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Quarterly Newsletter: As the economy recovers, staying the course is more important than ever.

Savings and investments may be the last thing on your mind as you enjoy our all-too-short summer. We can’t blame you! We hope you and your loved ones are safe and secure and can truly enjoy the warm days ahead.

Keep Your Guard Up – April 16th, 2021

The S&P 500 closed on a new high again. The defensive leadership really surged on Thursday and Friday, as we moved through Options Expiration. This is starting to be a meaningful trend that worries me.

Commodities had a huge up week, but commodity related trades were a mixed bag. Oil names were poor considering oil was up big. Gold, Silver and industrial metals like Copper had a good week and the miners did too. There are some charts below detailing the difficulty with the US Dollar trade coming up and it is important to check the US dollar as the week progresses.

Last week I was wondering about the weakness in commodities and that was certainly answered this week. Boom Baby!

Once again, the stocks declining big outpaced the stocks up big. 460 stocks were up big and more than 600 were down big. That happened last week too but it was almost even last week with a little more to the downside. It’s getting worse is what I am saying.

Bond yields continue to moderate, helping the gold trade as well.

The currencies are tightly wound as the US Dollar has pulled back for two weeks. We are about to see if that is going to continue or if we will get a surprise reversal that sends commodities lower. Bitcoin broke its major uptrend line this week.

The Bullish percent indexes and other indicators are at or near all-time highs for breadth. On the video I did a look back to see how bullish that is. It actually is a little cautionary. I would encourage you to follow it along as I review 5 past peaks.

Summary: All the indexes made higher highs this week. The leadership by the defensive areas of the market is starting to make me pause. Financials were oddly below average this week, even though banks reported stellar numbers. Oil rallied but energy stocks didn’t. I want to stay cautious on adding to energy until that improves. These weak cyclical signals are concerning to me. Stay bullish with tighter stops.

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Big Green Highs – April 09, 2021

The S&P 500 closed on a new high again. Almost all the sectors had a good week with most making fresh highs. I really like the mega-cap tech names here. They are running higher. The market of stocks looks set to continue the uptrend.

As I mentioned, almost all the US sectors are hitting new highs, but Europe is also hitting new highs. Australia finally got out of bed and joined the party this week. Asia was down slightly (less than a percent) for the most part.
Remarkably the currencies had the USD moving lower, but commodities did not rally significantly. Commodity related stocks were down or marginally up. EEM – emerging markets – did break down below the trend line and close there. CEW – emerging market currencies – dropped and closed near the lows. This is typically directionally related to commodities. Why the weakness in commodities? I don’t have a good answer, but they might just need time to relax after a stellar 6 months.

It’s all makes for a pretty bullish view. It does feel a little exuberant but when indexes are tagging new highs worldwide, it is bullish. As we get very bullish, I usually get cautionary, but few charts are yelling caution. One example would be more stocks declining big (greater than 5%) than rising (greater than 5%). Considering how big the indexes were up, with the strength of the mega-cap names, it was odd to see big decliners slightly outpace big gainers. Is that being too fussy?

I would suggest it’s open water ahead until something changes.

Summary: The $SPX has made three higher weekly closes in a row. All the sectors are participating with the exception of energy so far. With tech, communications services, and consumer discretionary leading the party, I have trouble arguing. The rally is under way. I won’t let a weak Monday or Tuesday wear me out. I plan to use a weak day to find more trades until proven wrong.

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Tech Gets a Bid – April 3, 2021

S&P 500 closed on a new high again. The market meandered sideways for three of the four days but closed decisively up on Friday. The NASDAQ led indexes higher, which is bullish for a rotation back into tech. All the sectors had a good week. I really like the mega-cap tech names here. They look ready for their next leg higher.

While the indexes didn’t correct significantly over the last 6 weeks, the large growth areas and speculative names (SPAC’s), GME, AMC, and software names all got taken to the woodshed for a 50% trim. The SSIH has been highlighting the underlying weakness, and hopefully you avoided some of the chop. Broadly, the market of stocks looks set to resume the uptrend.

The vaccination data for the USA continues to get more promising. America expects to have 200 million people vaccinated within the first hundred days of the new president. This is very solid, considering Canada ranks 64th in rollouts, mostly due to a shortage of vaccines. This dominance in rollouts by the USA suggests more money rotating into US assets at least until the rest of the globe gets vaccines to distribute. The AstraZeneca vaccine has been problematic, while most of the US inventory is Pfizer, Moderna and JNJ.

Almost all the US sectors are breaking to one-month highs, or breaking downtrends, or making all-time highs. That looks like a solid way to start a larger rally. The transports and industrial’s look bullish. That should be enough to say just get long. Globally we saw a worldwide rally. That’s hard to argue with when all the screens turn green. I am watching to see if the crude oil chart can continue to rally. With jet fuel starting to be consumed, and cars selling like toothbrushes, there should be demand growth. The gold miners look like a theme to be in. Large cap tech, growth names with earnings, and semiconductors look well suited to investment here.

Summary: The $SPX has made two higher weekly closes in a row. All the sectors are looking to participate. With tech, communications services, and consumer discretionary joining the party, who needs a clock saying it’s time to go home? The party is just getting started it would seem. Let’s hit the charts.

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Friday Surprise – March 26, 2021

The S&P 500 closed on a new high, gaining 1 ½% in the final 1.5 hours to do it. The entire week was up 0.1% before that. It was a very odd run up. Chinese stocks were getting smashed all week due to new data requests from the SEC. Stocks like TME (Tencent) traded 300 Million shares instead of 17 million! Leaders in Communication Services were sacked rapidly on the week. Some of my scans produced bizarre results compared to the S&P’s positive return on the week. As an example, over 1100 stocks were down more than 5%. Only 120 stocks were up 5% or more. By any stretch to have the market close up with that type of backdrop is truly odd. Just add that to the Ever Given blocking the Suez Canal. Weird week.

Once again, the NASDAQ under performed the S&P 500. The real problem with that is trying to figure out if it’s ready to accelerate higher after a six-week pullback. The vaccination data for the USA continues to get more promising. America expects to have 200 million people vaccinated within the first hundred days of the new president.

Globally we also saw more weakness. Asian countries as well as commodity countries didn’t fare as well as the US. The exception would be Australia which was up on the week. The US made a new high on Friday on the S&P 500, but anytime we test the previous high we need to be careful to see if we have enough strength to hold it. I will be watching carefully. Even in nature as the picture shows, testing a prior high can lead to failure.

The transports and industrial’s look extremely bullish. That should be enough to say just get long. But the top performing areas of the market were all the defensive ones. Staples, utilities, healthcare, REIT’s.

The Aussie dollar and the emerging market currency ETF (CEW) both broke trend lines. EEM also broke below it’s trend line with a bounce Friday afternoon to close right on the line. Not a good look for commodities. The US Dollar pushed meaningfully higher.

Summary: The bizarre price action this week makes it really hard to figure out what’s going on. Defensive sectors leading, while stocks like Tesla and Shopify break up trends. Doesn’t sound bullish at all. I got more buy signals on gold charts this week, carrying over from my gold trade ideas last week. Oddly gold and silver miners were weaker. Let’s hit the charts.

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The Dance – March 19th, 2021

The S&P 500 broke out to a new high, and then failed to hold it and fell back below the prior high to end the week. The NASDAQ tried to rally, but ended up having a down 3% day on Thursday. That’s not what we’re expecting for our next leg higher. We also saw Crude Oil fall down heavily 7% in one day for a big reversal on the week. I got a sell signal on oil related charts this week.

With the Fed meeting and quadruple options expiration, there was a reason for all kinds of volatility. The market responded with a wild and whippy Thursday and a little bit of a bounce on Friday on the NASDAQ. The two steps forward, one step back, dance party isn’t that bullish. The NASDAQ has the potential for a topping structure to complete.

Globally we also saw more weakness. We have some charts starting to break down on other parts of the world. Asia looks particularly weak. Some European markets were hitting new highs this week so that seems to be better but definitely an area to watch in the week ahead.

I saw this uptrend in the picture while driving this week. I chuckled relating it to the stock market! when I am using tree-tops to draw the trend line you know we are up significantly. A few weeks ago, I posted a short 2-minute video about the comparison to 2000 and the current market. I’ve updated the video this week and posted a link in this newsletter. We continue to be right on track with it. This is one of those weeks where we could break the analogy and not end up in a bigger bear market correction. But we’re at that point. Let’s not fall asleep here and assume that all the stimulus is going to work out well.

The Australian market, the Australian currency, the emerging market ETF (EEM), and the emerging market currency ETF (CEW) all are trying hold important trend lines. With the Shanghai market breaking the trend last week and continuing lower this week it’s not a good look. Why are these other markets starting to weaken?

Summary: The SSIH indicator rolled over mid-week. Is it whiplash or are we heading down lower now? We only moved down a few percentage points, but it is hard to flip this indicator back-and-forth as it uses weekly data. I would suggest making sure your profits are protected or try to find a way to reduce position size if this market starts to break. It is a really important week as charts like Tesla are barely hanging on their trend line. Further weakness in theme stocks like Tesla as an example probably won’t be helpful. I got more buy signals on gold charts this week, carrying over from my gold trade ideas last week. Let’s hit the charts

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Hitting New Highs – March 12, 2021

The S&P 500 smoothed out its path this week. After a brief dip down on Monday, the S&P pushed up all week and had a good close into the weekend. The leading areas of the market are energy, financials, consumer discretionary, marijuana, cryptocurrencies. It doesn’t end there as industrial companies like Boeing are breaking out to the upside. All the transports including railways, trucking, and airlines are all pushing higher. Having industrials and transports push to new highs is bullish. Tech continued to lag as investors focus on the reopening economy trades.

The NASDAQ market was harder to trade as it was in yo-yo mode. It was alternating between up and down all week. With the stimulus checks coming out this week, and the vaccination process going extremely well, I expect more upside across the market but less so in tech than in the other leadership areas.

I mentioned gold was weak last week but the miners started to behave. Gold was a little better this week but the miners were even better. I like buying near the lows when I’m buying commodities, so gold miners fit the bill this week. If they don’t hold up, I’m out. I do like the set up as it starting to shape up, so I explained that in this weeks newsletter.

Global markets are bullish as many of them broke out to new highs across Europe, Canada, Mexico and Russia. Seeing this broad strength encourages me to focus on being bullish. The Schnell Strength Indicators (SSI) are all popping higher which makes them supportive of the new highs.

Summary: The clues given last week by the SSI indicators were to be bullish. We reluctantly agreed with them and that seems to be the correct direction. That’s the strength of using data rather than intuition. Now I want to focus on continuing to follow strength into the market. I’ve put bearish thoughts aside because we have the new stimulus and we also have an infrastructure bill that should be going through the government offices this month. Commodities continue to perform well which also suggests demand. I’m focused on the upside.

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Being an Optimist – March 6th 2021

The wild swings on the $SPX ended up with a slightly higher finish than last week. The Nasdaq was down a little. Friday had a big hammer candle. A hammer candle is a market open near the top of the candle, goes lower during the day, then reverses and closes near the highs again.

Many of the momentum names have come down 50%. Is this their low? Or is this just the beginning of the move down? Optimism is always warranted with big 4% intraday swing. Very hard to be short with that price action too. Energy and financials continue to be solid.

The US senate passed the 1.9 T stimulus bill this weekend, so it should probably be signed by President Biden sometime soon. Next is a $3T infrastructure bill. Hard to comprehend how trillions can be spent so fast. The spending ignites the Bitcoin bulls, who talk about the currency printing debasing the world, but the same debasing continues to deny the gold bulls a bid. Gold had a tough week, failing to rally even in a rocky market.

I could sit in a waffle house all week, waffling back and forth between bullish and bearish. With the stimulus backdrop, can it possibly pay to be bearish? Conversely, we haven’t broken the analogy to the 2000 market top. A break above the downtrend lines will get everybody bullish. My Schnell Strength indicators started to bounce. Money showed up with volume on Thursday and Friday, creating the hammer candles. I lean into being an optimist. I bought stock on Friday after sending out my article to look higher, not lower. Conviction level is about as good as the one-out-of-two-popping odds of Orville Redenbacher, the popcorn king. Last week I was all bearish, but seeing that second hammer candle, suggests the buyers are there.

Summary: I have added to my oil positions on the back of the extremely bullish OPEC announcement and bought a few stocks Friday as the Schnell strength indicators improved. The market is hard to judge here. It is definitely not the wind-at-your-back investing moment. If you’re a market technician, right now it’s a pretty confusing control panel. Spin the dials, and we’ll see what happens. Let’s hit the charts.

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Breakouts Fail – February 26th 2021

The rotation away from momentum names was on full display the prior week. The trend continued as the Nasdaq was one of the weakest indexes in the world again. The big drop in the markets (NDX down >4.9%) suggests more caution. While you may or may not watch the videos each week, try to watch the video up to the 40-minute mark. I mentioned the expensive price multiple times this week.

I continue to be distracted each week by subtle positive moves, but the underlying for the market looks so risky. The areas I liked last week were down the least, but they were down, with the exception of energy. Issues like: market price action this week with a big down percentage overall, the drop in Tesla that fell 16% in two days before a buyer stepped in, lots of 10-week moving averages breaking on the high-flying names, the weakness of all of the big-name tech stocks; is definitely concerning.

 The US vaccination rollout is greater than 20% of the eligible population. JNJ’s vaccine was approved over the weekend. America will have 3 vaccines for distribution, so March should be a massive month for vaccination. We also saw the 1.9T stimulus get rolled through congress, following the $900B in December, and now the infrastructure bill has a nod of $3T. WOWZA.

Interesting Reading.

Two Questions I Have. When Everyone’s A Genius. Jay Woods Former NYSE Board Member on GME.

It’s been two weeks since my Two Questions I Have article. So far, that marked the recent market high. The charts are playing out like they should if I am right. This newsletter focuses on that data. The article When Everyone’s A Genius is also relevant. The market rallied extravagently when we all saw the economy cratering. But not only did it rally, it became one of the most expensive valuations of all time, with little hope of a damaged economy keeping up. Another question of mine is : While the economy improves, will the stock market suffer, to bring valuations back into line with market prices?

From all the success with the ARK investing group, it sounds like the world can go to infinity and beyond. Unfortunately, they have already pushed pricing there (infinity), well in advance. When Tesla plummeted, they stepped in and started buying in the $600’s. The real question is: Where were the rest of the buyers? Tesla has dropped 30% in 4 weeks, and it has been 3 weeks since they announced they will accept Bitcoin for cars and hold $1.5B in Bitcoin in the corporate treasury.

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Industrial Grade – February 19th 2021

The market continues to change its center axis. During the worst parts of the pandemic, the market was rewarding the high-tech names. The Nasdaq was one of the weakest indexes in the world this week. The rotation to Industrials, materials, energy and finance seems to be bringing those sectors forward. While the indexes might not have been advancing this week, the old economy names were. As the strength index weakens again, my focus is on the global commodity boom.

The US rollout is on pace to have 20% of the eligible population vaccinated with one shot this week. The vaccine results from Israel are very promising and provides real hope for the rest of the world. Isreal has vaccinated 47% of their population. The number of cases, hospitalizations and deaths are dropping fast. This doctor has positive news for the summer. The vaccine is a bridge to brighter days. JNJ’s vaccine could be approved in the next few weeks.

Crude oil hit new highs this week, but settled back to close down slightly on the week. Gasoline and Diesel moved higher as Texas refinery closures will put pressure on finished product availability. This has happened before during hurricanes. Frozen pipes are a bigger issue, but these big refineries will be back up as soon as possible. While the oil market may pause here, we don’t have enough new drilling globally to stop the inventory slide. The inventory trend is tightening, and continues to point to lower supplies.

Financials had another big week on the back of the move in yields. Broker/dealers soared. The KBE bank ETF broke to new 5 year highs. As the move in yields still has room to move, this might be a nice area to think about as it breaks above recent consolidation. I covered this off on the video.

Copper and industrial metals had a big week as the industrial ETF XLI and transports broke out to new highs as well. This area looks fantastic. Agriculture looks good too. The materials ETF XLB showed a big pop on Friday.

Summary: I continue to like the commodity trades as that matches with the inflation the Fed is trying to create. The backdrop in the USA is bullish, as things are improving. It also sounds like more stimulus is coming. The indexes took the week off in the USA, but Asia continues to lead globally. Asia is the biggest buyer of commodities. Let’s hit the charts.

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