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Trend table status

Trend

SP-500

R2000

COMPX

Primary

Up 7/31/20

?- 3/31/20

Up 5/29/20

Intermediate

Up 10/2/20

Up 8/21/20

Up 10/9/20

Sub-Intermediate

Up 10/15/20

Up 10/9/20

Up 10/13/20

Short term

? 10/19/20

? 10/19/20

? 10/19/20


Don Worden of Worden Brothers (makers of Telechart software) used to keep a trend table before his health issues got in the way. I always found it useful. Mine is slightly different. Hopefully helpful. Up? or Dn? means loss of momentum. ? by itself means trend is neutral. ?+ or ?- means trend is neutral with bias of up(+) or down (-)

Monday, July 7, 2014

Daily update 7/7

The bulls lost their mojo today.  Will they get it back tomorrow?  Here is the daily SPX chart.


Did the bulls have too much to drink over the weekend?  The new highs dropped down to 93 (18 in SPX).  Those were the lowest numbers since 5/20.  That was just a few days before the break out to new highs by SPX.  From May through Sept. of last year new highs dropping under 90 indicated SPX was headed down to the 100 DMA.  The record since Oct. of last year has been spotty on that.  Now that we are back in the summer months will it work again?  It certainly is a possibility we need to be aware of.  Here is a look at the futures chart.


We have red price bars now so the last rally is over for the moment.  They are still above the 18 SMA and usually when we get red bars we end up going below that MA.  That suggests there is likely more downside to come.  Lets take a look at IWM.


Small caps were really smacked today.  I had to downgrade the short term trend on the Russell2000.  Notice that IWM turned back from the spring high.  I still think this is the key index since it is the most overvalued.  If it rolls over from here I would expect more selling pressure across the market. 

This was probably not the response the bulls wanted to see from the headlines of the Dow crossing above 17000 for the first time.  What do they expect?  They kept bidding the market straight up into a very overbought condition.  Then they want somebody else to pile in to keep prices rising, LOL. 

Tomorrow will be interesting to see how the market reacts to the big IWM down day.  Do the bulls come in and buy the dip or do the bears try to pounce?  With the futures looking like there could be more downside to come it is a tough call.  I guess I won't try to guess.

Here is an interesting article from Forbes Stock Market's High P/E Suggests Lower Returns Ahead


Looking at history, the stock market’s returns depend a lot on where equity valuations are when you start the clock. Ned Davis Research has done the math, comparing the actual levels of the S&P 500 Index each month with a “normal” valuation of the index based on fundamental factors like P/E, dividends, earnings, and cash flows. They identified points when the market was over- or undervalued by at least 20% and they crunched the numbers on performance after each of these points.

The performance difference is dramatic. On average, one year after a low valuation, the market rose by 19.4%. One year after a high valuation, it dropped by 3.6%. When the market has been fairly valued, it increased 8.0%.  Also note the returns one, two, three and five years later.

Data through 5-31-2014 shows the market to be 33.240% overvalued.  This says risk is high in holding stocks right now yet it is important to note that the market could extend even further driven by QE, foreign capital inflows or the return of the retail investor.  I am simply pointing out prospects for future gains are much lower at current P/E multiples than they are at more normal levels.

There is quite a bit more in that article it is a good read.

Bob

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The information in this blog is provided for educational purposes only and is not to be construed as investment advice.