Greg Schnell

The markets closed lower on all the indexes this week. After seeing some all time record volumes, we started to see changes in the index performance. While the herd is still huddled in the US large caps, selling was more pronounced as you look down the size scale of market capitalization. (How large the company is based on multiplying the number of shares by the price per share). There were notable differences this week. Canada, a smaller market, broke the advance/decline line for the uptrend and this is a caution flag for the US. Weaker, smaller markets typically break before the US does. Sweden is a good clue for Europe, and it held up better than I expected. I covered world indexes in the commodity video. So many cyclical (they cycle up and down with the economy) charts have started to decline after touching their 200 DMA. Just scrolling through the Dow 30, JPM, PG,MCD, MRK, IBM, VZ, KO,DIS,TRV, AXP,GS,MMM, DD,UTX, CVX, RTX, CAT, XOM have all failed at the 200 DMA. You can big banks like C and BAC to the list. The Nasdaq Composite recorded the highest volume ever on Friday. The SPX also recorded a high volume day. We have had extreme volume days in each of the last three weeks. One after the Fed meeting, Quad options, and now the final Friday before quarter end. This is a twitchy market, slowly showing that times are changing from the controlled uptrend.

From last week’s newsletter : “From a high level, the SSIH indicator moved lower by another 5%. That level of movement can happen within an uptrend. The big thing for me is the 5% down day on the $SPX the prior week after the Fed. Those days don’t usually show up in uptrends. So caution is creeping in. Now that we have pushed through options expiration on really high volume, I’m watching to see are people starting to price in the weak earnings for the second quarter? Or is the market starting to focus on the COVID 19 resurgence in some of the more populated states like Texas, Florida, and Arizona? We are about to find out.”

Summary: The COVID surge is changing the market as is the move towards earnings season in July. Caution is warranted. Tighten stops. Serious storm clouds on the horizon.

Let’s jump into the charts.

• By Greg Schnell, CMT, MFTA
• July 21, 2020

For the NASDAQ 100, its been a rally! Never underestimate the power of the Fed probably has to be the best lesson. The second best lesson is portfolio managers worldwide have tightened the diversity in their portfolios to focus on Nasdaq 50 stocks. The hedge funds that trade more frequently have made money both short and long this market.

With employment turning up from the deep lows, this is a late indicator but supportive of higher markets. Having the Nasdaq higher than February is apparently normal as it must have been undervalued then! The conversations around news flow are really difficult to absorb. There is an entire financial analyst community using earnings to value markets, yet the earnings for 80% of the publicly traded market are going to come in dramatically lower. So the discussion has evolved to only looking at 2021 earnings, because we have already had a re-rating for 2020. That conversation does not fly with me at all. Who can guess what 2021 is going to look like? Continue Reading

• By Greg Schnell, CMT, MFTA
• July 3, 2020