|technical analysis, trading systems, investing, market-timing methods, stock market, money management
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
May 25, 2020
Stock Market: the best investment strategy in indecisive markets is a careful one.
Preview from my weekly report*
Our asset management clients have made significantly positive absolute and relative returns while taking much less risk. We offer complete transparency, anytime access to your funds, and low fees. You keep control over your money. See: ColbyAssetManagement.com
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
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.
Call us now for a free consultation.
by phone: 646-652-6879
or by email: firstname.lastname@example.org
*For extensive coverage of major global markets with illustrative charts, take a free trial for my weekly report --
This Technical Analysis is made possible by use of MetaStock software. Try it at no risk. (Check out the great new version XVII released November, 2019) Click this link to save 9%-10% on MetaStock® software.
11-Year Outperformance by the
Top 10 Exchange Traded Funds
Weekly Rankings of Major Trend Relative Strength
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.
Please note that my ETF rankings are available by subscription--NOW WITH A NO-RISK FREE TRIAL.
See The Colby Global Markets Report (click here).
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
MetaStock® PC Software for Technical Analysis
MetaStock® is a powerful technical analysis software program for your personal computer. It offers more than 250 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.
Click this link to save 9%-10% on MetaStock® software.
Or, click the banner below for a one-month free trial.
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.
Trading and investing involve risk of significant loss. Your use of this site means that you have read, understood, and accepted my Disclaimer.
Syndicate content on these pages