Sunday Recap – Staying Alive

Last week was a heck of a wild ride for the Yinzer Analyst. My baby brother got married, I had the opportunity sit down with a local growth manager (there’s more to upstate NY than skiing and maple syrup) and to catch up on plenty of research I’ve been avoiding. The cherry on the top of my sundae was that drive from one end of NYS to the other end of NYS which more than few wholesalers have told me they call thruway hell. It does give you a lot of time to think and after much reflection on the markets and investing in general and came away with a couple of key conclusions:

  1. Growth investing is hard – ask anyone who’s decided to do a pair-trade going long Amazon and short Barnes and Noble – but more on that later. There’s a reason Benjamin Graham is so popular.
  2. Market memories are short-term at best. The fact that two weeks into a mini-recovery, the AAII Investors Intelligence survey already shows bullish sentiment back above the historic averages, the NAAIM survey showing increased bullish positioning and well you get the idea.

Now for the weekly recap:

Domestic Equities:

Following the hammer pattern established during the prior week, the S&P 500 confirmed a short-term bullish trend and exploded higher, advancing over 4.1% and reclaiming more than half of the ground given up since mid-September. Just a few points shy of the 50 day moving average, we have several hurdles in front of us. First is the 50 day followed by the legs of the downtrend line at 1980 and then prior resistance at 1985-1990. Getting over that last level and holding it is key; otherwise a head and shoulders pattern could be forming.

spx2

spx1

The real question is do we have the drive to get us there? You could see by looking at the daily chart that volume was tapering off heading into the weekend indicated a serious lack of selling pressure. But the bounce was overdue; on a weekly basis the S&P 500 had hit it’s 50 week moving average and bounced clear off of that and managed to close just above it on strong buying pressure so these week’s rally wasn’t entirely unexpected. Looking at our short-term momentum scores, we’re nearly at the highest levels of the year (we use a trailing 52 weeks) while longer-term momentum scores remain pitifully low. But with sentiment already improving, % of stocks above their 50 and 200 day moving averages outside the danger zone and inflows resuming into broad based equities, has the easy money already been made?

Take a look at IWM if you want to see a real move that could be in danger.  IWM is still trapped in a downtrend pattern that needs to resolve with a break to through the upper-trend line to confirm not just it’s own positive trend but the broader market’s as well.  If IWM weakens and breaks down, it’s hard to see large-cap stocks plowing on to the old highs and staying there.

IWM1

The Week that Was:

Looking at the rest of our tables, you can see that it was clearly a rally for some of the more recent prodigal sons here in America as tech stocks finally began to catch up after a difficult month while early-year leaders like utilities and reit’s took a breather. The rally was also a U.S. phenomenon as Eurozone stocks lagged and EM equities were dragged lower by Brazil as concerns that incumbent Rousseff would win the run-off (she did) and drag Brazilian equities lower (she did.) Eurozone bank stress tests showed that not surprisingly, more than few banks will need additional capital although the amount they need to raise does seem slightly “massaged.”

The Week that Will Be:

This week is an easy one compared to last week. Last week you needed to watch your positions like a hawk to make sure you didn’t watch small gains become small losses in the event the confirmation didn’t happen. With the solid breakout, the near-term momentum should continue to be towards drifting higher even though the easy profits have been made. Now we’re watching to see if there’s a stab back to the old highs. Best strategy to play now is the trailing stop.

What could upset the apple cart of higher profits? Earnings could always do it but this rally has been entirely inspired by the thought that tapering could be tapered or even that asset purchases could be “increased” and interest rates may have to stay lower for an “extended” period. Never has a market rally depended on so little as it does now to keep powering higher. So keep your eyes on the press release on Wednesday.

For those who desire something more tangible, you have durable goods on Tuesday, the advance reading on GDP on Thursday followed by personal income/outlays, Chicago PMI and Univ of Michigan Consumer Confidence on Friday so no taking an early weekend. Remember, if this rally has breathed some life into your performance, the goal is to stay alive.

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