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Trade Winds

On The Edge (Monthly)

September 01, 2019
ON THE EDGE

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Trade Winds
Range bound market hostage to trade resolution

MARKET REVIEW – SEPTEMBER 2019

 

The major averages stumbled into a historically turbulent August but managed to close out its first down month since May of this year with its best weekly percentage gain since coming off the June lows. The month got off to a rocky start as Fed chairman Powell disappointed investors with a quarter-point rate cut, calling it a “mid-cycle policy adjustment,” and the DJIA traded lower on nine of the of the first 12 sessions.  After the White House imposed an additional 10% tariff on Chinese goods, and an inversion of the 2-year /10-year Treasury yield curve, investors rushed to the sidelines. The Dow traded lower on nine of the first 12 sessions tumbling 1741.93-points (-6.3%) as recession fears gripped the market. Back and forth trading off trade headlines and political unrest in Hong Kong led to continued volatility and kept the major averages in a trading range, but the bulls were finally able to regroup and snap a four-week losing streak headed into September. Led by a strong U.S. Consumer, better than expected earnings from Target (TGT), Walmart (WMT), Costco (COST) and Lowe’s (LOW) stopped the bleeding. Defensive sectors Utilities (XLU), REIT’s (XLRE) and Consumer Staples (XLP) were the only market groups to finish positive, while Energy (XLE), Financials (XLF), Basic Materials (XLB) and Industrials (XLI) were sharply lower. The DJIA only recorded six sessions where there was not a triple digit move up or down as a turbulent month finished off by 460.99 points (-1.72%), settling at 26403.28. The S&P 500 was also down for the month, losing 53.92 points (-1.81%) to close at 2926.46. The DJ Transportation Index was the biggest percentage loser as it was down 5.37% on the month.

 

The NASDAQ had a similar trajectory during August as the technology laden index carried a six-day losing streak to a 556.27-point loss (-6.7%) after setting a record high of 8330.21 on 7/26/19. The Philadelphia Semiconductor Index (SOX) struggled on tariff concerns as a rotation into defensive sectors led to a decline of -2.43%. However, the index was trading back above its 50-day moving average as the month ended. The iShares NASDAQ Biotechnology ETF (IBB) did not fare well either as it was down -2.53%. For the month, the NASDAQ was largely week as it lost 212.54 (-2.60%) points to finish at 7962.88. The small cap Russell 2000 could not recover from the initial rollover and finished the month down by 79.76 (-5.07%) points.

 

MARKET OUTLOOK

The technical condition of the market deteriorated during August but ended the month mixed. After swinging in a trading range for most of the month the major averages finished the period at the top of the range but remained below key moving average (MA) resistance levels. The Dow, S&P 500 and NASDAQ remained below their respective 50-day MA, while the DJ Transportation Index and small cap Russell 2000 were below their 200-day MA. The technical indicators for the different indexes had returned to neutral on the late rally. MACD ST, a short term trend following indicator, nudged into positive ground but momentum, as measured by the 14-day RSI, was neutral but showing some positive divergence. Breadth was mixed with the NYSE Advance/Decline line finishing higher on accumulation in rate sensitive Utilities, ERITs and closed end bond funds, while the NASDAQ Advance/Decline line finished lower and new 52-week lows topped new highs on all but three-days.

 

The major indexes remain range bound as we head into September which tends to be the roughest month of the year for investors. In particular, September Triple-Witching Week can be dangerous and the week after a low point for the month. Without some kind of trade resolution, look for the market to remain in its trading range as we navigate another historically rough month. Resistance levels to watch for the different indexes are 26555 for the DJIA, 2945 for the S&P 500 and 8050 for the NASDAQ. Look for a close above those numbers on higher volume to confirm a new move to the upside. At the trenches, support comes in at 2825 for the S&P 500 and 7700 for the NASDAQ. For the DJIA, 25500 is the bottom of the range with secondary support coming in at 24750.

  

CYCLICAL TREND INDEX (CTI): Bearish

Presently the CTI is Negative at -12, down 10 units from the previous month. The count for Cycles A is bullish while the counts for Cycles B, C, D and E are bearish. The CTI is projected to remain negative into September.

 

 

Cycle

Average # Of Weeks

In The Cycle

# Of Weeks Since

Previous Bottom

Bullish Or Bearish

Connotation

A

6 +  or    -1 Week

1  Week

Bullish

B

18+  or    -2 Weeks

13  Weeks

Bearish

C

36+  or    -4 Weeks

35  Weeks

Bearish

D

72 + or    -7 Weeks

80  Weeks

Bearish

E

216 + or   -20 Weeks

147  Weeks

Bearish

 

 

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

 

Week Ending

CTI

Connotation

8/30/19(Actual)

-12

Bearish

9/06/19 (Projected)

-12

Bearish

9/13/19 (Projected)

-14

Bearish

9/20/19 (Projected)

-14

Bearish

9/27/19 (Projected)

+10

Bullish

 

 

** 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

 

 

Projected Strong Periods:

 

Actual Results – DJIA

01/05/18 -  03/02/18  (25295.87 – 24538.06)

DJIA Gain/Loss

-480.14

05/11/18 -  09/28/18  (24831.17 – 26458.31)

DJIA Gain/Loss

+1370.68

01/04/19 -  03/15/18  (23433.16 – 25887.38)

DJIA Gain/Loss

+2454.22

04/18/19 -   08/02/19 (26559.54 – 26485.01)

DJIA Gain/Loss

-74.53

 

 

Projected Weak Periods:

 

Actual Results – DJIA

03/09/18  - 05/11/18  (25335.74 – 24831.17)

DJIA Gain/Loss

-504.57

09/28/18  - 01/04/19  (26458.31 – 23433.16)

DJIA Gain/Loss

-3025.15

08/0/19 -      ???       (26485.01 -     ???     )

DJIA Gain/Loss

???

 

 

*Market posture was neutral from 3/02/18-3/09/18.

*Market posture was neutral from 3/15/19-4/18/18.

 

 

MOMENTUM INDEX: Neutral

As of the close on 8/30/19, the Momentum Index is Neutral at -3, down 4 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.

 

 

 

Prev. Lows

DJIA

DJTA

S&P 500

NYSE

R-2000

NASDAQ

UTIL

A/D LINE

July 2019

27359.16

11098.99

3025.86

13239.87

1614.98

8330.21

831.73

+451218

8/31/19

26403.28

10126.98

2926.46

12736.88

1494.84

7962.88

845.52

+451431

%Change

-3.5%

-8.8%

-3.3%

-3.8%

-7.4%

-4.4%

1.7%

0.0%

 

 

Average % Change of the Broad Market Indices: -3.8%

 

The broader market indexes are down on average -3.8% from their July 2019 closing highs vs. -3.5% for the DJIA resulting in the Neutral -3 reading. Breadth was mixed during the month at the NYSE as the Advance/Decline Line gained 1053 units vs. a gain of 3685 units in July while the number of new 52-week lows was even with the new highs on 11 out of 22 sessions. Breadth at the NASDAQ was negative as the A/D line fell by -2898 units after gaining 128 units in July, while the number of new lows surpassed the new highs on 19 out of 22 sessions. Finally, the percentage of NYSE stocks above their 50-day moving average dropped to 35.2% from 69.3% while those above their 200-day fell to 47.8% vs. 62.0% from the previous month. Readings above 70.0% denote an overbought condition.

 

 

SENTIMENT INDEX: Positive

The Sentiment Index as the month ended is Positive at +3, up 5 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 (0.40 vs. 0.82), Fear and Greed Index (19.20 vs. 56.0), and the AAII Bull-Bear Ratio (0.6 vs. 0.7) are Bullish. NYSE short interest was up +4.1% for the period ending 8/15/19 vs. being up +0.6% at the end of July. Short interest at the NASDAQ was up +1.8% mid-August vs. a +0.0% increase on 7/31/19.  The Percentage of Bullish Investment Advisors (43.9% vs. 54.2%), Total Put/Call Ratio (1.09 vs. 0.83), Bullish-Bearish Investment Advisors Ratio (2.3 vs. 3.2), NAAIM Exposure Index (60.0 vs. 95.8) the VIX, a measurement of fear in the market, (18.98 vs. 13.30) are Neutral. The Percentage of Bearish Investment Advisors (18.7% vs. 16.8%) is 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.

 

STRENGTH INDEXES:  Bearish

The Strength Indexes were weaker and finished in bearish territory. The DJIA tumbled down to 10.0% from 66.7%, while the S&P 100 plunged to 18.6% vs. 74.2% the previous month. The NASDAQ 100 stumbled to 14.7% from 74.5%. While readings above 50.0% indicate that most of the stocks in the index are under accumulation, it is the trend that tends to forecast future price direction. The Strength Indexes drifted lower throughout the month.    

 

MARKET POSTURE: Bearish

Based on the status of the Market Edge market timing models, the ‘Market Posture’ is Bearish as of the week ending 8/02/2019 (DJIA – 26485.01). 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).

             

 

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

Date  EventConnotation
08/29/2019  Point & Figure Double Top breakoutBullish
08/29/2019  Price gap upBullish
08/29/2019  200 day SMA slope turned upBullish
08/28/2019  MACD ST turned bullishBullish
08/23/2019  50 day SMA slope turned downBearish
08/15/2019  21 day SMA cross below 50 day SMABearish
08/07/2019  Up/Down slope turned downBearish
08/06/2019  Relative Strength turned bearishBearish
08/05/2019  MACD LT turned bearishBearish
08/02/2019  10 day SMA cross below 21 day SMABearish
08/01/2019  21 day SMA slope turned downBearish
07/16/2019  Stock reached new 52 week high of 273.99Bullish

**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: 24680 - Support - The 6/03/2019 low
DJIA: 27398 - Resistance - The 7/15/2019 high
DJIA: 26584 - 50-day simple moving average
DJIA: 25617 - 200-day simple moving average

S&P 500: 2728 - Support - the 6/03/2019 low
S&P 500: 3019 - Resistance - 7/24/2019 high
S&P 500: 2945 - 50-day simple moving average
S&P 500: 2804 - 200-day simple moving average

NASDAQ: 7292 - Support - the 6/03/2019 low
NASDAQ: 8321 - Resistance - the 7/24/2019 high
NASDAQ: 8049 - 50-day simple moving average
NASDAQ: 7600 - 200-day simple moving average

 

 

 

 

ETF Center: The top performing ETF categories for the week ending 8/29/2019 were: Commodity-Energy (+5.12%), Blend-Small Cap (+3.89%), Sector-Energy (+3.64%), Sector-Financial (+3.43%) and Consumer Discretionary (+3.17%). The weakest categories were: Shorts (-4.31%) and Currencies (-0.41%). To review all the ETF categories in the Market Edge universe, click on the ETF Center tab.

 

Industry Group Rankings: What's Hot (20) What’s Not (71)

Of the 91 Industry Groups that we track, 20 are rated as either Strong or Improving while 71 are regarded as Weak or Deteriorating. The previous month’s totals were 68-23. The following are the strongest and weakest groups for the period ending 8/30/19. Semiconductors & Related, Precious Metals, Toys and Water Utilities. Weakest: Diversified Mining, Metals-Non-Ferrous, Oilfield-Equipment and Internet-Services. Check out all the Industry Groups and the stocks that make up the groups by clicking on the Industries tab.

 

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.

 

 

 

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Market Indicators

Market Posture Cyclical Trend Index
Bullish
10
As of: 09/13/2019
As of: 09/13/2019

Second Opinion Performance

Second Opinion Status

3334

Current Opinions
As of: 09/20/2019

65%

Long Accuracy
As of: 09/20/2019

47%

Avoid Accuracy
As of: 09/20/2019
Click For More Details

Market Recap - 09/20/2019

Index Close Day Change Day % Change YTD % Change
NASDAQ COMPOSITE 8117.67 -65.21 -0.8% 22.34%
DJ UTILITIES 862.9 3.21 0.37% 21.03%
DJ TRANSPORT 10454.36 -49.86 -0.47% 14%
DJ INDUSTRIALS 26935.07 -159.7 -0.59% 15.46%
NYSE COMPOSITE 13093.8 -17.45 -0.13% 15.12%
S & P 100 INDEX 1321.7 -6.96 -0.52% 18.65%
RUSSELL 2000 1559.76 -1.71 -0.11% 15.66%
S&P 500 2992.07 -14.72 -0.49% 19.35%
CBOE MKT VOLATILITY 15.32 1.27 9.04% -39.8%
AMEX COMPOSITE 2570.31 7.84 0.31% 12.12%
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