MARKET REVIEW – NOVEMBER 2019

October looked like it was going to live up to its ominous reputation as the worst month of the year for the stock market as weak manufacturing data renewed global growth concerns. The DJIA tumbled 1173.37 points (-4.4%) over the first three days of the month before finding support at its 200-day moving average and recouping some of the loss. Back and forth bickering between the US and China on trade, coupled with delays on a Brexit vote limited upside until better than expected Q3 earnings rolled in mid-month. Money Center Banks JP Morgan Chase (JPM), Bank of America (BAC) and Citigroup (C) reported solid earnings and the major averages were able to erase the early losses as investors banked on trade progress and anticipated a rate cut at the October FOMC Meeting. Word that the US and China had agreed to a ‘phase 1’ trade deal sparked another rally late in the month, sending the S&P 500 to a new record high, and a quarter-point rate cut as the month ended left market participants with an appetite for risk and the major averages at, or flirting with, all-time highs. Healthcare (XLV), Financials (XLF), Technology (XLK) and Industrials (XLI) led the advance while defensive sectors Utilities (XLU), Consumer Staples (XLP) and REITs (XLRE) lagged as October came to a close. The DJIA was higher for a second-straight month adding 129.40 points (+0.5%), settling at 27046.23. The S&P 500 managed to record new all-time highs on two sessions and tacked on 60.82 points (+2.0%) to close at 3037.56. The DJ Transportation Index outperformed for much of the period before a late sell-off took -4.8% off the gains leaving the index with a gain of +1.3%.

The tech laden NASDAQ also overcame some turbulence during the month and turned in its best monthly performance since June on strength from Semiconductors. The Philadelphia Semiconductor Index (SOX) which has surged nearly 17% off the August low had another strong month and finished up 5.9% during the period. The NASDAQ also benefitted from a rebound in biotech. The iShares NASDAQ Biotechnology ETF (IBB) jumped higher by 7.9%. For the month, the NASDAQ came up just shy of a new all-time high and gained 293.02 points (+3.66%) to finish at 8292.36. The small cap Russell 2000 also regained positive momentum and posted a gain of 39.08 points (+2.57%) finishing at 1562.45.

MARKET OUTLOOK

The technical condition of the market improved during the month. The technical indicators for the different indexes are in bullish ground and momentum, as measured by the 14-day RSI is positive. Technology (XLK), Financials (XLF), Industrials (XLI), REITs (XLRE) and Consumer Staples (XLP) all punched new all-time highs in October and except for Energy (XLE), all the sectors are firmly above their 50 and 200-day moving averages (MA) and showing bullish momentum.  

Breadth continues to improve with the NYSE Advance/Decline line, a leading indicator of market direction, closing out the month with new all-time highs on 10 sessions during the month. New 52-week highs are expanding on the NYSE and NASDAQ, showing more stocks are participating in the rally which bodes well for the market going forward. Finally, volume, which is looked at as a confirming indicator of price, has lagged and has been below average over the last few weeks. This indicates that traders who are short on the market haven't bought in to the market's rally, yet. A break to new highs could trigger a short covering rally that would send the different indexes sharply higher setting the market up for a Santa rally to close out the year.

As Q3 earnings continue to roll in, it looks like the numbers will continue to beat lowered expectations. Throw in ultra-low interest rates and progress in trade, and the path of least resistance for equities is higher. The S&P 500 upside target remains 3080, 27800 for the DJIA and 8500 for the NASDAQ.

CYCLICAL TREND INDEX (CTI): Bullish

Presently the CTI is Positive at +6, down 4 units from the previous month. The counts for Cycles B, C and D are bullish while the counts for Cycles A and E are bearish. The CTI is projected to remain positive into November.

The following are projected CTI readings through the week ending 6/1/19. 

** The CTI is the total of the plus and minus values assigned to each cycle based on the number of weeks that have passed since their previous cyclical bottom.  For a detailed explanation of the market timing models, click on "Market Letter Help" located on the top of the 'Market Letter'.

Market Posture Performance 2018-2019

The following is the performance record of the Market Edge ‘Market Posture’ for 2018 & 2019

MOMENTUM INDEX: Bullish

As of the close on 11/01/19, the Momentum Index is Positive at +11, up 13 notches from the previous month. The Momentum Index is a gauge of bullish or bearish divergence in the market.  Readings of +04 and higher are regarded as bullish signaling stronger performance from the majority of the broader indexes vs. the DJIA.  Conversely, readings of -04 or lower are regarded as bearish. Below is a chart of the performance of seven of the major, broad market indexes included in the Momentum Index vs. the DJIA since the last major cyclical low.

Average % Change of the Broad Market Indices: +7.0%

The broader market indexes are up on average +7.0% from their August 2019 closing lows vs. +6.1% for the DJIA resulting in the Bullish +11 reading. Breadth was positive during the month at the NYSE as the Advance/Decline Line gained 3955 units vs. a gain of 5061 units in September while the number of new 52-week highs surpassed the new lows on 20 out of 23 sessions. However, breadth at the NASDAQ was mixed as the A/D fell by 2040 units after losing 391 units in September, while the number of new lows surpassed the new highs on 12 out of 23 sessions. Finally, the percentage of NYSE stocks above their 50-day moving average was slightly lower during the period to 58.4% from 65.5% while those above their 200-day rose to 63.5% vs. 60.4% from the previous month. Readings above 70.0% denote an overbought condition. It should be noted that Oil was about even during the month while Gold was up nearly 4% on the month.

SENTIMENT INDEX: Negative

The Sentiment Index for the month ending 10/31/19 is Negative at -3, down 2 notches from the previous month. The Sentiment Index tracks thirteen market indicators that measure excessive bullish or bearish conditions prevalent in the market. Whenever the crowd becomes overly optimistic (a bearish condition), the readings from the Sentiment Index will drop into negative ground.  Conversely, when fear is rampant (a bullish condition), the index will be in the +3 to +8 area.  

The Dividend Yield Spread (0.45 vs. 0.52) is Bullish. NYSE short interest was up +1.3% for the period ending 10/15/19 vs. being up +0.0% at the end of September. Short interest at the NASDAQ was down -0.3% mid-October vs. a +0.6% increase on 9/30/19. The Fear and Greed Index (56.80 vs. 56.20), AAII Bull-Bear Ratio (1.2 vs. 0.9), NAAIM Exposure Index (88.9 vs. 64.9), the Percentage of Bullish Investment Advisors (54.2% vs. 55.1%), and the VIX, a measurement of fear in the market, (13.22 vs. 17.22) are Neutral. The Total Put/Call Ratio (0.92 vs. 1.07), the Bullish-Bearish Investment Advisors Ratio (3.0 vs. 3.3), and the Percentage of Bearish Investment Advisors (17.8% vs. 16.8%) are bearish. VIX readings under 13.00 are regarded as bearish while those above 30.0 are bullish.

**To view the charts and graphs of the major market indexes and pertinent technical indicators that are incorporated in the Momentum and Sentiment indexes go to the Market-At-A-Glance section located under Market Recap on the Market Edge home page.

MARKET POSTURE: Bullish

Based on the status of the Market Edge, market timing models, the ‘Market Posture’ is Bullish as of the week ending 9/13/2019 (DJIA – 27219.52). For a closer look at the technical indicators and studies that make up the market timing models, check out the 'Market Letter (Weekly)' located on the Market Edge home page. (www.marketedge.com).

ETF Center: The top performing ETF categories for the month ending 10/31/2019 were: Sector-Healthcare (+2.04%), Bond-Government Long Term (+1.63%), Sector-Technology (+1.17%), Sector-Telecom (+1.09%) and Growth-Large Cap (+0.75%). The weakest categories were: Sector-Energy (-3.24%), Sector-Alternative Energy (-1.22%), Commodity-Blend (-1.18%), Commodity-Energy (-0.78%) and Commodity-Base Metals (-0.72%). To review all the ETF categories in the Market Edge universe, click on the ETF Center tab.

Industry Group Rankings: What's Hot (76) – What’s Not (15)

Of the 91 Industry Groups that we track, 76 are rated as either Strong or Improving while 15 are regarded as Weak or Deteriorating. The previous month’s totals were 69-22. The following are the strongest and weakest groups for the period ending 10/31/19. Strongest: Home Furnishings/Appliances, Retail-Drug Based, Transportation Equipment and Aluminum. Weakest: Semiconductor's & Related, Advertising, Medical/BioTechnology and Household Products (Non-Durable).

Take a look at the new ‘Dr. Market Edge Talks Stocks’ section located on the Markets or Home Page.  Every Tuesday, the good Doctor reviews three stocks that have recently been in the news.  These articles will help you evaluate stocks when viewing Smart Charts and the Second Opinion reports.

Calendar Of Technical Events

**The above listed technical events occurred for the DIA on the date indicated.  DIA is the ETF for the Dow Jones Industrial Average (DJIA).

Numbers To Watch:      

DJIA: 25743 - Support - The 10/03/2019 low
DJIA: 27346 - Resistance - The 11/01/2019 high
DJIA: 26621 - 50-day simple moving average
DJIA: 26135 - 200-day simple moving average

S&P 500: 2855 - Support - the 10/03/2019 low
S&P 500: 3066 - Resistance - 11/01/2019 high
S&P 500: 2957 - 50-day simple moving average
S&P 500: 2876 - 200-day simple moving average

NASDAQ: 7700 - Support - the 10/03/2019 low
NASDAQ: 8386 - Resistance - the 11/01/2019 high
NASDAQ: 8029 - 50-day simple moving average
NASDAQ: 7827 - 200-day simple moving average

SUGGESTIONS FOR SELECTING BUY CANDIDATES

1) Initiating new long positions for an intermediate-term trading approach:

a)  Go to Stock Watch, select a list, click on the Opinion/Conditions drop down and then on Long for potential buy candidates.  Click on the Situations drop down and then on Early Entry Longs.

b)  Click on the Trading Ideas tab and then on Money Runner.  Select stocks from the Today's Buy list.

c)  For a more conservative approach, check out the ETF Center.  Choose a category that is either 'Improving' or 'Strong' and then choose ETF's with Long Opinions as potential buys.

d)  Click on the Trading ideas tab on the toolbar and then on Prime Ideas.  Choose one of the five investment styles to retrieve a list of stocks that have both favorable technical and fundamental characteristics.

2) Initiating new positions for a short-term trading approach:

a)  Click on Trading Ideas located on the toolbar.  Then click on Trading Desk and select either NYSE or NASDAQ Short Term Buys.

b)  Click on the Advanced Tools tab and then on either the Point & Figure Breakouts or Point & Figure Early Alert modules.  Look for stocks that have either broken or are in the process of breaking either a Triple Top or Quadruple Top and have a Long Opinion for potential buy candidates.

SUGGESTIONS FOR SELECTING SHORT-SALE CANDIDATES

1) Initiating new short positions for an intermediate-term trading approach:

a)  Go to Stock Watch, select a list, click on the Opinion/Conditions drop down and then on Avoid for potential short sale candidates.  Click on the Situations drop down and then on Early Entry Shorts. 

b)  Click on the Trading Ideas tab and then on Money Runner.  Select stocks from the Today's Shorts list as potential short sale candidates.

c)  For a more conservative approach, check out the ETF Center.  Choose a category that is either 'Deteriorating' or 'Weak' and then choose ETF's with Avoid Opinions as potential shorts.

d)  Click on the Trading Ideas tab on the toolbar and then on Prime Ideas.  Choose Short Sale Candidates for stocks that are considered to be broken momentum stocks.

2) Initiating new positions for a short-term trading approach:

a)  Click on Trading Ideas located on the toolbar.  Then click on Trading Desk and select either NYSE or NASDAQ Short Term Shorts.

b)  Click on the Advanced Tools tab and then on either the Point & Figure Breakouts or Point & Figure Early Alert modules.  Look for stocks that have either broken or are in the process of breaking either a Triple Bottom or Quadruple Bottom and have an Avoid Opinion for potential short sale candidates.