Stocks Surge On Added Stimulus
The following is an excerpt from this week’s ‘Weekly Market Letter’ from Market Edge (www.marketedge.com).
Investors were hesitant at the start of the week as renewed trade tensions between the US and China caused global markets to trade mostly lower on Monday. Sentiment turned around quickly in the afternoon however, as the US Treasury announced plans to borrow $3 trillion in Q2 to cover lending and buy assets, plus another $677 billion in Q3. The Dow erased a 300+ point loss to finish positive on the day. The major averages digested mixed earnings and record setting jobs loss data during the period, but the dismal data was offset by the reopening of state economies and in some areas, a contraction in the number of coronavirus cases. Short covering and buying in big cap technology names and semiconductors led to the NASDAQ embarking on a five-day win streak and the tech heavy index finished the week back in positive territory for the year. Global markets got another boost midweek after trade data out of China showed exports rising +3.5% year-over-year. Despite a jobs report on Friday that showed unemployment at +14.7%, stocks rallied to recovery highs as the US and China scheduled a new round of meetings to discuss trade issues. Hopes that global economies were ready to snap back sent crude oil prices higher with the June contract jumping +23%. Every sector finished the week higher led by 4% gains in Technology (XLK), Energy (XLE), Communication Services (XLC) and Consumer Discretionary (XLY). The major averages snapped a two-week losing streak, but ended the period overbought with the S&P Short Range Oscillator ending Friday at 4.53%. That is likely to lead to some back and forth trading next week as investors keep an eye on accelerating openings of state economies.
For the period, the DJIA was able to snap a two week losing streak gaining 607.63 points (+2.6%) and closed at 24331.32. The S&P 500 added 99.09 points (+3.5%) to finish at 2929.80. The NASDAQ outperformed jumping 516.37 points (+6.0%) and finished at 9121.32, while the small cap Russell 2000 also outperformed and picked up 69.16 points (+5.5%) to close at 1329.64.
Market Outlook:The technical condition of the market improved last week as the major averages were all able to step higher. The technical indicators pushed back into bullish ground and momentum, as measured by the 14-day RSI, was positive for the different indexes. MACD ST was also positive showing the short-term trend for the indexes was bullish. The NASDAQ and NASDAQ 100 were the strongest major indexes, and both finished the week positive for the year. Gains in semiconductors and biotech helped the NASDAQ outperform with the Philadelphia Semiconductor Index (SOX) surging +8.0% and the iShares NASDAQ Biotechnology ETF (IBB) jumping +6.2%. In addition, the small cap Russell 2000 outperformed which bodes well for the broader market going forward. Another positive is the VIX falling back into the 20’s which shows traders aren’t looking for another selloff or retest of the March lows. Breadth was positive but the Advance/Decline lines for the NYSE and NASDASQ are starting to show some negative divergence. New highs vs. new lows indicate that the rally is showing narrowing participation. Finally, volume has been contracting as the market has moved higher which is a red flag. With the market now giving conflicting signals, upside looks limited and investors may want to take a more cautious stance.
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 +1, down two notches from the previous week. The CTI was reset as of the week ending 4/03/20 after it appears that the bottom for this cycle was 3/23/20. Cycles B and D are bullish, while cycles A, C and E are Bearish. The CTI is projected to return to a negative count however, the week ending 5/15/20 and remain negative into August which still leaves open possible weakness in the market ahead.
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 +4, up seven notches from the previous week. Breadth was positive at the NYSE as the Advance/Decline line added 1800 units while the number of new 52-week highs out did the new lows on all five days. Breadth was also positive at the NASDAQ as the A/D line added 834 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 60.2% vs. 62.0% the previous week, while those above their 200-day moving average increased to 21.9% vs. 21.5%. 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 5/06/20 shows outflows of $15.6 billion. Currently, the Sentiment Index is Neutral at +2, down two notches from the previous week.
Market Posture: Based on the status of the Market Edge, market timing models, the ‘Market Posture’ is Neutral as of the week ending 5/08/2020 (DJIA – 24331.32). 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): | 1 | 3 | Positive | ||||||
| Momentum Index: | 6 | -3 | Positive | ||||||
| Sentiment Index: | 2 | 4 | Neutral | ||||||
| Strength Index – DJIA (DIA): | 96.6 | 89.7 | Positive | ||||||
| Strength Index – NASDAQ 100 (QQQ): | 91.8 | 87.8 | Positive | ||||||
| Strength Index – S&P 100 (OEX): | 94.7 | 90.5 | Positive | ||||||
| Dow Jones Industrial Average (DJIA): | 24331.32 | 23723.69 | 2.6% | ||||||
| S&P 500 Index: | , | 2929.80 | 2830.71 | 3.5% | |||||
| NASDAQ Composite Index: | 9121.32 | 8604.95 | 6.0% | ||||||
| **Connotation is Positive or Negative Divergence from the DJIA | |||||||||
Ask Mr. Seifert
Question: When trading the various ‘Traders’ selections, what do you recommend as a good exit strategy.
Answer: It is recommended that all of the ‘Traders’ selections be closed at or near Friday’s closing prices. However, there are a few exemptions. If a position doubles in price early the week, it is recommended that the profit be booked, and the position closed. This can occur with the Blow Offs, One Day Wonder, Earnings and SPY trades. In addition, if a Bull-Bear Credit spread drops to $0.05 or less prior to expiration, it is recommended that the trade be closed.
‘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: | 05/08/20 | 2929.80 | S&P 500: | 05/08/20 | 2929.80 | ||
| S&P 500 Points Gain/Loss: | 444.06 | S&P 500 Points Gain/Loss: | 338.70 | ||||
| S&P 500 % Gain/Loss: | 17.9% | S&P 500 % Gain/Loss: | 13.1% | ||||
| Risk Capital: | $20,000 | Risk Capital: | $0 | ||||
| Optionomics Traders $ P/L: | $5,631 | Optionomics Covered Call $ P/L: | $28,790 | ||||
| Optionomics Traders % P/L: | 28.2% | Optionomics Covered Call % P/L: | 28.8% | ||||
| Last Week’s Traders % P/L: | -3.2% | Last Week’s Covered Calls % P/L: | 0.7% | ||||
| 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: | 05/08/20 | 2929.80 | S&P 500: | 05/08/20 | 2929.80 | ||
| S&P 500 Points Gain/Loss: | 56.93 | S&P 500 Points Gain/Loss: | 22.39 | ||||
| S&P 500 % Gain/Loss: | 2.0% | S&P 500 % Gain/Loss: | 0.8% | ||||
| Risk Capital: | $100,000 | Risk Capital: | $50,000 | ||||
| Optionomics Put-Call Hedge $ P/L: | $11,177 | Optionomics Billionaire Trade $ P/L: | $5,085 | ||||
| Optionomics Put-Call Hedge % P/L: | 11.2% | Optionomics Billionaire Trade % P/L: | 244.1% | ||||
| Last Week’s Put-Call Hedge % P/L: | 2.8% | Last Week’s Billionaire Trade % P/L: | 16.8% | ||||
‘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