NASDAQ Rockets To Record High
The following is an excerpt from this week’s ‘Weekly Market Letter’ from Market Edge (www.marketedge.com).
Stocks were sharply higher this week as economic data pointed to an economy on the rebound. Strong housing data, better than expected earnings, positive news on a vaccine for the coronavirus, a promise to keep interest rates at record lows and jobs data that showed America was getting back to work faster than expected helped push the NASDAQ and NASDAQ 100 to new record highs. The rally was broad based led by gains in interest sensitive Utilities (XLU) and REITs (XLRE), while Materials (XLB), Healthcare (XLV), Industrials (XLI) and Consumer Discretionary (XLY) also outperformed. Financials (XLF) and Energy (XLE) lagged the market and finished red. Gold remained strong hitting an 11-year high during the period and crude oil prices hovered near the $40 a barrel mark. Investors remained upbeat that economic data would continue to improve despite surging cases of Covid-19 as market participants settled in for the start of Q2 earnings season next week, with the Money Center banks scheduled to report the following week.
For the period, the DJIA bounced back from the previous week’s slide gaining 811.81 points (+3.2%) to close at 25827.36. The S&P 500 picked up 120.96 points (+4.0%) and finished at 3130.01. The NASDAQ outperformed jumping 450.41 points (+4.6%) and finished at 10207.63, while the small cap Russell 2000 added 53.08 points (+3.8%) and settled at 1431.86. The DJ Transportation Index surged +4.9%.
Market Outlook:The technical condition of the market improved last week as the major averages moved sharply higher with the NASDAQ hitting several new highs. The technical indicators were in neutral to bullish territory with MACD, which looks at the short-term trend, moving into bullish ground on the NASDAQ and S&P 500. Momentum, as measured by the 14-day RSI, was in positive ground for the different indexes. The market was able to correct some of the negative divergence that had been showing up in the charts, but there remain some red flags. First, is the inability for the DJIA to break above resistance at its 200-day moving average (MA). A close above that level would be confirmation that the intermediate trend for the Dow was improving and could help trigger another leg up. In addition, the 14-day RSI did not confirm the NASDAQ’s move to new highs again this week, making lower highs, which is a red flag. Both those conditions will need to correct themselves if the market is going to avoid a summer slump.
Breadth improved but the NYSE and NASDAQ Advance/Decline lines are still below where they were four-weeks ago. The A/D line is considered a leading indicator of market direction and usually tops out a few weeks before the stock market does. The Market Edge Strength Indexes all were in negative ground this week showing less stocks under accumulation looking at Up/Down Volume calculations. New 52-week highs showed expansion this week but still show a smaller number of stocks making new highs than what we’d like to see in a market preparing to extend its gains. A chart of these indicators can be found by going to the Market Edge Home page and clicking on Market Recap, which can be found 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 +4, 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 A, C, D and E are bullish, while Cycle B is bearish. The CTI is projected to change to a negative reading within the next week or two which could change the Market Posture to neutral or bearish.
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 three notches from the previous week. Breadth was positive at the NYSE as the Advance/Decline line gained 3324 units while the number of new 52-week highs out did the new lows on all four days. Breadth was also positive at the NASDAQ as the A/D line added 2422 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 eased to 66.8% vs. 68.3% the previous week, while those above their 200-day moving increased to 34.8% vs. 33.0%. 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 7/01/20 shows outflows of $10 billion. Currently, the Sentiment Index is Neutral at +1, up a notch 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): | 4 | 4 | Positive | |||||||||||
| Momentum Index: | 3 | 0 | Neutral | |||||||||||
| Sentiment Index: | 1 | 0 | Neutral | |||||||||||
| Strength Index – DJIA (DIA): | 20.7 | 48.3 | Negative | |||||||||||
| Strength Index – NASDAQ 100 (QQQ): | 34.7 | 40.8 | Negative | |||||||||||
| Strength Index – S&P 100 (OEX): | 29.8 | 50.0 | Negative | |||||||||||
| Dow Jones Industrial Average (DJIA): | 25827.36 | 25015.55 | 3.2% | |||||||||||
| S&P 500 Index: | , | 3130.01 | 3009.05 | 4.0% | ||||||||||
| NASDAQ Composite Index: | 10207.63 | 9757.22 | 4.6% | |||||||||||
| **Connotation is Positive or Negative Divergence from the DJIA | ||||||||||||||
Ask Mr. Seifert
Question: Why is understanding market psychology so important?
Answer: I am going to continue the theme we touched on before about market psychology and why it is so important for traders and investors. Earlier I talked about how trades are initiated. This week I want to talk about discipline. It is the second principal that a trader must learn after they understand that the market is an auction and there must be a buyer for every seller and vice versa. There is no silver bullet that prints money. Trading is a probability game and as such, some wild things are going to happen. Let’s say that you follow Market Edge which has had a terrific stock price forecasting record since 1992. Even if it picks 70% winners, you are still going to have losing periods where nothing goes right. If you quit trading every time you hit a slump, you will be around for the losers but will miss out on the winners. When you trade or invest you must be willing to accept the inevitable drawdowns that are part of the business. Even Warren Buffett takes beatings from time to time and if he quit every time things went sour, you wouldn’t know his name!
‘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: | 07/03/20 | 3130.01 | S&P 500: | 07/03/20 | 3130.01 | ||
| S&P 500 Points Gain/Loss: | 644.27 | S&P 500 Points Gain/Loss: | 538.91 | ||||
| S&P 500 % Gain/Loss: | 25.9% | S&P 500 % Gain/Loss: | 20.8% | ||||
| Risk Capital: | $20,000 | Risk Capital: | $100,000 | ||||
| Optionomics Traders $ P/L: | $6,983 | Optionomics Covered Call $ P/L: | $31,242 | ||||
| Optionomics Traders % P/L: | 34.9% | Optionomics Covered Call % P/L: | 31.2% | ||||
| Last Week’s Traders % P/L: | 1.1% | Last Week’s Covered Calls % P/L: | 1.0% | ||||
| 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: | 07/03/20 | 3130.01 | S&P 500: | 07/03/20 | 3130.01 | ||
| S&P 500 Points Gain/Loss: | 257.14 | S&P 500 Points Gain/Loss: | 222.60 | ||||
| S&P 500 % Gain/Loss: | 9.0% | S&P 500 % Gain/Loss: | 7.7% | ||||
| Risk Capital: | $100,000 | Risk Capital: | $50,000 | ||||
| Optionomics Put-Call Hedge $ P/L: | $24,344 | Optionomics Billionaire Trade $ P/L: | $6,259 | ||||
| Optionomics Put-Call Hedge % P/L: | 24.3% | Optionomics Billionaire Trade % P/L: | 338.0% | ||||
| Last Week’s Put-Call Hedge % P/L: | 9.4% | Last Week’s Billionaire Trade % P/L: | 29.4% | ||||
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