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Rally Roles Into December

On The Edge (Monthly)

December 01, 2019
ON THE EDGE

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Rally Roles Into December
Market at new highs on trade hopes.

MARKET REVIEW – DECEMBER 2019

 

The month of November took the baton from the previous month and proceeded to move higher as the DJIA, S&P 500, NASDAQ 100 and NASDAQ all posted new record highs during what is historically one of the strongest months of the year. Investors rode the coattails of October’s interest rate cut, better than expected Q3 earnings and positive comments on trade to start November. The Dow surged 989.99 points (+3.6%), closing higher on 10 of the first 12 days of the month, before the rally stalled on tariff concerns. The major averages were then range bound until the last week of the month when the market once again broke out to new record highs. Small caps finally took the lead and the Russell 2000 hit a new 52-week high as November wrapped up. A healthy appetite for risk was seen sector wise as Technology (XLK), Healthcare (XLV), Financials (XLF) and Communication Services (XLC) led the advance, while Energy (XLE) and defensive sectors Utilities (XLU) and REITs (XLRE) were the only sectors finishing in the red. The DJIA extended its monthly win streak to three, with twelve sessions where it posted new record highs, as it finished its best month since July soaring 1005.18 points (+3.7%), settling at 28051.41. The S&P 500 managed to record new all-time highs on eleven sessions during the month and jumped 103.42 points (+3.4%) to close at 3140.98. The DJ Transportation Index extended its monthly win streak to three as it gained 3.4% for the month.

 

The NASDAQ outperformed on strength in big cap technology shares with Apple Inc (AAPL) and Microsoft (MSFT) leading the charge. Semiconductors and Biotech stocks also outperformed with the Philadelphia Semiconductor Index (SOX) surging 3.97% while the iShares NASDAQ Biotechnology ETF (IBB) jumped higher by 11.47%, as it hit a new 52-week high. In addition, the NASDAQ 100 had one of its best monthly performances as it recorded eleven new all-time highs as it surged nearly 4% during the period. For the month, the NASDAQ recorded record highs on eleven sessions and gained 373.11 points (+4.50%) to finish at 8665.47. The small cap Russell 2000 posted a gain of 62.05 points (+3.97%), finishing at 1624.50.

 

MARKET OUTLOOK

The technical condition of the market improved during the month as the DJIA, S&P 500, NASDAQ 100 and NASDAQ all recorded a series of new all-time highs. The technical indicators remained in bullish ground and momentum is positive, but the different indexes were overbought by several measures as November ended. The 14-day RSI, which measures momentum, was above 70 for the major averages and some consolidation of the recent gains is overdue. The S&P 500 is trading about 7.7% above its 200-day moving average (MA). The last time the index was that extended was the week before the July sell-off. Technology (XLK), Healthcare (XLV), Communication Services (XLC), Industrials (XLI) and Financials (XLF) punched new all-time highs in November, while investors rotated out of defensive sectors Utilities (XLU) and REITs (XLRE). The Energy (XLE) sector also lagged on weakness in crude oil prices and all three sectors were trading below their respective 50-day moving average.

 

Internal breadth firmed as the month ended and the NYSE Advance/Decline line, a leading indicator of market direction, punched several new highs the last week of November confirming broad participation in the ongoing rally. The NASDAQ A/D line also rallied sharply off its low in October. In addition, the number of new 52-week highs expanded for both the NYSE and NASDAQ showing more stocks leading the market rally. Bullish Sentiment was reigned in late in the month, but VIX, a measure of fear in the market, hit its lowest reading since 10/03/18. That marked the stock market's high for the year, but interest rates were rising then vs. a more accommodating Federal Reserve.

 

Investors hoping for a trade resolution before year's end are buying the dips and that could keep the major averages inching higher into year end. However, new tariffs are still scheduled to go into effect on December 15 on China goods, and market participants should approach that date with some caution. Upside could be limited ahead of that date and investors are likely to see more volatility as we roll into mid-December. If tariffs are rolled back and a 'phase 1' trade deal gets signed however, expect the year to end on a high note.

 

 

 

CYCLICAL TREND INDEX (CTI): Neutral

Presently the CTI is Neutral at -1, down 7 units from the previous month. The count for Cycles A, C and D are bullish while the counts for Cycles B 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

15  Weeks

Bearish

C

36+  or    -4 Weeks

15  Weeks

Bullish

D

72 + or    -7 Weeks

15  Weeks

Bullish

E

216 + or   -20 Weeks

160  Weeks

Bearish

 

 

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

 

Week Ending

CTI

Connotation

11/29/19(Actual)

-1

Neutral

12/06/19 (Projected)

-3

Bearish

12/13/19 (Projected)

-3

Bearish

12/20/19 (Projected)

-6

Bearish

12/27/19 (Projected)

-6

Bearish

 

 

** 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 -  03/15/19  (23433.16 – 25887.38)

DJIA Gain/Loss

+2454.22

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

DJIA Gain/Loss

-74.53

09/03/19 -  11/22/19 (27219.52 – 27865.62)

DJIA Gain/Loss

+646.10

 

 

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

08/01/19  - 09/03/19  (26485.01 – 27219.52)

DJIA Gain/Loss

+734.51

 

MOMENTUM INDEX: Bullish

As of the close on 11/29/19, the Momentum Index is Positive at +5, down 6 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. Highs

DJIA

DJTA

S&P 500

NYSE

R-2000

NASDAQ

UTIL

A/D LINE

Nov. 2019

28036.22

11091.37

3122.03

13492.96

1602.00

8570.60

880.52

+462503

11/30/19

28051.41

10857.57

3140.98

13545.21

1624.50

8665.47

851.72

+462978

%Change

+0.1%

-2.1%

+0.6%

+0.4%

+1.4%

+1.1%

-3.3%

+0.1%

 

 

Average % Change of the Broad Market Indices: -0.1%

 

The broader market indexes are down on average -0.1% from their November 2019 closing highs vs. +0.1% for the DJIA resulting in the Bullish +5 reading. Breadth was positive during the month at the NYSE as the Advance/Decline Line gained 2505 units vs. a gain of 3955 units in October while the number of new 52-week highs surpassed the new lows on 19 out of 20 sessions. The breadth at the NASDAQ was also positive as the A/D line fell by 3169 units after losing 2040 units in October, while the number of new highs surpassed the new lows on 14 out of 20 sessions, as one session being even. Finally, the percentage of NYSE stocks above their 50-day moving average was slightly higher during the period to 69.2% from 65.5% while those above their 200-day rose to 66.0% vs. 63.5% from the previous month. Readings above 70.0% denote an overbought condition. It should be noted that Oil was down about 1.95% during the month while Gold was down 3.55% on the month.

 

 

SENTIMENT INDEX: Negative

The Sentiment Index for the month ending 11/29/19 is Negative at -2, down 1 notch 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. 0.45) is Bullish. NYSE short interest was down -0.2% for the period ending 11/15/19 vs. being down -1.7% at the end of October. Short interest at the NASDAQ was down -0.4% mid-November vs. a -0.7% decrease on 10/31/19. The Fear and Greed Index (72.00 vs. 56.80), AAII Bull-Bear Ratio (1.1 vs. 1.2), NAAIM Exposure Index (76.7 vs. 88.9), and the Total Put/Call Ratio (1.02 vs. 0.92) are Neutral.  The Percentage of Bullish Investment Advisors (58.2% vs. 54.2%), the VIX, a measurement of fear in the market, (12.62 vs. 13.22), Bullish-Bearish Investment Advisors Ratio (3.4 vs. 3.0), and the Percentage of Bearish Investment Advisors (17.1% vs. 17.8%) 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: Neutral

Based on the status of the Market Edge, market timing models, the ‘Market Posture’ is Neutral as of the week ending 11/22/2019 (DJIA – 27875.62). 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
11/27/2019  Stock reached new 52 week high of 281.91Bullish
11/25/2019  Price gap upBullish
11/25/2019  MACD ST turned bullishBullish
11/15/2019  Relative Strength turned bearishBearish
11/07/2019  Point & Figure Double Top breakoutBullish
10/25/2019  21 day SMA slope turned upBullish
10/25/2019  MACD LT turned bullishBullish
10/21/2019  10 day SMA cross above 21 day SMABullish
10/16/2019  Up/Down slope turned upBullish
10/11/2019  50 day SMA slope turned upBullish
09/20/2019  21 day SMA cross above 50 day SMABullish

**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: 28174 - Resistance - The 11/27/2019 high
DJIA: 27184 - 50-day simple moving average
DJIA: 26480 - 200-day simple moving average

S&P 500: 2855 - Support - the 10/03/2019 low
S&P 500: 3154 - Resistance - 11/27/2019 high
S&P 500: 3028 - 50-day simple moving average
S&P 500: 2927 - 200-day simple moving average

NASDAQ: 7700 - Support - the 10/03/2019 low
NASDAQ: 8705 - Resistance - the 11/27/2019 high
NASDAQ: 8249 - 50-day simple moving average
NASDAQ: 7982 - 200-day simple moving average

 

 

 

 

ETF Center: The top performing ETF categories for the month ending 11/30/2019 were: Blend-Small Cap (+4.50%), Growth-Small Cap (+3.20%), Sector-Alternative Energy (+3.16%), Sector-Healthcare (+2.59%) and Sector-Internet (+2.45%). The weakest categories were: Shorts (-2.86%), Commodity-Energy (-1.66%) and Commodity-Precious Metals (-0.52%). To review all the categories in the Market Edge universe, click on the ETFs tab.

 

Industry Group Rankings: What's Hot (61) What’s Not (30)

Of the 91 Industry Groups that we track, 61 are rated as either Strong or Improving while 30 are regarded as Weak or Deteriorating. The previous month’s totals were 76-15. The following are the strongest and weakest groups for the period ending 11/30/19. Strongest: Retail-Drug Based, Healthcare Products, Advertising and Office Equipment. Weakest: Coal, Household Products (Non-Durable), Pipelines and Oilfield-Drilling. To review all the Industry Group Rankings, click 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
Neutral
-3
As of: 11/22/2019
As of: 12/06/2019

Second Opinion Performance

Second Opinion Status

3327

Current Opinions
As of: 12/10/2019

87%

Long Accuracy
As of: 12/10/2019

58%

Avoid Accuracy
As of: 12/10/2019
Click For More Details

Market Recap - 12/10/2019

Index Close Day Change Day % Change YTD % Change
NASDAQ COMPOSITE 8616.18 -5.65 -0.07% 29.85%
DJ UTILITIES 852.58 0.8 0.09% 19.58%
DJ TRANSPORT 10629.87 -46.64 -0.44% 15.91%
DJ INDUSTRIALS 27881.72 -27.88 -0.1% 19.52%
NYSE COMPOSITE 13545.31 -9.76 -0.07% 19.09%
S & P 100 INDEX 1396.76 -1.58 -0.11% 25.39%
RUSSELL 2000 1631.71 2.09 0.13% 20.99%
S&P 500 3132.52 -3.44 -0.11% 24.95%
CBOE MKT VOLATILITY 15.68 -0.18 -1.13% -38.38%
AMEX COMPOSITE 2453.49 6.1 0.25% 7.03%
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