No Love For The Bear

The stock market is nearing all-time highs.  In fact, it seems to keep reaching new ones on a regular basis.

Advancers are leading decliners.

Percentage of stocks above their 20/50/200 DMA is higher than stocks which are not.

The only thing that the bears can take some comfort in with these charts is that some of the volume and oscillators are indicating a possible downward trend.

Yes, there has not been a whole lot of love for the bears lately and they are feeling left out.

The contrarian would say, this means we are due for a correction.

The conformists or anti-contrarians say lets keep the party going.

The realists say, perhaps we should look for stocks or sectors holding up well enough but not yet joining the party.  Perhaps stocks with some “safe” characteristics such as dividends would be nice to include too.  Perhaps these are just waiting for the right invite.

The chartists say the overall market is doing well.  SPY and DIA charts look strong . . .

Though, the QQQ is perhaps looking a bit extended.

So where do we look for stocks and or sectors holding up well just waiting to rally?

Mr. Bull, I’d like you to meet Mr. Financial Sector.  He’d like to join the party.  He’s just waiting for the right conditions.   Like . . .

–          Financial Reform

–          Tax Reform

–          Inflation and Rate increases

Those are the tickets that will get him out on the dance floor dancing the happy dance.

The technical charts for the financial sector look promising.  They look like they are poised for a breakout.

Of course, bulls are hoping for an upward breakout, and the bears are hoping for a breakdown.

Unfortunately for the bears, there are the three catalysts, previously mentioned, just waiting to kick in.  And they are pretty strong catalysts.

Unfortunately for the bulls, the current administration and congress is painfully dysfunctional.  When and if all this is going to happen is anybody’s guess.

So until then, we wait and hopefully enjoy the ride.

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If SPY Were An IBD Stock

If SPY were an IBD Stock there would be many interesting things to say about the chart.

First of all, most any investor and prognosticator today would say we are at the end of a long running bull market. Since it is such a long running bull market, lets start with the 10yr view of SPY to see what the chart pattern looks like.

spy10yr

By IBD standards, the last, best breakout and buy point would have been 154.64 which was the previous high point of the last uptrend back in October 2007.

IBD also says that once a stock hits the 20% – 22% range above the last buy point, then that is a good time to consider taking profits. Most stocks begin to show signs of consolidation after 25% profit.

spy10yr-profit-zone

Interestingly, 20% is 185.58 which happens to be right about the area of today’s current support range. I say this because a horizontal consolidation range is actually a healthy indicator for a stock and, coincidentally, a 15% range from 185.58 is 213.41.

Guess where the top level resistance point is for the current SPY chart. Yup, you guessed it. Almost exactly on the money.

spy2year-consolidation

This means, for the past year or two, the SPY indicator has stayed within a consolidation range of 15%. Neither a bull or bear market.

Hmmm . . . I think I brought this point up as a possibility a while back . . .

A funny thing about consolidation bases is that the can break to the upside (a breakout above 213) or they can fail support (a breakdown below 185).

And it is anybody’s guess when either will happen. However, I would say that the odds of a breakout to the upside are not looking good. Not only has the SPY failed to break resistance more than once, one could technically say that it has also formed lower highs (213, 211, 210) at each top. But, even more ominous than that is what could be the formation of a head and shoulders pattern indicated in the larger circle below.

spy1year-other patterns

A head and shoulders pattern is considered a reversal signal.

So what should an investor do?

An IBD investor would, or at least should, wait for a better buy point or confirmed uptrend to resume.
While he or she is waiting, a good thing to do is look for stocks that are holding up well in a downward moving market. They don’t necessarily have to be gaining but at least bucking the trend and forming a good support base.

These stocks, in theory, will be the first ones to breakout in new uptrends once the overall market conditions improve.

I know some investors who look for more dividend paying stocks or safe havens such as some commodities and utility companies that tend to do better in bear markets; while others cash out their profits and stay mostly in cash until conditions improve.

As for me, I do tend to keep more cash on hand and look for opportunity to buy a stock that is set up to breakout or perhaps buy a few puts on one that is set up to fail support or disappoint in earnings. In either case, I tend to not stay in that stock position very long. Preferring to limit my loses or take my profits as I get them.  My personal profit taking zone lately has started around 8 – 10% and the ones I do keep I tend to keep with a tight trailing 3% – 4% trailing stop leash.

As I tell the members of our investment club, I just don’t trust this market enough to hold anything for very long.

How about some you?
What do you trade a volatile market that seems to lack conviction in either direction?
Do you change your investment style?

Wishing Upon A Star

Star Light Star – oh wait . . .

Last week I, and lots of other internet chatter board members, noticed a potentially strong reversal signal setting up in the markets.

star patterns

A star pattern can be a strong reversal signal – if (just like with breakouts) there is a strong follow-through.

I bet short sellers were drooling at the thought of a market reversal.

Too bad their wishes didn’t come true.

star 3

That follow-through never happened.

So the markets remain in an uptrend, and by the way, in over-bought territory with yet another potentially disappointing earnings season soon to begin.

So of course the markets are going to continue going up. Right?

Who know’s?

Janet Yellen and the Fed did everything in their power to support the current rally by reversing their expected hawkish view.

I’m reminded of that famous quote from Forrest Gump.

Fed speak and the market is like opening a box of chocolates, you never know what you are going to get.

I’m not going to try to predict the market. But I will try to follow trends and to keep an eye open for confirmed reversals and buying / selling opportunities.

I have already written about MSFT and others in my previous posts. Another one that I am waiting for confirmation is SWHC. It is currently under pressure by activists and downgrades yet continues to show growth and demand due to politics and policy fears. It showed a good pop last Friday, but as of this morning, no follow-through due to downgrades which are pushing it back down.

If it holds the 50dma then that might be a good buying opportunity.

With watching for opportunities in mind, here is my latest and greatest screen generated watch list for April.

Ticker Name
AYI Acuity Brands, Inc.
GOOGL Alphabet Inc.
MO Altria Group Inc.
AMGN Amgen Inc.
AHS AMN Healthcare Services Inc.
AOS AO Smith Corp.
ARW Arrow Electronics, Inc.
AVB Avalonbay Communities Inc.
AVGO Broadcom Limited
CDNS Cadence Design Systems Inc.
CVCO Cavco Industries, Inc.
CTXS Citrix Systems, Inc.
CCOI Cogent Communications Holdings, Inc.
COR CoreSite Realty Corporation
CRTO Criteo SA
CSGS CSG Systems International Inc.
CUBE CubeSmart
DHR Danaher Corp.
PLAY Dave & Buster’s Entertainment, Inc.
EFX Equifax Inc.
ELS Equity LifeStyle Properties, Inc.
FB Facebook, Inc.
FEIC FEI Company
FIVE Five Below, Inc.
FBHS Fortune Brands Home & Security, Inc.
GK G&K Services Inc.
G Genpact Limited
ROCK Gibraltar Industries, Inc.
GILD Gilead Sciences Inc.
GGG Graco Inc.
GVA Granite Construction Incorporated
INGR Ingredion Incorporated
INXN Interxion Holding NV
ISRG Intuitive Surgical, Inc.
MKTX MarketAxess Holdings Inc.
MMC Marsh & McLennan Companies, Inc.
MAA Mid-America Apartment Communities Inc.
MORN Morningstar Inc.
NVR NVR, Inc.
OFS OFS Capital Corporation
ORLY O’Reilly Automotive Inc.
PAYX Paychex, Inc.
PNW Pinnacle West Capital Corporation
POOL Pool Corp.
POWR PowerSecure International, Inc.
PBH Prestige Brands Holdings, Inc.
PRMW Primo Water Corporation
PSA Public Storage
ROIC Retail Opportunity Investments Corp.
RYAAY Ryanair Holdings plc
LUV Southwest Airlines Co.
SYK Stryker Corporation
SKT Tanger Factory Outlet Centers Inc.
SHW The Sherwin-Williams Company
THO Thor Industries Inc.
UFPI Universal Forest Products Inc.
VRSK Verisk Analytics, Inc.
VZ Verizon Communications Inc.
VMC Vulcan Materials Company
WEB Web.com Group, Inc.

Until next time,

Be good, Do Well, Have Fun, and stop wishing, start following, and most importantly – wait for that all important follow-through.

A Double Feature Next Week

double feature

Next week we have yet another episode of the ever popular soap opera and reality entertainment show “The Real Chairman Of The Federal Reserve” otherwise known as The Fed Meeting.  This televised news event will be followed by another semi-annual show called “Triple Witching Friday!”

First the Fed:

Will She or Won’t She?

After a long wait for inflation to accelerate, Janet Yellen and other U.S. Federal Reserve officials face a complex and divisive debate over whether recent evidence of rising prices is strong enough to move ahead with planned rate hikes.

Fed members are very much divided on this issue. Fed Vice Chairman Stanley Fischer said economic data now points to the “first stirrings” of inflation. However, Fed Governor Lael Brainard countered that the Fed should not move until inflation proves its “persistence.”

Fed officials have argued since mid-2014 that those inflation “headwinds” would pass, and recent data on prices of goods and services, as well as a jump in commodity prices, may indicate that time has finally come.

According to a poll recently taken by the National Association of Business,
80% of the respondents expect the Fed to raise rates at least once this year.

rate hikes

So, the short answer is yes, there is a very strong possibility of the Fed raising rates this year, just not so much next week. But with recent improvements in the price of oil, jobs, and the stock market, a rate hike for March is not completely off of the table.

The question is will she or won’t she?

Here is my take.

The question has nothing to do with rates but rather policy and the Feds stance on that policy. I expect Janet Yellen to stick to her guns and take a hawkish view regarding the markets, the economy and rate hikes. She has a plan and I expect her to stubbornly stick to that plan as much as possible. She can do that and still not raise rates – this time.

And yet, none of that may really matter.

Because just a short day or two later, we have March 18th.

The most important day of the week.
My wife’s birthday.  Truly.

But seriously, the second most important fact about March 18th is it also happens to be Triple Witching Friday.  This is when contracts for stock index futures, index options, and stock options, all expire on the same day.
In order to try and predict what will happen as a result of Triple Witching, I will take a slightly different approach other than survey data and federal opinions; chart patterns.

Here is what has happened to the SPY index each of the last four times.

rate pattern1

As you can see, three out of four times the market went up before Friday and then promptly went back down afterwards. The only exception to this was last December. That is when the Fed finally did raise rates for the first time in years.

If three out of four is good enough for a commercial, then it is good enough for me to say there is a fairly high probability of the market following the same sort of pattern this time around.

It’s A Bottom !

its-a-bottomI’m calling it.

The bottom is in.

The market managed to successfully bounce off of a key support area

and string together two winning days in a row.

All three index charts support it.  But I’ll use the SPY index since it is the best example.

spy-dbl-btm

YAY!

Everybody Jump Back In

Everybody back into the water!

But wait.  Hold on to your britches young whippersnapper.

Remember the New Year?  Three long trading weeks ago I posted an alternative market direction different than most “doom and gloom” recession naysayers, or “hurray it’s a new year” lets kick start this bull back into gear cheerleaders.  I proposed a consolidation phase where the market would swing within a 15% range.  A range that just so happens to line up with the previous 52 week high and the bottom of the corrections we have experience within the last 6 months to a year.

In order to do that the market had to reach, AND, bounce off of this low support line.

Now here is the interesting thing about consolidation bases.  It is neither a Bull or Bear market.  Though either can occur as a breakout or failed support.  The consolidation base is a trading range.  The market can trade anywhere in between the top level resistance and the lower level support.  It is not necessarily a straight elevator / escalator ride up to the top and bottom.  There are often tests and retests of support and resistance and sometimes a little bit of indecision and non-direction price action (as in somewhere in the middle).

Of course, I could also be wrong about this whole consolidation base thingy.

Baby Girl Reacts In Shock and Surprise

Shocking!  I know.  But it has been known to happen.

But for now I’m calling this a victory prediction.

Next week is another trading week full of key quarterly reports, market data and yes, even another Federal Reserve meeting.

So anything can and most likely will happen.

Trade well my friend.