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

Chart Patterns Everywhere: Bullish or Bearish For Stocks?

Saturday, April 25th, 2015

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Link To Video

Friday, April 24th, 2015

You can find it here.

Developments In Foreign Stock Markets Are Hard To Ignore

Tuesday, April 21st, 2015

Markets Care About Money Printing

While the Federal Reserve has ended its quantitative easing (QE) program, central banks in Europe and Asia continue to implement ultra-easy monetary policies, which provide a tailwind for foreign stock markets. China announced additional economic stimulus last Sunday and more may be on the way. From The Wall Street Journal:

China’s central bank has long been critical of the bond-buying programs adopted by its counterparts in developed countries. Now, it’s pondering its own version of such easing and a close look at its balance sheet shows it has room to do just that. Under deliberations at the People’s Bank of China is a proposal that could allow commercial banks to swap local-government bailout funds for cash as a way to bolster liquidity and boost lending, according to people familiar with the talks.

Have Markets Responded?

For a weak market to become a strong market a transition must take place from a downtrend to an uptrend. The three steps needed for a trend reversal are outlined in Trends: As Easy As 1-2-3. Germany (EWG) completed step 3 earlier in 2015 by making a higher high.

A similar and important higher high was made by the EAFE Index (EFA) last month.

Land Of The Rising Sun

Japan (EWJ) recently broke out from a two-year consolidation pattern and simultaneously completed step 3, telling us the probability of good things happening on a sustainable basis are higher today than they were just a few weeks ago.

New Trend Emerging in Emerging Markets?

Emerging markets (EEM) have been laggards for years. Recent developments say the odds of flipping to the outperforming category have improved.

Breakout After Seven Months Of Consolidation

The all-Asia ex-Japan ETF (AAXJ) recently broke out in a bullish manner from a seven month base (period of indecision and consolidation).

Big Pops Speak To Changing Perceptions

Hong Kong failed to clear resistance twice in 2014 (see red arrows below). While some “give back” may be in order in the short-run, the recent breakout is positive from an intermediate-term perspective.

Six-Year Breakout

The Vanguard Pacific Viper (VPL) recently cleared resistance dating back over six years. The longer VPL can remain above the blue line, the better for the bulls.

Investment Implications – The Weight Of The Evidence

All investment decisions involve opportunity costs. We occasionally make a “chess move A” in order to redeploy capital into a better risk-reward opportunity via a “chess move B”. For example, we recently took profits in homebuilders and redeployed the cash into emerging markets (VWO). The chart below shows XHB outperforming VWO from October 2014 until late March 2015. Recently, the odds have shifted in favor of VWO relative to XHB. The charts speak to probabilities and they can assist us in the area of risk relative to reward.

Opportunity Costs

We established some small positions in foreign markets on February 20 and noted the observable improvements that were taking place overseas in a February 27 video clip. The chart below shows the S&P 500 (SPY) relative to a global stock ETF (ACWI) as of April 21. Recent developments tells us the odds have been improving for foreign stocks relative to U.S. stocks. Since all breakouts, especially those that have a vertical look, are subject to retests, “give backs”, or failures, we prefer to take a diversified approach rather than betting on a single market, such as China.

Hong Kong image (altered) from See-ming Lee via Flickr.

Is Energy About To Take Off?

Monday, April 20th, 2015

Important Week For Sector

The energy sector ETF (XLE) dropped 28% from its June 2014 high to the 2015 low. Last week, XLE completed the third and last step needed for a trend change. The higher high made on tax day (see 3 in chart below) tells us the odds of success in the energy sector are becoming more favorable.

Energy Has Been Consolidating

In a February 19 article, we noted that energy was worth having on the possible-investment radar. We have not taken a position yet – have we missed anything? Not really…XLE’s February high was $82.29…last Friday it closed at $81.91.

Sector Has Broader Implications

If energy can break to the upside, it would increase the odds of economic/market scenario three playing out. Scenario three, which involves a still-expanding economy, was described in detail on January 27.

Bigger Picture Is Also At Crossroads

If energy is unable to sustain its recent gains, it will tell us concerns remain about the economy and deflationary pressures. Like energy, the bigger picture is also at a possible point of resolution, which is the topic of this week’s stock market video.

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M&A Wave In Energy?

Another driver for energy could be an increase in mergers and acquisitions. From NASDAQ.com:

Royal Dutch Shell PLC’s (RDS-A) nearly $70 billion offer for Britain’sBG Group PLC may be the starting gun for a wave of oil deals that analysts and bankers have been predicting since crude prices started to slump in June. “This could mark the beginning of a M&A rave, much like the one we saw in the late 1990s,” Augustin Eden, research analyst at Accendo Markets, said in a note.

Investment Implications – The Weight Of The Evidence

A good baby step for the economic and stock market bulls would be for XLE to see a daily close above last week’s closing high of $82.70. If that energy hurdle is cleared, the next test comes at $84.62. Therefore, we may used a step-in approach if energy continues to have the “it may be turning” look. If the market rejects XLE at either level above, our concerns about the general market would increase. Similar guideposts for the S&P 500 include 2112, 2114, and 2119. The market will guide us if we are willing to listen with a flexible, unbiased, and open mind.

Oil rig image from mrpbps via Flickr.

Are The Bulls & Bears About To Resolve Their Standoff?

Friday, April 17th, 2015

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Most Recent Comments Via Twitter

Thursday, April 16th, 2015

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.

Can The Bulls March Through Earnings?

Monday, April 13th, 2015

Earnings Guidance

The stock market will be looking for clues about the strength of the U.S. economy when several big name companies report earnings this week.

Monday: Pep Boys (PBY)

Tuesday: CSX (CSX), Fastenal (FAST), Intel (INTC), JB Hunt (JBHT), Johnson & Johnson (JNJ), JP Morgan Chase (JPM), Wells Fargo (WFC)

Wednesday: Bank of America (BAC), Delta Air Lines (DAL), Netflix (NFLX), U.S. Bancorp (USB)

Thursday: American Express (AXP), Goldman Sachs (GS), Schlumberger (SLB), UnitedHealth (UNH)

Friday: General Electric (GE)

Are Cracks Starting To Appear?

If the market anticipates that earnings will usher in a new bear market, we would expect to see structural problems starting to form in the bullish foundation. This week’s stock market video looks for cracks in trends, the VIX, and market breadth.

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Investment Implications – The Weight Of The Evidence

Earnings will offer the latest read on the health of the U.S. economy. If guidance comes in below already low expectations, we may be forced into a more defensive posture. Given what we know as of Monday’s close, an equity-heavy allocation remains prudent. If the S&P closes below 2,039 later this week, our concerns would increase.

Binoculars image from Jeramey Jannene via Flickr

Stocks: Are Cracks Starting To Appear?

Friday, April 10th, 2015

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Most Recent Comments Via Twitter

Thursday, April 9th, 2015

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.

How Far Could Stocks Fall After Friday’s Ugly Labor Report?

Saturday, April 4th, 2015


Report Released On Market Holiday

In a bizarre holiday reporting scenario, the most anticipated economic report on Wall Street was released on Good Friday at 8:30 am.

Futures Took Hit

While the stock market was closed, the S&P 500 futures traded for 45 minutes after the ugly jobs data was moved into the public’s field of vision. The knee-jerk reaction was not pretty; the futures dropped over 19 points and closed near the session low.

A Preview Of Monday’s Open

For those scoring at home, the labor miss on Friday was significant. From CNBC:

March’s report of just 126,000 nonfarm payrolls—about 120,000 less than expected—signals the potential for a rocky start to trading Monday. The stock market was closed for Good Friday, but in morning trading, Dow futures dropped 165 points after the report.

This week’s stock market video may help lower anxiety levels concerning a logical question - will the stock market blow through support levels after Monday’s opening bell?

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Fed Speaker Monday

It is always possible that bad news gets interpreted as good news if the Fed decides to throw the market a bone or two. To complicate matters for investors and traders, New York Fed President William Dudley is the first Fed speaker of the week when he discusses the economy in Newark Monday morning. The market will also be reading Wednesday’s Fed minutes closely looking for new clues about the timing of the first rate hike.

Why Was Bad News Bad News On Friday?

If bad news was always interpreted as good news, we never would have had a financial crisis (2007-2009). At some point, the big picture gets concerning enough that the bad news becomes more important than any good news the Fed can deliver. If we think in hypothetical extremes to illustrate the point, assume the economy morphs into a recession over the next few quarters…the market may begin to say:

“The Fed is out of traditional bullets and the economy and corporate earnings are in big trouble.”

How will we know when we have reached the “bad news is bad news” point of no return? Answer: When market-friendly comments from the Fed fail to stem market declines. While the market will decide when that point has been reached, our guess is we are not there yet, meaning if Fed President Dudley wants to talk up the stock market on Monday, he will be successful. When market-friendly Fed talk fails to have its desired effect, then risk-management takes a big step forward on the priority list.