Analysis of today's Market action

Today’s action should give us a buying opportunity with a week or two.

The market has been going sideways for the last few weeks in a very tight range. It did look extended but with today’s price action we need to watch if we will get a buying opportunity in a week or so. Wait for the short term signal to give a buying opportunity (become less extended) before buying. It is not there today but the process of reaching a short term buying opportunity has started.

As we have been saying the price chart of S&P500 index shows the medium and short term signal on the market is a buy but the long term signal on the market is still a sell. This information is displayed on the left side bar under “Market Trend”.

Sector Analysis in the current market environment

These are the sectors which are showing strength in the current market environment.

Rank	Symbol	Sector ETF
	Strong Sectors
1	VDC	Consumer Staples
2	SDOG	Value
3	VOX	Telecom
4	VPU	Utilities
5	MTUM	BlackRock Momentum
6	VNQ	REITS
7	GLD	Gold
8	TLT	Long term bonds
9	SLV	Silver
	Upcoming Sectors
10	VIS	Industrial
11	SPY	SP500
12	VTV	Large cap Value
13	VGT	Information Technology
14	VUG	Large Cap growth
15	VHT	Health
16	VOT	Mid Cap Growth

downside pressure on SPY and QQQ in the short term

There is a downside pressure on SPY and QQQ in the short term. This may give us a buying opportunity soon. The price action look more like a counter trend to the medium term uptrend. But as always we have to wait and watch for the right moment to buy. Looking at the long term, we still have a sell signal on SPY.

When the long term is sell and short to medium term is giving a buying opportunity, we should commit only a certain percentage (say 40%) of our portfolio to the trade.

QQQ underperforming SPY

Stating the obvious that QQQ (representing growth stocks) is weaker than SPY (representing all sectors of the market). The sectors which are working are Utilities, Dividend paying stocks and REITS. These sectors are represented in SPY and not in QQQ. That is why SPY is doing better than QQQ.

The growth sectors in SPY are pulling it down while the dividend paying sectors are pushing it up. This indicates that it should remain in a sideways consolidation pattern, till some event changes that pattern. QQQ will keep on underperforming SPY, till we get some good growth in the economy.

Sector Analysis

Analysis showing which S&P sector ETFs are performing and which are not.

Symbol	Name	Short to medium term price analysis
xly	Cyclical	Showing upward strength. Looks O.K
xlk	Technology	Price action getting ready for a short term bottom.
xli	Industrial	Showing upward strength. Looks O.K
xlb	Material	Showing upward strength. Looks O.K
xle	Energy	Upward momentum strong. Maybe temporarily extended.
xlp	Consumer Staples	Price action bad. Loosing upward momentum.
xlv	Health	Upward momentum strong. Setting up for a short term bottom.
xlu	Utilities	Price action bad. Loosing upward momentum.
xlf	Financial	Upward momentum strong. Setting up for a short term bottom.

S&P500 Index forming a 9 month base

On a short and medium term the market is in an uptrend. On a long term time frame the S&P500 index is forming a 9 month base. If it breaks out of the base it will indicate an uptrend in the long term also. S&P500 (SPY) is showing more strength than the Nasdaq Index (QQQ). This is because the energy stocks which are part of the S&P500 index have moved up in the last few weeks. There are no energy stocks in the QQQ ETF.

How should an investor allocate their assets in the current environment?

A prudent approach is to put 70% of the assets in stock ETFs (value and growth) and 30% in cash. On a short to medium time frame the market does look extended, that is the reason to have some cash in hand. The earning season is also starting and depending on how the company earnings come out, will guide us on what to do with the cash component of the assets.

Market Outlook

Long Term trend on the stock Market is not up.

---

Buy Signals:

QQQ on 8/3/2012

---

---

Sell Signals:

SPY on 1/29/2016

DIA on 1/29/2016

IWM on 9/30/2015

---

---

Short term in whipsaw mode, but long term uptrend intact

The monthly oscillator is showing strength and monthly prices are in an uptrend.

The oscillator on the weekly chart is showing a lukewarm uptrend. The prices are still in a basing mode.

On a short term basis (daily prices) the oscillator is weak and the prices are basing. However the prices have not cut the prior low.

The possibilities are as follows:

1.                The prices undercut the prior low next week then we are in a short term downtrend.

2.               The prices do not undercut the prior low next week and move up. Then we are continuing our basing or consolidation of daily prices.

So we repeat what we said last week, stay fully invested for the long term. For the medium to short term do not add any new positions and aggressively sell your weaker holdings.

Watch the video:

Short term in downtrend but long term uptrend intact

The monthly oscillator and prices are in an uptrend, so the long term uptrend of the market is intact.

On a short term basis (daily prices) at the recent high of the oscillator the prices did not make a new high. Now the oscillator is at the low end and has not turned up yet. However the prices have not cut the prior low either.

The possibilities are as follows:

1. The prices undercut the prior low next week then we are in a short term downtrend.
2. The prices do not undercut the prior low next week and move up. Then we are continuing our basing or consolidation of daily prices.

So stay fully invested for the long term. For the medium to short term do not add any new positions and aggressively sell your weaker holdings.



Watch the video and see the analysis:

Long Term trend still up

The Long Term Trend on the Stocks Market is still up. So if you are holding broad based mutual funds or ETFs then hold on to them. Weekly trend is still up but can turn down if we have a few more down days. It can start a basing pattern. So if your time frame is weekly do not add new positions and sell your weaker holdings. Daily time frame is about to break its uptrend. It has not done so yet. Watch the video below for a detailed analysis.

The Monthly Oscillator for SPY is still showing a long term BUY

The BUY signal received on June, 2012 is still intact.

The weekly oscillator for SPY is still trending downwards

The weekly oscillator for SPY (etf for S&P500) is still trending downwards. This indicates that S&P500 prices will correct (go down) or base (go sideways) for a few more weeks.

The daily oscillator for SPY (etf for S&P500) is also trending downwards. This indicates that S&P500 prices will correct (go down) or base (go sideways) for a few more days. Here the prices made a lower low and after that did not make a higher high. This means the daily prices trend is also trending down.

Once the weekly oscillator reaches the bottom we can evaluate the status of the market movement. At that point we can know if we are still in a primary uptrend or the market trend is changing based on the price pattern of the market. If the primary trend is still up, it will give us an opportunity to buy. If the primary trend has turned down then we should get rid of our holdings.

The Market will correct or base for a few weeks

The weekly oscillator for SPY (etf for S&P500) is trending downwards. This indicates that S&P500 prices will correct (go down) or base (go sideways) for a few weeks.

Once the oscillator reaches the bottom or starts to trend up before reaching the bottom, we can evaluate the status of the market movement. At that point we can know if we are still in a primary uptrend or the market trend is changing based on the price pattern of the market.

Temporarily the market is extended and may correct or base for a few weeks

Market is in weak uptrend. The table below shows the gains (since their buy signal) made by the indexes shown on the left side. We are calling the market to be in a weak uptrend because the price gains are not “stellar” from their buy signal.

  

The Market Breadth Ratios are giving good readings for an uptrend. However the market is temporarily extended and may correct or base for a few weeks. This is what we call a countertrend, the primary trend being up right now. Read the blog of Sept 10, 2012 to get a detailed picture of what is working in the “Current market environment”.

Sectors working in the current market environment

The sectors working in the current market environment are precious metals (gold and silver), energy (Oil & gas drilling and exploration), banks, financial, home builders, retail and consumer discretionary. See the chart below.

A few Growth Momentum Leaders are working but as an asset class this group is still in trouble.

Stock categories like “Small Cap Companies (IWM)”, and “Overall U.S. economy (SPY)”  are working due to the valuation play. Companies have a lot of cash on their balance sheet, so at their current stock price they are attractive from a value standpoint.

“Hi Yield junk bonds” are working because of their high yields. Here again we see a value/income play.

“Gold” is working because of monetary easing by central banks all over the world.

“Growth Momentum Leaders" as a group is still in trouble though a few select stocks in this category are working. We need to wait for growth in the economy for this class of stocks to start working again.

“Treasury Bonds” are not working because the market considers them to be extended in price, currently.

Market Breadth Ratios are giving very good readings

Market Breadth Ratios are giving very good readings. This means most of the stocks are participating in the rally and we should be invested in the market. However we did not get a reading over 500 in the “4% up” column, even after the Fed's announcement of QE3. This means we may not have an explosive rally to the upside.

The areas which are working are those providing decent dividend yields, interest yields and those benefiting from monetary easing by central banks worldwide. Read the blog of Sept 10, 2012 to get a detailed picture of what is working in the “Current market environment”.

Market Breadth Ratios have turned positive

Market Breadth Ratios have turned positive.  This means most of the stocks are participating in the rally. We did not get any number more than 500 in the “4% up” column, which is why we cannot say that it is an explosive rally to the upside.

However this rally is worth participating in. Read the blog of Sept 10, 2012 to see which areas of the market are working.

Current market environment

What is working in the current market environment:
1.       Small Cap Companies (IWM)

      2.      Overall U.S. economy (SPY)

      3.      Hi Yield junk bonds (JNK)

      4.     Gold (GLD)

What is not working in the current market environment:

      1.       Growth Momentum Leaders  

      2.      Treasury Bonds (TLT)

Stock categories like “Small Cap Companies (IWM)”, and “Overall U.S. economy (SPY)”  are working due to the valuation play. Companies have a lot of cash on their balance sheet, so at their current stock price they are attractive from a value standpoint.

“Hi Yield junk bonds” are working because of their high yields. Here again we see a value/income play.

“Gold” is working because of monetary easing by central banks all over the world.

“Growth Momentum Leaders" are not working currently and have not been working for sometime because there is no growth in the economy. We need to wait for growth in the economy so some new “leadership” starts to show in this area.

“Treasury Bonds” are not working because the market considers them to be extended in price, currently.

The numbers in Market Breadth Ratios are also starting to improve

Small capitalization stocks did well today. This is shown by the chart for IWM (the ETF for Russell 2000, representing the small cap universe). There was an “up thrust” in price on high volume. This means money is moving into this category of stocks.

The numbers in Market Breadth Ratios are also starting to improve.

These are early indicators to show the Market may be setting up for Momentum Growth Stocks category to start performing. We need to watch the market to see if these early indicators stay on track or fizzle out.

Momentum Growth Stocks are not working

Momentum Growth Stocks are not working at all, so stay out of this category of stocks. This category does give the best price performance when it works.