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August 19, 2019

Stock Market: short-term downtrend continues, with further price turbulence probable.

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"With the recent yield curve inversion, the markets are again racing toward a U.S. recession forecast," according to ECRI, https://www.businesscycle.com

When the yield on 3-month Treasury Bills is higher than the yield on10-year Treasury Notes, the yield curve drops below zero and is said to be inverted. Yield curve inversions tend to be followed by economic recessions. Stock prices tend to decline in anticipation of recessions.

Current global political and economic backdrops still appear to pose significant risks.

A 37.27% minority of the S&P 500 stocks now are above their 50-day Simple Moving Averages (SMAs), down further from 43.29% the previous week. This indicates broad-based stock price weakness.

Despite a moderate oversold bounce on Thursday and Friday, the S&P 500 index closed the week further below its 50-day Simple Moving Average (SMA) and, therefore, remains no better than systematically neutral for the medium term.

The Cumulative Daily Advance-Decline Line (for NYSE stocks only) peaked on 7/5/2019 and also ended last week further below its 50-day SMA.

Sentiment indicators continue to suggest a correction of the previous overbought condition. It may take more price declines and more time to shake out stubborn bulls.

Historically, seasonal tendencies for the week ahead suggest choppy trading with reversals down and up.

Investment selection continues to make a significant difference. The LargeCap, S&P 500 stock price index ETF (SPY) is only 4.43% below its 52-week high, but the following index ETFs are underperforming and bearishly diverging: SmallCap (IWM) is 14.29% below its high, Dow-Jones Transportation (IYT) is 14.25% below its high, Emerging Markets ETF (EEM) 11.82% below, BRIC (BKF) 10.85% below, Foreign Developed Markets (EFA) 9.95% below, and MidCap (MDY) 8.67% below.

Long-term U.S. stock sector rotation is dominated by the outperformance of the Defensive sectors, indicating investor caution about economic prospects. The following best-performing sectors are demonstrating the greatest trend strength: Technology, Real Estate, Consumer Discretionary, Consumer Staples, Communication Services, and Utilities.

Meanwhile, the following Cyclical sectors are relatively weak for the long term: Energy, Health Care, Financial, Industrial, 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. 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 staged a moderate price recovery last week within its ongoing strong uptrend, making back most of the minor price pullback of the previous week. The Dollar rose to its highest price level in more than 2 years on 8/1/2019, reconfirming its systematically bullish long-term uptrend. Investors favor the U.S. Dollar when they lose confidence in the global economic outlook.

Gold (GLD) price rose to its highest price level in more than 6 years on 8/15/2019, reconfirming its systematically bullish uptrend. GLD remains systematically bullish. Gold Miners (GDX) and Silver (SLV) also remain systematically bullish.

Copper (JJCTF) rose slightly but remains systematically bearish. The price of Copper is sensitive to dimming prospects for global economic growth.

Oil (USO) rose slightly but remains systematically bearish. Oil broke down to its lowest price level in more than 7 months on 8/7/2019, confirming a long-term downtrend. The price of Oil also is sensitive to prospects for global economic growth.

U.S. Treasury bonds (TLT) and notes (IEF) both broke out to new all-time highs on 8/15/2019, again confirming their preexisting systematically bullish trends for the long term.

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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My weekly Top 10 ETFs ranked by the Major Trend Relative Strength outperformed the S&P 500 by over an 11-year period of real-time weekly tests. Click here for a graph of simulated performance.

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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 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.
Please click here to view this article
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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.
Please click here to view this article
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"Which gold indicators are best? Divining gold's next move."
by Robert W. Colby, CMT.
Please click here to view this free article
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"Applying the Relative Strength strategy to ETFs."
by Robert W. Colby, CMT.
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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
Robert W. Colby, CMT.
View the entire interview online
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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 May, 2018.

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

MetaStock Software