Archive for the ‘Stocks - U.S.’ Category

2017 Major Top or Major Bottom?

Friday, May 26th, 2017

After you click play, use the button in the lower-right corner of the video player to view in full-screen mode. Hit Esc to exit full-screen mode.

Video

Video

Guideposts For Bulls And Bears

Tuesday, May 23rd, 2017

Short-Term Outlook Remains A Mixed Bag

While the primary trend still strongly favors the bulls, the bears have made some progress on the momentum and vulnerability fronts. The chart below shows the performance of the S&P 500 (SPY) relative to defensive-oriented consumer staples (XLP). From a bullish perspective, the ratio recently held at the 50% retracement, which leaves the door open to the uptrend continuing and the ratio going on to make a higher high. From a bearish perspective, the ratio has not made a higher high since January, which speaks to waning and vulnerable momentum. Intermediate-term bearish odds would improve if the ratio breaks below and stays below the three major Fibonacci retracement levels.

The Way Forward

This week’s stock market video highlights the importance of market fractals in the context of very long-term trends.

After you click play, use the button in the lower-right corner of the video player to view in full-screen mode. Hit Esc to exit full-screen mode.

Video

Video

Markets Like To Revisit Gaps

It is very common for markets to retest gaps prior to resuming the existing trend. Therefore, when charts have unfilled or untested gaps, it leaves the door open to future gap-filling weakness. The SPY/XLP ratio had a massive gap up after the U.S. election. The election gap was retested in April and thus far falls in the successful retest category. The ratio experienced a smaller gap up in late April. Last week, the April gap was revisited and, thus far, it appears to be a successful retest. The bears want to see price migrate below the gaps, allowing them to be classified as failed breakouts.

Bulls Want To See A Higher High

The mixed-bag theme also applies to the SPY/XLP chart below. It is hard to get too excited about the market’s tolerance for risk when the ratio below is making a series of lower highs and lower lows (see downward-sloping green trendline). The bulls have reason to hope with the recent break above the green trendline. The first pass back to the trendline held (above blue arrow). Bearish odds would improve if the ratio is unable to hold above the green trendline.

The Way Forward

Saturday, May 20th, 2017

After you click play, use the button in the lower-right corner of the video player to view in full-screen mode. Hit Esc to exit full-screen mode.

Video

Video

Most Recent Comments Via Twitter

Wednesday, May 17th, 2017

You can access them here (@CiovaccoCapital). You do not need to know anything about Twitter to view our comments or use the links to view charts.

Stocks: The Big Picture

Tuesday, May 16th, 2017

Charts Were Helpful When S&P 500 Was Struggling On April 3

Since an April 3 article, Why Odds Still Favor New Record Highs In Stocks, proved to be helpful after the S&P 500 had dropped 78 points below the March 1 high, it may be constructive to revisit the same concepts now that the S&P 500 has printed several new closing highs.

This Is What Increasing Fear Looks Like

The chart below shows the S&P 500’s 100-day moving average (blue), 200-day (red), and 300-day (green) during the transition from a favorable period to an unfavorable period (2005-2008). Moving averages allow us to focus on longer-term trends rather than inevitable day to day volatility.

Charts cannot predict the future; they simply help us better understand the odds of good things happening relative to the odds of bad things happening. The left side of the chart above shows a more favorable look with blue, the fastest moving average, on top and the slopes of all three moving averages are positive (bullish trends). The right side shows a lower probability look with blue, the fastest moving average, on the bottom and the slopes of all three moving averages are negative (bearish trends).

How Does 2017 Compare To The 2007-2008 Peak?

The charts below allow us to look at markets through an unbiased lens. Reviewing the trends below requires no discussion of politics, the Fed, or our personal views on any topic. Do trends in 2017 look more like a favorable period (point A in first chart) or an unfavorable period (point B in first chart)?

History Says Markets Could Surprise On The Upside (2017-2022)

This week’s video covers numerous similarities and differences between the early stages of the powerful 1995-2000 rally in stocks and 2017. Like the charts above, the charts in this week’s video speak for themselves.

After you click play, use the button in the lower-right corner of the video player to view in full-screen mode. Hit Esc to exit full-screen mode.

Video

Video

The Dow

Does the Dow look more like a favorable period or unfavorable period? You can decide using the charts below.

Financial Stocks

In early October 2007, just as the S&P 500 was peaking, financial stocks’ (XLF) 100-day moving average (blue) dropped below both the 200-day (red) and 300-day (green), telling us the odds of bad things happening had increased relative to the odds of good things happening. How close is the 2017 100-day to dropping below the 200 and 300-day? The answer tells us something about the strength of the long-term trends in 2017.

Small-Caps

When we take a longer-term view, the trends in small-caps (IWM) and mid-caps (MDY) remain in the favorable camp.

The NASDAQ

The same concepts apply to the May 2017 version of the NASDAQ’s daily chart.

Bullish Trends Make Higher Highs

By definition, a bullish trend makes a series of higher highs and higher lows. The charts illuminated the concepts below when stocks were in a funk on April 3:

“Therefore, if the trends shown above remain in place, the S&P 500, Dow, XLF, IWM, MDY, and the NASDAQ will eventually make higher highs after the current pullback. To illustrate the concept of higher highs and higher lows, we will focus in on the left side of the chart below, during the bullish phase.”

The chart below shows only the bullish phase (2005-2007). Notice how the pullbacks are followed by higher highs. Compare the look of the moving averages during the bullish trend below to their look in May 2017.

A quote from the book Market Wizards provides some additional insight:

“Investors tend to confuse short-term volatility with long-term risk. The longer the time period, the lower the risk of holding equities. People focus too much on the short term, week-to-week and month-to-month price changes, and don’t pay enough attention to the long-term potential.”

Richard Driehaus

The 2017 moving averages below help us stay focused on the long-term potential.

Is it possible the trends flip over in a bearish manner? Yes, it is very possible. However, the evidence we had in hand on April 3 and the evidence we have in hand today (see charts above) do not support an imminent trend reversal. If the evidence shifts, bearish odds will begin to increase. That may happen, but it has not happened yet.

Economy And Markets Starting To Roll Over?

Friday, May 12th, 2017

After you click play, use the button in the lower-right corner of the video player to view in full-screen mode. Hit Esc to exit full-screen mode.

Video

Video

Are The Bears Making Progress Behind The Scenes?

Wednesday, May 10th, 2017

This post contains updated charts as of May 10, 2017

New Highs - New Lows

Market breadth speaks to the number of stocks participating in an advance. Healthy markets tend to have positive market breadth. The chart below tracks the number of NYSE stocks making new highs minus the number making new lows. Unlike the present day, bearish divergences were clearly visible in both 2000 and 2007 as shown on April 26.

Since the S&P 500 posted a new closing highs on May 5, the chart above helps us assess the odds of a sharp and sustained reversal in stocks relative to the odds of a continuation of the existing bullish trend. As of this writing, there are no red flags on the chart above. Breadth helps with the intermediate-term (weeks), rather than the next few minutes, hours, or days.

Why Stocks May Surprise On The Upside 2017-2022

This week’s video covers 20 charts that make the case for better than expected outcomes in the stock market over the next five years.

After you click play, use the button in the lower-right corner of the video player to view in full-screen mode. Hit Esc to exit full-screen mode.

Video

Video

Equal-Weight S&P Underperformance

A May 2 post covered the recent underperformance of the Equal-Weight S&P 500 Index relative to the S&P 500 Index (cap-weighted). Thus far, the pullback in the Equal-Weight/S&P 500 ratio has stayed within the “normal retracement” zone as shown via the three Fibonacci levels below. If the ratio can hold near the three major Fibs, the odds of a higher high will remain in the favorable range. If the ratio drops below and stays below the three major Fibs, the odds of a trend change or deeper pullback will increase. The chart below shows numerous and potentially helpful concepts described in detail in this video clip.

How Vulnerable Is 2017 vs. 2011?

With the S&P 500 losing upside momentum in recent weeks, it is prudent to assess the odds of a waterfall plunge occurring in the coming days. In 2011, a 15% plunge occurred between the close on July 28 and the intraday low made on August 9.

The following charts provide some insight into the health of the present day market relative to the market’s health in 2011 before the waterfall plunge. Markets can do anything at any time. Having said that, waterfall plunges typically do not come without some type of observable deterioration already in place.

How Much Damage Was In Place Before The 2011 15% Plunge?

Moving averages help us monitor the never-ending tug of war between bullish conviction and bearish conviction. Remember, the plunge in 2011 occurred between the close on July 28 and the intraday low on August 9. The chart below shows various daily moving averages for the S&P 500 on July 28, 2011; the moving averages range from the 50-day (dark blue) to the 150-day (teal). Notice how the 50-day moving average peaked two months before the waterfall decline. The fastest moving average had also moved from the top of the cluster to the bottom of the cluster, which spoke to the magnitude of the deterioration in bullish conviction relative to bearish conviction. Also notice how tight the cluster of moving averages were on July 28, and how many of the slopes had moved from positive to neutral or negative.

The 2017 chart below allows us to compare and contrast the exact same moving averages as of May 10. Instead of making a new high months earlier, the dark blue 50-day moving average is still making new highs. Unlike the tepid slopes in 2011, the slopes of all the moving averages in 2017 look much healthier from a bullish conviction relative to a bearish conviction perspective. In 2011, the 50-day had migrated to the bottom of the moving average cluster; today, the 50-day remains firmly on the top.

Income-Oriented Utilities vs. S&P 500

Common economic sense says the conviction to own income-producing utilities would increase as economic fear increases, which is exactly what happened in 2011. The long-term trend was starting to weaken in favor of defensive utilities over two months before the S&P 500’s plunge in late July/early August.

Are similar red flags waving in May 2017? The answer is not yet. The long-term trend turned in favor of the S&P 500 back in November 2016 and remains constructive for the S&P 500 looking out weeks, months, and years. These charts do not speak to the next few minutes, hours, or days.

Stocks vs. Safe Haven Gold

When fear picks up, especially long-term fear, the demand for safe haven gold typically increases. The script was followed in 2011 with the long-term trend starting to flip in favor of gold well before the S&P 500 rolled over.

Is gold waving similar “the long-term trend in stocks needs to be watched very closely” signals on May 10, 2017? The answer is not yet.

S&P 500 Relative To Defensive Staples

If we examine the S&P 500 relative to defensive-oriented consumer staples, we see similar trend deterioration in 2011 before the waterfall decline

If large money managers were concerned about the long-term outlook for stocks, we would expect to see the conviction to own consumer staples increase relative to the conviction to own the broader S&P 500. It may happen, but it has not happened yet.

How Does All This Help Us?

The charts above help us assess the probability of good things happening relative to the probability of bad things happening. The probability of bad things happening never drops to zero.

If the Equal-Weight/S&P 500 ratio rallies above the three major Fibs, the probability of good things happening will start to improve. Conversely, if the ratio drops below and stays below all three major Fibs, the probability of further weakness in the broader stock market will increase.

Differences in asset class behavior and trend strength between July 28, 2011 (before the plunge) and May 10, 2017 tell us the present-day market has a higher tolerance for risk and stronger trends, which speaks to probabilities associated with pullbacks, the magnitude of pullbacks, and the duration of pullbacks. If the charts begin to shift in a meaningful way, the probabilities will shift as well.

Early Stages Of A Life-Changing Rally?

Friday, May 5th, 2017

After you click play, use the button in the lower-right corner of the video player to view in full-screen mode. Hit Esc to exit full-screen mode.

Video

Video

Are Defensive Assets Waving Red Flags For Stocks?

Tuesday, May 2nd, 2017

A Chart Is Worth A Thousand Words

The chart below shows the long-term trend (200-day moving average) in stocks vs. bonds rolling over in a bearish manner as the stock market peaked in late 2007.

How does the same chart look as of May 1, 2017? The answer is quite a bit better from the stock market’s perspective. The present day long-term trend turned in favor of stocks near the November 2016 U.S. election.

Income-Oriented Utilities vs. S&P 500

Common economic sense says the conviction to own income-producing utilities would increase as economic fear increases, which is exactly what happened in 2007. In fact, the long-term trend favored defensive utilities well before the S&P 500 peaked in October 2007.

Are similar red flags waving in May 2017? The answer is not yet. The long-term trend turned in favor of stocks back in November 2016 and remains constructive for stocks looking out weeks, months, and years. These charts do not speak to the next few minutes, hours, or days.

This Is Extremely Rare

Last week, the S&P 500’s weekly chart printed something that is extremely rare. The rare occurrence is the main topic of this week’s stock market video.

After you click play, use the button in the lower-right corner of the video player to view in full-screen mode. Hit Esc to exit full-screen mode.

Video

Video

Stocks vs. Safe Haven Gold

When fear picks up, especially long-term fear, the demand for safe haven gold typically increases. The script was followed in 2007 with the long-term trend flipping in favor of gold well before the S&P 500 rolled over.

Is gold waving similar “the long-term trend in stocks needs to be watched very closely” signals in early May 2017? The answer is not yet.

S&P 500 Relative To Defensive Staples

If we examine the S&P 500 relative to defensive-oriented consumer staples, we see a similar bearish turn in 2007. The long-term trend favored consumer staples for the remainder of the financial crisis, a period that included a 50% drop in the S&P 500.

If large money managers were concerned about the long-term outlook for stocks, we would expect to see the conviction to own consumer staples increase relative to the conviction to own the broader S&P 500. It may happen, but it has not happened yet.

An Extremely Rare Look On Weekly Chart

Friday, April 28th, 2017

After you click play, use the button in the lower-right corner of the video player to view in full-screen mode. Hit Esc to exit full-screen mode.

Video

Video