Category Archives: Stock Indices

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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Is The Market Breaking Out to The Point of No Return?

The market went crazy last week with Fed’s dovish statements.  The market is banking on the Fed cutting the interest rates at the end of July.  Have we been here before?  The market was banking on an imminent trade deal at the end of April, only to be shocked with a no deal at the beginning of May. 

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S&P 500 Cash Index Cycle Location 07052019

We blogged last week that the market was in a confirmed bullish trend despite the trade war and Fed rate cut noises.  Last week was a holiday week so the trading volume was low.  As of now, the market is still in a confirmed uptrend.  Since the last quarter of 2018, the market has been entirely news driven regardless of the underlining fundamentals, but the cycles have been functioning as they were supposed to.  So it’s best for us to listen to the tape and ignore the noises.

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S&P 500 Cash Index Cycle Location 06212019

The S&P 500 cash index had a great week last week, but it closed on a weak note by falling below the previous all time high on Friday.  It is a good sign that S&P 500 was able to make a new all time high on Thursday, but caution is needed at this price level.

Technically the S&P 500 cash index is 14th day into the first daily cycle, it has entered top timing band in the beta cycle of the daily cycle which is why we had preferred the breakout to take place on the 8th day.  Typically when a breakout happens in the first 8 days, it has further energy to prolong the daily cycle into a long cycle which could be a 25-day cycle.  It is still a good sign to make a new all time high, despite the reluctance.

The NASDAQ is much weaker than the S&P 500 cash index. It lost 0.2% Friday with heavy volume.  The action in the Nasdaq was sufficient to qualify as distribution, which is a sign of institutional selling.  One day of distribution doesn’t change the present up trend.  Four or five distribution days over several weeks are needed to signal that stocks have topped and are heading for a downturn. When the Friday’s low is taken out, it would confirm the daily cycle top is in place.  So it’s realistic to expect the market to be sideways down next week.  The high flying growth stocks have taken a beating last Friday, lost much more than the NASDAQ.

Next week is filled with catalysts that could move the market in a big way.  Lennar, Fedex and Micron will release earnings report on Tuesday.  These companies can tell a lot about the state of economy and how the market pays attention to the earnings instead of hoping for easy money policy and trade war news.  The G-20 meeting is another important event.  The market is not expecting a deal out of G-20, maybe Trump will not put on additional tariffs.  No one knows for sure what to expect.

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Possible Retreat of The Rally

Since the Fed’s verbal intervention about a possible rate cut, the market rebounded from the 38% retracement level on June 4th.  The Sp&P 500 rallied 5 days for a total gain of 6.66% from high to low.  Then it bumped into resistance around 2900 level.  The volume of the five-day rally has not been impressive though.

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