLC) sectors sent the NASDAQ surging +4.06%, its best day since April 2020. The bulls had more in the tank to close out the week as strong earnings and the passing of the Chip Act and Clean Climate Act promised to increase government spending to prop up the economy and helped pushed stocks higher. Alternative Energy and EV makers were sharply higher on the news. The Invesco Solar ETF (TAN) spiked +18.7% during the week, while shares of EV makers Tesla (TSLA), General Motors (GM), Rivian (RIVN) and Fisker (FSR) jumped. Yields moved lower during the week and the 10-year and two-year Treasury rate fell below 3% with the 10-year rate landing at 2.65% and the two-year at 2.89%. Commodities were sharply higher during the period with crude oil prices briefly trading back above $100 a barrel before closing at $98.19, while Copper jumped more than +7% on the week. High demand for oil and gasoline led to record profits for Exxon-Mobil (XOM) and Chevron (CVX) and the Energy (XLE) sector was the strongest market group during the period, up +10.22%. Utilities (XLU), Industrials (XLI), Consumer Discretionary (XLY) and Technology (XLK) were all up more than +5%. The major averages rallied into Friday’s close and finished higher for a second straight week led by the NASDAQ, which hit a three-month high.
For the period, the DJIA gained 945.84 points (+3.0%) and settled at 32845.13. The S&P 500 picked up 168.66 points (+4.3%) and closed at 4130.29. The NASDAQ jumped 556.58 points (+4.7%) finishing at 12390.69. The small cap Russell 2000 added 78.35 points (+4.3%), finishing at 1885.23.
Market Outlook: The technical condition of the market improved this week as the major averages were able to build on the previous gains and close near their June highs. The technical indicators also improved and finished the week in bullish ground. MACD, a short-term trend gauge, and Momentum, as measured by the 14-day RSI, are both positive. After breaking through key resistance the previous week, the different indexes were able to retest support and trade higher. The gains also sent the DJIA, S&P 500 back above their respective 100-day MA for the first time since early April, and for the NASDAQ, the first time since early January. The DJ Transportation Index and Russell 2000, which market technicians like to see lead the market higher and lower, outperformed the broader market, also trading through their 100-day MA which bodes well for the market going forward. While the June highs could represent a short term top after a more than 10% surge off the June lows, trading above their 100-day MA may have triggered a short covering rally that could send the market on another leg higher. For now, however, the NASDAQ hit our first target of 12350 on Friday. The near-term target for the DJIA is 33150-33250 and 4150-4200 for the S&P 500. Underlying breadth confirmed the move higher this week with the NYSE and NASDAQ Advance/Decline lines sharply higher for a second straight week showing broad participation in the current rally. In addition, the number of new 52-week lows contracted and the NYSE almost put up more new 52-week highs than lows on Friday for the first time since early May. Investor Sentiment saw an uptick among the bulls for a second week. After reaching extreme levels of bearishness, the Percentage of Bullish Investment Advisors topped the Bearish Investment Advisors for the first time in 11-weeks. In addition, the National Association of Active Investment Managers (NAAIM)Exposure Index ticked higher showing hedge funds are adding to equity exposure here.
Despite the Fed’s 0.75-point rate hike and Fed Chair Powell stating that ongoing rate hikes will be appropriate, Treasury yields moved lower this week. That is due to economic data that continues to show the US economy is slowing. Raising rates into a slowing economy has been a recipe for disaster in the past and despite two-weeks of gains, investors need to remain cautious. The yield curve between the two-year and 10-year remains inverted which still keeps a recession in play and despite the rally off the June lows, it takes time for rate hikes to work themselves into the economy. If you happen to be lucky enough to win this week’s $1 billion dollar Mega-Millions lottery, I’d keep a little cash on the side. You still might get a chance to buy at lower prices.
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. Currently, the CTI is Positive at +4, down two notches from the previous week. Cycles B, C and E are bullish, while Cycles A and D are bearish. The CTI is projected to remain positive into August.
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 +8, unchanged from the previous week. Breadth was mixed at the NYSE as the Advance/Decline line gained 5143 units while the number of new 52-week lows exceeded the number of new highs on all five sessions. Breadth was also mixed at the NASDAQ as the A/D line added 2933 units while the number of new lows out did the new highs on each day. Finally, the percentage of stocks above their 50-day moving average jumped to 67.9% vs. 55.3% the previous week, while those above their 200-day moving average rose to 26.5% vs. 19.8%. 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. The Sentiment Index is Positive at +5, up a notch from the previous week. In addition, we track money flows into and out of Equity Funds and ETFs which as of 7/27/22 shows inflows of $372 million.
Market Posture: Based on the status of the Market Edge, market timing models, the Market Posture is Bullish as of the week ending 6/24/2022 (DJIA – 31500.68).
Ask Mr. Seifert
Question: Is There A Way To Set Up My Options Platform So That I Can Enter Buy Or Sell Limit Orders, Stop Loss Orders And Close At Specific Target Levels Orders So I Don’t Have To Watch The Market All Day Long?
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