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 long term uptrend on S&P500 is still intact.

We are having trouble in short to medium term time frame, but the long term trend of S&P500 is still intact. Having whipsaws in the market is normal. It does not go up in a straight line. It is normal to have up to 25% drawdowns in a well managed portfolio. If one is not able to handle the drawdowns then it prudent to increase the cash holdings of the portfolio.

Below is the chart of Sensex. See the Gains and losses there based on the long term trend. Trend following works in every market that is truly "free". Check the box showing Pr2Gain, Pr1Gain, PrGain. The current gain is 31.5%. This trend started on Dec, 31 2012.

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.

Money Flow from Big Cap Dividend Stocks to Big Cap Growth Stocks

When Money moves from Big Cap dividend paying value stocks to Big Cap Growth stocks, it causes a slowdown in the price performance of dividend paying stocks. However Growth stocks do not start to move up immediately. There is a wait period before money starts to move into Big Cap growth stocks and during this wait period stock prices fall.

The length of the wait period determines how long the correction or “basing” will last. The depth of the correction will depend on how much money moves out of Big Cap Dividend Paying stocks. At some point when prices of Dividend Paying stocks falls to a point that the yields are very attractive again, money will stop flowing out from them. So in dividend paying stocks there is a backstop on how far the prices can fall.

Stock Market Analysis

The area to be in is big cap stocks. Big Cap dividend paying stocks were working very well till now. Now Big cap growth stocks are also starting to work. Some Money will move from Big Cap dividend paying value stocks to Big Cap Growth stocks, this will create a slight slowdown in the performance of dividend paying stocks. We can see that in the numbers in the chart below. Numbers for DIA are not as good as numbers for SPY and QQQ.

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.

Market Breadth Ratios are weak

Growth momentum leaders are still the weakest category. Market Breadth Ratios are showing that. Market Breadth Ratios are a very good indicator to gauge the performance of growth momentum stocks. We should wait for these numbers to improve before we invest in them.

Read the blog of August 11, 2012 also, to see what is working in the market currently.

What is the Market telling us currently?

All three market indicators SPY, QQQ and IWM are showing upward trends. See the chart below to understand what category of stocks these ticker symbols represent. The highest "speed of uptrend" is on SPY. This means that the stock prices of companies in SPY (ETF for S&P500) are in a clear uptrend. The highest "thrust in uptrend" is on QQQ. This means that stock prices of companies in QQQ (ETF for Nasdaq 100) have started their uptrend and should carry on, since the thrust is high.

The numbers for IWM (ETF for small cap) are not as strong as for QQQ and SPY. This means the stock prices for companies in IWM are showing a weak uptrend.

Thus the area to be in is big cap stocks. Big Cap dividend paying stocks were working very well till now. Now Big cap growth stocks are also starting to work. Some Money will move from Big Cap dividend paying value stocks to Big Cap Growth stocks, this will create a slight slowdown in the performance of dividend paying stocks. We can see that in the numbers in the chart below. Numbers for DIA are not as good as numbers for SPY and QQQ.

Growth momentum leaders are the weakest category. We should wait for their numbers to improve before we invest in them.

Market Breadth value are still weak

Market Breadth values are still showing weakness. Growth stock performance has started to improve but is still not ready for investing in that category.

Investing in dividend paying value stocks is working.

Market Breadth Ratios are still weak

The Market Breadth Ratios are still weak. Investing in growth stocks is not working in this environment.

Investing in dividend paying value stocks is working but currently there is a downward pressure on prices, when looking at both the weekly and daily time frames. This means that on a weekly time frame it may be another 4 to 5 weeks before the downward pressure on prices dissipates. In the meantime do not add any more money to your portfolio. Read the blog of July 31, 2012 for a detailed analysis of what is being said on today’s blog.

There is an important rule to remember in investing, that if the market does not behave the way you expect it to behave, and your method of analyzing the market is sound. It does not mean that your methodology is wrong; it means that something “bigger” is at work. This should prompt you to step back and reassess the underlying trends.

Not a good time to add more money to the market

The weekly oscillator is at the top. This indicates the probability of it coming down is high. With that it will bring the prices down as well.

The daily oscillator is at the top and turning down. This indicates the probability of it coming down is high. With that it will bring the prices down as well.

Since both daily and weekly price charts are giving a high probability of coming down in prices, it is not a good time to add more money to the market. It will be prudent to wait and see what happens.

If the market does not come down in the next few weeks but goes higher and the oscillators remain at the top, then it will indicate a strong uptrend has begun.

Just to reiterate. Investing in Growth Stocks is still not working.  What is working is investing in dividend paying value stocks.

Market uptrend still intact

The ETF for S&P500 (ticker: SPY) is confirming its uptrend. The price went above its prior high, this confirms the uptrend (see chart below).

Mid-Cap and Small-Cap category of stocks are not yet showing a price uptrend. This can be seen in price charts of ETFs MDY and IWM. In both cases the prices have not gone above their prior high.

Market Breadth Ratios are not showing strength. Investing in Growth Stocks is still not working.  What is working is investing in dividend paying value stocks.

An opportunity to sell “Growth Stocks” in your portfolio, if you haven’t done so already

The price uptrend is very anemic. Mid-Cap and Small-Cap category of stocks have broken their price uptrend. This is shown by the price charts of ETFs MDY and IWM. In both cases the prices cut its prior low.

The ETF for S&P500 whose ticker symbol is SPY is showing a price uptrend but the uptrend is very anemic.

There is a high probability that prices will go up in the next few days. The reason for this is explained in the chart below. This up movement in price should be taken as an opportunity to sell “Growth Stocks” in your portfolio, if you haven’t done so already.