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PrimeMarketSignal Market Newsletter
Market Commentary will be periodically posted here by PrimeMarketSignal*
Thursday, January 17
What happened to my Bull Market?
The equities markets have been marked down quite dramatically in just these first two weeks for trading for the new year. These markets are trading at 15 month lows and are off 14 - 18% from their October 2007 highs. Many stocks and portfolios are off a good deal more. The NDX 100 closed at its August 2007 closing low today, while the other major indices have broken that corresponding value.
How have the ETF, Trader and ALPHA systems performed ?
In comparison, our trading systems in aggregate are off 3-6% from their all-time nav high values at present, and up over 30% in these previous 15 months. Their statistical risk to reward during this same time frame has been well over 5 times that of the S&P 500. This is particularly remarkable during an era when 80% of managers fail to achieve a risk to performance equivalent to that of the S&P 500 in any given year. We have always believed that the most efficient and cost-effective way to beat the market is to simply trade the entire market itself. This is at the higher range of our historical performance relative to the markets and characteristically occurs during bear market periods. This suggests a difficult time for the broader markets. But what we have had with the recent mark down is essentially a range - bound market for these past 15 months.
How has the INDEX signal performed?
The longer-term Index signal has outperformed the NDX by over 10 percentage points the past year and the S&P 500 by nearly 20% during this time frame. It is off approximately 6% since its last signal.
What is driving this move?
Ben Bernanke looked like a batter taking a called third strike today and the markets were not amused; neither have they been enamored with the chairman's performance since October 2007. This fact was pointed out here at the time with the suggestion that this was a major concern going forward.
While the markets may alternately mirror or forecast economic activity, they are first and foremost a reflection of two major factors - a. how much liquidity is in the system, and b. where is that liquidity likely to seek an outlet. Our data suggest clearly that liquidity is actually improving, while confidence is actually rapidly declining, while money is seeking an outlet elsewhere - commodities and treasuries for example. This latter factor is in great part a reflection of the false signals issued by the FOMC as it continues to be "behind the curve" as measured by the spread between short-term treasury yields and the FOMC discount rate. (see October 29 letter suggesting a difficult period ahead; it was true then and it continues to be true today). This then sets up a potentially explosive move higher in equities as liquidity is in the system but is waiting for a turn in confidence. The likelihood of this happening has risen quite significantly and this resultant price level could very well be a significant price low going forward in 2008.
Tuesday, December 4, 2007
On October 29 we warned of the need for vigilance and concern going forward for market participants. This was based upon our internal indicators projecting the perception of economic weakness in the setting of liquidity concerns in the parketplace. On November 8, we further suggested that more price declines were likely in the weeks ahead, but that higher prices were (eventually) probable.
At present, the markets continue to correct from their October and November highs. However, several factors now point to improving market conditions going forward. There may be further price volatility leading up to the FOMC meeting next week, but our analysis of current data is consistent with earlier themes. Any further significant weakness ( if it occurs ) in the major index averages will likely mark a price bottom for the weeks or possibly months ahead.
Speaking of the fed, a rate cut is nearly baked in as the spread between the 2 month or other short term bond yields is at historical highs relative to the fed funds rate. Translation: the fed is behind the curve an needs to catch up - fast.
All this may occur, and we may still continue to see renewed strength in the dollar and potential further weakness in precious metals.
Thursday, November 8, 2007
We wrote in our October 29 update:
"...certain macroeconomic concerns are becoming more evident... While it appears that these may not be particularly relevant at the present, they warrant more vigilance and some concern looking forward. "
The extent and nature of this sell-off in in equities this November has been both swift and powerful. So swift, infact, that some retracement is possible, or even probable. Yet so powerful that there is likely some more downside in store. Whether the Index Signal fires off another trade or two is a mathematical proposition. But the very nature of this decline is telling us that after that brief interval and retest, the market may be forming a base upon which to build the next rally. This alone is not enough at this point to predict new highs, but it remains likely.
We have also been watching (and actually monetizing) this move in Gold with some concern. The continued weakness of the US dollar is fueling this move. There are other reasons to believe that Gold may continue to run a bit higher this month, but the parabolic nature of this advance suggests that a reversal may begin just as dramatically.
Monday, October 29, 2007
It bears repeating because it is still the case - Nobody has been more bullish on the equities markets than PrimeMarketSignal (particularly the international markets) these past 15 months ( except quite notably for a few weeks in July and August of this year ). Nobody.
However, there is a time for all things, and while the markets continue to run higher, certain macroeconomic concerns are becoming more evident. While it appears that these may not be particularly relevant at the present, they warrant more vigilance and some concern looking forward.
The debasement of the dollar (as noted on multiple occasions here) has been occuring for sometime now. This is not news. Commodities have had banner runs. No question. But the current run in GOLD independent of industrial metals such as copper, zinc or silver for that matter is of concern. While gold may to a certain extent mirror inflationary expectations of market participants, particularly in light of what is going on with the dollar, the lack of broader participation by the industrial elements may be signaling further economic weakness. This may not be particularly auspicious for Gold itself either.
While the markets may mirror or forecast economic activity, they are first and foremost a reflection of two major factors - a. how much liquidity is in the system, and b. where is that liquidity likely to seek an outlet. The FOMC and fixed income market have made clear point a, and that cash very much continues to seek equities as a preferred vehicle.
Monday, October 08, 2007
The broader markets have this past week fulfilled what they had promised ( and we diligently conveyed to you )earlier in August and March of this year - nearly all major domestic and international index averages have now broken to fresh multiyear highs or all-time highs. (The semiconductors and Russell 2000 are exceptions at present).
One notable "fundamentalist", Louis Navellier recently stated "you'd have a better chance of dating a supermodel than timing this market". Louis, as you may know, has historically outperformed the markets with ground-breaking fundamental analysis. We think Louis really needs get out a bit more, and that he may also benefit from a subscription to the INDEX signal. Maybe then he'll have a better shot at Giselle's number.
The PrimeMarketSignal INDEX subscribers have cause to celebrate again this year! Year to date performance on 3 trading positions for UN-LEVERAGED positions for domestic and international exchange traded funds(ETF)is at present:
+30% QQQQ(NDX 100 ETF)
+52% EEM (MCSI Emerging Markets iShares ETF)
+66% IFN (India Fund iShares ETF)
+26% ILF (Latin America-40 Index iShares ETF)
+87% EWZ (Brazil iShares ETF)
+31% IEV (Europe-350 iShares ETF)
+89% FXI (FTSE China-25 Index ETF)
These ETF's have been previously identified as suitable international vehicles to trade on the INDEX signal (see Member's Market Letter May 2006 on why and how to do this). Each ETF traded on the INDEX signal has significantly outperformed its respective buy-and-hold strategy.
The 4th quarter is now underway. The INDEX signal continues to point to the probability of higher prices for the major averages this year though shorter-term price fluctuations may also be seen.
Friday, September 21, 2007
If you've been out this summer, at the close of trading September 21, the NDX 100 closed at essentially the same price as July 19's 52 week high. Most other domestic averages remain below that level. To the casual observer, not much has really happened. But for us, it is living proof of the market's peril and its promise. Indeed, nearly everyone of our market trading systems is up about 10% during this 2 month period ( and all have very significantly outperformed the markets for 2007 year-to-date, trailing 1 year and trailing 3 year performance when trading both domestic or foreign index averages).
These are some of the best verified realtime results of any unleveraged management technique available anywhere over this time frame. That speaks volumes.
In fact, strategies which have failed recently include very transaction - intensive and professional "niche" techniques such as: arbitrage/ carry trades/ distress/ dispersion trades. One reason for this has been the seeming unpredictability of the vast credit and derivatives markets. These are the kinds of strategies devised by plasma physics PhD's from MIT and the sort. Indeed, Goldman Sach's premier hedge fund, the $ 8 Billion "Global Alpha" has lost 40% this year (Bloomberg Financial). Our research demonstrates that conventional trading methodologies employed by the majority of traders and money managers fail to outperform the markets (or worse) because
1) they are market neutral to a fault as their underlying assumptions are no longer valid- the markets are rarely "neutral" for very long and their long term dispersion is rarely gaussian (read: predictable).
2) they fail to limit their downside risk through improper diversification.
3) their strategy is too expensive and complex to implement on a large scale.
4) they rely too heavily on the interpretation on available fundamental data.
These past 2 months amply demonstrate for a variety of reasons why each of these strategies has failed. We further discovered that In order to beat the markets longer term, one must either
1) trade the entire market on a set of very strict logic-driven algorithms tested over very long time frames and martket conditions, or
2) consistently identify stocks which are less vulnerable to corrections and are also more likely to recover from any external shock.
The rest of the world can try their hand at number 2. We'll simply stick with Number 1.
Wednesday, July 04, 2007
As we celebrate our nation's birthday, which happens to fall precisely halfway between the beginning and end of the new year, investors have much to be thankful for and to reflect upon. All PrimeMarketSignal and PrimeMarketTrader systems are up very significantly for 2007. All domestic and particularly the major international market averages are up for the year. In fact, 44 of 47 international indices which we track are up for the year. This is a direct result of the liquidity push the markets have been undergoing, which we clearly mentioned last August, and again this March. In the short term, the markets may see further volatility as prices attempt to advance higher. Meanwhile, gold and precious metals may be searching for a bottom in this process, while energy and oil services continue to attract capital.
In the coming months PrimeMarketSignal will be launching one of the world's most advanced commercially available trading platfrms - for state-of-the-art programmed trading which will allow participants to trade commodities, currencies, domestic or international index futures from a single platform. With all of the power of PrimeMarketSignal's market leading AI systems-based approach to trading. On your computer trading your brokerage account. With you directly plugged in to all that is happening. There will be more on this in coming updates.
Wednesday, April 18, 2007
Let's see...CPI, inflation, slowing growth, Fed watch, subprime crisis, commodities bull, oil prices, etc, etc. Once again, it is abundantly clear that the markets will serve as the best guide to their further intentions, and to the relevance of incoming data. Many of the broader markets have now registered new highs in the six weeks following the late February precipitous drop. The international markets have done even better. These reaction levels for the major domestic averages are at present higher by 5% or more from the date of the PrimeMarketSignal March newsletter outlining the basis for such a move. This falls in the lower end of the range of the anticipated move, and furthermore, there are more data coming in at present which suggest that there is likely more room to run.
The markets have not taken note of the drop in the US dollar index and rising commodities, oil, and gold during this time frame. At some point this apparent new-found correlation between the broader equities markets and commodities, oil and gold will break down.
Equities may be the relative beneficiaries of this eventuality in the intermediate term, but for now major resistance levels loom ahead which could lead to short-term price volatility in the days ahead. Since the last major PrimeMarketSignal INDEX signal was issued, the S&P 500 Index has gone up an incredible, (and highly unusual) 14 of those 16 months. The system also elected to ride the bull market with very significant price appreciation in all the major domestic and international index averages during this time frame. In fact, many international averages are up over 50% during this time frame. It is easy to see in retrospect why such a move would have been the optimal position to take. The INDEX system actually saw this prospectively - both in terms of the direction of the move and the lack of necessity to trade the move itself !
Because of the demand of The ETF- trader system, we will be offering it to INDEX subscribers at a discount ( we believe in making good things more accessible, not less so ). At 25-40 trades per year, it seems to fit well with the style of many of our clients. The superb real-time performance stats these past 3 years are a plus as well.
Thursday, March 29, 2007
On March 01, 2007 we mentioned the INDEX system computed a very significant statistical likelihood that after a brief lull, the markets would produce a higher price in the coming weeks than the February 27 closing price. The subsequent S&P 500 peak at 1437 and 1422 current value attest to the validity of that analysis.
Looking back to the beginning of this move, on June 05,2006 we stated: "In the shorter-term, we are also looking for a possible retest near the lows in a 2 week time frame.
On June 14, 2006 we wrote: "This spectrum of activity is better correlated with significant market bottoms, rather than market tops." Most newsletter publishers
were quite bearish at the time. This was the day following the exact technical bottom for the S$P 500 for 2006 at 1223. The S&P 500 has rallied nearly 20% since then.
The point is that the markets will shake out the speculators during an uptrend, and then the major trend will reassert itself. The key, of course, is to recognize that a new downtrend has not started. The reason we mention this is because the markets are at an important juncture. There is a state of higher price volatility which may continue during the next 2-5 days. There may also be further deterioration in
participant's sentiment, at which point a favorable retest of lows may have occured.
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Thursday, March 1, 2007
Unless one were completely removed from any contact with the outside world, the broad market sell-off this week is not news. What is news is the degree of immediate attention this sudden, apparent drop in the markets has gotten in all manner of media and from proclaimed punditry. For the moment let us not focus on the reasons why this may be happening, but rather recognize the mere fact that it is.
A feature that has been quite distinctive of the trading this week is the extremely heavy volume, with the NASDAQ and NYSE exchanges setting records. This was not limited to the equities exchanges, as the CBOE reported record traded options volume. It seemed that everywhere one looked, someone was positioning for something or perhaps anything. That is what volatility looks and feels like, though implied volatility was by no means at a record level.
But what can we glean from any of this - is there a historical blueprint or precedent? Just as importantly, how does our quantitative system view this activity?
THE DATA
When we look at various inputs for the S&P 500 (the best proxy for the broader market in our opinion) 34 statistically similar instances from 1998 - 2005 have
occured. All 34 selloffs produced reaction highs above the level corresponding to Tuesday's (Feb 27) closing price. The mean reaction high was +11% with half of all returns above +9%. 2 out of every 5 instances yielded reaction highs distributed equally above +20% return, or below +6% return. This level of return vs statistical risk equates to about 2.5 times that of the historical buy and hold for the S&P 500 as a whole.
THE PRIMEMARKETSIGNAL INDEX SYSTEM
Our system's objectives are capital preservation, followed by capital appreciation. It has had outstanding performance, and seeks to balance returns with minimum risk by trading the broader averages. The system recognizes trends, the likely market direction, and then determines if the current market move is "tradable" within the constraints of its stated frequency, which in turn is determined by market parameters.
PLEASE SEE FREE TRIAL at www.PrimeMarketSignal.com.
THE ETF TRADER SYSTEM
It had been largely in cash since last Thursday, is near its highs in performance and is now back in today ( Note this is a high frequency system under these conditions ). It has demonstrated truly outstanding performance since its introduction in JUNE 2006, and more of you need to be on this thing. PLEASE SEE FREE TRIAL at www.PrimeMarketTrader.com, or drop us a line.
PUTTING IT ALL TOGETHER
The conditions statistically favor investing in this environment. THe BEAR MARKET has not yet begun. Prices will likely be higher, possibly dramatically so in
near to intermediate-term ( weeks or months). There is also a clear possibility that prices may still go lower, though at this time the risk reward ratio does not favor an aggressive short trade.
Wednesday, February 14, 2007
We have often made note of the discounting mechanism that is the equities market. Fundamental data received by traders is very often anticipated by the markets. Today, very quietly, and without much fanfare both the Dow Transports and Dow
Industrials simultaneously closed at all-time highs. Dow theorists will note that this has historically been a favorable leading indicator of macroeconomic conditions. Dr. Bernanke's comments today did nothing to dissuade traders from this same conclusion. Broader averages, including the Wilshire 5000, the NYSE Composite Index, as well as the S&P Midcap Index all hit new closing highs today, while the S&P 500 notched a fresh 6 year high. International markets have also continued to head higher these first 6 weeks onto the new year. Significantly, gold once again appears to be rising relative to all major currencies, while the the dollar fell at support and treasury yields dropped.
The short-term sustainability of this market advance remains in question given the continued relative under-performance of the Nasdaq 100 and Nasdaq Composite, which remain in a trading range. The ongoing lack of participation by the semiconductors is also a potential limitation. Significant resistance levels are ahead, but market dynamics and internals appear favorable for the moment.
Wednesday, January 25, 2007
In our previous posting we were looking for a broader level of participation by advancing issues in the markets. This breadth across market sectors provides
important clues as to the market's overall health. What is notable about today's market activity is that many of those same broader domestic and international
index averages hit all-time or multiyear highs. This includes some of the broadest representations of stocks on the market; the NYSE Composite, the Wilshire
5000, the S&P 500 Large-Cap Index, and the S&P 400 Mid-Cap Index - all manner and sizes of stocks from large caps to small caps.
The financials are seen to be leading the S&P higher. However, the lack of participation by the semiconductor index and the recent underperformance by
the Nasdaq are notable. The Nasdaq is still off its highs but appears to be attracting some capital flows of late. Key segments of the Nasdaq including the internet issues, software, telecom, biotech, and hardware manufacturers appear to be gaining traction once again. In the near-term, there will likely need to be a greater level of participation form this end of the market to keep things moving ahead. One area of the markets which was red hot for the past 2 years, but correcting lately - the commodities and energy issues at the present appear to be attracting buying interest as well.
Wednesday, January 10, 2007
With only a handful of trading days thus far in 2007,it is premature to make far-reaching statements. However, on the first trading day of the year, we mentioned that commodities, precious metals and energy were being aggresively marked down (unlike most of 2006), and how foreign markets were once again poised to outperform their domestic counterparts(very much like 2006).
What is happening now is that the larger-cap technology stocks as best represented by the Nasdaq 100 appear to be gaining traction at the expense of smaller cap stocks, the broader averages, as well as the afore-mentioned energy and commodities sectors. This apparent rotation out of old industry stocks is very much a reversal from much of 2006, when the broader averages, small and midcaps handily outperformed the large-cap Nasdaq 100 index. What this means is that we are witnessing a less powerful, narrowed move where the averages are advancing, but many sectors and stocks are not. While this relative strength by the Nasdaq 100 is a net positive for the market as a whole, the rotation out of other sectors suggests that it is not necessarily new money which is driving this advance. Major resistance levels are
being approached and the markets may need a broader level of participation to overcome these barriers.
Wednesday, January 03, 2007
Trading for the year 2007 started with many of the international markets outpacing the domestic us markets. This was more than evident in 2006 as the best performers were all international or emerging markets. Commodities, oil and energy issues were sold off on above-average volume today while the broader averages finished mixed or largely unchanged on the day after an intra-day sell off prompted by the FOMC minutes release suggesting a heightened concern about inflation.
Market participants enjoyed a strong year in 2006, as did PrimeMarketSignal and PrimeMarketTrader subscribers. As we start our fourth year of trading our systems for subscribers, we recall that all of our systems have very significantly outperformed the major averages on an unleveraged basis these past three years. This is particularly noteworthy because we have
had a strong, but aging bull market during this time frame. It is particularly difficult for long-short systems, or anyone else for that matter, to outperform the averages during a bull - phase using unleveraged positions.
While the spring of 2006 was difficult, it was also a time where many gurus and market experts were predicting a bear market. Those experts have now very significantly underperformed these past 6 months. PrimeMarketSignal INDEX system saw the scenario for what it really was - a unique opportunity for traders to enter positions, or patiently maintain their positions. It was a point that we highlighted with particular diligence to our members. This is precisely the kind of independent analysis that members expect and will continue to get from us.
The member's page Sunday this week will highlight several points as we look back to 2006 and look ahead to developing trends in 2007-
1. The strong correlation among major domestic and international markets. How this can work for you when you use the INDEX system to lower risk and maximize returns. We mentioned several ETFs traded on the North-American exchanges in early 2006 to help you diversify your portfolio. Many of those were among the Chinese, Russian, Indian, Latin-American, and European markets, all of which outpaced the domestic averages by a significant margin in 2006.
2. Why it is important to stay with your particular system (ETF, TRADER, ALPHA1, INDEX) when you're trading the averages.
Tuesday, December 20, 2006
The US markets shrugged off initial concerns noted in the international markets about restrictive Thai banking regulations as well as the PPI number this morning. This apparent resilience is notable, and telling about the character of this market- not unlike a prize fighter being able to get off the canvas.
However, the market advance is evolving as noted in our previous updates. Leadership is now coming from value issues over growth. Within the value arena, the strength is increasingly seen in larger cap issues. This suggests a mature bull market advance, and may be foreshadowing the market's perceptions of both the interest rate environment and trends in the currencymarkets going forward.
Broadly speaking, while the semiconductors and networking issues continue to lag, the NDX 100 continues to be mired within a trading range. Leadership is being provided by the financials, retailers, utilities as the S$P 500, DOW and other larger-cap indices propel the broader markets forward.
A rare second chance for those who missed out on the 6 month rally and the up move this entire year - You can now sign up again for free trials on the INDEX and ETF Trader systems, and also take advantage of our reduced holiday rates on some of the top performing systems on timertrac.
Thursday, December 07, 2006
All major averages are up significantly for the year and in particular the past 4 months of what can only be described as a 3 1/2 year bull-market trend.
The Nasdaq 100 and Nasdaq Composite notched multi-year highs on Friday, November 24, and of late have been "digesting" those gains. The broader market averages including the S&P 500, Russell 2000, NYSE Composite, Wilshire 5000, and many international indexes have recorded new highs as recently as this week. The strength of this trend has weakened a bit, and the weakness of the Nasdaq relative to the other markets
of late is also of some concern. However, recent price activity suggests that the markets are now shifting focus, and seeking neutral ground ahead of the jobs report tomorrow and the FOMC meeting on Tuesday. Support levels are approximately 12125 for the DOW Industrials, 1395 for the S&P 500 and 2375-2400 for the Nasdaq Composite.
The US Dollar has been in secular a downtrend (it has lost 33% of its value since late 2002) and appears to be headed for a test of a twelve year support level. This has provided a backdrop for both precious metals and energy to rally. For the moment, gold appears to now be pulling back some from a test of its September highs as the dollar probes the aforementioned support.
Thursday, November 17, 2006
The CPI and PPI data for October released this week revealed what the market has been intimating for the past several weeks - a softening of inflationary pressures, with falling yields and rotation out of energy and commodities into technology, semiconductor, and retail stocks.
This has resulted in a bouyant market environment in general. PMS has often mentioned that these types of data are not uncommonly factored by the market prior to their release - while the market itself is the best predictor of such future
trends. What is significant now is that the broader markets are suggesting a possible continuation of this trend. Rate-sensitive issues are advancing, with retailers, home builders, and the consumer - discretionary sector being beneficiaries. In addition, oil hit a new low for the past year dropping another 4% today, and the Oil Service HOLDR (OIH) is in the process of failing its 200 day test on significant volume. Basic Materials and Precious Metals have not fared much better. The Philadelphia Gold and Silver Index (XAU) is failing at its own 200 day average. This is in line with the market beginning to price a rate cut in the early part of 2007. The Philadelphia Semiconductor Index (SOX)has now passed its 200 day average. Continued relative strength here will be necessary to fuel the Nasdaq's continued run. Meanwhile, the airline index (XAL) had a technical breakout this week to a multi-year high. All this has not been lost on the DOW Transports. While not yet having "confirmed" the Industrials' breakout, the Transports have actually out-performed the Industrials the past 6 weeks, and now stand a few percentage points from a new high. Purists will note the potential significance of a "confirmation" with break-outs of both the Dow Industrials and Transports. Meanwhile virtually every other major index has by now achieved what the PrimeMarketSignal INDEX system has been predicting for some time - a break-out to new highs. The Nasdaq 100 and Nasdaq Composite have been notable additions to that list of late. Market liquidity continues to improve of late powering this run to new highs.
PrimeMarketSignal's quantitive methodologies produce highly effective trading and investment systems for use by virtually any type of trader or investor. Please visit us at www.PrimeMarketSignal.com and www.PrimeMarketTrader.com to learn more about our products and services.
Tuesday, November 07, 2006
While the major domestic averages such as the S&P 500, the Dow Industrials, and international markets have been registering new highs this past month, the Nasdaq Composite has lagged. Today the Nasdaq Composite hit an new intrday high, but did not close at that level. A breakout in the Nasdaq would be very significant for the equities markets as a whole. The semiconductor index ($SOX) had a strong day and appears to be challenging its 200day average. It has notably lagged both the broader markets as well as the Nasdaq during this run, but appears to be attracting a higher proportion of capital flows the past two weeks. Participation by the Nasdaq in general and the Semiconductors will be critical for the markets to march forward from here as significant technical levels are being probed once again. It has been a volatile year for the markets and for most money managers as a whole, but PrimeMarketSignal INDEX, ALPHA, ETF, and TRADER SERVICE subscribers have unquestionably been on the right side of the trend. Whether you manage the most important account in the world (your very own), or many hundreds, and whether you frequently or sparingly trade the broader averages, PrimeMarketSignal understands your needs. We employ exceptional timing systems for use with variety of trading
strategies and platforms
Thursday, October 12, 2006
The broader markets continue their ascent, with the S&P 500, S&P 100, Dow Jones Industrials continuing to notch multi-year or all-time highs. Meanwhile, the Nasdaq Composite and NDX 100, and Russell 2000 are beginning to show some relative strength as well. This suggests that the market is becoming less risk-averse even as its more staid components notch regular highs, and while these broader markets become "overbought". The increasing recruitment of advancing sectors reflects a favorable symmetry to the recent market advance. The Semiconductors reached a significant technical threshold today, while the financials, biotechs, and retailers have been attracting capital for some time now.
The markets are overbought in the shorter-term, but the technical nature of this advance is encouraging. As mentioned earlier, this advance has greatly benefitted from the rotation of capital out of the commodities sectors. But what is new is that this capital, which was initially being put to work in the more risk-averse sectors of the index averages, is now spilling out into more risk-sensitive sectors of the broader markets. Hence the Semiconductor, NDX 100, and Nasdaq Composite gains of late. Energy, precious metals, and commodities have been correcting for several months now and appear to be reaching significant levels from which a rebound is possible.
This suggests some form of pullback in the broader markets is also likely, yet the nature of this advance clearly appears to be more balanced compared to several weeks ago. More of the same will be absolutely necessary to push the rest of the index averages above major resistance levels. The markets are at present pricing a favorable environment going forward, while creating a technical backdrop which may be better suited to withstand unexpected macroeconomic challenges which may lie ahead.
Friday, October 06, 2006
The broader equities markets have continued to attract capital this past week sending the Dow Indusrials, the S$P 500, S$P 100, Wilshire Total Market Indices to multiyear or all-time highs.
The PrimeMarketSignal INDEX system predicted very early on in 2006, based on strictly quantitative inputs- quite correctly - that new highs would be reached this year, and furthermore, that the markets would best be traded in a low frequency manner. This
explains the unusual frequency of signals thus far in 2006. This was pointed out in member's letters during the spring. The fact that it was clearly pointed out bear market was not yet forthcoming was particularly relevant in that it has allowed for the continued introduction of assets to the markets which have since dramatically appreciated.
It has also been stated that the performance of smaller cap isssues is important to the market's health. While the Russell 2000 has been lagging recently, it is quite close to new highs and is significantly above its 2000 levels, as are the DOW
Industrials and the DOW Total Market of Industrials,Utilities, and Transports. So select broader markets, and larger caps are doing well of late.
However, the Nasdaq Composite and NDX 100, in particular are lagging this year, though they have outperformed the broader averages recently. There has been also a discernable shift in market preference to Large Cap Stocks, as the earlier focus on commodities, precious metals, and energy issues has shifted. In our last letter, it was pointed out that the performance of these issues would have a very direct impact on the markets and economy going forward, and would be a leading indicator on the economy, and give some guidance as to the market's turn. That has since come to pass.
Macroeconomic factors evident now are favoring capital flows to US markets relative to foreign markets with with the drop in oil, precious metals and commmodities, a drop in commodity based foreign index averages, along with a concurrently stronger US
Dollar. As noted earlier in our members section, a stronger dollar supports US equities relative to foreign equities, and alleviates pressure to raise rates. This, in turn, is beneficial to rate-sensitive sectors of the economy.
The continued performance of the Nasdaq, cap issues will be important as the Nasdaq
market in particular continues to test pockets of overlying resistance.
Subscribers to the newly introduced ETF Trader system in June have met with dramatic success, and we thank the many of you for your kind and instructive comments of late.
Tuesday, August 08, 2006
After 17 consecutive rate hikes to bring the Fed funds rate to 5.25%, the FOMC did not raise rates today. This move was anticipated by the markets. The question on the market's mind is whether inflation can be firstly properly quantified, and then secondly, controlled in a manner to leave enough stimulus in the economy to avoid a recession. The markets have been weighing the prospect of this scenario.
Clearly, the price activity in the rate-sensitive sectors of the markets has reflected the anticipation of a slowing economy. How so? Utilities, healthcare, consumer staples, and energy stocks - all of which attract capital during an economic slowdown have generally out-performed the S&P 500 the past quarter.
In addition, housing and retail, and transport sectors are also offering this conclusion. So the fact that the economy is slowing comes as no surprise to the market. It has been predicting this for the past 4 months - once again confirming our view that the best leading indicator for the economy is in many respects, the market itself.
Many economists and pundits are now telling us what the market has been predicting all along! Yet the market is now not concerned with this - it is concerned with the next 6-9 months, and its pricing patterns will reflect this anticipation. This accounts for the perennial disconnect between economic forecasts and the actual performance of the stock market.
The PrimeMarketSignal Index system is now and has been detecting strengthening market internals during this seasonally weak period for the markets. This suggests the likelihood of continued price volatility on the horizon, during which time the recent lows for the NDX 100 may be revisited. The other major averages have been significantly stronger than the NDX 100, and are less suited as candidates for a re-tests at this time.
Logically, the markets will conclude one way or the other on this question at hand, and the Index Signal will indicate the market's intentions. For those inclined to a more nuanced approach on the daily and weekly inclinations of the markets, our shorter-term ETF TRADER signals have delivered information leading to exceptiional trading opportunites this year.
Thursday, July 13, 2006
Since our note on June 14 identifying short-term conditions favorable for the broader markets, and overall conditions favorable in intermediate - term, the major averages have produced tangible gains. At present, they have for the most part produced higher lows which are being revisited, or surpassed in some limited instances. As also suggested, the NDX 100 and the semiconductor index have remained on the defensive. Yes interest rates, the economy, etc, etc... they all matter- Yet our data suggest that the markets have been bothered by something else - not yet tangible or fully disclosed. Perhaps this is one source of the market's angst - Adding fuel to the fire has been the mounting instability in the mid-east as well as efforts by the "usual suspects" to attract some global attention. Yet, the markets have pretty much discounted the fact that there has been no real leadership coming from anywhere on these issues. But as noted last July in our market letter, this recent form of instability is never good for the markets in the immediate shorter-term. If the disruption can lead to a definitive course of action, or remove the uncertainty surrounding the event, the overall market dynamic reasserts itself, sometimes dramatic fashion following the period of instability. Recent examples of this are the July 2005 London bombings, Hurricane Katrina, and even 9/11. The markets continue to be vulnerable to shorter-term price dislocation, however that time frame for further deterioration in the markets is narrowing.
Wednesday, June 14, 2006
Central banks across the globe appear to be draining liquidity and tightening credit.
Though today's cpi from May suggested creeping inflationary pressures, current pricing in the commodities, precious metals, bond and energy markets for the first time in a year now suggests that concerns about future inflation may be overblown (please forgive the pun). These markets suggest that deflation, or perhaps a salutatory disinflationary environment may be of equal or greater likelihood.
This is what we stated in our June 05,2006 Market Update: "In the shorter-term, we are also looking for a possible retest near the lows in a 2 week time frame. That window would potentially fall squarely on this coming week. It follows that there may be potentially significant price volatility accompanying this process - made more so given the intervening deterioration in investor sentiment, while internals have modestly improved... This means that there is now potentially more risk, and also more opportunity in the marketplace." This spectrum of activity is better correlated with significant market bottoms, rather than market tops." BTW, that retest felt more like a qualifying final exam, didn't it? It is supposed to feel that way. It also
serves to flush out the speculators and fast money prior to setting up an attempt at the next leg up. Whether this occurs, and whether that translates to a new high down the road is/will be a matter for future discussion.
Regardless, given the significant technical damage which has to be worked off, there is likely to be more stop-and-go price movement in the indices going forward.
Sunday, June 04, 2006
This is what we stated in our May 25th Market update:
" The rapidity and degree of technical deterioration, as well as the overall market sentiment are not yet
consistent with a bear market. This would appear to be contrary to the opinion of the vast majority of market
participants and newsletter publishers. This spectrum of activity is better correlated with significant
market bottoms, rather than market tops." Nothing since then has changed this technical outlook.
In the shorter-term, we were also looking for a possible retest near the lows in a 2 week time frame.
That window would potentially fall squarely on this coming week. It follows that there may be potentially
significant price volatility accompanying this process - made more so given the intervening deterioration in
investor sentiment, while internals have modestly improved. Our systems have been forecasting a rise in
market volatility for about 12 months now, and the markets themselves have followed suit these past 6
months. This means that there is now potentially more risk, and also more opportunity in the marketplace.
Thursday, May 25, 2006
The broader domestic and international markets, commodities, and gold have proceeded in concert to correct following our May 5-8 Sell signals issued on our short-term timing models. Much of the selling was in commodity-based issues, international emerging markets, precious metals, and energy stocks. Looking ahead, from a technical stnadpoint, bonds appear to be making a significant bottom, while the correction in gold is likely to continue after a brief respite or retracement. Getting back to the stock market, the rapidity and degree of technical deterioration, as well as the overall market sentiment are not yet consistent with a bear market. This would appear to be contrary to the opinion of the vast majority of market participants and newsletter publishers. This spectrum of activity is better correlated with significant market bottoms, rather than market tops. Unless, of course, "this time it is different". While there is a great deal of intermediate-term resistance, and a good deal of work to be done from here,the markets maintain a bullish stance. Essentially this means that the markets are better positioned to go higher rather than lower from here. There is a significant likelihood, though not a certainty, of a retest of the recent market lows in the near-term (1-2 week time frame) following the completion of this bounce. It is also possible that the NDX will continue lag other index averages (as it has done in the past 2 years) during this period going forward.
If you'd like to know more about our shorter-term timing systems, drop us a line. We'd like to hear from you. To mention again,we will be covering in greater detail the topics noted in the members section over the next month. Particular focus will be on the utility of the INDEX signal. Best Wishes for a safe holiday.
Friday, May 19, 2006
IN the MAY 2006 Member's Market Letter:
How to Use the INDEX Signal
Do you recognize IWM, MDY, IWO, IFN, EEW, to name a few?
How Does the INDEX signal perform in Emerging Markets?
Is it better to trade more than one ETF with the INDEX signal?
Can we improve upon the concept of Modern Portfolio Theory? PART I
Wednesday, May 10, 2006
As had been widely anticipated, the Federal Reserve raised the benchmark interest rate to 5.0%. The
markets had been widely discounting this rate increase. Recent weakness in the dollar, coupled with
the run up in commodities, oil, and precious metals continues to test the credibility of the FOMC on this issue. At present, the Fed fund futures are currently projecting a less than 50% chance of a rate increase in June, but a significant chance of another rate increase in August. This appears consistent with today's policy statement suggesting that relevant incoming data will be evaluated as it is made available in order to guide the FOMC. The markets, in turn are hoping for just that- a properly guided and calibrated interest rate policy which also works to prevent a sudden economic slowdown. Despite all of the news (and how much of it as really been positive) the opportunity now exists for just that to occur. If so, the markets will react quite favorably. This is particularly relevant in light of the generally and recently increasing bearish sentiment among market
participants.
If you have been trading on the INDEX signal either International ETF's, the domestic Small Cap (Russell 2000) or Mid-Cap (S$P 400), the S&P 500 or Dow Industrial Large Caps, or a variety of sector funds, or stocks, it has been a very profitable past 6 months. In the member's section this week, there will be a discussion on the use a variety of investment vehicles, and strategies with the INDEX Signal. "How to Make Use of the INDEX Signal".
Wednesday, April 19, 2006
As suggested in our column several weeks ago, the Nasdaq Composite notched a 5 year closing high. New closing highs were also registered on the Russell 2000 Small Cap and S&P 400 Midcap Index Averages. This is in the face of rising yields, an all-time closing high in crude oil, and a cpi which today suggested a blip up in the core inflation rate for March. Purists will suggest that this is already "old data", and the current price of commodities, oil, and precious metals is a more accurate reflection of inflationary tendencies. The Nasdaq 100 (large caps) continue to lag, not yet having tested its yearly highs at 43.31. Nevertheless, the markets anticipate future economic conditions, and the strength of this advance is palpable. But the markets, in particular the semiconductors, and the Nasdaq 100 will need to get "over the hump" as significant resistance levels loom straight ahead. This is by no means a
certainty and it will have significant implications for the broader markets.
Thursday, April 06, 2006
As suggested in our March 14 column, the markets have been bolstered by the prospects of rate hikes coming to an end. Since then, all major averages have either broken out, affirmatively tested significant support levels, or or are in the process of doing so. Small Caps and Midcaps, sensitive to higher interest rates have been outperforming the larger cap issues. These prospects are also likely influencing weakness in the US Dollar relative to both the EURO or Yen, both of which may be pricing higher rate environments domestically relative to the US. Rising commodities, and gold in particular are also indicative of this trend. The Nasdaq 100 now seems to be attracting capital inflows. It is likely preparing for a test of its yearly high. If history is any guide, both semiconductors, and Internet issues will need to participate. They are both exhibiting technical signs of bottoming. Looking at the months ahead, while the simultaneous strength in transport issues, and commodities and oil may be signaling a robust economic outlook, the markets are hoping for just enough weakness for the FOMC to pull in its horns. Weakness in bonds, which usually will front-run stock market weakness by a number of months, has to be a concern for the market. More on this in our members update this month.
Tuesday, March 14, 2006
The markets had a strong day today. The markets appear to be reflecting upon recent data. It is possible that participants may be pricing in an optimal scenario; Retail sales may be interpreted as suggesting a slowing economy- just enough to prevent further rate hikes later in 2006, while more recent activity in commodities suggests that the economy is robust enough for sustainable growth. The S&P 500 closed today at a multi-year high, and the NYSE Composite at an all-time high. The Nasdaq 100 was the leading index on the day with a 1.8% gain. However, its inability to lead during this recent run is of concern. The financials are leading, which is a positive sign for the markets as a whole. The Philadelphia Semiconductor Index is finding support at the 500 level, while the internet index appears to trying to find a technical bottom. Any sustained rally will need to recruit these sectors, and have a stronger participation from the Nasdaq 100.
Monday, March 06, 2006
The broader markets continue to consolidate and trade in an ever tighter range between resistance and support levels. Short-term momentum has for the moment swung down, as many of the major averages and key sectors are testing their 50 or 20 period moving averages. Significantly, bond yields continue to rise, and this poses a tangible threat to the market's well-being as low yields have been generally supportive of the market. From a technical standpoint, the markets remain in an uptrend, yet an upside breakout in yields historically has been a precursor to a meaningful correction in stock prices going forward. This then adds weight to the near - term market activity. The price activity in commodities also appears to reflect the market's concerns of rising rates and a slowing economy.
Monday, February 27, 2006
The markets continued their momentum from last week as the S$P 500, Russell 2000, and S&P Midcap Index
Averages reached new highs today. However, two facets which emerged during today's trading activity are potentially quite significant. Firstly, the NDX 100 closed above its 50 day average and was the highest percentage gainer of all daily averages. Secondly, the advance is broadening to include the retailers, and biotech stocks, which are being accumulated. Meanwhile, semiconductors are consolidating and testing their 50 day average. Financials and transports have been providing leadership all along. For this advance to continue as very significant resistance levels are probed, improved breadth, and more volume will be necessary. The past 9 months in particular have certainly required a great deal of patience on the part of market participants as the markets continue to slowly grind higher while carving out an ever tighter trading range. Our systems and products have maintained very significant profitability for our clients during 2005 and again in 2006.
Tuesday, February 14, 2006
The markets continue to show divergences and evidence of rotation. Precious metals and commodities continue to see capital outflows, while the US Dollar, conversely, exhibits strength. Dow theorists are beginning to notice the activity as well. The DOW Transports made a new closing high today, and the DOW Industrials broke out of a wedge patttern to close above 11,000 - fractionally below a new multi-year high. The NYSE Composite Index, the Wilshire Index, and the S&P 500 are exhibiting strong technical formations. There are breakout formations in progress here and in most major US equities markets. The retail index, and the banking sectors were strong. It would be more auspicious to have the NDX and small caps lead the market higher in a proper symmetrical formation. The NDX 100, and of late, the Russell 2000 are exhibiting some technical divergences suggestive of accumulation. However, broader market internals continue to flash a caution sign as these markets attempt to rally from an oversold state. The markets may be more volatile in anticipation and in response to comments from the new chairman of the FOMC, Ben Bernanke during the remainder of options expiry week.
Thursday, February 09, 2006
With the bulk of the S&P 500 companies reporting or having reported their earnings, the broader markets are currently probing significant technical levels. This will help determine the intermediate-term direction of the markets. For the better part of three weeks, the NDX 100 (QQQQ etf)has continued to lag the broader Nasdaq Composite Index, the Small-Cap Russell 2000 (IWM etf) and the S&P 400 Midcap Index (MDY etf). Significantly, two favored areas of the markets-the energy sector, and commodities are being aggressively marked down as of late. The yield curve continues to flatten between the 2 and 5 year maturities. Given all this, the markets have held up reasonably well. Two important sectors, Semiconductors($SOX) and the Dow Transports have continued to exhibit relative strength. The $SOX is again trading at multi-year highs as it tests the 550 level. Telecom and health care stocks are attracting buying interest, while the financials continue to trade in a tight range following their runup in 2005.
Thursday, February 02, 2006
The markets continue to consolidate in the wake of the previous 3 month's run up.
Technically the markets are at an important juncture. In particular, the
Nasdaq 100, which has lagged other index averages. The trading range for the
Nasdaq 100 has been fairly tight. The Russell 2000 and the S&P Midcap 400 have
demonstrated relative strength during this time frame to produce substantive
gains. Market internals also continue to reflect this favoring of small and
midcap issues at the expense of larger cap issues. The IWM (Russell 2000) and
MDY (S&P MIDCAP 400) have outperformed the QQQQ (Nasdaq 100) this past year
when traded using the PrimeMarketSignal INDEX system. It should be noted that
all three of these issues when traded with the INDEX Signal have very
signficantly outperformed the broader averages as well as their respective
ETF's for 2005. More on this, and how to shield your portfolio from the
market's whims by using the INDEX and ALPHA systems in the members section
this week.
Data which now suggest a drop in productivity, increasing wage
pressures, along with advancing commodity prices (which is not new) appear to
be weighing on the markets. The FOMC also appeared to reflect these concerns.
Major technicals levels are being probed as the markets become progressively
oversold as they continue to digest data and look ahead to the rest of 2006.
Wednesday, January 18, 2006
Following a break across major price levels, markets often revisit those same levels, and in
the process, seek to establish a confirmation of the break-out. The 500 level
on the Philadelphia Semiconductor Index ($SOX), as well as the 1700 - 1710
level on the NASDAQ 100, and the 1275-1280 level on the S$P 500 were mentioned
here on December 01, 2005 prior to the breakout, and on January 03, 2006
during it. These levels are relevant again today on the re-test which appears
to be in progress. More support, including the 50 day averages lies below. It
may be significant that the symmetry of this advance remains preserved on this
pullback - the $SOX is furthest above its support zone, while the NDX 100 and
SPX are closer to theirs. Meanwhile, the Dow remains below its level at 10950.
Leadership and relative strength, both of which are critical to further market
advances as we start to ease out of the most favorable seasonal time-frame for
stocks, are being maintained at the present.
Tuesday, January 03, 2006
All of the major markets produced reversals on strong volume today. The Nasdaq 100
led all averages with a 2.1% gain. Significant support levels, and in many
cases, the 50 day averages as well were tested for the broader averages today.
Significant resistance levels which may come into focus this week are for the
NDX 100 - 1710. The SOX - 500. The QQQQ - 42.2. The SPX - 1280. The DJIA -
10950. The markets appeared to rally with the release of the previous
meeting's minutes suggesting that the FOMC may be done raising rates for the
present. This served to raise hopes that inflation may be in check. However,
strength in commodities and precious metals today directly challenges this
thesis. The chart below shows the 2005 performance for the major averages,
interest rates, commodities and metals. The 4th quarter performance of
commodities and metals has been even more impressive than this yearly chart
for 2005 suggests. Also note the direction of shorter and longer term rates
over the past year. This relationship has been forecasting an economic
slowdown of some magnitude, and actually resulted in an inversion of the yield
curve toward the end of the fourth quarter of 2005.
Thursday, December 01, 2005
Many of the major averages finished at fresh highs today, with the Philadelphia
Semiconductor Index leading the way. It was up 4.2% on the day, closing above
the 500 level. From a technical standpoint, the Nasdaq 100 now has closed at a
new high above the 1700 level, and the Russell 2000 and S&P 400 Midcaps also
finished at new highs. The S&P 500 continues to lag, but appears to have
touched, and for the moment, and tested the 1250 level mentioned here several
days ago. A variety of sectors have been consolidating the past two weeks, and
this rotation will likely continue. Large cap issues may ultimately be
beneficiaries of this process, and the cap-weighted averages may follow suit.
Though far form certainty, it is possible that today indicates the start of
another leg up by the markets. Despite the breathtaking advance of the past 6
weeks, for now, key elements of the advance - leadership, symmetry, volume,
and breadth all suggest the possibility of higher prices going forward.
Tuesday, November 29, 2005
With multi-year highs on the major averages recently having been achieved, and
after four consecutive weeks of advancing prices, the markets have started off
with pullback. The S&P 500 now has meaningful support at the 1245 - 1250
level, and may possibly project to a price level of 1280-1300 in the near
future if a test here is successful. The Dow Transports, and the Nasdaq 100
are also consolidating recent gains. Volume so far on this pullback has been
light and the broader markets and sectors are also seeing a similar
discounting of prices. The US Dollar continues to exhibit strength partially
on the basis of higher interest rates here at home. Precious metals have
continued to attract capital. Forward yields on the S&P 500 at under 15 times
earnings also appear attractive vs the "risk-free" return of US treasuries.
The markets also continue to factor a moderation in the FOMC's stance on
interest rates going forward.
Thursday, November 17, 2005
The markets continue to extend the current rally. Our comments to members from the
beginning of November had noted this likelihood. At present, important
longer-term resistance levels are being challenged. The Nasdaq 100, and Dow
Transports continue to lead the markets higher. They both advanced past
significant levels in late October and early November. The Dow Industrials are
now trading above a technically significant level - 10700, while the S&P500 is
about to challenge the 1245 level last seen in August. Movement of all the
major index averages will be critical to this advance. The advance in gold is
of concern, while crude oil continues to moderate. Bond yields for the moment
may be reflecting the anticipation of moderating interest rates going forward;
recent data suggestinflation may be better contained than had been previously
anticipated.
Thursday, November 10, 2005
The markets were strong today, gaining momentum. The rally continues to power
ahead. The Nasdaq 100 closed at a multi-year high today. While the Nasdaq 100
appears to be successfuly challenging major resistance levels, the S&P 500,
Russell 2000, and Dow Jones Industrials are just behind. There is more work to
be done here. The Dow Transpots continue their run higher. Importantly,
volume, and the participation of key sectors was again evident today with the
financials, semiconductors, and retailers, doing well. There is a strong
correlation between the direction of these groups and the participation of the
broader index averages. The oil services index also appears to be failing at
its 50 day average, as the energy sector continues to consolidate
Friday, October 21, 2005
It has been one of the more volatile weeks for the markets in recent memory.
While the Nasdaq 100 "big cap" stocks and select sectors advanced overall,
smaller caps, non-technology companies in general, oil and energy stocks were
rotated out of. Some quite dramatically. Volatility appears to be on the rise
for the moment, and market breadth continues to narrow. This may not be the
ideal backdrop for a sustained rally, (further explained in our April 05
member's market letter) but it does not preclude the possibility of a higher
run at some point, either. This perception of fewer areas to place capital may
produce a demand for higher-beta sectors as managers rotate out of
under-performers during a lack-luster year to chase performance before the
year end. Yet the markets are still vulnerable at this point and significant
resistance looms. This underscores the need to adhere to a disciplined
investing approach as the market attempts to throw participants off prior to
its next major move.
Wednesday, October 19, 2005
The markets had a sharp, strong reversal day with reasonably good volume. Pockets
of strength were evident with some sectors clearly stronger than others. The
Nasdaq 100 is exhibiting the highest relative strength, and has reclaimed its
200 day average. However, the Russell 2000, S$P Midcap and S&P500 for the time
being remain below significant technical levels breached earlier this month.
Encouraging signs include the symmetry of the advance among retailers and
financials, and elevated bearish sentiment. The Semiconductor Index is
attempting to hammer out a bottom at lower support levels. It will need to
perform if the markets as a whole are to march on. While today's performance
is encouraging, significant resistance levels lie ahead.
Tuesday, October 11, 2005
The broader markets continue to correct. The Philadelphia Semiconductor Index
is now down over 8% this month, and is in the process of testing both its 200
moving average and significant longer-term support levels. The broader market
index averages are not faring much better with the S$P 500, Nasdaq Composite
and Russell 2000 each trading beneath their respective 200 day averages. It is
possible that the current drop in both the energy SPDR and the major averages
suggests a slowing economic environment. The drop in interest rate sensitive
issues suggests the likelihood of higher rates going forward. The FOMC has not
dissuaded the markets from this view; indeed the markets have now retraced all
of the reaction rally following hurricane Karina. As noted in our market
message at the end of September, the threat of higher interest rates in the
setting of a weaker economy and rising commodity prices is a combination which
may prove troublesome for the markets in the 4th quarter, or 2006. For now,
the markets continue to probe for support levels as they become progressively
oversold while entering a generally favorable seasonal time-frame.
Saturday, October 01, 2005
Trading at the end of the third quarter leaves the major averages including
the Nasdaq Composite, Nasdaq 100, the S$P 500, the Russell 2000, and the S&P
400 Midcap Indices - all trading above their respective 50 day averages. This
is a positive development. In addition, two segments of the markets we watch
fairly closely, the Semiconductors and the Dow Transports appear to have
bounced off of critical support levels. The energy sector, which has literally
been on a tear all year is again developing price and momentum divergences.
The year to date and Q3 charts reflect the emergence of another factor -
precious metals, while interest rates continue to be a concern. While
defensive sectors such as energy, healthcare, and utilities have been strong
all year, technology - in particular biotechnology, telecommunications, and
semiconductors are gaining some traction. For the moment, atleast, this
presents a potentially favorable backdrop for the continuation of recent
momentum by the markets. Longer-term trends in energy, precious metals, and
possibly interest rates going forward may become increasingly relevant and
exert influence over the broader markets during the 4th quarter, or 2006,
however.
Thursday, September 29, 2005
The markets have now rebounded off of the previously noted support levels of 38.30
on the qqqq and 2100 on the Nasdaq Composite Index. They did so on reasonable
volume. There are resistance levels coming up ahead which may present some
challenge for the markets to overcome. Mark internals were also strong today.
More follow through in October will be necessary to reverse the significant
damage incurred during the month of September.
Wednesday, September 21, 2005
Last week we wrote of a stock market which was looking forward to a
more lenient FOMC, and how some of the data may have supported that view. We
also mentioned how the bond, currency, and precious metals markets were
suggesting the likelihood of a more aggressive FED, and that the downside risk
to the market was potentially significant. Important support levels are now
coming into focus. 38.30 for the Nasdaq 100 ETF QQQQ, and the 2075-2100 range
for the Nasdaq Composite Index may be tested in the near-term as the market
prices become oversold.
Friday, September 16, 2005
The broader markets, particularly the S$P 500, the Russell 2000 and Nasdaq
100, and Dow Transports were all performing on cue and bouncing off underlying
support levels visited during this week's decline.Volume was strong today,
with over 2.2 billion shares traded on the Nasdaq Markets. However,
significant changes pointing toward the intermediate-to-longer term may be
occuring in the precious metals market, and the rate sensitive sectors of the
economy. Gold had a particularly strong week, while movement in the Dollar,
and bond yields appear to all suggest the possibility of a higher interest
rate environment going forward. The Housing Index is also reflecting a
weakening momentum, while the Biotechs and Healthcare stocks, precious metals,
commodities,and energy are attracting capital. Next week's FOMC meeting will
help clarify this picture. The broader markets have formidable resistance
overhead and may attempt to revisit those levels in the near-term.
Tuesday, September 13, 2005
Wholesale prices are beginning to reflect inflationary tendencies which were
figured prior to hurricane Katrina's arrival. As noted yesterday, the major
index averages are nudging up against significant resistance levels. In some
cases, these levels are significant on a multi-year time frame. The 1245-1250
area on the S&P500 is a Fibonacci retracement level of the March 00 High to
the Oct 02 Low, and it is also a significant level on Point & Figure charts.
Turbulence here is to be anticipated. The symmetry and relative strength of
the advance is encouraging, with the Semiconductor Index leading the NDX 100,
which is leading the S$P 500. On the other hand, as mentioned yesterday, the
performance of the Dow Transports continues to be very much a concern. It
broke its 200 day average and the 3600 level on heavy volume today. Notably,
the airline sector is in the process of testing multi-year support. At some
point in the near future, these apparent divergences will be resolved. For
now, the markets appear to be showing some resilience, however
Monday, September 12, 2005
The markets have continued to climb higher this month of September. Important
resistance levels on all major indexes are beginning to come into focus as we
head towards options expiry this week and the FOMC meeting the following week.
These areas would roughly correspond with 10700 for the Dow Industrials, 1250
for the S&P 500, 2200 for the Nasdaq Composite Index and 480 for the
Philadelphia Semiconductor Index. As suggested here several weeks ago, the
markets appear to be pricing in a less aggressive stance by the FOMC going
forward. Volume has also picked up during this advance phase. Oil has retraced
some of its record move from August. A cautionary note should be voiced in
noting that the performance of the Dow Transports has lagged. They have
underperformed and thusly diverged from the Industrials during the
Industrial's recent advance, and significantly, during Oil's short decline.
However, these past two days have seen the Transports bounce off 3600, a level
we have noted to be significant in the past, and a level which is likely
significant for the markets as a whole. The airlines($XAL)in particular have
had a tough go of it recently. If the Transports can recover from these
levels, it would bode well for the markets as a whole.
Thursday, September 01, 2005
It seems as if the markets firm up in the face of rising adversity, almost in
a collective defiance with a spirit that so well defines us as a nation.
Certainly after the London bombings, that was the case. Now in the aftermath
of Katrina, with the devastation evident in our own backyard, the markets
appear to be sending a message. While the sum of the longer-term economic
effects may be difficult to immediately guage, certain assumptions may be
beginning to be priced. We mentioned earlier how the bond market may help
define the extent of this down leg. The bond market during August and
particularly the past week had witnessed a flight to quality with a drop in
yields. This flattening of the yield curve has been discussed in the past.
There is plenty of recent data showing a weaker economy than had been
anticipated. This has coincided with a rise in oil and commodities with a
multi-decade high in the CRB index. The net effect is that the dollar is now
moderating, and gold appears to be on the rise again. While far from
certainty, for now the markets may believe that the Fed may be more free to
ease on tightening rates, which it has inexorably done. If so, short-term
rates (more dependent on the Fed) may moderate or drop faster relative to
longer-term rates. This would then be good for the markets. The small and
mid-cap indexes may then be in a better position to respond favorably to these
developments going forward.
Monday, August 29, 2005
The markets exhibited some much needed strength today. The Dow Industrials
reclaimed their 200 day average, while the Nasdaq Composite and Nasdaq 100
rebounded above their 50 day averages. As Katrina continues to besiege the
south-eastern United States, with Louisiana and Alabama currently bearing the
brunt of its wrath, the longer-term effects on oil's supply-demand equilibrium
and the economy in general remain to be determined. Yet for the moment, the
Oil Services Index, and the Energy SPDR(XLE) appear to reflect waning momentum
in what has otherwise been a red-hot sector, if only temporarily. More volume
and continued follow-through by the markets will be necessary to reverse the
technical damage incurred during the previous three weeks.
Tuesday, August 23, 2005
The markets are seemingly bent upon going through the motions of testing
underlying support. It is equally evident that the volume necessary to render
a firm judgment on the process may not be a factor until after Labor Day.
However, that is not to say that the current action is somehow irrelevant. The
fact that the SPX and the Dow are now trading below their respective 50-day
averages, while the Nasdaq Composite, Nasdaq 100, and Russell 2000 are all
flirting with theirs draws ones attention. The 2100 level is significant for
the Nasdaq Composite, and perhaps will be for the equities markets as a whole.
While some divergences may be developing on the shorter-term charts, the trend
for the moment appears to be in a corrective mode.
Tuesday, August 16, 2005
The downtrend reasserted itself today. However, several things have been out
of line all week, though the markets, for the most part, had been hanging
tough. The bond market for one, has been witnessing a continued erosion of
yields on the benchmark ten year note. Market Volatility for another, has
refused to drop from its perch. These two markers may be quite useful to help
guage the magntude of this market decline as the markets start to move into
oversold positions as we head into options expiry later this week, and beyond.
Friday, August 12, 2005
The markets continue to bend, but they will not break. That has been a
defining characteristic of this market, as oil, commodities, and precious
metals continue to rise. At some point this apparent divergence may matter,
but for the moment it appears not to. This weakness in the broader indices
coincided with a flight of capital into bonds as yields on the ten year
treasury dropped again today, and now appear ready to test their 200day
average. The US dollar contines a slow retreat. Volatility also appears to be
on the rise, though for the moment, its ascent has been restrained.
Wednesday, August 10, 2005
The markets continue to search for footing today as oil touched a record $65
bbl. Volume was a bit heavier on the exchanges. Despite significant weakness
today in all major indices, the NDX 100 and Nasdaq Composite continue to
exhibit relative strength. But weakness of the Russell 2000 is of major
concern. It has barely managed to get off the mat at any point during this
period of broad weakness across the markets. Interest rates, commodities, oil
and gold continue their ascent
Friday, August 05, 2005
Following a strong rally in July, the broader markets now continue to search
for support from their overbought state. The Dow Industrials and the S&P 500
are closing in on their respective 50 day averages, as are the Russell 2000
and the Midcaps. The Ndx 100 and Nasdaq Composite are showing some relative
strength. As bond yields continue to rise, the markets, and its rate-
sensitive sectors are starting taking notice - the retailers, financials, home
builders, and utilities in particular. Commodities, and precious metals
continue to attract capital.
Tuesday, August 02, 2005
The Nasdaq Composite and the Russell 2000 set new multi-year highs today while
the NDX 100 closed fractionally off its own 52 week high. Volume was improved,
while volatility dropped from yesterday's levels. The entry of new money
appears to be driving this run as the market continues to advance. The 10 year
treasury yields are up now for the 5th consecutive week and the dollar
consolidates near year-to-date highs. Both of these factors may have been
contributing to the market's recent strength.
Monday, August 01, 2005
The markets continue to consolidate recent gains. Interestingly, the internals
look stronger than the price movement of the index averages may suggest.
However, volume, or lack of it, to be more precise, still remains a problem.
Another factor of potential concern in the past several trading days has been
the creeping up in the volatility indexes spanning the Nasdaq 100, Nasdaq
Composite, S$P 500, and the S&P100. If this is all there is to the run up in
volatility, the markets may actually bounce higher and resume their current
trend, or produce a sideways market pattern. However, a continued and sudden
rise in volatility may foretell a more dramatic correction.
Wednesday, July 27, 2005
The markets continue to consolidate with rotation being a dominant theme this
past week, while the Philadelphia Oil Services Index continues to make new
highs. The Nasdaq 100 is showing some life with evidence of rotation occurring
here. The major averages are maintaining price points at significant
resistance levels. If this rally is to continue another leg up - we may be
revisiting stocks and sectors that we really haven't heard much about at all
this year - yes, this is not a misprint - the big cap tech stocks - they may
prove that they have not yet become anachronisms.
Wednesday, July 20, 2005
The markets produced a strong, broad-based recovery from the days lows. Two
keys for the day were the strength in transports, and volume. WE mentioned
last week how the Dow Transports, Financials, and Semiconductors were so
important for any continuation of this rally. The transports were up 3.67%
today, while the Semiconductors and Financials were both up over 1%. The
strength in the semis is particularly notable given how the morning started
off with the initial reaction to Intel's numbers from last night. We have also
been noting the lack of volume on a nearly daily basis. This recovery today
was in the setting of the heaviest volume day in over a month for the Nasdaq
Composite Index. The markets must now follow-through on these favorable
developments, as more earnings reports pour in.
Friday, July 15, 2005
The markets finished on a high note for this options expiry week. For the
week, the Philadephia Semiconductor Index ($SOX) was up 4.72%, the NDX 100 up
2.97%, the Nasdaq Composite up 2.08%, and the S&P 500 up 1.08%. The
Semiconductors, S&P 500, Russell 2000, and S&P Midcap 400 all hit 52 week or
multiyear closing highs this week. The NDX 100 lags, but is catching up. The
Dow transports held the key 3600 level noted earlier. Yields were also up for
the week. It appears that the rally may have more room to run, but not
surprisingly, volume continues to be lacking, though it has improved the past
3 weeks. Money continues to sit on the fence. Though prices may be over-extended
in the short-term, at some point, participants will realize that the economy
is in better shape than anticipated, that this move is for real, and the
volume will be there. But the markets may then be at a higher level from where
they are at present. This may then be the beginning of the last leg of a
counter-trend rally in what appears to be a major bear market
Wednesday, July 13, 2005
A consolidative day may come in many varieties, but a mixed day with very
little retreat of broader market prices is welcome. The Dow, S&P 500, Nasdaq
Composite and Nasdaq 100 gained fractionally. Three key areas of the markets
which we have been watching closely - - the Philadelphia Semiconductor Index
($SOX), the Financial SPDR (XLF), and the Dow Transports all held up quite
well today. Money again rotated out of bonds today as yields firmed again, yet
so far this has been only a trickle. But with the bond market's size, even
slight rotations in this manner may provide support for equity prices. Though
the equity markets may be somewhat extended in the short - term, performance
in these key areas will likely be necessary for performance by the broader
markets in the intermediate term.
Tuesday, July 12, 2005
The markets had a mixed day today. Bond yields continued to firm. There is
evidence of certain sectors being favored over the broader markets, with
continued rotation into the Semiconductors, Retail, and Energy sectors, each
claiming new 52 week highs today. The Healthcare sector has just pulled off a
recent 52 week high. The Nasdaq 100 and Nasdaq Composite advanced
fractionally. The Dow transports are currently testing the 3600 level, the
claiming of which may be crucial to a meaningful advance by the broader
markets this summer. Meanwhile, Oil has barely retreated from its recent
advances. The S&P 500 currently sits just beneath a potential new 52 week
high. the Russell 2000 and S&P Midcap Indices hit 52 weeks highs earlier this
week as well. At some point, volume will need to be a component of this move.
It may well be the achilles heel of this rally. While firming yields may not
necessarily be good for the markets in the longer-term, short-term they may
provide a stimulus. With the broader participation of SmallCap and MidCap
stocks, and with leading sectors such as semiconductors gaining traction,
there may be more room for this rally to run its course.
Monday, July 11, 2005
The markets continued their advance today in a continuation of last week's
move. The major averages were up between 0.63% (S&P 500) to 1.44% (Russell
2000). The Philadelphia Semiconductor Index ($SOX) broke through and closed
above the 450 barrier, and reached a new 52 week closing high as well. The SOX
is now up over 4.5% in 2 trading days. The Nasdaq Composite advanced 1.07% on
better volume today as well. The Nasdaq 100 is still lagging the COMP, but is
beginning to catch up, and is now outperforming the S&P 500. As described in
some detail in our May 22, 2005 Member's Letter - When is Bounce a Rally? -
The performance of leading sectors and indexes, the symmetry of the advance,
and volume are all critical to the continuation of the current rally.
Friday, July 08, 2005
We noted yesterday that the markets were running short of time if the rally
were to continue. The markets made a statement today and ended the week on a
high note. There was strong follow-through after yesterday's reversal day. The
internals were strong, while volume was moderate. Major resistance levels and
the tops of the current trading ranges were broadly challenged today. The
Philadelphia Semiconductor Index added 2.5% today and closed above the 440
level. The broader markets were up between 1.17% (S&P 500) to 1.96% (Russell
2000). The Nasdaq Comoposite added 1.92% on the day to close above the 2100
level for the first time since January. This was also the 5th consecutive day
of increasing volume on the Nasdaq. We may possibly look forward to these S/R
levels being challenged again next week.
Thursday, July 07, 2005
Our hearts are heavy this evening as our prayers go out for our friends,
colleagues, and loved ones in London. We wish everyone a speedy recovery. As
we turn our attention to the markets - It is important to consider that
underlying trends are at work here and the markets will adjust accordingly.
The markets engineered a recovery of their own on heavy volume today.
Significant resistance levels loom ahead. The markets are beginning to run
short of time to make another leg higher, and appear to be within a defined
trading range. The next several trading days may help clarify the technical
situation.
Tuesday, July 05, 2005
Investors went right to work today, moving the major averages up between 0.7%
and 1.1%. The Russell 2000 Small Cap Index and the S$P 400 Mid Cap Index both
hit year to date highs today. These segments of the market has been
particularly strong the past 6 weeks. The Oil Services Index also hit another
high today. Volume was again on the lighter side today. Market Internals and
Breadth were positive, however. The Semiconductors and the Nasdaq 100
outperformed the Nasdaq Composite on the day. This is a positive development
for the markets. Significant resistance levels are up ahead, and will serve as
important tests for these segments of the markets during this short-term
advance phase.
Friday, July 01, 2005
As we finish up the first half of the year, it is helpful to look back at the
performance of the major averages and also of the top performing sectors to
provide some perspective. Not surprisingly, Energy, Utilities, and Healthcare
were the top performers. The major averages were down across the board. This
after being down for most of last year as well. The second half of the year is an
opportunity for markets and the economy to answer questions and overcome major
challenges. Oil and interest rates will continue to take center stage.
Wednesday, June 29, 2005
Oil finally closed below $58bbl, yet the markets response to this was muted.
When Oil first crossed this threshold to the upside, the markets had reacted
dramatically. There is a mix of both trepidation and antipation in the air as
the markets look ahead to the Fed meeting. Volume has also been on the lighter
side as we get closer to the holiday. The markets may likely move higher from
here, but are vulnerable to periodic and sharp declines, and the lack of
volume does not help matters.
Tuesday, June 28, 2005
Oil prices fell and the markets recovered from an oversold state today.
Consumer confidence data was also quite favorable. The Nasdaq Composite
bounced off its 50 day average yesterday and closed at its 13 day average
today. The S&P 500 regained the 1200 level. Continued price appreciation on
heavier volume will be necessary to reverse the significant technical damage
to the markets done last week. As suggested in PrimeMarketSignal's recent
member's market letter, Oil trading below $58 bbl would also help. The markets
are looking ahead to the FOMC meeting, but clearly, the price of Oil remains a
key factor.
Sunday, June 26, 2005
The Markets are not happy with Oil above $58 bbl. These past two weeks have
really been about Oil, its approach of the $60 level, and the markets'
response to this move. This week in our Member's Market Letter, we discuss
critical support and resistance levels, the market's comfort zone for oil, and
what the markets are telling us about interest rates.
Thursday, June 23, 2005
The continued strength of the recent move in Oil appears to be weighing
heavily on the markets currently, and the transports are taking it on the
chin. More price volatility is now evident as the markets continue to test the
boundaries of the established trading range. A down day in the markets was
marked by the closing of both the Dow Jones Industrials and Transports below
their respective 200 day averages. The other averages did not fare much
better, though they're in better technical shape. This particular fact may
paradoxically be a good thing for the markets as a whole. The S&P 500 closed
at 1200, a support level. The Nasdaq Composite closed at 2070, and 2025 is a
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