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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)
Objective Quantitative Rankings for hundreds of Exchange Traded Funds

Click here for my report

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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
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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 Market Technicians Association (MTA) 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."
by Robert W. Colby, CMT.
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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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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 May, 2018.

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

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