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Technical Market Indicators
Dow Theory, W.D. Gann, MetaStock, system tester, indicator builder, custom formulas, momentum, overbought, oversold, buy, sell, signals, top, bottom, Bull, Bear, consolidation, sentiment, contrary opinion
September 16, 2019
Stock Market: prices rose on hope,
but the market looks overbought for the short term.
Preview from my weekly report*
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Stock prices rose again last week on hopes (or perhaps irrational exuberance) about a trade deal between the U.S. and China. On Thursday, President Trump said he was potentially open to an interim trade deal with China, although he stressed an "easy" agreement would not be possible. The news about the ongoing impasse on trade has been subject to repeated reversals for 18 months, keeping investors on a rollercoaster.
The S&P 500 stock price index tested its July high last week but appeared to encounter resistance. The index remains above its 50-day Simple Moving Average (SMA), above its 200-day SMA, and the 50 SMA is above the 200 SMA. Therefore, the S&P 500 remains systematically bullish. It appears overbought for the short-term, however.
On Friday 9/6/2019, Fed Chairman Jerome Powell said there are the significant risks to the outlook: global economic growth, uncertainty about trade policy, and persistently low inflation.
The Fed is widely expected to reduce its Fed Funds rate by 0.25 of a percentage point next Wednesday 9/18/2019 at 2:00 p.m. EDT. Although that should be fully reflected in current market prices, a deviation from this general expectation could move markets.
Thanks to the stock market price recovery over the past 12 trading days, a 71% majority of the S&P 500 stocks now are above their 50-day Simple Moving Averages (SMAs). That is below the 85% peak in July, and that could be a developing bearish divergence.
The Cumulative Daily Advance-Decline Line (for NYSE stocks only) rose for the past 8 consecutive trading days, setting new highs. It may be short-term overbought, however.
Stock market sentiment indicators are short-term overbought.
Historically, seasonal tendencies for the week ahead turn bearish.
Investment selection continues to make a significant difference. The LargeCap, S&P 500 stock price index ETF (SPY) is only 0.45% below its 52-week high, but the following index ETFs are underperforming and bearishly diverging: SmallCap (IWM) is 8.50% below its high, Dow-Jones Transportation (IYT) is 6.85% below its high, Emerging Markets ETF (EEM) 5.80% below, BRIC (BKF) 5.72% below, Foreign Developed Markets (EFA) 4.62% below, and MidCap (MDY) 4.17% below.
Long-term U.S. stock sector rotation is dominated by the outperformance of the Defensive sectors, indicating investor caution about long-term economic prospects. The following best-performing sectors are demonstrating the greatest trend strength: Technology, Real Estate, Consumer Staples, Consumer Discretionary, Utilities, and Communication Services.
Meanwhile, the following Cyclical sectors are relatively weak for the long term: Energy, Health Care, Industrial, Financial, and Materials. With the exception of Health Care, which normally is Defensive, Cyclical sectors tend to rise and fall in anticipation of the ups and downs of the general business and economic cycle.
Foreign and Emerging stock markets remain substantially weaker than U.S. stock indexes. Both fell to their lowest prices since last January in August. Foreign markets are important because they have led the U.S. stock market at important price turning points in recent years.
The U.S. Dollar endured a moderate price correction over the past 8 trading days but remains systematically bullish for the long term. The U.S. Dollar tends to rise in price when investors lose confidence in the global economic outlook.
Gold (GLD) price reversed to the downside over the past 7 trading days as investors reacted to headlines about a trade deal with China. The GLD trend now looks unsettled for the short term but still systematically bullish for the longer term. Gold Miners (GDX), fell below its 50-day SMA and so turned systematically neutral. Silver (SLV) also suffered a steep downside reversal but remains systematically bullish above its SMAs.
Copper (JJCTF) turned systematically neutral last week as price crossed above its 50-day SMA. The price of Copper is sensitive to prospects for global economic growth.
Oil (USO) has turned choppy and erratic since June and may be forming a trading range.
U.S. Treasury bonds (TLT) and notes (IEF) prices suddenly collapsed to finish on Friday below 50-day Simple Moving Averages. The large price reversal followed a surprising outbreak of optimism about a trade deal with China. Bonds and notes now are oversold for the short term and systematically neutral for the longer term. Bonds tend to decline in price when investors gain confidence in the economic outlook and rise in price when investors lose confidence in the economic outlook. Investors appear to be placing great emphasis on a hoped-for trade deal, even though the two sides still appear very far apart.
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)
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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.
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