DP Weekly Wrap: Zoom!

Positive events resulting from the recent tax cut legislation continued to lift the market this week, bonuses and pay raises being most prominent in the headlines. I'm sure that there is a substantial element of anticipation as to the positive effects of corporate taxes being cut by 40%, but I think it will take a while before we have an accurate assessment of the bottom line. At any rate, I think we're watching prices being adjusted upward in response to the new reality.

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DP Weekly Wrap: A Record of Our Own

The market was flat for the last two weeks of December, and I thought that might be a sign that it was hanging on by its fingernails until the first of the year, when we might see some profit taking. But, no. Why take profits when the market seems to be bulletproof? I have been hearing about a lot of positive statistical 'firsts' regarding market performance in the last year, and I recently realized I have a first of my own to report.

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Market Still Overvalued, or Maybe Not

Earnings for 2017 Q3 will be finalized soon, but on a preliminary basis the S&P 500 has a P/E of 25, which is extremely overvalued. The chart below shows the S&P 500 Index (black line) in relation to where it would be if it were undervalued (P/E 10 - green line), fair value (P/E 15 - blue line), or overvalued (P/E 20 - red line). Price moved well above that range over two years ago, just before the current cyclical bull market began.

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DP Yearly Wrap 2017

Last week we were looking at a rising wedge formation, which we said normally resolves downward. This week price moved through the bottom of the wedge sideways, but that doesn't really qualify as a downward resolution, which would necessarily require price to move, well, down. Friday's price bar does convey a small burst of downward energy, but the two-week trading range remains intact. Regardless of our expectations the market still didn't seem inclined to give up any ground. That could have something to do with the new tax bill -- investors waiting to take capital gains in 2018, when tax rates are more favorable.

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DP Weekly Wrap: Bitcoin Collapse

Two weeks ago I led with a chart of the Bitcoin Index. It was in a dangerous parabolic advance, and I said: "Yes, price could go higher, but it is also at a point where the parabolic could collapse, and the potential downside is back down to the support of the basing pattern between 400 and 1000."  Well, it did go higher by about +15%, and this week it collapsed, down almost -40% on a closing basis. It is still far from the potential downside, but the danger has been clearly demonstrated.

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DP Weekly Wrap: NAAIM Exposure Index Highest Reading Ever

This week the National Association of Active Investment Managers (NAAIM) Exposure Index reached the highest reading since its inception in 2006. Rather than stay 100% invested, NAAIM members will raise or lower their fund's market exposure based upon their assumptions regarding future market action. The potential range of the Index is +200% to -200%, but historically it has ranged from slightly below zero to around +100%. This week it hit +109.4%, and as a sentiment indicator I'm wondering how we should interpret it.

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DP Weekly Wrap: BitBubble

In the DP Weekly Wrap I normally lead with a chart of the market, but this week Bitcoin was so prominent in the news, I thought a chart of the Bitcoin Index would be more appropriate. What we have here is a classic parabolic advance (the red arc), with price moving from about $400 in 2016 to almost $16,000 yesterday. Also impressive is the recent advance of +154% in just under four weeks, but we can see that the advance has become about as vertical as it could possibly be. The message I want to convey is that this kind of chart pattern is extremely dangerous. Yes, price could go higher, but it is also at a point where the parabolic could collapse, and the potential downside is back down to the support of the basing pattern between 400 and 1000.

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DP Weekly Wrap: Blowoff

There were a couple of news stories on which to blame Friday's pullback, but my opinion is that the vertical up move of the prior three days was a short-term blowoff that needed to be corrected. The blowoff is most readily identified by the rapidly expanding volume midweek, capped by a buying climax on Thursday. I usually include the SPX volume panel with the SPY chart because it tells the story of the S&P 500, whereas SPY volume is all about the ETF.

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DP Weekly Wrap: Incongruous Sentiment

When I posted the NAAIM (National Association of Active Investment Managers) Exposure Index this week, I thought to myself, "What's wrong with this picture?". To clarify, rather than stay fully invested all the time, NAAIM members adjust their exposure based upon their assessment of market conditions, and exposure can be anywhere from +200% to -200%. Although, the Exposure Index has never been anywhere close to those extremes, it does, however, give a good reading of sentiment among this group of professionals.

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DP Weekly Wrap: Buy the Dip? What Dip?

I should probably watch less business news, but I only have it on to catch any big news developments, and the sound is usually off. Nevertheless, I can't avoid some stuff that I'd rather filter out. For example, there was talk on Thursday and Friday about whether investors should be "buying the dip." To clarify, the distance from Tuesday's intraday all-time high to Thursday's intraday low was -1.2%. The distance from Wednesday's all-time closing high to Thursday's close was -0.4%. In my experience, that ain't a dip, but the discussion shows how rose-colored the crowd's view has become.

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DP Weekly Wrap: Not Out of the Woods Yet

Of my comment, "Not out of the woods yet," you might ask, "What woods?" The market, after all, did manage to grind higher this week, so what's the problem? The problem that I see is a persistent weakness in our intermediate-term indicators, but we will get into that later. More immediately, we note that this week higher prices were accompanied by much higher than average S&P 500 volume. This could be a sign of distribution.

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DP Weekly Wrap: Another Blink Moment

Last week there was a one-day decline that didn't actually last a whole day. On Wednesday this week there was a rather more robust decline, but it didn't last a full day either, and the market took back a good chunk of its losses by the closing bell. As of Friday, the market was once again hitting new, all-time highs. Well, I should clarify that most broad market indexes were doing that, but two Dow components (Chevron and Merck) had a really bad day and kept the Dow nearly flat.

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Watching Support Fade

As the Dow Jones Industrial Average (DJIA) has been moving steadily to record highs, I have observed a persistent erosion of underlying support as expressed by 52-Week New Highs for the DJIA component stocks. The New High peak in March represents the highest level reached recently, and we can see a steady decline in the number of New Highs since then. Of particular concern is the contraction of New Highs in the last few weeks, which happened even as the DJIA squirted higher for nine days straight.

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DP Alert: New BUY Signal for Crude (USO)

Today a new IT Trend Model (ITTM) BUY signal was generated by U.S. Oil Fund (USO), our surrogate for crude oil, when the 20EMA crossed up through the 50EMA. This looks like a case where the signal is a bit late in arriving due to the severe selling that took place before price finally bottomed -- the EMAs were so far apart to the downside that it took a substantial rally to pull them back together.

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DP Alert: Gold Generates New BUY Signal

Gold generated a new IT Trend Model (ITTM) BUY signal as the 20EMA crossed up through the 50EMA. In the last year there have been six ITTM signal changes, and price has been running flat for six months, a configuration that facilitates even more whipsaw. There is, however, more to the picture than is visible on the daily chart. On Friday I wrote: For several months gold has been in a trading range. Considering that the dollar (UUP above) has been falling during that time, we can conclude that there is an intrinsic weakness in gold that offsets some of the advantage it should gain from a weak dollar. Gold is heading to the top of its current trading range, but there is significant resistance being encountered right now that is not visible on the daily chart. (See the weekly chart below.) It would be most encouraging if price
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DecisionPoint Weekly/Monthly Wrap — Possible Top

There is always something for the market to wait for. Last week it was options expiration, and this week it was the Fed meeting. There was nothing new from the Fed, so there were no market hiccups as a result. SPY made new, all-time highs again this week. On Thursday price took a shot at the bottom of the short-term trading range, but it recovered by the end of the day. While the trading range remained intact, Friday's price action hinted at the possibility of a short-term top, as the daily PMO (Price Momentum Oscillator) topped.

Monday will be the last trading day of the month, but I decided to include the Monthly Wrap in this posting, gambling that there will be no significant change to the monthly outlook as a result of Monday's trading. < p class"entry-more-link">Continue reading "DecisionPoint Weekly/Monthly Wrap -- Possible Top" »

DecisionPoint Weekly/Monthly Wrap — Possible Top

There is always something for the market to wait for. Last week it was options expiration, and this week it was the Fed meeting. There was nothing new from the Fed, so there were no market hiccups as a result. SPY made new, all-time highs again this week. On Thursday price took a shot at the bottom of the short-term trading range, but it recovered by the end of the day. While the trading range remained intact, Friday's price action hinted at the possibility of a short-term top, as the daily PMO (Price Momentum Oscillator) topped.

Monday will be the last trading day of the month, but I decided to include the Monthly Wrap in this posting, gambling that there will be no significant change to the monthly outlook as a result of Monday's trading. < p class"entry-more-link">Continue reading "DecisionPoint Weekly/Monthly Wrap -- Possible Top" »