“The bears were thinking that geopolitical issues, a slow economy in Europe and concerns that the Fed may be less accommodative would be enough to prevent another V-shape bounce but they were proven wrong once again. The Nasdaq jumped 2.2% last week and right back at recent highs. Small caps are still lagging badly but there was plenty of straight up action for the bulls to celebrate once again.

What the skeptics keep forgetting is that market players have been conditioned by years of quick recoveries.  Once we find support you better hurry and get in or you will be left behind. There is no hesitance one we start to trend back up.

The pattern over the last few weeks was very similar to what we saw back in March. We had one failed bounce that convinced many bears that it was different this time but instead of gaining downside momentum we find support and the bulls went to work.

Back in March we had a four day V-shaped bounce and then another leg down which is what the bears are looking for again but it is going to be tricky as we head into the slowest two weeks of the year. The end of August is prime vacation time on Wall Street and it is going to be very slow as summer wraps up.

The crisis in Ukraine provided a few market jitters last week but they are being shrugged off again There is still the potential that this will flair up again but the big news even this week is likely to be the Jackson Hole conference which starts on Thursday.  It was at this conference in 2010 that Ben Bernanke announced the outline of QE2 and helped to kickoff the market uptrend that has been in place ever since then.

The bear’s biggest hope is that the Fed is now preparing the way for eventual interest rate hikes but the problem is that Janet Yellen and her dovish compatriots refuse to say anything very concrete about rate hikes.  Atlanta Fed President Dennis Lockhart summed up the view as a “whites of their eyes’ approach to monetary policy.

While the indices look pretty good the underlying market action has been mixed. The recent strength has been led by big cap momentum names like TSLA, NFLX, CMG and AAPL.  Small caps have been problematic. The IWM has lagged badly and is still far off its July high.  It is a tale of two markets again but that has been the case for most of 2014.

The tricky thing about this market now isn’t the technical condition of the major indices, it is picking individual stock. There are a handful of names with good momentum but it has been very difficult to find those that have sustained momentum. A number of China names have been doing well but careful selection is the key.

We have a standard Monday morning gap-up which is hard to buy but has had a tendency to hold lately. The pattern has been for a gap, a slight pullback and then a tight range the rest of the day.  It is going to be a lower volume week but if we keep digging we should find some good trade candidates.”

3 reasons stocks are still charging ahead

Our decision to re-enter the equity market appears to be good barring no surprise market changing news. While you can’t hang your hat on seasonality for analysis, it shouldn’t be easily dismissed either. After all, it is a statistical record of trading and is subject somewhat to the law of averages…. That said, it should be noted that short term seasonality is favorable until 09/05/14. Then it becomes unfavorable,not to mention that the whole month of September is unfavorable. Also worth noting is that Intermediate Seasonality is unfavorable until 11/01/14. Of course, November and December are two of the best months for the market. Another little tidbit that needs to be pointed out is an indicator that many analysts use called ‘cycles’ which are exactly what the name implies, cycles of market highs and lows of various durations. I would like to point out that the 20 month cycle low is and the nine month cycle low both fall in first two weeks of November. The case that I am trying to build is that a lot of indicators are pointing toward some positive action in November or early December. I will be monitoring my charts closely for any signs of weakness in the first week of September and conversely  for signs of strength in November. While such indicators should never be used solely to make investment decisions (i.e. Sell in May and go away) they can be extremely helpful in pointing out things to watch for in our charts. I have included the tables below:

SEASONALITY
-----------------------------
IT Seasonality..............:   Unfavorable until 11/1/2014
ST Seasonality..............:   Favorable from 8/28 to 9/5

***************************** CYCLE PROJECTIONS *****************************

                          Last       Next  Estimated  Estimated  Estimated
                         Cycle  Projected  Cycle Top      Cycle  Cycle Top
PRICE Count                Low  Cycle Low  Bull Bias  Mid-Point  Bear Bias
-------------------   --------  ---------  ---------  ---------  ---------
5-Week Cycle......:   08/07/14   09/10/14   08/29/14   08/24/14   08/18/14
10-Week Cycle.....:   06/26/14   09/02/14   08/10/14   07/30/14   07/18/14
20-Week Cycle.....:   06/26/14   11/10/14   09/25/14   09/02/14   08/10/14
9-Month Cycle.....:   02/05/14   11/06/14   08/06/14   06/22/14   05/07/14

Our strategy is to lock in our gains in TSP should the market turn down in coming weeks. In AMP, our strategy will be to maintain our gains until the next market upturn which we think will come in November. As I always say, either way, we will make our decisions based on the charts. That’s all for tonight. Praise God for His blessing of our group!  Have a nice evening.

God bless,

Scott