Category Archives: Stock Indices

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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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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