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May 25, 2020

Stock Market: the best investment strategy in indecisive markets is a careful one.

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The S&P 500 price chart displays a lower low and a higher high over the past 4 weeks, suggesting an erratic and uncertain pattern for the short term. The price index remains in a systematically neutral zone, above its 50-day Simple Moving Average (the dark blue line) but below its 200-day SMA (the red line), and with the 50 below the 200.

The S&P 500 price rose slightly above its April intraday peak on Monday 5/18/2020. Rising trading volume confirmed that breakout, but volume declined as the week wore on and finished on Friday at the lowest level in 3 months. That suggests that the buying enthusiasm evident last Monday quickly faded.

The cumulative daily net volume of advancing stocks minus the volume of declining stocks offers another perspective on the demand for stocks. This indicator failed to rise to a higher recovery high, suggesting that the typical NYSE listed stock is not attracting as much buying demand as the S&P 500 stock price index. This may be a divergence worth paying attention to.

The cumulative daily net number of advancing stocks minus the number of declining stocks on the NYSE did not confirm a new recovery high, for another divergence.

The number of net new highs on the NYSE remained in subdued sideways trend.

Neither the Dow Jones Industrial Average nor the Transportation Average rose above their April highs last week. The Dow Theory trend interpretation remains bearish.

Fundamentally, the economic data has collapsed due to Covid-19 lockdowns. The Fed and all the major central banks are doing everything they can to provide liquidity to preserve the financial system. Their flood of new liquidity has been an important driver behind the stock market bounce from the 3/23/2020 low.

Seasonal tendencies suggest an upside market bias for the last week of May and the first week of June.

Investor sentiment became excessively negative in March, resulting in an extreme oversold condition that led to the oversold short-covering bounce over the past 2 months. Now, that extreme oversold condition has diminished, possibly removing some of the short-covering demand for stocks.

An overabundance of conflicting news, opinions, and forecasts has led to current investor sentiment best described as confused. To avoid such a dysfunctional mental state, we focus on actual facts that the markets themselves are revealing.

We have been out of the stock market since late January, when we noted overbought market conditions with diminishing momentum and rising risks of a global pandemic.

As always, our first priority is to protect and preserve your capital. The price recovery over the past 2 months has been larger than we expected based on past patterns. Nevertheless, market history suggests that it would be most unusual for a new bull market to start so soon after the damages sustained in March. On the other hand, there is no clear evidence that the 2 month bounce has ended. It seems to be a time of uncertainty. Looking ahead, there will be plenty of opportunities to seek strong positive returns when the current uncertainties clear.

The stock market has been sorting out the survivors and the losers, as usual. The following major market leaders display the strongest major trends: U.S. Treasury Bonds and Notes, Gold and Gold Miners, Biotechnology, US Dollar, Technology, Health Care, and Semiconductors. All of these winners are non-cyclical, are insensitive to the major ups and downs of the general economy, and they tend to outperform when the outlook for the economy is negative.

Investor sentiment has moderated significantly and is now mostly neutral. Investor Sentiment is mainly useful for counter-trend trading. Markets are complex adaptive systems that reflect the emotions of the crowd reacting to contradictory and incomplete information as well as changing decision rules. Prices tend to swing to emotional extremes of optimism and pessimism. When there is a great majority of bulls, few investors are left to buy, and rallies suddenly can fizzle and reverse. Conversely, when there is a majority of bears, few investors are left to sell, and short-squeeze rallies suddenly can appear seemingly out of nowhere--the bounce since the March low is a good example. Neutral and mixed sentiment tends to coincide with uncertain, indecisive markets.

$SPX, S&P 500 Index is systematically neutral.
$VIX, Volatility Index is relatively neutral.
!NAAIM!, The National Association of Active Investment Managers long-side exposure to US equity markets is relatively neutral.
!AAIIBEAR, the percentage of individual investors that are bearish is oversold.
! PCRATEQU, the Equity Put/Call Ratio is overbought. The CNN Money Fear & Greed Index is neutral. See http://money.cnn.com/data/fear-and-greed/

The full report offers clear and unbiased guidance on the following each week:
Global stock markets
The Defensive stock sectors
The Health Care sector
The Cyclical sectors
The Technology sector
The Financials sector
U.S. bonds and notes
Commodities (Oil, Metals, Agriculture)
Objective Quantitative Rankings for hundreds of Exchange Traded Funds

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Now is the time to take action. Preserve your capital by placing your assets under our careful management--before the next major bear market of -20% to -50% devastates most portfolios.

Make no mistake, the ongoing global economic and financial crisis has not been fixed by any sound or lasting solution. History shows that the authorities will not protect you or give you any advance warning--but we will.

If you agree that making money while staying safe is better than taking big risks in the stock market and exposing your nest egg to potentially ruinous losses, we would be very happy to implement our time-tested strategies for all of your assets. It makes good sense to choose protection--especially at this time when the financial world is stretched out of proportion.

We are always happy to discuss your goals and concerns and answer all your questions.
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My latest book was named one of the top investment books by Stock Trader's Almanac 2005. This book also received an excellent review in the November 2003 issue of Futures.
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My ETF Rankings are not investment advice. Rather, they are an objective ongoing research study.

Analysis of market forces may offer a sense of probabilities. But the many variables that can impact market prices are notoriously difficult to predict. And, market analysis is something less than an exact science. So, sound trading tactics are always recommended. See my
Money Management Rules.

According to CFTC Rule 4.41, hypothetical or simulated performance results have certain limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, since the trades have not been executed, the results may have under- or over-compensated for the impact, if any, of certain market factors, such as lack of liquidity. No representation is being made that any account will or is likely to achieve profit or losses similar to those shown.

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Robert W. Colby, CMT,
is a consultant to institutional and private investors and traders, providing regular analytical reports, custom research services, and trading systems tailored to clients' objectives. Clients include the most successful traders and investors in the world. Robert is the author of The Encyclopedia of Technical Market Indicators, Second Edition, McGraw-Hill, 2003, which has become the standard reference for indicator and trading systems design. Previously, at several large Wall Street firms, Robert worked as a proprietary trader, technical analyst, and fundamental analyst. He also was adjunct professor at New York University and New York Institute of Finance, where he developed new courses on technical analysis and market timing.

Robert W. Colby is a Chartered Market Technician (CMT), an accreditation granted to members by the CMT Association (https://cmtassociation.org/) after demonstrating professional competence and ethics over a period of many years. Robert has been a member since 1980, and he strongly supports the CMT Association's high standards. He also supports the The Technical Analysis Educational Foundation (https://www.taeducation.org/about/), which works to have technical analysis included in the curriculum of major business schools. The CMT Association is the national organization of investment analysts, stock market analysis professionals, and certified market technicians in the United States.

 
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Ranking ETFs
"Robert Colby has evolved a system that, while hardly foolproof, is pretty clever," wrote Daniel Fisher, "Surfin' ETFs", Forbes, Investment Guide, Special Issue, June 4, 2007.
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INTERVIEW of Robert W. Colby in Technical Analysis of STOCKS & COMMODITIES magazine, December 2006 issue.
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"Gold's next move: History, logic, and intermarket relationships. See if testing gold's relationship to different markets over a 32-year period provides possible trade signals for the yellow metal."
by Robert W. Colby, CMT.
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"Which gold indicators are best? Divining gold's next move."
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"Applying the Relative Strength strategy to ETFs."
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"PUTTING CANDLES TO THE TEST, How Profitable Are They Really?" by Robert W. Colby, CMT. Published in SFO, STOCKS, FUTURES AND OPTIONS MAGAZINE, Volume 5. No. 8. August 2006, pages 91-94. Please click here to buy this article. (Scroll to bottom of linked page.)
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TradingMarkets.com interviewed
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Active Trader magazine September 2004 interviewed Robert W. Colby. 4 pages. "Robert W. Colby: Technical collector. A discussion with Robert W. Colby about technical trading and his revised Encyclopedia of Technical Market Indicators, Second Edition. By Active Trader Staff."
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For information about
methods that would have performed substantially better than systematic trend-following in back-testing simulation dating back 32 years, email me by clicking on the following link:
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Click here for a simulated performance graph of one of my trading systems applied to a stock price index.
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MetaStock® PC Software for Technical Analysis
MetaStock® is a powerful technical analysis software program for your personal computer. It offers more than 200 built-in indicators and line studies to enable you to explore a wide variety of methods. And it empowers you to build, back test, and optimize custom trading systems to suit your own particular requirements.
Great new version just released November, 2019.

Click this link to save 7%-9% on MetaStock® software
.
Or, click the banner below for a one-month free trial.

MetaStock Software