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).
Equities Rise on Hopes for Rate Pause
A dismal August was able to close out on a high note as the S&P 500 and NASDAQ carried a two-week win streak into September. The week kicked off adding to the previous Friday’s rally as investors hoped Fed Chair Powell’s remarks at the Jackson Hole Symposium meant a rate hike was off the table in September. Yields inched lower during the period as inflation data, in the form of the Personal Consumption Expenditures (PCE) Index, showed slowing inflation and jobs numbers, a thorn in the Fed’s side, weakened with the Unemployment Rate rising to +3.8% on Friday from +3.5% prior. Big cap technology shares outperformed, sending the Technology (XLK) sector to the top of the leaderboard with a +4.44% gain and closing about 3% from its all-time high. Materials (XLB), Energy (XLE) and Consumer Discretionary (XLY) were the other sector leaders, each up more than +3%. Defensive plays Utilities (XLU), Consumer Staples (XLP) and Healthcare (XLV) were the only market groups to end lower. Despite demand concerns from China’s struggling economy, crude oil prices punched higher ending the week at $85.90 a barrel on expectations of tighter supply in the US. Yields moved lower during the week but ticked higher on Friday after Cleveland Fed President Loretta Mester cautioned market participants that inflation remained too high and that rates could rise if data warranted another hike which led to the NASDAQ snapping a five-day win streak as the week ended. The yield on the 10-year treasury closed at 4.184%, while the two-year T-Bill rate slipped below 5% ending at 4.89%. The different indexes finished the week higher across the board with the NASDAQ turning in its best performance since June.
For the period, the DJIA added 490.81 points (+1.4%) and settled at 34837.71. The S&P 500 picked up 110.06 points (+2.5%) and closed at 4515.77. The NASDAQ jumped 441.16 points (+3.2%) finishing at 14031.81, while the small cap Russell 2000 gained 67.20 points (+3.6%) finishing at 1920.83.
Market Outlook: The technical condition of the market improved this week as the different indexes finished higher across the board and traded back above a key resistance level at their respective 50-day MA. The technical indicators moved into positive territory with MACD, a short-term trend gauge, now bullish and Momentum, as measured by the 14-day RSI, once again bullish and rising. The lone exception is the DJ Transportation Index which carries a neutral technical condition and remains below its 50-day MA. With this week’s gains the major averages are no longer oversold. The secondary indexes including the small cap Russell 2000 and Philadelphia Semiconductor Index showed positive divergence and outperformed the major averages, which bodes well for the market going forward. The Philadelphia Semiconductor Index (SOX) on the heels of Nvidia’s (NVDA) surge soared +5.4%.
Underlying breadth was strong as both the NYSE and NASDAQ Advance/Decline lines moved higher and showed the majority of stocks are under accumulation. In addition, new 52-week highs on the NYSE outdid the new lows on each day, while the number of new lows on the NASDAQ contracted all week. Investor sentiment remains neutral, but we saw a significant increase in exposure to equities from the pros. Retail investors are split evenly between the bulls and bears according to the American Association of Individual Investors (AAII) but the National Association of Active Investment Managers (NAAIM) Exposure Index jumped to 61.2% from 34.4% the prior week. The NAAIM had fallen to its lowest level since October 2022.
September has the reputation of being the worst month of the year for stocks but the major averages head into the month on firmer footing. Economic data this week should take a rate hike off the table in September and the CME Group FedWatch projects a 94% probability that the Fed will stand pat. Does that mean clear sailing for equities into year-end? Hardly. While we may have seen the last of rate hikes, it was still just one set of numbers. It takes a while for rate increases to work through the system and one can expect to see further weakness in the US economy as higher rates take hold. An inverted yield curve is still a cautionary sign that a looming recession could still be ahead, and no one yet knows if higher rates for longer will lead to a grinding slowdown in the economy leading to a falloff in earnings That would add to valuation concerns if we don’t see an expected uptick in earnings. Despite this week’s softer data, the economy remains stronger than the Federal Reserve wants to rein in inflation and that translates to ‘we still have work to do’. September doesn’t have to lead to another selloff in equities, but with mixed signals in economic conditions, investors may want to remain cautious. Rates will remain ‘higher for longer’ which will slow growth, but rate cuts as some bulls are calling for to keep a stock rally intact? Don’t count on it. If rate cuts enter the conversation, it will signal that the Fed has gone too far and a recession could be around the corner which dampens the bulls ‘soft’ landing script.
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 -4, down a notch 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 Neutral at +0, up 10 notches from the previous week. Breadth was positive at the NYSE as the Advance/Decline line gained 4585 units while the number of new 52-week highs exceeded the number of new lows on all five sessions. Breadth was mixed at the NASDAQ as the A/D line added 4029 units while the number of new lows out did the new highs on three of the five days. Finally, the percentage of stocks above their 50-day moving average jumped to 44.2% vs. 29.7% the previous week, while those above their 200-day moving average increased to 52.7% vs. 45.4%. 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, unchanged from the previous week. In addition, we track money flows into and out of Equity Funds and ETFs which as of 8/30/23 shows outflows of $217 million.
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).
Ask Mr. Seifert
Why Is Market Psychology So Important To The Success Of A Trader?
Without a doubt the most important aspect of trading or investing isn’t numbers. Everyone has numbers. It is your emotional view of the market that is the key. For over 40 years I have taught scores of people how to trade and the one common trait that all successful traders and investors have is that they understand how the market works. It has never ceased to amaze me how little traders comprehend when I ask them how a trade takes place. How can you expect to beat the New England Patriots if you don’t know what defense they are in? It is incredible that most traders believe that when the market is rallying it is because there are more “buyers than sellers”. They listen to the media and that is what they tell them is going on during a rally. When the market is breaking, they are told there are more “sellers than buyers”. So here is my first lesson on market psychology. The market is an auction where buyers and sellers bid and offer for a security or option. For every buyer there must be a seller. When they agree to exchange wealth, it is called “price discovery”. The market is in equilibrium, even if it is only for a few seconds. So how does the market rally if the number of buyers and sellers are the same? The buyers are willing to pay more to get in. When they can’t find any sellers at the price they want, they must “bid the market higher”, until they find where the sellers will exchange wealth.
The second principal that a trader must learn after they understand that the market is an auction is that there is no silver bullet that prints money. Trading is a probability game and as such, wild things are going to happen. Let’s say that you follow Market Edge, which has had a phenomenally accurate prediction record for the past 25 years. Even if it picks 70% winners, you are still going to have losing periods where nothing goes right. If you quit trading every time that it hits 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!
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