Category Archives: Member Only

The Correction is Not Over

Last week, the bears tried really hard to knock it down to pass the first initial S&P 500 selloff low @ 2822.12.  S&P 500 and NASDAQ successfully defended the August 5th selloff low, but the DOW was not able to defend the first initial low and made a lower low on August 15th.

All three indices fell below last month’s low on the first trading day of August.  August started on a very weak note.  August has been the worst month for stocks for the last 10 years and September has been the worst month for the last 100 years.  So seasonally we are in the worst period of the entire year.

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Correction is in Full Force

In our last blog, we thought the 50-day moving averages of the three indices may provide temporary support.  But on Monday, August 5th, all three indices plunged to violate the 50-day moving averages with heavy volume.  The heavy selloff has changed the characteristics of the bull market that started from the December 2018 low.

The market was surprised to find out that 10% tariffs on the additional $300 billion Chinese imports will take place on September 1st.  The trade war risk was always there, but the market chose to gloss over the risk and chased the technical price momentum.  The trade war started as fixing trade deficit with China, now it has morphed into a currency war.  A currency war has far more reaching impact than a trade war because it will endanger the global financial system.  The reason why the market has down played the trade war risk is the belief that Trump needs to have a trade deal in order to be re-elected.  With the escalating trade war, the market will not rally even with lower rates.

From Trump’s words and behavior, right now it appears that Trump may not care if he gets a trade deal or not before the re-election.  We do believe that if the market crashes 10% from here, Trump will care and that’s when a trade deal will be made, whether is good or bad.  So the market is the only one that can discipline a reckless president.

The FAANG stocks have not taken out their respective all time high since the December 2018 low was made.  It is very interesting to see the old leaders are not leading at this juncture.  Perhaps it is sending a message about the next bull market.  Many of the biggest ideas in technology over the past decade have centered on how people communicate, consume, transact and travel. Over the next decade, however, the most profound innovations—and investment opportunities—could be on factory floors, in operating rooms, at mining sites and energy facilities. 

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The Damage is DONE

Immediately after the Fed decision, all three indices acted in concert selling off hard to put a weekly cycle high in place.

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Decision Time

The Fed is about to cut rates for the first time since 2008 as the trade war is weighing on economic growth.  Are the rate cuts truly needed to support the economy or is the Fed under political pressure to appease the White House?  Last time, the Fed cut rates in 1998 to prevent a slowdown caused by the Asian currency crisis.  We all know what happened after the cuts.

This time is very similar to the 1998 rate cuts.  The economy is not weak and the rate cuts can only create asset bubbles like easy money always does.

Short term, it is over bought with extreme low volatility.  A summer selloff is still on the radar.  This selloff will create the last opportunity to get in the market before a grand bull market unfolds.

Long term, this market still has room to run. 

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Microsoft Beat the Top and Bottom Line, So What?

Last Thursday after the market close, Microsoft announced earnings that beat the top and bottom line.  MSFT ran up immediately after the earnings release, it made a new all time high on Friday’s open, but it was sold off straight from the high at open with higher than usual volume.  This is a topping signal, Microsoft stock has topped on a great earnings report.

Microsoft is absolutely the bull market leader which is included in  DOW, S&P and NASDAQ, all three indices.  When a market leader like Microsoft sells off based on great earnings beat, it gives out hints about the general market condition.  The true leaders of a bull market are the last ones to show signs of weakness.

In our last blog, we warned the S&P 500 cash index upside resistance at 3000 and 3077.  It broke out at 3000 marginally, not it is showing the bull market fatigue.

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