Baseline Analytics Market Tour

A technical review of the financial markets

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Posted by on in News

Several Market Technicians have been rather vociferous of late in characterizing the chart action as a gradual topping pattern in the equity indices.  Clearly, the NASDAQ index is in worse technical shape than that depicted in the S&P 500 chart below. It feels like tough going for the S&P 500 until it can break out of the 1890-1895 range to a new high.  A pickup in volume on the upside would be further encouraging.

(click here to enlarge)

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A positive sign after reviewing all of the setbacks during the last year, has been the ability of the Relative Strength Line (RSI, at the top portion of the chart) to maintain support at the low end near 30.  This has historically been a signal of a strong uptrend in that the RSI has repeatedly failed to sink to lower levels that would denote a more serious setback.

The middle of the chart shows Martin Pring's KST (which stands for "Known Sure Thing"), another technical tool in Baseline Analytics' arsenal.  During uptrends, when KST crosses below zero, that point typically coincides with a short-term low. Note the several instances when KST crossed below the zero line over the last eleven months depicted in the chart. Those points represented buying opportunities.  A trader would have generally profited by going short when the blue (faster) KST line crossed below the slower red KST line.

As for measures of market sentiment, Baseline Analytics favors VIX and the Put/Call Ratio, tracking those indicators relative to historic extreme points as well as their moving averages. VIX has entered a neutral stage (neither suggesting complacency nor worry), and the Put/Call Ratio also has settled back from a near-extreme reading approaching 1.2 at the height of the early-April swoon in the market.

So what's our take?  Clearly the market is resilient.  It wants to maintain its uptrend but it faces occasional headwinds that encourage dumping of momentum plays and calls for a deeper correction.  Add to that the mid-term election year fear and exasperation that the bull market is five years old (old age for such a trend) and you have a solid dose of fear and caution, just what we need to push the market higher.

This is the time for sensible portfolio allocation.  A mix of large cap, dividend-paying stocks, a prudent partial allocation to bonds, some emerging market ETF's and perhaps a little small-cap spice, as well as a cash reserve for future buying opportunities, would be a reasonable approach to this fickle market.

Baseline Analytics TrendFlex market signal use several indicators (including those in the chart above) to help investors stay on the right side of the market.  Visit our website for more information.

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Today's 0.76% bounce in the S&P 500 occurred at another critical support level.  As seen in the chart below, the 1750 area (the index closed at 1755 today) represents trendline support going back to June, 2013. RSI has held above 30, avoiding a dip into a more bearish, trend-reversal situation.

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Reviewing a weekly chart of the S&P 500, the uptrend is comfortably intact.  On the chart below, 1690 represents trendline support at the 50-period moving average.  Also note that RSI has hugged the 50-level repeatedly during past setbacks.

(click to enlarge)

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The exception was the more serious correction in July and August 2012, when RSI slipped to the 30-level and the S&P 500 fell 250 points from peak to trough.  A similar scenario today would take the index to 1600, representing a 13.5% correction.

In the near-term, holding 1750 support will be key to a resumption in the uptrend.  Should support fail, the 1700 level is a likely stopping ground before we should once again review the technical state of the S&P 500.

The TrendFlex Score from Baseline Analytics assesses the risk of a change in the market trend. Our subscribers receive timely notices of a trend change based on the TrendFlex Score.  Learn more by visiting Baseline Analytics.

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Each week, Baseline Analytics screens over 6,000 equities to identify compelling price and volume patterns.  Depending on what these patterns say, traders and investors can benefit by establishing long or short positions in the stocks.

The SURGE Report identifies equities in our 6,000+ database that have exhibited volume surges over the past 1,5,10 and 20-day period, compared to several moving averages.  In this list, you may find stocks that have broken out and based, representing an attractive entry point.  Alternatively, stocks that have sold-off and are bouncing may represent attractive short opportunities.

Baseline Analytics StockStash equity selections is a subscription-only service that hones stock screens such as the SURGE Report to identify those particularly-attractive long or short opportunities. Subscribers also receive the TrendFlex Market Trend risk-assessment signals as well as our ETF Zone ETF screener service.  

Click on the link below to see the results of today's SURGE report. The report is an Excel list and will open as a separate download.  Online charting services such as StockCharts.com and finance sites such as Zack's and Yahoo Finance can then be used to review the list for further due diligence. The SURGE report is published every two weeks, so check back again.

Baseline Analytics SURGE Report.

 

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Posted by on in News

We are back to our familiar chart of the S&P 500.  As previously noted, a bounce was likely when the index touched the 1775 level on Monday. A bounce on Tuesday, which took the S&P 500 to a close of 1792.50, reversed to test the lows of Monday and has once again settled near 1775 support.  See the chart below:

click to enlarge

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This appears to be a critical juncture for the index.  A close below 1775 would suggest next level of support at the trendline, near 1750.  RSI has held at about 35, a level which has marked the low point for RSI in this uptrend.  Also, a close at the 1750 level would classify this setback as a technical downtrend, by forming a low that is lower than the previous low that can be seen near 1775, in December.

A tentative bounce on light-to-modest volume from current levels would suggest continued technical weakness.

For our subscribers, an update to the TrendFlex Score will be published this evening.

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Posted by on in News

Just a quick update on the S&P 500.  The chart below shows today's low touching a support line drawn at 1775, which marked the low in December as well as broken resistance in November.  A pattern such as this tends to generate a little short-term support, if not a bounce in the index. Failure at this support level suggests the next support point at the trendline, around 1750.

We try not to read too much into short-term chart patterns, but just in case you were wondering what we are thinking, there you have it!

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By observing the chart below, you can tell when Cisco Systems reports its earnings. Euphoria and fear following earnings reports and the company conference call has driven gaps up and down in Cisco's stock price. Cisco Systems is due to report earnings again on February 12th.  See the chart below:

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The compelling fact regarding Cisco is its cheap valuation.  Cisco Systems holds over $9 in cash per share.  Reducinng Friday's closing price of $22.74 by the cash per share, results in a price of $13.74. At its trailing full year earnings of $1.84, Cisco's PE ratio is 7.5, or less than half of the S&P 500's PE multiple.  At next year's 2.08 EPS estimate, that is a PE of 6.6.

Now there is reason why value stocks can remain value stocks for a long time.  Shifting industry dynamics (think Sun Microsystems, Microsoft) can catch a large company off-guard, unable to or unaware of the need to make a change. Cisco Systems traditionally focused on network hardware, while startups shifted the network solution to software (not dependent on legacy hardware as Cisco was dependent upon).  However, as Barron's recently noted, Cisco's "Application Centric Infrastructure consists of a software-based controller that works with a new line of Cisco switches. Cisco says it will offer the agility and programmability that software-defined networks promise, with reduced complexity."

Being the first (or the early technology leader) is not necessarily the best for a technology company.  With Cisco's successful track record, excellent management, depth of talent, and cash, the odds are in favor of Cisco Systems ratcheting up its revenue growth in the coming years as it introduces its software-based solution.

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Cisco Systems also sports a 3.0% dividend yield (the next ex-dividend date will be early April). A breakout above the $23.75-$24.0 area would suggest a potential trend reversal for Cisco (26 and higher would break its 2010 peak, and 32 would take Cisco above its 2008 peak).

As the chart below shows, Cisco is a long way from returning to its 2000 peak, and has quite a way to catch-up with the Nasdaq (the blue line), which is closing in on historic high.

click to enlarge

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Learn about StockStash, our stock picks based on a blend of technical and fundamental criteria, at Baseline Analytics.

Baseline Analytics is expanding!  Please take this survey to share your ideas as we enhance our services.

 

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Each week, Baseline Analytics screens over 6,000 equities to identify compelling price and volume patterns.  Depending on what these patterns say, traders and investors can benefit by establishing long or short positions in the stocks.

The SURGE Report identifies equities in our 6,000+ database that have exhibited volume surges over the past 1,5,10 and 20-day period, compared to several moving averages.  In this list, you may find stocks that have broken out and based, representing an attractive entry point.  Alternatively, stocks that have sold-off and are bouncing may represent attractive short opportunities.

Baseline Analytics StockStash equity selections is a subscription-only service that hones stock screens such as the SURGE Report to identify those particularly-attractive long or short opportunities. Subscribers also receive the TrendFlex Market Trend risk-assessment signals as well as our ETF Zone ETF screener service.  Click here for our subscription offerings.

Click on the link below to see the results of today's SURGE report. The report is an Excel list and will open as a separate download.  Online charting services such as StockCharts.com and finance sites such as Zack's and Yahoo Finance can then be used to review the list for further due diligence. The SURGE report is published every two weeks, so check back again.

Baseline Analytics SURGE Report.

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With the S&P 500 having gained 29.6% in 2013, portfolio rebalancing out of strong equity gainers and into other intermarket sectors (such as bond-like stocks) may be a prudent approach to protecting capital.

On Friday, a weaker-than-expected employment report showed us how oversold bonds had become. Bonds and many high-yield (bond-like) equities surged.  Although we do not embrace chasing bounces (and many bounces are just that - short-term blips that end up resuming the overall trend downtrend), Friday's action causes us to re-evaluate our 2013 successes and adjust (i.e. diversify) a portion of our portfolios.

Below is a chart of MUB, a municipal bond ETF.  Municipality finances are trending more positively with the pickup in economic activity and stronger housing.  MUB has not felt the pinch of higher rates as much as other bond ETF's such as TLT.

click to enlarge

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REITS (Real Estate Investment Trusts) also represent a diversification opportunity. Below is a chart of the Vanguard REIT (VNQ), which bounced off daily support on Friday.

click to enlarge

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Various bond and higher-yielding equity ETF's performed well on Friday and should not be ignored as potential rebalancing opportunities.  Here are a few more interesting ETF's to consider:

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Finally, AT&T (T) took a hit last week on potential price wars.  Sporting a 5.5% yield, this may represent a buying opportunity.

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With talk about single-digit equity index gains in 2014, and a reduction in stock correlations (which favors bottom's up, old-fashioned stock picking rather than index investing), investors are advised to remain flexible with their holdings. A diversified mix of equity holdings and a modest blend of bond-like stocks (and income ETF's) may smooth the potential bumps in 2014.

Visit Baseline Analytics and its StockStash and ETF Zone selections for timely stock and ETF selections.

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Previously we have noted that extreme readings in VIX and the Put/Call Ratio have coincided with shifts in the market trend.  These trend shifts can launch modest, short-term pullbacks or much-needed corrective action.

The chart below is an update from a past posting that highlighted highs and lows in VIX and the CBOE Put/Call Ratio, comparing those extreme readings with the stair-step advance of the S&P 500 and its short-term peaks and troughs.

click here to expand

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You will notice that when both VIX and Put/Call were at extremes, and the S&P 500 was at a peak or trough, there is a dotted line connecting the encircled peaks and troughs. This simple, visual depiction of market sentiment has been a useful tool to assess the risk of a change in the current trend, and a component of our TrendFlex scoring system.

Today, we have denoted a "question mark" on the chart above, highlighting that these readings appear to have reached an extreme. Both Put/Call ratio (at the bottom of the chart) and VIX are at complacent levels (a contrary indicator to the market trend: low complacency at high market price levels have in the past preceded a change in the market trend).

Whether a trend change occurs now or in the near future, our assessment is  that there is increased risk of a trend change, and prudent money management to protect capital is in order.

- Baseline Analytics

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As the stock market rally reaches to new highs, it may be time to re-allocate a portion of capital to a few top defensive equities to help manage risk should this uptrend  grow weary.

First, let’s take a long-term look at staples vs. discretionary stocks. Below is a weekly chart of staples vs. discretionaries and their relative performance vs. the S&P 500.  The indices are the S&P 500 Consumer Staples Sector Index (SPST) vs. the S&P 500 Consumer Discretionary Index (SPCC).  As is obvious and expected following the "Great Recession," Consumer Discretionary stocks (purple line) have outpaced defensive Staples (orange line) since the market bottom in 2009. Staples have graced a trading range since 2010, with a rather marked setback in relative performance this year, since April 2013.

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As discretionary stocks have outperformed staples, so too has growth trounced value, generally spanning the period from the 2009 market bottom to today.  An interesting to note, however, is that the relative strength of growth vs. value has not participated recently in the new highs of the S&P 500.  In the chart below, we depict the Russell 2000 Growth index (RUO), vs. The Russell 2000 Value index (RUJ).  You can see the peak in the Growth/Value ratio achieved this October, corresponding with a peak in its Relative Strength Index (RSI) from an overbought condition.

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How do we tactically respond to these signals in our portfolio allocation strategies? Considering the gains on the equity markets during 2013, taking profits or shifting out of high-beta growth equities into more defensive long positions may be in order, especially considering the age in this market uptrend, which will be five years old this March.

We ran a screen of equities that sported the following “defensive” characteristics but that represented companies with solid fundamentals.  Here is the screening  criteria:

- Beta 0.8 or under

- Return on Equity of 10% or higher

- Record of positive earnings surprises

- Price to cashflow of 10 or lower

- Dividend yield of 1.5% or higher (we omitted utilities due to interest rate risk).

We then pared the list to a mix of equities of companies representing a diversity of industries as well as stocks that were technical-attractive.  Here is what we found:

(click to enlarge)

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While there is no guarantee that discretionary stocks won’t continue their steadfast ascent, diversifying one’s portfolio with a handful of defensives such as those above, is a prudent approach to equity allocations.

Click here to learn more about our portfolio allocation strategies and market trend signals.

 

- Baseline Analytics

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Posted by on in News

Happy Thanksgiving!  It is snowing here in Ann Arbor MI, a fitting backdrop for today’s review of Natural Gas prices.

Natural Gas prices recently broke out through resistance, closing above $3.80 on the daily charts (see the chart below).  No doubt colder weather is part of the reason.  But a longer-term review of natural gas pricing correlated with housing (and its recovery) suggests further potential upside despite the whims of the weather forecast.

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In the chart below, we portray Natural Gas prices (candlestick line), the Dow Jones US Home Construction Index (ITB, the purple line) and Chesapeake Energy, a major natural gas supplier (pink line).  This chart is a monthly view to provide a long-term (20-years) perspective on the relationship of these three indicators (the ITB stretches back only 11 years).

b2ap3_thumbnail_NAtGas-and-Housing.png

Our observations of these relationships are as follows:

Natural Gas prices and housing are fairly well-correlated.  As NG prices increased, so did the housing index (although housing peaked about 3 years before natural gas prices, they appear to be bottoming at about the same time).  This suggests some degree of cause-and effect relationship in that growth in housing construction increases demand (and prices) for natural gas (as most new homes are heated by the commodity).  You will note that the higher low in housing corresponds with a potential floor under NG prices (which may also be forming a higher low as noted in the chart below).

Other factors affecting Natural Gas include production (the major reason for prices to have fallen so low has been significant increase in inventories), and the relative cost of oil.  Cold weather should drive stockpiles lower, and exports as well as production curbs are also expected to help support NG prices.  A sustainable housing turnaround should also be supportive of a bottoming in NG prices.

There is a fairly strong correlation between NG prices and Chesapeake Energy, as one would expect. Should investors want to explore the natural gas industry further, below is a table of relative performance data of Chesapeake Energy and its major competitors.

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Natural Gas prices have been known for their "head fakes" in the past, with various failed breakouts over the course of the 20-year horizon.  Nonetheless, we want to be vigilant of a potential sustained move in prices and aware of opportunities to diversify our portfolios with this commodity or the energy sector in general.

Click here to for additional opportunities and updates to our TrendFlex stock market trend signals.

- Baseline analytics

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The S&P 500 hit a new high this week, gaining 1.6%.  Reviewing the Baseline Analytics Trend and Sentiment chart published in our public charts on Stockcharts.com, most technical indicators for this major index (and the market in general) are lined up to support the uptrend.

Note that in the chart below, the S& P 500 broke above an upper channel trendline in October (green arrow) and appears to have set the 1750 level as intermediate-term support.  The ascent since mid-November was accompanied by improving RSI (which does not yet appear overbought), even though the chart pattern looks tired and nimble at its new high (a 1% decline in the S&P 500 would be welcome at this juncture)!

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KST (Martin Pring’s “Known Sure Thing” remains bullish, however a little momentum shift is seen  with the blue line cross below the red line.  A more material concern for bulls is the shift toward complacency with VIX and the Put/Call ratio (seen at the bottom of the chart).  You will note the red and green horizontal lines on the Put/Call chart, denoting extreme readings where short-term trend changes have historically occurred.

When markets move to new highs, it behooves us to extend the timeframe in technical analysis, and the chart below shows the S&P 500 on a monthly basis.  The monthly chart of the S&P 500 expresses the bullish secular (long-term) trend that has transpired since the bottom in 2009, with volume activity lagging the strength of the price uptrend.

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The final chart below is a depiction of market breadth and internal strength.  After a bout of weakness in October and early November, Advances vs. Declines and New Highs vs. New Lows have once again moved toward new highs.   The one concerning development expressed in this chart is the behavior of the Summation Index (NYSI).  As noted in past blogs, the Summation Index is a useful momentum tool that tends to define the “400” level as the Bull vs. Bear dividing line.  Although the index closed at 393 on Friday, it appears to want to resume its uptrend and may simply be working out the remnants of the weak momentum experienced in the late October-early November market.

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So what does this all mean?  Although the trend remains supportive of long positions, selective longs (i.e. value and dividend plays) and cost-averaging into equity mutual funds (partial positions rather than all-out bullish bets) feels like a prudent strategy at this juncture.

 

Learn more about Baseline Analytics TrendFlex and our TrendFlex signals.

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At any time, the health of the market trend can be characterized by changing relationships between various sectors of the market (i.e. small caps versus large caps) as well as inter-market behavior (i.e. gold versus equities).  One of the sector relationships followed by Baseline Analytics is the relative performance of small cap vs. large cap equities, as well as growth vs. value equities.  The current state of these relationships suggests that the market uptrend may be feeling a bit tired.

The chart below depicts a ratio between small cap stock performance and large caps.  The darker (red/black) line is the ratio, while the pink like is the S&P 500.

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Note that the strongest performance in the S&P 500 tends to be accompanied by a rising small cap vs. large cap ratio.  A rising ratio suggests increased tolerance toward risk and, at extremes, tends to represent excessive bullishness.  A peaking of this ratio, although not necessarily negative for stocks in general, tends to introduce a more defensive market posture as larger, dividend-paying stocks are favored.  The small cap/large cap ratio appears to be topping (note the resistance as denoted by the blue line) while its relative strength index (RSI at the top of the chart) has been on a slight downtrend.  This would suggest an increased preference for more defensive, large cap issues.

We can see a similar peaking activity in growth vs. value stocks.  On the chart below, the RSI of growth vs. value became quite overbought as RSI has recently fallen below 70. Note the red-boxed areas where value outperformed growth. This is also depicted where the ratio has fallen below its 50-week moving average (the smooth blue line). This condition tended to correspond with a sideways or correcting S&P 500 (see the lower portion of the chart below).

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You will note that the relationships depicted in both charts are not perfect, and there are timeframes whereby the expected results do not pan out.  However, Baseline Analytics relies on signals and warning signs to assess the risk of the current market trend changing.  The small cap/large cap ratio and the growth/value ratio are only a small part of the arsenal of technical tools that can be used to assess market risk and manage investment portfolios wisely.

- Baseline Analytics

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The Nasdaq index has outperformed the S&P 500 since May 2013.  It weathered the recent market setback with an orderly decline, then stretched to a new intermediate-term high.  Key technical indicators associated with the Nasdaq, however, are flashing warning signs. See the chart below:

(click here for an enlarged chart)

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The Nasdaq Relative Strength Index (RSI) has held a strongly bullish trend (troughs barely breaking 40), but has recently diverged from the price index, as RSI has struggled to move higher as price has headed north.  This is a sign of waning momentum and potentially inviting a possible trading range or modest pullback on the index.

CCI has also hit a rare peak of 225, clearly an overbought measure. Market technicians have learned that an overbought market can be overbought for quite a while.  If this lesson holds true for today's Nasdaq, further gains are possible.  As a money management strategy, however, setting trailing stops (or protective stops representing a modest loss to long holdings) is a prudent tactic to protect gains and preserve capital, especially as complacency returns to equities.

At Baseline Analytics, complacency measures, as components of our TrendFlex Score, have recently approached extremes that in the past have proceeded market setbacks.

All the best to your trading and investing,

Baseline Analytics

 

 

 

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Here is a "before" and "after" about a StockStash recommendation.

NQ Mobile (NQ), provides mobile Internet services in the areas of mobile security, privacy, productivity, personalized cloud, and family protection.  The stock was recommended on October 7th, based on the following chart:

click here to enlarge

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NQ exhibited a basing pattern at support defined at its recent high near 20 (the 10/7 closing price was 20.92).

NQ showed up on our MetaStock screener.  An Investor's Business Daily leader, NQ sports a composite rating of 97. with a 30% earnings surprise in the last quarter, a 19% ROE and a 59% expected annual earnings increase this year.  These solid fundamentals added NQ to our screener list.  Each week, Baseline Analytics runs a series of MetaStock "explores" to identify such well-run companies that have settled into basing patterns with a high probability of resuming their uptrend.

Today, NQ gained over 12%.  Notice the breakout on higher volume from the 20.92 base established on 10/7:

click here to enlarge

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We typically look for companies with strong fundamentals that exhibit high-volume days on gains (and weak volume days on pullbacks). Notice in the chart above that impressive price gains in March, August and September all came on high volume compared to NQ's typical volume run rate. Such is the behavior of stocks of companies with consistently strong revenue and EPS growth that are leaders in their industry sectors.

Visit StockStash periodically for opportunities such as NQ to help provide alpha to your portfolio.

- Baseline Analytics

 

 

 

 

 

 

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Today's 300+ point gain in the Dow followed extreme sentiment readings as noted in yesterday's blog.  Click here for a video presentation of how the extreme readings in VIX and Put/Call foreshadowed the market surge.

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On September 4th, we noted in our blog "Nasdaq Technicals Maintain Support," that an opportunity to start building a buy list was at hand.  Since then, the Nasdaq has risen over 3% and appears poised for further gains. See the chart below:

(click here for larger image)

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A few indicators suggesting internal strength included a gain on higher volume, and reversals in a couple of key momentum indicators, such as MACD and CCI.

Today, the Nasdaq once again has had a few days of churning and may digest some of those gains.  We view the 3675-3700 level as support in a pullback that would suggest another run toward intermediate-term highs.

 

As we run our Metastock scans for attractive opportunities, we will plan to select stocks that have based in an uptrend and exhibit improving momentum.  Many opportunities are beginning to surface and we have begun to share those in our StockStash selections.  Click here for our latest StockStash picks (for registered subscribers only).

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An indicator supporting the bullish case in the ratio of growth stocks vs. value stocks.  We measure this ratio by using the Russell 2000 Growth Index (RUO) divided by the Russell 2000 Value index (RUJ).   In the chart below, we show the ratio with its 50-day moving average to capture the overall trend (blue line).

(click here to enlarge)

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Note that in recent setbacks in the S&P 500 (bottom of chart); value would tend to outperform growth in a bid for defensiveness.  As you can see with the recent market consolidation, however, growth continues to outperform value.  Perhaps we see a “brave new world” emerging in this relationship.

Our suspicion for this rather unique behavior is based on the sector make-up of the Growth vs. Value indices.  The Russell 2000 Value Index is more heavily-weighted to interest-sensitive stocks such as utilities and financial services as compared to the Russell 2000 Growth Index.

As long as Growth outperforms Value, we believe that there is underlying strength in the equity markets.  We also believe strongly that rising interest rates can be bullish for equities as they suggest underlying strength in the economy.  Managed rate increases with a tempered inflationary outlook can continue to support equities as the asset class of choice, as valuations remain reasonable and occasional political and macro-economic fears introduce the potential for a buying opportunity.

- Baseline Analytics

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As an update to our July 21 blog update on the NYSI, this reliable trend indicator turned bearish following the week's equity market activity.  See the chart below:

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The "400" level has been a reliable demarcation between bullish and bearish stock market trends. We perceive this shift as a warning to plod cautiously with long positions and protect capital.

Stay turned for further updates as market conditions warrant. Subscribe to the latest TrendFlex signals as well as our StockStash and ETF Zone selections.

 

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As noted here in the past, a market breadth indicator that has proven reliable to assess the market trend is the New York Stock Exchange Summation Index.  Developed by Sherman and Marian McClellan, the McClellan Summation Index is a breadth indicator derived from the McClellan Oscillator, which is a breadth indicator based on Net Advances (advancing issues less declining issues).

Baseline Analytics has used the "400" level on the NYSI to delineate between bullish and bearish trends.  On our last update, NYSI was at a -134 reading.  This week, the NYSI peaked above the 400 level, closing at 429 on Friday.

(click here to enlarge)

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As can be seen in the chart above, the 400 level has marked trend changes rather reliably, although it tends to be a lagging, confirming indicator. To enhance the value of the NYSI indicator, we have applied a 20-day simple moving average.  An early trend-change signal is flashed when the NYSI crosses this moving average.  The moving average cross is denoted by the dotted green line, flashing a bullish signal, at about the 1630 level of the S&P500 (for a 3.8% gain so far).  The solid green line, denoting the point where the NYSI crossed above the 400 level, triggered near 1675 on the S&P500.

The summation index is typically used for medium-term and long-term timing (whereas the McClellan Oscillator is effective for more of a short-term horizon).  This is because the slower cumulative nature of the Summation Index requires more data points to support the current trend.  This indicator is not perfect, but represents another tool in the technical analysis arsenal worth tracking.

What is the NYSI telling us today?  Crossing the 400 level is a bullish confirmation.  Note that it took the S&P500 from its low of 1575 to ascend to 1675 before the NYSI flashed a buy when it crossed 400. Looking back, you will see, however, that such rallies in the S&P500 were necessary to move the NYSI to a buy signal. As a medium to long-term indicator, the NYSI is an effective tool to gauge the overall trend and to position your portfolio for best advantage. As short-term readings get overbought, as long as the 400-level support remains intact, we will look to selectively add to long positions.

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