MARKET REVIEW – JULY 2019

The major averages followed a dismal May by roaring out of the gate in June. The DJIA opened the period with its best weekly percentage move of the year. Turning things around were dovish comments by several FOMC voting members that interest rates would need to be cut to sustain economic activity. The DJIA snapped a six-week losing streak and spiked 1168-points (+4.7%) over the first-five days of the month. The rally also brought the NASDAQ out of correction territory on strength in semiconductors. The stock market took another leg up mid-month as China and the U.S. prepared for extended talks on trade at the G20 Summit, while Fed Chair Jerome Powell indicated that the Federal Reserve was prepared to cut rates at its July FOMC Meeting. The S&P 500 punched a new record high on a broad based rally and the major averages extended a winning run to three consecutive weeks. Every sector finished June in the plus column led by Materials (XLB), Technology (XLK) and Energy (XLE) which gained more than +10%. Investors were cautious the last week of the month ahead of the G20 but the S&P 500 still turned in its best June performance since 1955. The DJIA picked up 1784.92 points (+7.19%), settling at 26599.96. The S&P 500 recorded a new all-time high during the month adding 189.70 points (6.89%) to close at 2941.76. The DJ Transportation Index outperformed gaining 7.43%.

The rotation back into NASDAQ stocks left the tech heavy index a chip shot away from new all-time highs. Buying in the FANG stocks and semiconductors saw the tech heavy index close back above its 50 and 200-day moving average. The Philadelphia Semiconductor Index jumped 12.56% for the month. Biotech was strong as well as the iShares NASDAQ Biotech ETF (IBB) finished higher by 9.12%. For the month the NASDAQ jumped 553.09 points (7.42%) to 8006.24. The small cap Russell 2000 closed the month on a four-week win streak and posted positive by 101.08 points (6.90%) finishing at 1566.57.

MARKET OUTLOOK

The technical condition of the market improved during the month as the major averages were all flirting with prior record highs. The technical indicators are bullish and the different indexes are all trading back above their respective 50 and 200-day moving average (MA). Breadth was mostly positive and the NYSE Advance/Decline line, which is a leading indicator of market direction, hit a new high as June ended. The NASDAQ A/D line increased to its highest mark since early May. However, the number of new 52-week highs vs. new lows was contracting as the month ended, and was negative for the NASDAQ.

Despite the positive near-term outlook for the market there are signs that are hinting that the stock market is getting toppy. For one, the S&P 500’s new high was not confirmed by the broader market and that negative divergence raises a red flag for the rally. In addition, the 14-day RSI was showing negative divergence with momentum slowing as the different indexes were stepping higher. Finally, the market finished June overbought with the S&P Short Term Oscillator closing the month at +4.5%. That could lead to some consolidation of the gains for the major averages.

While the market could hit new highs if a trade deal is reached, investors may want to be cautious as the summer heats up. As investors turn their focus on Q2 earnings that have been trending down, the market has a lot of good news priced in and stocks aren’t cheap. Also of concern is the ongoing inversion of the yield curve which has proceeded previous recessions. All that points to what could turn out to be a volatile July that might disappoint investors.

MARKET POSTURE: Bullish

Based on the status of the Market Edge market timing models, the ‘Market Posture’ is Bullish as of the week ending 1/04/2019 (DJIA - 23433.16).

CYCLICAL TREND INDEX (CTI): Bullish

Presently the CTI is Positive at +2, unchanged from the previous month. The counts for Cycles A, B are bullish while the count for Cycle C, D, and E are bearish. The CTI is projected to remain Bullish for at least one more week before going into a prolonged Bearish count.

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

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

*Market posture was neutral from 3/29/19-4/18/18

MOMENTUM INDEX: Bullish

As of the close on 6/28/19, the Momentum Index is Bullish at +5, up 2 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. 

Average % Change of the Broad Market Indices: +22.3%

The broader market indexes are up on average +22.3%% from their Dec 2018 closing lows vs. +22.1% for the DJIA resulting in the Bullish +5 reading. Breadth was positive during the month at the NYSE as the Advance/Decline Line gained 9857 units vs. a loss of 4759 units in May while the number of new 52-week highs out did the new lows on 19 of 20 sessions. However, breadth at the NASDAQ was mixed as the A/D increased 5041 units after losing 7767 units in May, while the number of new lows surpassed the new highs on 12 out of 20 sessions. Finally, the percentage of NYSE stocks above their 50-day moving average rose to 54.9% from 25.8% while those above their 200-day jumped to 56.9% vs. 40.4% from the previous month. Readings above 70.0% denote an overbought condition.

SENTIMENT INDEX: Neutral

The Sentiment Index for the month ending 6/28/19 is Neutral at +0, unchanged from the previous month. The Sentiment Index is a measurement of the degree of optimism or pessimism 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 (0.79 vs. 1.17) is Bullish. NYSE short interest was up +1.2% for the period ending 6/14/19 vs. being up +2.5% at the end of May. Short interest at the NASDAQ was up +0.7% mid-June vs. a +3.2% increase on 5/31/19. The Percentage of Bullish Investment Advisors (53.3% vs. 49.0%), the Bullish-Bearish Investment Advisors Ratio (2.9 vs. 2.8), the Fear and Greed Index (47.6 vs. 25.4), Delta Market Sentiment Index (48.2 vs. 44.1),  the NAAIM Exposure Index (72.3 vs. 59.7) and VIX, a measurement of fear in the market, (15.08 vs. 18.71) are Neutral. The Percentage of Bearish Investment Advisors (18.1% vs. 17.3%) and Total Put/Call Ratio (0.95 vs. 1.15) 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.

STRENGTH INDEXES:  Bullish

The Strength Indexes were all higher and finished in bullish territory. The DJIA soared to 70.0% from 27.6%, while the S&P 100 rose to 54.6% vs. 20.8% the previous month. The NASDAQ 100 increased to 61.8% from 18.6%. While readings above 50.0% indicate that the majority of the stocks in the index are under accumulation, it is the trend that tends to forecast future price direction. The Strength Indexes drifted higher throughout the month.                      

Take a look at the new ‘Dr. Market Edge Talks Stocks’ section located on the Markets or Home Page, directly above the ‘Market Letter (Weekly)’.  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: 24680 - Support - The 6/03/2019 low
DJIA: 26951 - Resistance - The 10/03/2018 high
DJIA: 26038 - 50-day simple moving average
DJIA: 25459 - 200-day simple moving average

S&P 500: 2728 - Support - the 6/03/2019 low
S&P 500: 2964 - Resistance - 6/21/2019 high
S&P 500: 2880 - 50-day simple moving average
S&P 500: 2777 - 200-day simple moving average

NASDAQ: 7292 - Support - the 6/03/2019 low
NASDAQ: 8164 - Resistance - the 5/03/2019 high
NASDAQ: 7858 - 50-day simple moving average
NASDAQ: 7512 - 200-day simple moving average

Industry Group Rankings: What's Hot (45) – What’s Not (46)

Of the 91 Industry Groups that we track, 45 are rated as either Strong or Improving while 46 are regarded as Weak or Deteriorating. The previous month’s totals were 27-64. The following are the strongest and weakest groups for the period ending 6/30/19. Strongest: Semiconductors & Related, Precious Metals, Toys and Health Care Products. Weakest: Oilfield-Equipment, Internet-Financial, Household Products (Non-Durable) and Media-Publishing.

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.