August 08, 2020

Hello Everyone,

As the COVID 19 Virus bounces back from a lower number a month ago, the stock markets, especially the technology stocks continue to rise. The difference this time is that although cases are rising, the number of deaths is much less proportionately than they were just 3 to 4 months ago. The reason, now the 20 to 49-year-olds are now getting the virus, but because they are generally healthier than the 70 to 80-year-olds, they are beating the virus as their immune system is stronger. The reason the technology stocks are continuing to rally is that people are staying at home and using Apple, Google, Amazon, Tesla, Netflix, Zoon, Docusign, etc.

One somewhat concerning fact is that The Top 15 Stocks in the S&P 500 account in Market Value 35% of the entire S&P 500 stock market. The Bottom 420 Stocks in the S&P 500 account in Market Value 33.8% of the entire S&P 500 stock market. This means that 15 stocks are controlling the entire S&P 500. This troubling skewed market is again showing that a very small number of stocks are making us money and the rest are on their back

1. It’s mostly technology stocks, large technology stocks. That’s it, other than some special situations. I am still positive on the stock market long term, but the large growth stocks, although still good for the longer term are now fairly valued and could have somewhat of a setback soon. The more aggressive clients are doing well as the aggressive technology stocks represent a bigger percentage of your portfolio than the bonds and dividend stocks. When the vaccine is available and people go back to work and when people feel safe to get back to some semblance of normalcy to make people want to travel, go to a local restaurant or simply to a movie, we could see these value and dividend stocks climb, but until that happens, the technology stocks will most likely dominate the stock markets.
2. Take a look below, The Dow is down 3%, The Equal weighted S&P 500 is down almost 4%, but the NASDAQ is up 22% because of 15 stocks and the values of their company controlling the entire market including the regular market-weighted S&P only up 5%.

CURRENT TRENDS:

Some of the INDEXES of the markets both equities and interest rates are below. The source is Morningstar.com up until August 8, 2020. These are passive indexes.

Dow Jones -3.0%
S&P 500 +5.0%
EQUAL WEIGHTED S&P 500 -4.0%
NASDAQ Aggressive growth +22%
Large Cap Value -5.0%
I Shares Russell 2000 ETF (IWM) Small cap -9.0%
Midcap stock funds -4.7-15.76%
International Index (MSCI – EAFE ex USA -6.2%
Financial stocks -18%
Energy stocks -36.53%
Healthcare Stocks +2.8% Moderate Mutual Fund Investment Grade Bonds (AAA) Long duration +1.5%
High Yield Merrill Lynch High Yield Index -2.8% Floating Rate Bond Funds -3.4%
Short Term Bond +1.6%
Fixed Bond Yields (10 year) .85% Yield

Classicalprinicples.com and Robert Genetskis Excerpts:

Despite concerns over a weak recovery, the S&P500 reached my estimate of fair value. In contrast, the Nasdaq has far exceeded all prior measures of reasonable valuation. How can stocks rise with the economy so weak? There are two reasons. First, the economy is not weak. It continues to recover rapidly. Second, monetary policy is more expansive than at any time in history.

Although stocks are either fully-valued or over-valued, they can still go higher. At this point, I’m comfortable continuing to ride the wave higher while holding 10% cash for use when the market corrects. Stay cautiously bullish.

Friday’s employment report shows a gain of 1.5 million private-sector workers in early July. The number of unemployed remains high at 16 million. The good news is that weekly unemployment insurance claims continued to improve through the end of July.

The ISM surveys of manufacturers and service companies also show employment contracting. However, these surveys show a strong surge in new orders, which will lead to an ncrease in jobs in August. There are reasons why unemployment remains high. Given the uncertainty over the outlook, it’s natural to await new orders before hiring. Also, employers need to trim unessential costs to pay for the increased costs associated with the virus. Finally, government payments not to work have appealed to many.

Source: Classical Principles.com

S&P 500

Source:AIQsystems.com

The S&P 500 chart is above. It is the Market weighted index described on the first page. Because technology is a major component of this index, stocks like Apple, Amazon, Microsoft and more are making is look
better than what the entire market is doing which is still down 4-10%+ if you look at all stocks.

I tried to make it simple see above. The 3390 area on the S&P 500 is major resistance and 3260, where the Up arrows are should act as support. Right below that is the 50 day moving average. Many traders or investors will sell if the S&P 500 drops and closes below the 50 moving average or the Trend line you see above. Many of you may want to sell if the S&P 500 drops below 3260. In addition the second graph shows the SD-SK Stochastics model as Overbought because the number is over 88. This is another overbought indicator.

Support levels on the S&P 500 area are 3328, 3264, 3150. 3390 is resistance.

▪ These may be safer areas to get into the equity markets on support levels slowly on the accumulation areas.

THE BOTTOM LINE:

The market has rebounded nicely over the last month mainly on the decline in Covid19 cases, and the economy reopening. The NASDAQ has done the best and should continue to do well IF the market continues higher, But now I am thinking that the small to midcap growth and value sector is more undervalued especially when the USA goes back to work and there is a safe and effective vaccine. The Midcap and Small caps could outperform if the rally continues from here. There is a major trend-line right below the markets, see above. If those are broken on a Close I will get Cautious
to Very Cautious. It is important for the trendlines and the 50 day moving to hold or it could start a correction. I like the USA market better than the international market, however the International Emerging markets is getting interesting.

If you have any questions, please call me at 860-940-7020.
Best to all of you,
Joe
Joe Bartosiewicz, CFP®
Investment Advisor Representative

Securities and advisory services offered through SagePoint Financial, Inc. (SPF), member FINRA/SIPC. SPF is separately owned and other entities and/or marketing names, products or services referenced here are
independent of SPF. 800-552-3319 20 East Thomas Road Ste 2000 Phoenix AZ 85012

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Money Flow; The Money Flow Index (MFI) is a momentum indicator that measures the flow of money into and out of a security over a specified period. It is related to the Relative Strength Index (RSI) but incorporates volume, whereas the RSI only considers SK-SD Stochastics. When an oversold stochastic moves up through its MA, a buy signal is produced. Furthermore, Lane recommends that the stochastic line be smoothed twice with three-period simple moving averages: SK is the three-period simple moving average of K, and SD is the three-period simple moving average of SK Rising Wedge; A rising wedge is a technical indicator, suggesting a reversal pattern frequently seen in bear markets. This pattern shows up in charts when the price moves upward with pivot highs and lows converging toward a single point known as the apex

Let’s face it, the human eye is naturally drawn to the “shiny object.”  Hence the reason all the focus is on the Nasdaq Index (by the way, I think there was a glitch with my price quote software yesterday, because at one point it showed that the Nasdaq 100 Index was negative for the day.  I contacted my quote service and pointed out this obvious error and apparently they fixed it because the Nasdaq – as it is supposed to be – was again showing a gain by the end of the day – while all the other indexes were down. But I digress.)

The bottom line is that the type of large-cap/technology related/growth stocks that are presently dominating the Nasdaq 100 Index are (or at least “have”) been the place to be since the market bottomed in March.  Figure 1 displays the performance of ticker QQQ (an ETF that tracks the Nasdaq 100) relative to the performance of the Vanguard Total Stock Market ETF. 

Figure 1 – Ticker QQQ versus ticker VTI (Courtesy StockCharts.com)

The message is pretty obvious, right?  Pile into Apple, Microsoft and Amazon (which account for roughly 34% of the value of the index at the moment) and forget everything else!!! 

Oh sure, if you want to toss in a little Facebook, Google, Tesla and NVIDIA just for “diversification”, that’s OK too.  But avoid “everything else”!

And it’s a great strategy…. Well, as least as long as it lasts.

The “Stuff” Index

Anyway, I created my own index dubbed “Stuff” – it would probably be more accurate to call it the “metals and material” index, but I prefer “Stuff” (sorry, it’s just my nature).  Figure 2 displays a monthly chart; Figure 3 displays a daily chart.

Figure 2 – Jay’s “Stuff” Index; Monthly (Courtesy AIQ TradingExpert)

Figure 3 – Jay’s “Stuff” Index; Daily (Courtesy AIQ TradingExpert)

This index bottomed on 3/18, since then it has climbed +44% (for the record, like everything else it has lagged the Nasdaq 100 which is up +50% over the same time, but it has outperformed all other relevant major stock market indexes).

The index is comprised of the following ETFs:

CPER (copper)

GLD (gold)

LIT (lithium)

PALL (palladium)

PPLT (platinum)

SLV (silver)

URA (uranium)

The top performer among this group since the 3/18 low is LIT which is up +84%.

OK, so this “Stuff” index has still underperformed the Nasdaq Index, so what’s the point?

The Point

Except for gold – which has rallied to a seven year high – no one it seems has the slightest idea that there is “life beyond” large-cap/tech/growth monolith presently sucking up all the sunshine. 

Where do things go from here?  Will Nasdaq keep running?  Or is this rally overdone?  And what about “Stuff”?  Is there any guarantee that it’s strong run will continue?  I don’t claim to have the answers. 

As you can see in Figures 2 and 3, the Stuff Index is presently bumping up against resistance (while the Nasdaq has broken out to the upside and running to new highs).

So here is an interesting rhetorical question to ponder;

First look at Figure 4 which displays the monthly Nasdaq 100 on the top and my Stuff Index on the bottom.

Figure 4 – Nasdaq 100 Index vs. Stuff Index (Courtesy AIQ TradingExpert)

The question to ponder: Which has more upside potential going forward?

See also Jay Kaeppel Interview in July 2020 issue of Technical Analysis of Stocks and Commodities magazine

See also Jay’s “A Strategy You Probably Haven’t Considered” Video

See also Video – The Long-Term…Now More Important Than Ever

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 represents 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 importable AIQ EDS file based on Markos Katsanos’ article in the March 2020 issue of Stocks & Commodities, “Using Relative Strength To Outperform The Market,” can be obtained on request via email to info@TradersEdgeSystems.com. The code is also available below.

I coded the indicator described by Katsanos in his article. Figure 5 shows the RSMK indicator with a 90-bar length on a chart of Fire Eye (FEYE). The trading system is also coded.

!USING RELATIVE STRENGTH TO OUTPERFORM THE MARKET !Author: Markos Katsanos, TASC March 2020 !coded by: Richard Denning, 01/13/2020 !www.TradersEdgeSystems.com !RSMK (Relative Strength) Indicator !Copyright Markos Katsanos 2020 
C is [close]. 
RSBARS is 90.   
SK is 3.  
SEC2 is tickerudf("SPY",C).   

!RSMK: 
RSMK is expavg(ln(C/(SEC2))-ln(valresult(C/(SEC2),RSBARS)),3)*100. 

!RSMK System: 
Buy if RSMK > 0 and valrule(RSMK<0,1) and hasdatafor(200) >= 150. 
Sell if {position days} >= 9*21. 

FIGURE 5: AIQ. The RSMK indicator is shown on a chart of FEYE during 2018 and 2019.

—Richard Denning
info@TradersEdgeSystems.com
for AIQ Systems