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 Struggle As Rates Climb
A bounce in equities led by big cap tech shares on Monday was in the rear-view mirror the next day as strong Retail Sales and better-than-expected economic data reignited inflation fears. A downgrade of bank credit by Fitch Ratings added to investor angst on Tuesday and stocks tumbled across the board with every sector moving lower. The FOMC Meeting Minutes midweek showed the Federal Reserve’s reluctance to call an end to their tightening policy and yields cracked through resistance on Thursday with the rate on the 10-year Treasury hitting 4.35%, its highest mark since 2007, before settling at 4.25%, while the yield on the two-year T-Bill closed the period at 4.928%. Support levels for the major averages gave way late in the week as every sector closed the period in the red. The weakest market groups were Consumer Discretionary (XLY), REITs (XLRE), Communication Services (XLC), Financial (XLF) and Industrials (XLI). The different indexes limped into the weekend with the S&P 500 and NASDAQ down for a third consecutive week, while the DJIA traded lower for a second time over the last three weeks as the major averages nearly erased the gains since the first of July.
For the period, the DJIA lost 780.74 points (-2.2%) and settled at 34500.66. The S&P 500 tumbled 94.34 points (-2.1%) and closed at 4369.71. The NASDAQ dropped 354.07 points (-2.6%) finishing at 13290.78, while the small cap Russell 2000 gave up 65.69 points (-3.4%) finishing at 1859.42.
Market Outlook: The technical condition of the market deteriorated this week as the different indexes were unable to hold near-term support levels and traded lower. The technical indicators are in negative territory with MACD, a short-term trend gauge, bearish across the board and Momentum, as measured by the 14-day RSI, sliding into negative ground. The major averages are oversold with stochastics at or near single digits, and the Market Edge/S&P Short Range Oscillator (SRO) closed the week at -4.72%. Historically institutional investors will step in when the SRO nears -7%. The different indexes dropped below their respective 50-day MA this week and settled between the 50 and 100-day MA. The DJIA and S&P 500 could find support at the 38.2% Retracement which is 34040-34120 area for the Dow Jones and 4300-4320 area for the S&P 500. The NASDAQ has suffered a deeper selloff due to the correction in the overweighted big cap technology names. It is approaching support at the 50% Retracement, which is close to the 100-day MA, around 12827. The secondary indexes, which include the DJ Transportation Index and small cap Russell 2000, led the major averages lower. The DJ Transports was able to find support at its 50-day MA, while the Russell 2000 bounced off its 100 and 200-day MA on Friday. That could set the market up for a temporary rebound next week, but the trend remains lower.
Underlying breadth continues to deteriorate. The NYSE and NASDAQ Advance/Decline lines were sharply lower showing the majority of stocks are under distribution. The NYSE A/D fell back to a level last seen in early July. New 52-week lows outpaced the new highs all week with the new lows expanding on the NASDAQ to numbers last seen at the end of April. The new lows outnumbered the new highs on the NYSE but were steady in double digits signaling that the selling hasn’t been as extreme on the NYSE. Investor sentiment is now neutral as rising rates have doused the bull’s enthusiasm. According to the American Association of Individual Investors (AAII) retail bulls have fallen below the historical average of 37.5% to 35.9%. That’s the least number of bulls since the first week of June when the summer rally began. The pros are also getting nervous as the National Association of Active Investment Managers (NAAIM) Exposure Index tumbled to 59.9, which is its lowest equity exposure since the first of June and down from 101.8 three weeks ago.
Stocks are struggling as recent strength in economic data and the labor market are sparking fears that we could see an acceleration in inflation that will lead to the Federal Reserve having to pull the trigger on more rate hikes. Next week Fed Chair Jerome Powell will give a speech at the Jackson Hole Economic Symposium, and we should get a clearer picture of where the Central bank is headed on rates. The CME Group FedWatch is still projecting a 90% probability that the Fed will leave rates unchanged at the September FOMC meeting. However, that might not stop the slow rise of rates in the near-term. The 10-year Treasury yield hit its highest level since 2007 on Thursday and a break above that level could see a run to 5.0%, which doesn’t bode well for stocks. The US Treasury will be running off $1 trillion from its balance sheet over the next month or two. That’s a massive supply that could see yields tick higher and keep pressure on equities until its absorbed. Reports on inflation in August are still a few weeks away and investors may want to remain cautious and keep a close eye on bond yields before looking to scoop up bargain stocks that have pulled back. Until we see the rate on the 10-year Treasury slip closer to 4% than 4.5%, it will be tough for the bulls to regroup and try another late run to close out the year. Unfortunately, it could take longer than anticipated to turn that rate-horse around. 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 Negative at -3, down six notches from the previous week. Cycles A, C and D are bullish, while Cycles B and E are bearish. The CTI is projected to remain in a negative connotation through September.
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 Negative at -10, down eight notches from the previous week. Breadth was negative at the NYSE as the Advance/Decline line lost 4615 units while the number of new 52-week lows exceeded the number of new highs on all five sessions. Breadth was also negative at the NASDAQ as the A/D line dropped 5638 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 dropped to 32.8% vs. 55.3% the previous week, while those above their 200-day moving average fell to 45.7% vs. 57.1%. 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 Neutral at +0, up a notch from the previous week. In addition, we track money flows into and out of Equity Funds and ETFs which as of 8/16/23 shows outflows of $2.0 billion.
Market Posture: Based on the status of the Market Edge, market timing models, the Market Posture is Bearish as of the week ending 8/18/2023 (DJIA – 34500.66).
FREE Two-Week Trial Subscription
The option ‘Strategies’ offered by the Optionomics Group are unique in that they all have limited risk while creating great leverage. Our Basic Strategy, “Bullish – Bearish Credit Spread Trades” lets you control 100 shares of a $200 stock, a $20,000 position for less than $500 which is 40:1 leverage. Your maximum risk is always limited, and our strategies produce winning trades in three out of four possible outcomes.
Optionomics lets you be the casino whereby you have a mathematical edge that enables you to grind out good, consistent returns. over a short to intermediate-term time frame 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 and a video which includes detailed explanations and sample recommendations. 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 Mr. Seifert’s latest book, “Trading Options My Way”. I doubt that you have ever read anything like this.
The ‘Traders’ Strategies Includes The Following:
- The Basic Strategy: Bullish – Bearish Weekly Credit Spread Trades: 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 SPY Short-Term Power Play: Trade the SPY Index with a two day time frame.
The ‘Investors’ Strategy Includes The Following:
- The Billionaire Risk Reversal 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. You can subscribe to either the ‘Traders’ plan or the ‘Investors’ plan for just $29.95 per month each on a month to month basis with no contract or strings attached. If you subscribe to both (great idea), it is only $49.95 per month which is a 20% discount off the regular subscription rate. 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