Good Evening,
Yesterday I talked about how confusing this market has been and in recent days I mentioned the fact that the major indices have not participated in the correction that has occurred the past few weeks. I also pointed out that I have never seen a correction that didn’t show up in the Dow and the S&P. Well it appears that I am not the only analyst to make this observation. James DePoore noted it as well in his morning commentary. He also elaborated on how difficult this market is to navigate. I have included that commentary below:
05/29/14 7:36 AM: Morning Thoughts
“With the senior indices hitting new highs and better price action in momentum, technology and small cap names it is time to embrace the uptrend and forget the top calling. While the recent correction has been a very odd one, with the DJIA and S&P500 hardly reflecting the underlying action, many stocks have shaken off their excesses and are now rebuilding their support.In the nearly twenty years I’ve been trading I don’t ever recall a correction that was as well hidden as the one we have had over the last two months. Most of the business media never even acknowledged that there was some significant selling taking place in a broad section of the market. They stayed focused on the indices that were being driven by a small group of defensive and conservative stocks.One of the consequences of this stealth correction is that many fund managers are lagging the benchmark indices significantly. There was simply no way to keep pace with the S&P500 or DJIA if you were holding growth stocks rather than defensive names.Major funds also lagged significant in 2013 and that helped to create endless support for the market as managers constantly played catch-up. The only way for them to build up their relative performance was buying aggressive buying dips and increase their long exposure. The more the market ran up the more money they had to put to work to keep pace and that is a big part of why we had so many V-shaped moves.I don’t want to sound overly bullish here as this is not an easy market. I’ve heard a great number of comments from traders lately that it may be better just to buy index ETF’s rather than try to pick individual stocks as it has become increasingly difficult to find the best vehicles. Despite the better action in the market the last week or so there still is not very clear leadership in momentum stocks. A few things have been walking up nicely like FB, GOOG, TSLA and so on but their technical patterns are not the standard momentum leadership.One interesting development has been a surge in speculative interest in ‘junk’ small caps particularly biotechnology. Traders have been shaking the bushes looking for low priced stocks that are bouncing off the lows in the hope of catch a big move. It is very risky trading but there are enough of the plays that have worked lately to keep the traders trolling for more.In summary we have a market that is back in an uptrend but with mediocre leadership and a difficult environment for individual stock picking. There are pockets of momentum but they are sparse and the overall low volume is making it more difficult.The solution to dealing with this market is the same solution that so common in other areas. We just need to keep working at it. We need to dig for opportunities, manage traders closely and fight for every advantage. The fact that we have better price action is helpful but it is up to us to execute and make some money now.We have another mild open on the way and not a whole lot of news flow. It is likely to be slow going but there should be a few things of interest.”
So the question we have to ask ourselves is this: Is the correction over and if so, should we re-enter equities? To further cloud the picture all our current charts are all giving buy signals. Especially confusing is the continuing buy signals that we are receiving from our bond funds both in TSP and on the street. While stocks appear to be topped out, current data suggests that both the Dow and the S&P 500 are 10% below their highs from the dot.com bubble of 2000 when adjusted for inflation. So do we leave the safety of bonds and chase this madness? With our charts in no mans land, it is anybody’s guess. One thing we know for sure is that we aren’t losing any money in bonds. The S&P is now up a little over 4% after the recent run, which more than doubles what bonds have done in the same time period. Problem is, the majority of the gains that were made in the major indices were made during the last five days. They have not been spread evenly over the last thirty day period as the gains from bonds have been. Do we trust this choppy action? Will stocks (which gave us 3-4% in five days) take it away in another five days? Folks, we may well end up back in the equity market, but this current action is far from stable. I would describe it as choppy. I have the feeling that, should I enter the current equity market, my capital would have about as much stability as it would have on a roulette table in Las Vegas. We definitely have much to ponder….
S&P 500 tops 1,920. It’s another record
The day’s action left us with the following signals: C-Buy, S-Buy, I-Buy, F-Buy. Now that’s clear as mud isn’t it? We are currently invested at 08/G, 92/F. Our allocation is now -2.55% on the year not including today’s results. Here are the latest posted results:
| 05/28/14 | |||||
| Fund | G Fund | F Fund | C Fund | S Fund | I Fund |
| Price | 14.4244 | 16.4244 | 24.8871 | 34.1889 | 26.5049 |
| $ Change | 0.0009 | 0.0614 | -0.0235 | -0.1045 | -0.0050 |
| % Change day | +0.01% | +0.38% | -0.09% | -0.30% | -0.02% |
| % Change week | +0.03% | +0.51% | +0.51% | +0.68% | +0.63% |
| % Change month | +0.18% | +1.32% | +1.61% | +1.37% | +1.37% |
| % Change year | +0.96% | +4.34% | +4.24% | +1.54% | +3.68% |
| L INC | L 2020 | L 2030 | L 2040 | L 2050 | |
| Price | 17.1117 | 22.3681 | 24.1606 | 25.6308 | 14.5426 |
| $ Change | 0.0010 | -0.0077 | -0.0128 | -0.0180 | -0.0129 |
| % Change day | +0.01% | -0.03% | -0.05% | -0.07% | -0.09% |
| % Change week | +0.17% | +0.34% | +0.42% | +0.47% | +0.52% |
| % Change month | +0.52% | +0.93% | +1.12% | +1.24% | +1.35% |
| % Change year | +1.75% | +2.63% | +2.99% | +3.21% | +3.41% |
Here’s what the SPY looked like today:
The market is nearing overhead resistance. This overhead resistance line is the top of a bearish ascending wedge, meaning that eventually expectation is that price will break down below the wedge. At this point, we are just waiting to see if price will turn back down after hitting resistance. The PMO is rising but has yet to reach overbought readings, which is bullish intermediate term.
Like I said earlier, it’s as clear as mud. What we do know right now is that upper resistance has been broken and we are clearly in a short term up trend. How long that will last is the ten million dollar question. I’ll keep watching the charts and I’ll let you know if a change is needed. I am feeling pressure to be in equities but I still have a buy signal in bonds. We’ll see what happens tomorrow and take a real close look at all the charts this weekend. That’s all for now. Have a nice evening!
God bless,
Scott
