OK, so this particular piece clearly does NOT qualify as “timely”. Hey, they can’t all be “time critical, table-pounding, you must act now” missives. In any event, as part of a larger project regarding trends and seasonality in the market, I figured something out – we “quantitative analyst types” refer to this as “progress.”
So here goes.
The Month of October in the Stock Market
The month of October in the stock market is something of a paradox. Many investors refer to it as “Crash Month” – which is understandable given the action in 1929, 1978, 1979, 1987, 1997, 2008 and 2018. Yet others refer to it as the “Bear Killer” month since a number of bear market declines have bottomed out and/r reversed during October. Further complicating matters is that October has showed:
*A gain 61% of the time
*An average monthly gain of +0.95%
*A median monthly gain of +1.18%
Figure 1 displays the monthly price return for the S&P 500 Index during every October starting in 1945.
Figure 1 – S&P 500 Index October Monthly % +(-)
Figure 2 displays the cumulative % price gain achieved by holding the S&P 500 Index ONLY during the month of October every year starting in 1945.
Figure 2 – S&P 500 Index Cumulative October % +(-)
So, you see the paradox. To simply sit out the market every October means giving up a fair amount of return over time (not to mention the logistical and tax implications of “selling everything” on Sep 30 and buying back in on Oct 31). At the same time, October can be a helluva scary place to be from time to time.
One Possible Solution – The Decennial Pattern
In my book “Seasonal Stock Market Trends” I have a section that talks about the action of the stock market across the average decade. The first year (ex., 2010) is Year “0”, the second year (ex., 2011) is Year “1”, etc.
In a nutshell, there tends to be:
The Early Lull: Often there is weakness starting in Year “0” into mid Year “2”
The Mid-Decade Rally: Particularly strong during late Year “4” into early Year “6”
The 7-8-9 Decline: Often there is a significant pullback somewhere in the during Years “7” or “8” or “9”
The Late Rally: Decades often end with great strength
Figures 3 and 4 display this pattern over the past two decades.
Figure 3 – Decennial Pattern: 2010-2019
Figure 4 – Decennial Pattern: 2000-2009
Focusing on October
So now let’s look at October performance based on the Year of the Decade. The results appear in Figure 5. To be clear, Year 0 cumulates the October % +(-) for the S&P 500 Index during 1950, 1960, 1970, etc. Year 9 cumulates the October % +(-) for the S&P 500 index during 1949, 1959, 1969, 1979, etc.
Figure 5 – October S&P 500 Index cumulative % +(-) by Year of Decade
What we see is that – apparently – much of the “7-8-9 Decline” takes place in October, as Years “7” and “8” of the decade are the only ones that show a net loss for October.
Let’s highlight this another way. Figure 6 displays the cumulative % return for the S&P 500 Index during October during all years EXCEPT those ending “7” or “8” versus the cumulative % return for the S&P 500 Index during October during ONLY years ending in “7” or “8”.
Figure 6 – S&P 500 cumulative October % +(-); Years 7 and 8 of decade versus All Other Years of Decade
For the record:
*October during Years “7” and “8” lost -39%
*October during all other Years gained +196%
Summary
So, does this mean that October is now “green-lighted” as bullish until 2027? Not necessarily. As always, that pesky “past performance is no guarantee of future results” phrase looms large.
But for an investor looking to maximize long-term profits while also attempting to avoid potential pain along the way, the October 7-8 pattern is something to file away for future reference.
Jay Kaeppel
Disclaimer: The information, opinions and ideas expressed herein are for informational and educational purposes only and are based on research conducted and presented solely by the author. The information presented does not represent the views of the author only and does not constitute a complete description of any investment service. In addition, nothing presented herein should be construed as investment advice, as an advertisement or offering of investment advisory services, or as an offer to sell or a solicitation to buy any security. The data presented herein were obtained from various third-party sources. While the data is believed to be reliable, no representation is made as to, and no responsibility, warranty or liability is accepted for the accuracy or completeness of such information. International investments are subject to additional risks such as currency fluctuations, political instability and the potential for illiquid markets. Past performance is no guarantee of future results. There is risk of loss in all trading. Back tested performance does not represent actual performance and should not be interpreted as an indication of such performance. Also, back tested performance results have certain inherent limitations and differs from actual performance because it is achieved with the benefit of hindsight.
The last month has been very good for the stock market. With the stock indexes rallying 25% or more this year, the market is now at fair value. This means that even though I feel the market could rise next year to my potential forecast of 3280 to 3380, the market based on this year’s earnings is currently where it should be. Barring any Trump slump in the impeachments or Chinese tariffs blow ups, the markets could sell off in the first part of 2020 but if earnings grow 6-7% and interest rates stay low then any market sell off should be just a correction and nothing more than a 4-7% selloff possibly. But because some hedge fund managers are underperforming the S&P 500 this year, any sell off over the next week or so maybe shallow as they want to show their investors at the end of the year that they were fully invested. Beware of a possible sell off after January 2, 2020.
An excerpt from Fundamental Economist Dr. Robert Genetski: from Classical Principles.com:
Stocks rebounded this past week with gains in the vicinity of 2%. The S&P500, Nasdaq and Nasdaq 100 hit new all-time record highs. Christmas came early for investors as trade agreements with China and with Democrats over the USMCA appear wrapped up. The USMCA trade agreement is not a major move in the direction of free trade. It involves only minor adjustments to trade affecting relatively few industries. The main benefit of the agreement is it reduces the uncertainty businesses face over the potential for a major disruption in trade. While details of the agreement with China are not yet available, the main benefit of an agreement will be to reduce uncertainty. This makes it easier for businesses to plan for the future. The resolution of key trade issues and the Fed’s purchases of securities mean the immediate outlook for both the economy and stocks remains positive. Stay bullish.
Longer-term interest rates should remain in the present vicinity for the immediate future.
On the Technical Side:
In November the S&P 500 broke out of the Ascending Triangle that was very Bullish. Now that the S&P 500 is at 3169 and at Fair value it would be normal to see a little correction that I don’t see until the first quarter of next year possibly.
Interest Outlook:
I see the Federal Reserve remaining stable with interest rates.
Some of the INDEXES of the markets both equities and interest rates are below. The source is Morningstar.com up until December 13th, 2019. These are passive indexes.
Dow Jones +23% S&P 500 +27% NASDAQ Aggressive growth +34% I Shares Russell 2000 ETF (IWM) Small cap +23% International Index (MSCI – EAFE ex USA) +19% Moderate Mutual Fund +16% Investment Grade Bonds (AAA) Long duration +13% High Yield Merrill Lynch High Yield Index +12% Floating Rate Bond Index +3-5% Short Term Bond +3% Fixed Bond Yields (10 year) +1.80.% Yield The average Moderate Fund is up 16% this year fully invested as a 65% in stocks and 35% in bonds and nothing in the money market.
S&P 500
Source: AIQ Systems on graphs
The S&P 500 is above. I thought it would break out in October and it did and continued in November and December, but now it needs to Breakout ABOVE and close above 3190 to 3195 or it tops out here. There is a Rising Wedge that I am pointing to above. These tend to be topping and reversal patterns. So watch for a continuation of the breakout above 3190-3195 or it can stall here. If the S&P 500 closes below 3120 I will be getting Cautious. The 50 Day moving average at 3063 should find some Buying support. But the 3030 level is Key Support. If it is closes below 3120 I get Cautious, this means reduce exposure in equities a little if it closes below there. If it closes below the 50 Day Moving average of 3063 I may want to reduce a little more. And a Close below 3030 gets me Very Cautious.
I like the Midcap and some of the smaller stocks and the international and emerging markets going into next year and a reduction of the ULTRA large companies as they are fairly valued.
The first indicator above is the SK-SD Stochastic indicator. This shows the market is a little overbought on a weekly basis but not tremendously overbought.
The second Indicator is the MACD or Moving Average Convergence Divergence Indicator. This is breaking out on the upside showing that the market is gaining its upward momentum again.
Also On-Balance on a monthly total is at new highs in the Dow Jones. This is also Bullish.
OLD HIGH RESISTANCE broken out. But going up in a Rising Wedge.
Support levels on the S&P 500 area are 3154, 3124, 3030, 3017 and 2966. These might be BUY areas.
Support levels on the NASDAQ are 8588, 8348, 8253, 8136 and 8019.
On the Dow Jones support is at 27,667, 27,389, and 27,269 and 26,726
These may be safer areas to get into the equity markets on support levels slowly.
RESISTANCE LEVEL ON THE S&P 500 3190-3195. We need a break of 3195 to void the Rising Wedge.
THE BOTTOM LINE:
The market has rallied a great deal this year after a moderately down 2018. We have made a nice gain this year depending on how aggressive you were in your portfolio. The 3130-3180 I called earlier in the year to reach hit its target at 3169 as of Friday, but it should be reasonably ok and going into the end of December, but I expect a little correction earlier in the first part of 2020 but if everything goes well in our favor with the Chinese Tariffs then earnings could potentially grow 6 to 7% or more and there is possibility that the S&P 500 could reach 3280 to 3380 in 2020, a much smaller rise in the stock market than in 2019 but hopefully a decent return, with obvious no guarantees expressed or implied.
Best to all of you,
Joe
Joe Bartosiewicz, CFP®
Investment Advisor Representative
5 Colby Way
Avon, CT 06001
860-940-7020 or 860-404-0408
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Technical Analysis is based on a study of historical price movements and past trend patterns. There is no assurance that these market changes or trends can or will be duplicated shortly. It logically follows that historical precedent does not guarantee future results. Conclusions expressed in the Technical Analysis section are personal opinions: and may not be construed as recommendations to buy or sell anything.
Disclaimer: The views expressed are not necessarily the view of Sage Point Financial, Inc. and should not be interpreted directly or indirectly as an offer to buy or sell any securities mentioned herein. Securities and Advisory services offered through Sage Point Financial Inc., Member FINRA/SIPC, an SEC-registered investment advisor.
Past performance cannot guarantee future results. Investing involves risk, including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Please note that individual situations can vary. Therefore, the information presented in this letter should only be relied upon when coordinated with individual professional advice. *There is no guarantee that a diversified portfolio will outperform a non-diversified portfolio in any given market environment. No investment strategy, such as asset allocation, can guarantee a profit or protect against loss in periods of declining values.
It is our goal to help investors by identifying changing market conditions. However, investors should be aware that no investment advisor can accurately predict all of the changes that may occur in the market.
The price of commodities is subject to substantial price fluctuations of short periods and may be affected by unpredictable international monetary and political policies. The market for commodities is widely unregulated, and concentrated investing may lead to Sector investing may involve a greater degree of risk than investments with broader diversification.
Indexes cannot be invested indirectly, are unmanaged, and do not incur management fees, costs, and expenses.
Dow Jones Industrial Average: A weighted price average of 30 significant stocks traded on the New York Stock Exchange and the NASDAQ.
S&P 500: The S&P 500 is an unmanaged indexed comprised of 500 widely held securities considered to be representative of the stock market in general.
NASDAQ: the NASDAQ Composite Index is an unmanaged, market-weighted index of all over the counter common stocks traded on the National Association of Securities Dealers Automated Quotation System (IWM) I Shares Russell 2000 ETF: Which tracks the Russell 2000 index: which measures the performance of the small capitalization sector of the U.S. equity market.
A Moderate Mutual Fund risk mutual has approximately 50-70% of its portfolio in different equities, from growth, income stocks, international and emerging markets stocks to 30-
50% of its portfolio in different categories of bonds and cash. It seeks capital appreciation with a low to moderate level of current income.
The Merrill Lynch High Yield Master Index: A broad-based measure of the performance of non-investment grade US Bonds
MSCI EAFE: the MSCI EAFE Index (Morgan Stanley Capital International Europe, Australia, and Far East Index) is a widely recognized benchmark of non-US markets. It is an unmanaged index composed of a sample of companies’ representative of the market structure of 20 European and Pacific Basin countries and includes reinvestment of all dividends.
Investment grade bond index: The S&P 500 Investment-grade corporate bond index, a sub-index of the S&P 500 Bond Index, seeks to measure the performance of the US corporate debt issued by constituents in the S&P 500 with an investment-grade rating. The S&P 500 Bond index is designed to be a corporate-bond counterpart to the S&P 500, which is widely regarded as the best single gauge of large-cap US equities.
Floating Rate Bond Index is a rule-based, market-value weighted index engineered to measure the performance and characteristics of floating-rate coupon U.S. Treasuries, which have a maturity greater than 12 months.
I haven’t written a lot lately. Mostly I guess because there doesn’t seem to be a lot new to say. As you can see in Figure 1, the major market indexes are in an uptrend. All 4 (Dow, S&P 500, Russell 2000 and Nasdaq 100) are above their respective 200-day MA’s and all but Russell 2000 have made new all-time highs.
As you can see in Figure 2, my market “bellwethers” are still slightly mixed. Semiconductors are above their 200-day MA and have broken out to a new high, Transports and the Value Line Index (a broad measure of the stock market) are holding above their 200-day MA’s but are well off all-time highs, and the inverse VIX ETF ticker ZIV is in a downtrend (ideally it should trend higher with the overall stock market).
As you can see in Figure 3, Gold, Bonds and the U.S. Dollar are still holding in uptrends above their respective 200-day MA’s (although all have backed off of recent highs) and crude oil is sort of “nowhere”.
Figure 3 – Gold, Bonds, U.S. Dollar and Crude Oil (Courtesy AIQ TradingExpert)
Like I said, nothing has really changed. So, at this point the real battle is that age-old conundrum of “Patience versus Complacency”. When the overall trend is clearly “Up” typically the best thing to do is essentially “nothing” (assuming you are already invested in the market). At the same time, the danger of extrapolating the current “good times” ad infinitum into the future always lurks nearby.
What we don’t want to see is:
*The major market averages breaking back down below their 200-day MA’s.
What we would like to see is:
*The Transports and the Value Line Index break out to new highs (this would be bullish confirmation rather the current potentially bearish divergence)
The Importance of New Highs in the Value Line Index
One development that would provide bullish confirmation for the stock market would be if the Value Line Geometric Index were to rally to a new 12-month high. It tends to be a bullish sign when this index reaches a new 12-month high after not having done so for at least 12-months.
Figure 4 displays the cumulative growth for the index for all trading days within 18 months of the first 12-month new high after at least 12-months without one.
Figure 4 – Cumulative growth for Value Line Geometric Index within 18-months of a new 12-month high
Figure 5 displays the cumulative growth for the index for all other trading days.
Figure 5 – Cumulative growth for Value Line Geometric Index during all other trading days
In Figure 4 we see that a bullish development (the first 12-month new high in at least 12 months) is typically followed by more bullish developments. In Figure 5 we see that all other trading days essentially amount to nothing.
Figure 6 displays the Value Line Geometric Index with the relevant new highs highlighted.
The trend at this very moment is “Up.” So sit back, relax and enjoy the ride. Just don’t ever forget that the ride WILL NOT last forever. If the Value Line Geometric Index (and also the Russell 2000 and the Dow Transports) joins the party then history suggests the party will be extended. If they don’t, the party may end sooner than expected.
So pay attention.
Jay Kaeppel
Disclaimer: The information, opinions and ideas expressed herein are for informational and educational purposes only and are based on research conducted and presented solely by the author. The information presented does not represent the views of the author only and does not constitute a complete description of any investment service. In addition, nothing presented herein should be construed as investment advice, as an advertisement or offering of investment advisory services, or as an offer to sell or a solicitation to buy any security. The data presented herein were obtained from various third-party sources. While the data is believed to be reliable, no representation is made as to, and no responsibility, warranty or liability is accepted for the accuracy or completeness of such information. International investments are subject to additional risks such as currency fluctuations, political instability and the potential for illiquid markets. Past performance is no guarantee of future results. There is risk of loss in all trading. Back tested performance does not represent actual performance and should not be interpreted as an indication of such performance. Also, back tested performance results have certain inherent limitations and differs from actual performance because it is achieved with the benefit of hindsight.
In “A Simple Way To Trade Seasonality” in the September 2019 Stocks & Commodities, author Perry Kaufman describes methods he uses for measuring the seasonality in markets and approaches he uses for trading these patterns
Editors note: The full article can be obtained from Stocks & Commodities magazine at http://technical.traders.com/sub/sublog2.asp#Sep the system rules are from the article and are based on these rules
1. Average the monthly frequency of the past 4 years.
2. Find the last occurrence of the highest frequency and the last occurrence of the lowest frequency using the average frequency in step 1. That is, if both March and April have a frequency of 70, we use April.
3. Only trade if the high frequency is 75% or greater and the low frequency is 25% or lower.
4. If the high frequency comes first, sell short at the end of the month with the high frequency. Cover the short at the end of the month with the low frequency.
5. If the low frequency comes first, buy at the end of the month with the low frequency. Sell to exit at the end of the month with the high frequency
The importable AIQ EDS file and Excel spreadsheet for Perry Kaufman’s article can be obtained on request via email to info@TradersEdgeSystems.com. The code is also shown below
!A Simple Way to Trade Seasonality
!Author: Perry Kaufman, TASC September 2019
!Coded by: Richard Denning, 07/21/2019
!www.TradersEdgeSystem.com
C is [close].
year is 2019.
len is 4000.
OSD is offsettodate(month(),day(),year()).
FirstDate is firstdatadate().
EOM1 if Month()=2 and valresult(month(),1)=1 and year()=year.
EOMos1 is scanany(EOM1,len) then OSD+1.
EOMc1 is valresult(C,^EOMos1).
EOM2 if Month()=3 and valresult(month(),1)=2 and year()=year.
EOMos2 is scanany(EOM2,len) then OSD+1.
EOMc2 is valresult(C,^EOMos2).
EOM3 if Month()=4 and valresult(month(),1)=3 and year()=year.
EOMos3 is scanany(EOM3,len) then OSD+1.
EOMc3 is valresult(C,^EOMos3).
EOM4 if Month()=5 and valresult(month(),1)=4 and year()=year.
EOMos4 is scanany(EOM4,len) then OSD+1.
EOMc4 is valresult(C,^EOMos4).
EOM5 if Month()=6 and valresult(month(),1)=5 and year()=year.
EOMos5 is scanany(EOM5,len) then OSD+1.
EOMc5 is valresult(C,^EOMos5).
EOM6 if Month()=7 and valresult(month(),1)=6 and year()=year.
EOMos6 is scanany(EOM6,len) then OSD+1.
EOMc6 is valresult(C,^EOMos6).
EOM7 if Month()=8 and valresult(month(),1)=7 and year()=year.
EOMos7 is scanany(EOM7,len) then OSD+1.
EOMc7 is valresult(C,^EOMos7).
EOM8 if Month()=9 and valresult(month(),1)=8 and year()=year.
EOMos8 is scanany(EOM8,len) then OSD+1.
EOMc8 is valresult(C,^EOMos8).
EOM9 if Month()=10 and valresult(month(),1)=9 and year()=year.
EOMos9 is scanany(EOM9,len) then OSD+1.
EOMc9 is valresult(C,^EOMos9).
EOM10 if Month()=11 and valresult(month(),1)=10 and year()=year.
EOMos10 is scanany(EOM10,len) then OSD+1.
EOMc10 is valresult(C,^EOMos10).
EOM11 if Month()=12 and valresult(month(),1)=11 and year()=year.
EOMos11 is scanany(EOM11,len) then OSD+1.
EOMc11 is valresult(C,^EOMos11).
EOM12 if Month()=1 and valresult(month(),1)=12 and valresult(year(),1)=year.
EOMos12 is scanany(EOM12,len) then OSD+1.
EOMc12 is valresult(C,^EOMos12).
YEARavg is (EOMc1+EOMc2+EOMc3+EOMc4+EOMc5+EOMc6+EOMc7+EOMc8+EOMc9+EOMc10+EOMc11+EOMc12)/12.
AR1 is (EOMc1 / YEARavg-1)*100.
AR2 is (EOMc2 / YEARavg-1)*100.
AR3 is (EOMc3 / YEARavg-1)*100.
AR4 is (EOMc4 / YEARavg-1)*100.
AR5 is (EOMc5 / YEARavg-1)*100.
AR6 is (EOMc6 / YEARavg-1)*100.
AR7 is (EOMc7 / YEARavg-1)*100.
AR8 is (EOMc8 / YEARavg-1)*100.
AR9 is (EOMc9 / YEARavg-1)*100.
AR10 is (EOMc10 / YEARavg-1)*100.
AR11 is (EOMc11 / YEARavg-1)*100.
AR12 is (EOMc12 / YEARavg-1)*100.
EOMc if firstdate < makedate(1,20,2019-20).
AR if EOMc.
The EDS code is not a trading system but a way to get the data needed into an Excel spreadsheet to enable you to make the seasonal calculations. The EDS file should be run on a date after the end of the year being calculated. Each year for which data is needed must be run separately by setting the “year” variable. Multiple symbols can be run at the same time by using a list of the desired symbols. Each time a year is run, the “AR” report must be saved as a “.csv” file. Once all the years needed have been run and saved to separate “.csv” files, they all should be cut and pasted to a single Excel sheet. They then can be sorted by symbol and each symbol can be copied and pasted to a tab for that symbol.
Figure 6 shows the rolling four-year frequency for the S&P 500 ETF (SPY) and Figure 7 shows the annual trades resulting from applying the seasonal rules to the frequency data.
FIGURE 6: AIQ. Shown here is the rolling four-year frequency for the SPY.
FIGURE 7: AIQ. Shown here are the annual trades resulting from applying the seasonal rules to the frequency data for SPY.
On my last Bartometer I stated that we were #1 On Buy signal, #2 the Dow Jones and the stock market had Bullish Ascending triangles patterns, #3. Money flow and On Balance Volume were breaking out to NEW HIGHS when the stock market wasn’t. This shows demand for stocks over and above the price. These 3 indicators were telling me and I was telling you that I thought the market would breakout to new highs, AND IT DID. The stock market broke out of the bullish ascending triangle, (see index on the next page about ascending triangles)*. On the S&P I said that it had to breakout of 3030 and it did. It is now 3093. I said the Dow Jones had to breakout of the 27400, and it did. It is now 27681.
Where does is go from here and could we get a little pull back?
See chart below for an explanation.
An excerpt from Fundamental Economist Dr. Robert Genetski: from Classical Principles.com:
Stocks benefited from encouraging news of a potential trade agreement between the US and China as well as some good news on the economy. Markets seldom move in only one direction. The S&P500 is now within 3% of its fundamental value. A pause or even a slight correction is overdue, particularly if there is any negative news. Even so, with stronger fundamentals and the Fed purchasing securities, any correction should be fairly mild. Stay bullish on stocks.
Adding to Bob’s his Comment:
Signs of strength in the economy combined with gains in stock prices led to a sharp jump in intermediate and longer-term interest rates. This week the interest rate on 10-year T-Notes moved 25 basis points higher. The latest moves turned the yield curve to a more normal shape. As with stocks, interest rates have spiked higher and are overdue for some correction. However, after more than a decade of interest rates declining and being well below their fundamental levels, rates remain 200 basis points below fundamental levels. While the Fed’s low target places a limit on how high interest rates will go, there is still a lot of upward potential for longer-term rates. Fixed-income portfolios should remain defensive.
On the Technical Side:
Over the last almost 22 months, the Dow Jones FINALLY broke out to new highs from the old highs set on Jan 31, 2018 at 26,714. That is a POSITIVE. Money Flow and On Balance Volume are still at a new high, but the markets are again becoming overbought. So, could the market comes down a little now? YES, the markets are now overbought and there could easily be a slight decline to 27191 to 27298, a decline of around 2%, and the S&P to decline to 3029 area, a decline of 2% or so, BUT no more than that, because if the markets GO BACK BELOW THE BREAKOUT it can cause traders to start selling in mass. So look for a possible test of the breakout, but IF the markets close below the breakout of 27300 to 27384 on the Dow Jones or 3030 on the S&P convincingly, then I will be getting Very Cautious. If that doesn’t happen then I am still moderately bullish. But I realize the market are now OVERBOUGHT and in my opinion, it is not a time to go out and invest a lot of money in the markets. Dollar cost averaging is fine. I stated in my January Bartometer that I thought the S&P could reach 3130 to 3180+ this year. At 3093 currently, that is about 1-3% from here.
Some of the INDEXES of the markets both equities and interest rates are below. The source is Morningstar.com up until November 9th, 2019. These are passive indexes. *Dow Jones +20% S&P 500 +24% NASDAQ Aggressive growth +31% I Shares Russell 2000 ETF (IWM) Small cap +19% International Index (MSCI – EAFE ex USA) +16% Moderate Mutual Fund +14% Investment Grade Bonds (AAA) +13% High Yield Merrill Lynch High Yield Index +11% Floating Rate Bond Index +4.0% Short Term Bond +4.0% Fixed Bond Yields (10 year) +1.75.% Yield
The average Moderate Fund is up 14% this year fully invested as a 60% in stocks and 40% in bonds and nothing in the money market.
S&P 500
Ascending Triangle is above, and is Bullish as long as it stays above the breakout of 3027-3030
The S&P 500 is above. The S&P 500 contains 500 of the largest companies in the US. The 2 top companies by market value are Microsoft and Apple. But there are 498 other stocks in it. If you can see above the ASCENDING TRIANGLE that is BOLDED. Notice the clear breakout to new highs. This is clearly BULLISH like I thought would happen last month. And it did. Now that it has risen 2% ABOVE the breakout, a BREAKDOWN below the 3030 convincingly would get me VERY Cautious. It is normal to come back down to test the breakout, but not to break down below it. So if you see the S&P close below 3030 convincingly on heavy volume, I will be getting Cautious to Very Cautious depending on the reason. But the market is now at fair value to me and there may be another 1-4% more for the year in my opinion, but not much more unless there is incredible news from the Political or Tariff front. It is not a great time to go out and buy a lot in the stock market in my opinion as well.
The Middle graph is called the SK-SD Stochastics model. It shows the markets as being overbought when the indicator is above 88 where it is above the 88 horizontal line. Notice every time the indicator was above 88 it seemed to peak out and sell off. This is not guaranteed but it is good indicator.
The 3rd indicator is MACD or Momentum this indicator is still bullish until the pink line breaks down below the blue line. As of right now, momentum is still higher, but the markets are over bought, so be careful.
An ascending triangle is a chart pattern used in technical analysis. It is created by price moves that allow for a horizontal line to be drawn along the swing highs, and a rising trend line to be drawn along the swing lows. The two lines form a triangle. Traders often watch for breakouts from triangle patterns.
See the pattern above? It’s an Ascending triangle. Ascending triangles are BULLISH as long as they don’t go back below the breakout. If this is a successful Ascending triangle the S&P can rise to 3130-3180 first and possibly higher IF the breakout isn’t broken convincingly on the downside or breaking and closing below 3030.
On-balance volume (OBV) is a technical analysis indicator intended to relate price and volume in the stock market. OBV is based on a cumulative total volume.
Money flow is calculated by averaging the high, low and closing prices, and multiplying by the daily volume. Comparing that result with the number for the previous day tells traders whether money flow was positive or negative for the current day. Positive money flow indicates that prices are likely to move higher, while negative money flow suggests prices are about to fall.
A Support or support level is the level at which buyers tend to purchase or into a stock or index. It refers to the stock share price that a company or index should hold and start to rise. When the price of the stock falls towards its support level, the support level holds and is confirmed, or the stock continues to decline, and the support level must change.
Support levels on the S&P 500 area are 3027-3030, 3017, 2952, 2922, and 2812. These might be BUY areas.
Support levels on the NASDAQ are 8251, 8144, 8080 and 7771.
On the Dow Jones support is at 26,285, 25,763, and 25,458
These may be safer areas to get into the equity markets on support levels slowly.
RESISTANCE LEVEL ON THE S&P 500 IS 3130 and the Dow Jones breakout is 27,400. If there is a favorable tariff settlement, the market should rise short term.
THE BOTTOM LINE:
The Dow, the S&P 500 and the NASDAQ are at new highs after rallying over the last 3 weeks. Normally the markets after reaching new highs become overbought and may come back down towards the breakout areas to see if the breakouts area holds. lf breakout of 3030 are holds then the markets tend to drift back towards the old high to see if it can break out again. If it does then 3130 to 3180 could be the next target. If 3030 doesn’t hold on the S&P and starts to break down below 3030 then I will be getting cautious or very cautious.. I WILL CONTINUE TO ANALYZE THE TECHNICALS OF THE MARKET. The seasonal patterns of the markets are bullish towards the end of the year. Last year the markets fell in December. It looks like the market still wants to go up, but with tweets coming out hourly, market timing will be more difficult.
Best to all of you,
Joe Bartosiewicz, CFP®
Investment Advisor Representative 5 Colby Way Avon, CT 06001 860-940-7020 or 860-404-0408
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