Fibonacci Says Upside to SPX 4300

Earlier this week, I completed a “clean slate” exercise on the S&P 500 chart.

You see, my charts become pretty busy over time, because I draw lots of trend lines and put notes on the charts as well. Basically, I consider charts to be the way you have a conversation with the markets! And after a while, the conversation gets a little muddy, and you need to reset.

My normal S&P 500 chart looks like this:

Viewers of The Final Bar on StockCharts TV will probably be very familiar with this daily SPX chart, because we review it on pretty much every episode of the show!

Every line drawn on that chart comes from some moment where, in reviewing the chart, I felt that I needed to indicate a particular level or trend or pattern. Over time, the chart can accumulate quite a bit of noise!


Should we “sell in May and go away” in 2023? Join me for a free webcast on Tuesday May 23rd at 1:00pm ET called Sell In May: Trends vs. Cycles. We’ll review the history of this seasonal pattern, compare the current market environment to past cycles, and decide together whether we should indeed “sell in May!” Sign up HERE for this free event!


So I saved a new version of this chart and went with a completely clean slate. Okay, I did add back the moving averages and RSI, but other than that it’s pretty clean!

What jumps out at you as you’re looking and reflecting on the price movements and price patterns? For me, I was immediately drawn to the higher lows from October to December to March. I drew that trendline first (dashed blue line), and it struck me that my first takeaway was the bullish pattern of higher lows over time.

Next, I noticed how we were approaching the February high around 4200, so I drew a dashed pink line to indicate this important resistance level. It turns out Thursday’s close was almost exactly at this level, and then Friday’s drop pulled right back below 4200.

Finally, I noticed the symmetry around the 4100 level. The S&P 500 hit 4100 in early December of last year, and I would argue that February’s run to 4200 was essentially a failed attempt to break above that December high. We spent most of the last six weeks sitting right around 4100, so that trendline was added next.

I sat back and reviewed my trendline analysis, and realized that I was missing one of the most effective ways to identify potential support and resistance levels between two extreme prices: Fibonacci Retracements. When a market has established a significant high (SPX 4800 in January 2022) and then a significant low (SPX 3500 in October 2022), Fibonacci Retracements can help to anticipate where the market may retrace as the price attempts to push higher and regain the previous highs.

When I applied the Fibonacci ratios to the chart, I remembered why I was so focused on the 4000 level in the 4th quarter of last year. This represented a 38.2% retracement of the 2022 range and seemed to be a likely upside target on the initial rally off the October lows.

Sure enough, we hit 4000 in November and spent about four weeks chopping around that price point. When we finally saw a follow-through move above 4000 in January, that opened the way to the 50% level around 4155, which was reached in early February.


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For the last six weeks, we’ve been talking about the S&P 500 hitting 4200 and whether it can eclipse the February high. This chart now reminded me that the 50% Fibonacci level was also at play here, and getting above 4155 was an important milestone as well.

So if the SPX does indeed power above the February high next week (still very much an open question in my opinion!), what’s the next upside objective?

A 61.8% retracement of the 2022 selloff would take the SPX to around 4310. That is pretty much exactly at the August 2022 high! Here, we have a “confluence of resistance” where traditional support and resistance analysis aligns with Fibonacci retracements. Based on the narrow leadership in 2023, and the anemic breadth conditions persisting through this week, I would expect a move above 4300 to be highly unlikely.

What if the S&P 500 index fails here and pushes back lower? Well, we have plenty of support levels and Fibonacci levels below the current price, including the 4150 and 4100 price points. I’m immediately drawn to 4000, which represents a “confluence of support” based on Fibonacci analysis, the 200-day moving average, and the trendline we mentioned at the beginning of this article.

There is plenty to be bullish about, with strong uptrends in many equities and our Market Trend Model remaining bullish on all three time frames. But, when markets are facing significant overhead resistance, I have to question the risk vs. reward at current levels.

Want to learn more about Fibonacci in a handy video format? Head over to my YouTube channel!

RR#6,

Dave

P.S. Ready to upgrade your investment process? Check out my free behavioral investing course!


David Keller, CMT

Chief Market Strategist

StockCharts.com


Disclaimer: This blog is for educational purposes only and should not be construed as financial advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional.

The author does not have a position in mentioned securities at the time of publication. Any opinions expressed herein are solely those of the author and do not in any way represent the views or opinions of any other person or entity.

David Keller

About the author:
David Keller, CMT is Chief Market Strategist at StockCharts.com, where he helps investors minimize behavioral biases through technical analysis. He is a frequent host on StockCharts TV, and he relates mindfulness techniques to investor decision making in his blog, The Mindful Investor.

David is also President and Chief Strategist at Sierra Alpha Research LLC, a boutique investment research firm focused on managing risk through market awareness. He combines the strengths of technical analysis, behavioral finance, and data visualization to identify investment opportunities and enrich relationships between advisors and clients.
Learn More

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#Fibonacci #Upside #SPX

Ending The Sloppy Choppy Phase

In the last two weeks, I’ve heard this market described as “frustratingly neutral”, “decidedly sideways”, “stuck”, and my personal favorite, the “sloppy choppy” phase. So how does the market breakout of this sideways period and move into a new bullish or bearish phase?

It starts with the S&P 500 and Nasdaq Composite and what I call the New Dow Theory.

What a Breakout Could Look Like

Now, there are more sophisticated methods for gauging Dow Theory signals, but I tend to keep things super simple. When both the S&P 500 and Nasdaq Composite are making a new swing high, that is a confirmed bullish signal. When either index makes a new swing high, and the other index does not confirm that new swing high, that is a bearish non-confirmation. When both the S&P 500 and Nasdaq Composite are making a new swing low, there’s a confirmed bearish signal. When either index makes a new swing low, and the other index does not confirm that new swing high, that is a bullish non-confirmation.

We can see that this week the Nasdaq Composite did indeed make a high for 2023, finally pushing above its February peak. The S&P 500, even with a fierce rally into Friday’s close, still has not broken out to a new swing high.

If the S&P 500 would close above 4200 at some point next week, that would create what we listed above as a confirmed bullish signal. What if the SPX does not close above 4200? Then we would have a bearish non-confirmation and a likely retest of the March low.

Further Confirmation From Market Breadth

Now the issue with our growth-oriented, cap-weighted benchmarks is that they are very skewed to a relatively small number of mega cap stocks in sectors like technology and communication services.

We’ve been talking narrow leadership and questionable breadth conditions for a while now, and John Murphy included it as a key bullet point in his recent market note.

If we check out the advance-decline lines by cap tiers, you’ll notice a huge difference between conditions for the largest vs. the smallest names in the equity space.

Below the S&P 500 price trend, you’ll see three data series which represent the cumulative advance-decline lines for large caps, mid caps, and small caps. Note how the large cap A-D line is testing its February high, similar to the S&P 500 itself. The mid cap A-D line is well off its February high, and just broke below its 50-day moving average this week. At the bottom, you’ll see that the small cap advance-decline line is testing its March low.

Talk about three very different takes on market breadth!

While our mega-cap dominated benchmarks can and do move higher based on the strength of the mega cap trade, the weakness in the smaller stocks out there suggests less of a “risk-on” environment, and more of a “getting large and defensive” feel.

The bear case from here would start with the small cap A-D line making a new low for 2023, as well as the large cap breadth line not pushing above its February high.

Investor Sentiment and Economic Growth

Our final chart today addresses the relationship between the equity markets and other asset classes. Here we see the S&P 500 at the top, followed by three key ratios that provide fascinating insights into market sentiment and economic outlooks.

The first ratio is stocks vs. bonds, using the SPY and TLT ETFs. Note how this ratio was in a clear uptrend for about three years, starting just after the 2020 market low. It definitely paid to own stocks over bonds from 2020 through 2022.

Now look at the last six months, and you’ll see how stocks and bonds have been pretty much a wash since October of last year. That’s right, owning stocks or bonds would given you pretty similar returns, even with equities rallying strongly off their October lows.

The next panel down shows stocks vs. gold, or what I think of as “paper vs. rocks”. Now in the rocks-scissors-paper challenge I often find myself in with my seven-year-old son, paper covers rocks. But in the financial markets in 2023, rocks have done much better due to the strength in gold and precious metals. So you’ve been much better off owning gold over stocks or bonds since the end of 2021.

At the bottom, we have two ETFs of which you may be a bit less familiar. Here, we’re comparing base metals (DBB) vs. precious metals (DBP). When economies are growing, you need lots of copper and aluminum and other practical materials to build cities and other things. When the economy is weaker, precious metals tend to thrive, as they are considered a good store of value and tend to be as recession-proof as anything can be. And, of course, weaker economies mean less demand for base metals.

So what does it mean that this ratio has been trending lower over the last 12 months? It certainly does not mean that the economy is doing well, and arguably it indicates that the actions taken by the Fed to raise rates and slow the economy has had its intended effect.

Can stocks move higher while this ratio goes lower? Of course. But just as we’ve discussed regarding small-cap stock performance and offensive vs. defensive sectors, I’d feel much better about upside potential if ratios like this were trending higher rather than lower!

Want to digest that last chart in video format? Just head over to my YouTube channel!

RR#6,

Dave

P.S. Ready to upgrade your investment process? Check out my free behavioral investing course!


David Keller, CMT

Chief Market Strategist

StockCharts.com


Disclaimer: This blog is for educational purposes only and should not be construed as financial advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional.

The author does not have a position in mentioned securities at the time of publication. Any opinions expressed herein are solely those of the author and do not in any way represent the views or opinions of any other person or entity.

David Keller

About the author:
David Keller, CMT is Chief Market Strategist at StockCharts.com, where he helps investors minimize behavioral biases through technical analysis. He is a frequent host on StockCharts TV, and he relates mindfulness techniques to investor decision making in his blog, The Mindful Investor.

David is also President and Chief Strategist at Sierra Alpha Research LLC, a boutique investment research firm focused on managing risk through market awareness. He combines the strengths of technical analysis, behavioral finance, and data visualization to identify investment opportunities and enrich relationships between advisors and clients.
Learn More

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#Sloppy #Choppy #Phase

Is This Market Resilient or What?

Have you ever stood at the edge of the Grand Canyon and wondered about all the history of each cave or ridge? What about the multiple valleys that ultimately drain to the Colorado River? It is a daunting site to behold, but, as the winds blow past you and the hawks soar overhead, you can quickly see that just one viewpoint doesn’t do it justice.

Photo: Greg Schnell

This week’s price action in the stock market reminds me that there are multiple perspectives of where we are in the stock market journey. Everyone’s viewpoint is different, and that’s what makes a market. Technology investors see one perspective. Commodity investors see another. Bank dividend investors are seeing a new view as well.

I went to look and see what were the top-performing industries over the last week while the banks were imploding, and it was travel and leisure, hotels, and gaming. I had no idea that the resilience of those groups could hold up a market.

Financials:

Financials are breaking down, both big and small. Financials used to be important, but apparently they do not matter, as the $SPX touched a fresh 2023 high last week.The charts of C, WFC, and BAC don’t look nearly as healthy as JPM. The regionals are bombing out, and a few might get merged this weekend. I think we have all seen the KBE and KRE ETF charts. The main point of the picture below is that JPM is holding up; the others are not.

Here is the banking index. That 2010-2023 trend looks broken. Even by just ignoring the COVID situation, this looks broke, and a test of $60 wouldn’t be hard to imagine. The bottom panel shows 15-year relative strength lows.

The broker dealers, usually considered as one of the leading industries, looks better than the banks. Does the trend line hold? The PPO is going below zero again. This is a chart that suggests, to me, that this problem will get bigger.

Industrial Metals

The industrial metals commodity index by Goldman Sachs is making lower lows and lower highs since January. Is this just China managing commodity demand to load up on cheap commodities before the next run starts? That would be no different that the US government managing oil pricing by releasing the strategic petroleum reserve. So this isn’t taboo, but other nations do it on a lot more commodities than just oil.

Crude Oil

Crude oil continues to struggle. That rally last Friday was just that. It was so-o-o last week, as crude slid below $65 this week. Before market open on May 5, this chart shows crude down 10% on the week, and that isn’t even the bottom of the candle.

$SPX Price Earning Ratio

The price/earnings ratio for the stock market, sitting up near some of the most stretched extremes in history, was barely discussed at the CMT Association meeting. Purple is current, and the other three lines are where it would be based on lower P/E ratios. We have lived in a stretched world since 2014, so why would that view matter now? I show this chart to demonstrate that, if we reverted to 20, we would be below 3500, and if we reverted to a P/E of 15, 2600 is in play. It is not uncommon for recessions to cause a valuation reset of the market broadly.

Bonds and the Yield Curve

At the CMT Association meeting, the yield curve or the history of the yield curve was never mentioned in any of the conversations and presentations I sat in on. It didn’t fit with the bullish narrative of the $SPX and $NDX at 2023 highs. By the way, most portfolio managers think we are going much higher (but don’t mention the yield curve).

Actually, I was amazed that no one even mentioned it, even though the whole bank valuation issue right now is hold to maturity (HTM) bonds. Bonds are the problem, not the equity market.

The real deal is bonds add another perspective, much like the Grand Canyon viewpoints. Change any one viewpoint and it looks totally different. We find an entirely different view over in the yield curve. Bonds are one of the four major asset classes, but only Louise Yamada ventured there, showing a 40-year break of the interest rate trend line for long bonds.

The current yield curve did not seem to matter, nor did the history of the yield curve. So let me add a few yield curve charts here. The vertical line on the right side at year 2000 is the top yield curve line on the left. The vertical line at 2007 is the bottom yield curve line on the left.

So what does the yield curve line look like right now? It is the bottom line on this chart below, comparing with the 2000 top. They look similar to me.

Why does that matter? Let me use another chart to explain what is happening. The 30-year yield is now higher than the middle or the belly of the curve. This is changing rapidly as the yield curve starts to realign. If you look on the right side in the zoom panel, the 30-year yields are starting to hold above the middle of the curve yields. The 30-year yield may cross above the 2-year soon. But look at the congestion zones when the yields get tight. The equity market response is shown as this starts to broaden out. $SPX is on the lower panel.

Fed Rate

Now that a large portion of money managers assume the Fed is done raising rates, where does this leave us? The chart that makes a big impression on me is the rate of change of the Fed funds rate, shown in green in the lower panel. This isn’t the rate of change of something like lumber. This is the rate of change for one of the most tracked interest rates in the world.

The assumption that the entire business world can adapt rapidly to absorb one of the fastest rate changes ever does not seem plausible to me. As this rolls through boardrooms across the world, when will it crack the equity market investors? So far, the equity markets are not blinking.

I am on another viewpoint — wide-eyed, staring over my view, suggesting something is amiss and about to fall sharply. Will it happen in May or June? Or will it take until October? I don’t know, but I don’t see this working out ‘perfectly’ as we try to go to take out the 2021 highs.

To me, it looks like a setup we should be cautious of. When the market continues to struggle to make higher highs here after six weeks, is this just a consolidation? Or is it a final realization that it’s about to get messy?

If you would like more perspectives on this, I’ll be holding a monthly conference call for clients on Sunday. At Osprey Strategic, you can try out our services for just $7 for the first month. I’m a big fan of protecting capital until the time is right to step back in. Day traders need not test the waters. They won’t find anything they like there. This is for investors with large amounts of capital with the wisdom and patience to wait for a better backdrop.

Greg Schnell

About the author:
Greg Schnell, CMT, MFTA is Chief Technical Analyst at Osprey Strategic specializing in intermarket and commodities analysis. He is also the co-author of Stock Charts For Dummies (Wiley, 2018). Based in Calgary, Greg is a board member of the Canadian Society of Technical Analysts (CSTA) and the chairman of the CSTA Calgary chapter. He is an active member of both the CMT Association and the International Federation of Technical Analysts (IFTA).

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#Market #Resilient

Trade What You See; Profits are Waiting Beyond the Daily Grind

As the mainstream focuses on negative developments, such as the Fed’s latest utterings and the implosion of subsets of the commercial real estate (CRE) sector, there seems to be a stealthy migration of money into other select areas of the market. This is a great example of why focusing on the markets instead of the external noise is the best way to trade.

Trade What You See

There’s an old saying among wise veteran traders: “trade what you see.” And the current market is a perfect place in which this adage holds up.

As investors await the Fed’s nearly certain rate increase on May 3rd, the daily options market-related gyrations in stocks continue to develop. Meanwhile, the four-prong post-COVID pandemic megatrend continues to evolve, as I discuss in detail in my latest Your Daily Five video. Said megatrend is composed of:

  • The Great Migration – population shifts to suburbs, rural areas, and the sunbelt; 
  • The CRE Implosion from an oversupply of office space;
  • Bullish Supply Dynamics for Homebuilders; and
  • The Evolving End of Globalization.

As a result, the only solution is to be contrarian, to trade what you see, and to focus on investments from a longer-term viewpoint. Stated plainly, if a stock is not crashing and the underlying business is performing reasonably well, then it’s a keeper until proven otherwise.

Even better, as I detail below, detecting trend changes early is very helpful.

The Evolution of the Commercial Real Estate Crash

There is more nuance than what meets the mainstream eye going on in the beleaguered CRE market. 

For example, the big news of the week was Vornado’s (NYSE: VNO) dividend cut, which sent the shares lower as investors braced for worse news, such as the possibility of loan defaults. If that happens, few would be surprised.

The price chart’s Accumulation Distribution (ADI) shows that short sellers have had a field day with the shares over the past twelve months, especially during the last quarter. On Balance Volume (OBV) also indicates more sellers than buyers have been the norm of late.

But things may be changing in other areas of the real estate business. And a closer look at VNO’s shares shows that the one day mini-crash in the stock on 4/27/23 was followed by a bounce which, of course, was short-covering.

As I described in my recent Your Daily Five video, the evolution of the post-pandemic megatrend is evolving into a new and quite investable phase. That’s because the market is slowly adapting to its circumstances as businesses adjust to the changing landscape. And as one section of the real estate investment trust (REIT) world is suffering, other areas are starting to show signs of life.

To be specific, REITs, which are heavily laden with office building properties that are having trouble paying their bills. Loan defaults are becoming quite common; foreclosures and bankruptcies are likely to rise. On the other hand, those REITs who derive their income from residential properties are faring better. The result is an unexpected improvement in the price chart for the iShares U.S. Real Estate ETF (IYR).

The price chart for IYR shows that the entire sector still has plenty of work to do. But amazingly, REITs may have bottomed out. All of which suggests that the stock market may be starting to quietly price in a pause in the Fed’s interest-raising cycle after the almost-certain rate increase, which is expected on May 3.

IYR’s Accumulation/Distribution indicator (ADI) suggests that short sellers may have lost their enthusiasm for the sector. On the other hand, On Balance Volume (OBV) is still bottoming out, which suggests that buyers have not overwhelmed sellers altogether.

Still, the ETF is trading tightly near the $84 area, where there is a large Volume by Price bar (VBP). If the price can move above this key price point, we are likely to see a challenge of the 200-day moving average. 

A move above that would be bullish. I have just added two long REIT plays to my portfolio. Get the details with a free trial to my service here.

Bond Yields Turn Lower at 3.5%. Home Buyers Play Cat and Mouse with Mortgage Rates.

The bond market continues to price in a slowing of the economy, while homebuyers continue to play a nifty game of cat and mouse as they try to time the mortgage market. Homebuilder stocks continue to move higher.

Over the last few weeks, the Fed hinted that another rate increase was coming at its May 2-3 FOMC meeting. Initially, this bearish talk pushed the U.S. Ten Year Note (TNX) despite above the 3.5% yield area. This resulted in a rise of the 30-year mortgage to 6.4%, where it has remained for the last couple of weeks.

This upside reversal delivered a slowing in existing home sales. But the reversal in bond yields on the week ended on 4/28 is likely to lead to yet another reversal in mortgage rates. Moreover, savvy potential homebuyers are likely calling their bankers as I write in order to lock in rates before the official numbers are released next week.

Note the close relationship between TNX, mortgage rates, and the steady uptrend in the homebuilder sector (SPHB). Specifically, take a look at the rally in SPHB, which was spawned when the average mortgage rate topped out in late 2022 above 7%. The subsequent decline in mortgages has been a boon for homebuilders.

For an in-depth comprehensive outlook on the homebuilder sector, click here.

NYAD Seems to Have Nine-Lives. NDX Breaks Out.

The New York Stock Exchange Advance Decline line (NYAD) once again survived a potential breakdown as it continues to hug its 50-day moving average, while remaining well above its long-term dividing line between bull and bear trends, the 200-day moving average. It would be nice to see breadth improve, but the fact that it has not broken down altogether is very encouraging.

The S&P 500 (SPX) continues to hold between 4100 – 4200, but is getting closer to what could be a major breakout if it can get above the 4200 area. On Balance Volume (OBV) and Accumulation Distribution (ADI) remain very constructive for SPX.

For its part, the Nasdaq 100 Index (NDX) closed above 13,200 on 4/29/23, scoring a nifty breakout with OBV starting to turn up a bit more decisively. If NDX can stay above 13,200, the odds of a significant move higher are well above-average.

These are bullish developments, which suggests money is moving into technology stocks. When tech stocks rally, they often give the whole market a boost.

VIX Makes New Lows

The CBOE Volatility Index (VIX) again broke to a new low and is now well below 20, a sign that the bears are throwing in the towel. This remains bullish despite the intraday volatility in the options market.

When VIX rises, stocks tend to fall, as rising put volume is a sign that market makers are selling stock index futures in order to hedge their put sales to the public. A fall in VIX is bullish, as it means less put option buying, and it eventually leads to call buying, which causes market makers to hedge by buying stock index futures. This raises the odds of higher stock prices.

Liquidity is Stable. Upcoming Rate Hike Could Crimp.

The market’s liquidity retreated as the Eurodollar Index (XED) remains a question mark, even though, for now, it remains stable, yet below 94.75 on Fed hike expectations. A move above 95 will be a bullish development. Usually, a stable or rising XED is very bullish for stocks. On the other hand, in the current environment, it’s more of a sign that fear is rising and investors are raising cash.


To get the latest up-to-date information on options trading, check out Options Trading for Dummies, now in its 4th Edition—Get Your Copy Now! Now also available in Audible audiobook format!

#1 New Release on Options Trading!

Good news! I’ve made my NYAD-Complexity – Chaos chart (featured on my YD5 videos) and a few other favorites public. You can find them here.

Joe Duarte

In The Money Options


Joe Duarte is a former money manager, an active trader, and a widely recognized independent stock market analyst since 1987. He is author of eight investment books, including the best-selling Trading Options for Dummies, rated a TOP Options Book for 2018 by Benzinga.com and now in its third edition, plus The Everything Investing in Your 20s and 30s Book and six other trading books.

The Everything Investing in Your 20s and 30s Book is available at Amazon and Barnes and Noble. It has also been recommended as a Washington Post Color of Money Book of the Month.

To receive Joe’s exclusive stock, option and ETF recommendations, in your mailbox every week visit https://joeduarteinthemoneyoptions.com/secure/order_email.asp.

Joe Duarte

About the author:
Joe Duarte is a former money manager, an active trader and a widely recognized independent stock market analyst going back to 1987. His books include the best selling Trading Options for Dummies, a TOP Options Book for 2018, 2019, and 2020 by Benzinga.com, Trading Review.Net 2020 and Market Timing for Dummies. His latest best-selling book, The Everything Investing Guide in your 20’s & 30’s, is a Washington Post Color of Money Book of the Month. To receive Joe’s exclusive stock, option and ETF recommendations in your mailbox every week, visit the Joe Duarte In The Money Options website.
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#Trade #Profits #Waiting #Daily #Grind

Introducing the Four Horsemen of MELA; Homebuilders Thrive as Commercial Real Estate Implodes

The next liquidity crisis will likely be spurred by the woes in commercial real estate (CRE); ironically, a four-headed megatrend which has been accelerated by the Fed’s rate hike cycle. 

Introducing the Four Horsemen of MELA: 

  • The Great Migration – population shifts to suburbs, rural areas, and the sunbelt; 
  • The CRE implosion from an oversupply of office space;
  • Bullish Supply Dynamics for Homebuilders; and
  • The Evolving End of Globalization.

This once-in-a-generation confluence of events has created both opportunities for mega-profits.

The MELA Connection

Bull markets (M) increase the value of 401 (k) plans, IRAs, and trading accounts, creating a positive wealth effect which leads to increased consumer spending, and rallies the economy (E) as bullish consumers make important life decisions–buying homes and cars (L). Wealthy consumers induce bankers to make loans, expanding the virtuous cycle.

Banking decisions are influenced by artificial intelligence fueled formulas which factor in a potential borrower’s credit worthiness partially based on the value of stock-based accounts. News travels fast via social media and the news cycle, which are also controlled by algorithms (A). Thus, system-wide moves happen quickly.

Nowhere is this dynamic more evident that in the interplay between CRE and the homebuilder sector. Here is the background:

  • The 2008 subprime mortgage crisis made homebuilders wary of overbuilding creating secular supply crunch in residential housing;
  • The COVID pandemic spawned the work-from-home megatrend, resulting in glut of commercial office space;
  • The lockdowns prompted a population migration to suburbs, rural areas, and other states;
  • This ongoing migration has made both the office glut in major cities, as well as the home supply crunch in suburbs, rural areas, and states like Texas, Florida, the Carolinas, and others in the sunbelt, practically permanent;
  • Geopolitical changes, spurred by the pandemic and the war in Ukraine have ended the globalization trend, creating an unpredictable future for businesses; and
  • The Federal Reserve has been raising interest rates to combat inflation, which is due to structural problems in the U.S. economy caused by globalization and its death pangs.

As the system adjusts, the Great Migration is compounding CRE’s problems and resulting in rising joblessness, and a continued limited supply of residential housing. As globalization sputters, this four-headed megatrend and its accompanying structural inflation shows no sign of ending anytime soon.

That means the Fed is odds on to raise rates after its May 2-3 FOMC meeting.

Empty Buildings Don’t Produce Rental Income

The bellwether for CRE’s woes is the ongoing implosion of co-working company WeWork (WE). Built on the principle that wide open work spaces catering to free-lancers and part-time workers would flourish as the gig economy expanded, the company flourished in its early days.

As the dynamic boomed, WE leased large spaces in prominent buildings in large cities, financing its ambitious plans with adjustable debt. When the pandemic struck, everything fell apart, as work-from-home made co-working spaces obsolete. The company is now reeling and may be on the verge of bankruptcy.

As I described here, the amount of cash on WEs, would only cover 14.5% of its debt load. In addition, the New York Stock Exchange has notified the company that its stock will be delisted within six months due to its low price. WE is walking away from leases and facing law suits from land lords.

Refinancing of adjustable debt at higher interest rates, combined with fewer tenants, reduced revenues forcing the company to default on its rent obligations. The price chart needs no explanation.

WE is not alone. For example, even CRE giant Blackstone Group (BX) is having problems, as a Korean investor, Inmark Asset Management, looks to unload $50 million worth of Blackstone’s mortgage debt in fears of a potential default by Blackstone on the debt. See details on this developing story here.

Blackstone, because of its much deeper pockets, is faring better than WeWork. But even though it met its most recent earnings expectations, the shares seem to have run into a brick wall as they reached the $95 area. You can see that’s where a large Volume by Price bar (VBP) is offering what looks to be stout price resistance. If BX shares break below their 200-day moving average, they could move back toward their recent lows.

There is an easy way to protect your portfolio against what may be very nasty breakdown in CRE. You can access this simple tool with a FREE trial to my service. Click here for more information.

Horton Blows Out Earnings Expectations

Shares of homebuilder D.R. Horton (DHI) broke out on 4/20/23 after an earnings beat, even as results were lower than the previous year’s results.

Nevertheless, due to supply being in its favor, DHI is selling houses at higher prices while smartly not overbuilding and focusing on areas of the country with growing populations. Here are some details:

Connecting the dots: The Great Migration to the sunbelt and tight home supplies are keeping DHI in the money. Sales and revenues have slowed thanks due to higher interest rates. Moreover, the lack of apartment sales suggests that the CRE situation is getting worse, as real estate investment trusts have no money to spend and are not investing in new properties. This will most likely result in a continuation of the current state of supply and demand in affordable housing.

To view my homebuilder picks and how I’m trading the commercial real estate market, click here. I own shares in DHI.

Bonds and Mortgages Rise Slightly. Expect Panic Buyers to Materialize

D.R. Horton’s Q2 earnings illustrate two simple principles: 1) Low housing supply is bullish for homebuilders, and 2) When mortgage rates fall, potential buyers come into the market. Moreover, when rates dip for a short period and then start to rise, on-the-fence buyers jump in as they fear missing out. We’re about to see more of that.

The Fed’s warnings about another rate hike in May have pushed the U.S. Ten Year Note (TNX) above the 3.5% yield area. This resulted in a rise of the 30-year mortgage to 6.4%.

The long-term connection between TNX, mortgage rates and the homebuilder sector (SPHB) is well established. For an in-depth comprehensive outlook on the homebuilder sector, click here.

Breadth Rolls Over. Nasdaq 100 Barely Holds 13,000

The trading range in the major indexes continues, but the market’s breadth had a bad week as the New York Stock Exchange Advance Decline line (NYAD) rolled over. NYAD still closed above its 20- and 50-day moving averages, but it did show some weakness.

The S&P 500 (SPX) remained above 4100. 4200 is still an a key resistance level. On Balance Volume (OBV) and Accumulation Distribution (ADI) remained constructive.

The Nasdaq 100 Index (NDX) barely held above 13,000, which has becomes fairly reliable support. This remains bullish, as it suggests money is now pouring into technology stocks. When tech stocks rally, the give the whole market a boost. Accumulation Distribution (ADI) and On Balance Volume (OBV) are very bullish for NDX.

The CBOE Volatility Index (VIX) broke to a new low and is now well below 20, a sign that the bears are throwing in the towel. This is also bullish.

When VIX rises, stocks tend to fall, as rising put volume is a sign that market makers are selling stock index futures in order to hedge their put sales to the public. A fall in VIX is bullish, as it means less put option buying, and it eventually leads to call buying, which causes market makers to hedge by buying stock index futures. This raises the odds of higher stock prices.

The market’s liquidity retreated as the Eurodollar Index (XED) closed slightly below 94.75 on Fed hike expectations. A move above 95 will be a bullish development for sure. Usually, a stable or rising XED is very bullish for stocks. On the other hand, in the current environment, it’s more of a sign that fear is rising and investors are raising cash.


To get the latest up-to-date information on options trading, check out Options Trading for Dummies, now in its 4th Edition—Get Your Copy Now! Now also available in Audible audiobook format!

#1 New Release on Options Trading!

Good news! I’ve made my NYAD-Complexity – Chaos chart (featured on my YD5 videos) and a few other favorites public. You can find them here.

Joe Duarte

In The Money Options


Joe Duarte is a former money manager, an active trader, and a widely recognized independent stock market analyst since 1987. He is author of eight investment books, including the best-selling Trading Options for Dummies, rated a TOP Options Book for 2018 by Benzinga.com and now in its third edition, plus The Everything Investing in Your 20s and 30s Book and six other trading books.

The Everything Investing in Your 20s and 30s Book is available at Amazon and Barnes and Noble. It has also been recommended as a Washington Post Color of Money Book of the Month.

To receive Joe’s exclusive stock, option and ETF recommendations, in your mailbox every week visit https://joeduarteinthemoneyoptions.com/secure/order_email.asp.

Joe Duarte

About the author:
Joe Duarte is a former money manager, an active trader and a widely recognized independent stock market analyst going back to 1987. His books include the best selling Trading Options for Dummies, a TOP Options Book for 2018, 2019, and 2020 by Benzinga.com, Trading Review.Net 2020 and Market Timing for Dummies. His latest best-selling book, The Everything Investing Guide in your 20’s & 30’s, is a Washington Post Color of Money Book of the Month. To receive Joe’s exclusive stock, option and ETF recommendations in your mailbox every week, visit the Joe Duarte In The Money Options website.
Learn More

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#Introducing #Horsemen #MELA #Homebuilders #Thrive #Commercial #Real #Estate #Implodes

As Fed Plays with Fire, Focus on Strength, Ignore Intraday Volatility, and Expect the Unexpected

There is only one way to survive this market. Focus on strength. Ignore the intraday volatility. And always expect the unexpected.

The stock market remains in a stubborn trading pattern, with nearly equal measures of strength and relative weakness. On the one hand, many hedge funds remain short stocks. Their short-term options related plays create intraday volatility and perpetuate a general feeling of uncertainty.

On the other hand, value players are moving into certain sectors, especially after short-term bear raids knock them down. Their steady buying counters the hedge funds’ short-term trades, often creating intraday rallies. In between are bond traders betting on recession.

Combined, these influences are creating a frustrating narrow trading range with unpredictable intraday swings. Yet, as the Fed continues to talk tough on inflation and rate hike odds rose late in the week, in the real world, the economy is already showing signs of slowing. CPI is flattening, PPI may be rolling over, retail sales are slowing, commercial real estate is in trouble, and layoffs and joblessness claims are rising.

The Fed is Playing with Fire

The Fed is playing with fire as it plans for an almost certain 25-basis-point rate increase in the Fed Funds rate at its May 2-3 FOMC meeting.

Last week, in this space, I expressed concern about the unexpected decrease in jobs created by the private sector in the Southern region of the U.S. Here is a reprise of the regional ADP new-jobs-created numbers:

  • Northeast: 141,000
  • Midwest: 132,000
  • West: 95,000
  • South: (-) 228,000

As I noted then, these numbers reflect a slowing in new job creations, with the reduction in the South sounding the alarm. 

I also noted that the Challenger Jobs Cut report and weekly jobs claim data from the Bureau of Labor Statistics (weekly jobless claims) were starting to suggest more weakness may lie ahead. Specifically, I noted that Challenger had reported 89,000+ job cuts for March, 270,000+ for the year. The West Coast was the biggest contributor. Here is the breakdown of Challenger’s numbers:

  • East: 13,638
  • Midwest: 21,764
  • West: 48,123
  • South: 6,178

In conclusion:

  • New job listings are falling;
  • New job creation is stalling;
  • Layoffs are increasing; and
  • The number of people requesting unemployment insurance is on the rise.

What could possibly go wrong when the Fed raises rates in May?

Mortgage Activity Picks Up as Rates Fall; Watch Support Area for Homebuilders

The recent decline in bond yields, notwithstanding the reversal on 4/15/23 in response to hawkish Fed talk, has turned the housing market into a haven for interest rate stalkers. Every time bond yields fall, potential home buyers who are on the fence pounce on the lower rates. Over time, this will continue to fuel the bullish trend for homebuilders, especially in the Southern U.S. In the present, however, the bond market continues to bet on a recession as yields test the 3.5% area.

If the bond market is correct, the U.S. economy is heading for recession and the Federal Reserve will be pressed to lower interest rates. The Fed meets on May 2-3 and is now expected to raise rates 25 basis points. That is likely to increase volatility in bond yields.

Mortgage rates fell for the fifth straight week, following historical norms as the multi-year view of the relationship between bond yields (TNX) and mortgage rates (MORTGAGE) shows. Normally, this bullish scenario is also a positive for the price action in the Homebuilders Subsector Index (SPHB).

For now, however, the homebuilder sector remains in a consolidation pattern as traders await more definitive direction from the Fed on interest rates. Another Fed rate hike, which is possible at its May 2-3 FOMC meeting, would once again put a damper on mortgage rates and the stock market, including the homebuilders.

On the other hand, given what we’re seeing in relationship to bond yields and mortgage rates, a pause would likely boost homebuilder stocks. For now, the consolidation pattern is SPHB is not necessarily a sign of alarm, although a move below 1800 (the 50-day moving average) would be a very bearish development for the sector.

To view my homebuilder picks and how I’m trading the bond market, click here. For an in-depth comprehensive outlook on the homebuilder sector, click here.

Focusing on Strength

Investors with positions in the right sectors are outperforming the market. Here are two examples of what’s working and what’s not.

Commercial real estate is struggling. This is especially affecting the technology-rich areas of Silicon Valley and Austin, Texas, where vacancy rates are rising. Moreover, a negative divergence is developing between bond yields and real estate investment trusts.

Normally, lower bond yields are bullish for real estate investment trusts (REITs). But because of the office bust in the tech sector, loan defaults are piling up, vacancy rates are rising, and we’re just not seeing any signs of life in the REITs. You can see the action in the iShares U.S. Real Estate ETF (IYR) as it struggles below its 200-day moving average. That’s a sign that investors are bracing for even worse circumstances.

On the other hand, the oil stocks are attracting money. You can see the steady accumulation pattern in the Energy Select Sector SPDR ETF (XLE). Especially bullish is the recent uptick in On Balance Volume (OBV), which signals that buyers are building positions. A move above $90 would likely attract more money into XLE as momentum players begin to crowd in.

I recently recommended two energy options trades, which you can access with a FREE trial to Joe Duarte in the Money Options.com. In addition, I just wrote a comprehensive report on the oil market, which is available FREE of charge to members at my Buy me a Coffee page.

Breadth Holds Steady, Nasdaq Again Holds 13,000

Although prices gyrated wildly in a narrow range last week, the market’s breadth held up. Once again, the New York Stock Exchange Advance Decline line (NYAD) closed above its 50-day moving average and its long-term support line, the 200-day moving average. This is a positive.

The S&P 500 (SPX) also held up, despite short-term volatility closing above 4100. 4100-4200 is still an important resistance band. On Balance Volume (OBV) and Accumulation Distribution (ADI) remained constructive.

For its part, the Nasdaq 100 Index (NDX) also held above the important 13,000 area, which has becomes fairly reliable support. This remains bullish as it suggests money is now pouring into technology stocks. When tech stocks rally, they give the whole market a boost. Accumulation Distribution (ADI) and On Balance Volume (OBV) are very bullish for NDX.

The CBOE Volatility Index (VIX) broke to a new low and is now well below 20, a sign that the bears are throwing in the towel. This is also bullish.

When VIX rises ,stocks tend to fall, as rising put volume is a sign that market makers are selling stock index futures in order to hedge their put sales to the public. A fall in VIX is bullish, as it means less put option buying, and it eventually leads to call buying, which causes market makers to hedge by buying stock index futures. This raises the odds of higher stock prices.

The market’s liquidity retreated as the Eurodollar Index (XED) closed slightly below 94.75 on Fed hike expectations. A move above 95 will be a bullish development for sure. Usually, a stable or rising XED is very bullish for stocks. On the other hand, in the current environment, it’s more of a sign that fear is rising and investors are raising cash.


To get the latest up-to-date information on options trading, check out Options Trading for Dummies, now in its 4th Edition—Get Your Copy Now! Now also available in Audible audiobook format!

#1 New Release on Options Trading!

Good news! I’ve made my NYAD-Complexity – Chaos chart (featured on my YD5 videos) and a few other favorites public. You can find them here.

Joe Duarte

In The Money Options


Joe Duarte is a former money manager, an active trader, and a widely recognized independent stock market analyst since 1987. He is author of eight investment books, including the best-selling Trading Options for Dummies, rated a TOP Options Book for 2018 by Benzinga.com and now in its third edition, plus The Everything Investing in Your 20s and 30s Book and six other trading books.

The Everything Investing in Your 20s and 30s Book is available at Amazon and Barnes and Noble. It has also been recommended as a Washington Post Color of Money Book of the Month.

To receive Joe’s exclusive stock, option and ETF recommendations, in your mailbox every week visit https://joeduarteinthemoneyoptions.com/secure/order_email.asp.

Joe Duarte

About the author:
Joe Duarte is a former money manager, an active trader and a widely recognized independent stock market analyst going back to 1987. His books include the best selling Trading Options for Dummies, a TOP Options Book for 2018, 2019, and 2020 by Benzinga.com, Trading Review.Net 2020 and Market Timing for Dummies. His latest best-selling book, The Everything Investing Guide in your 20’s & 30’s, is a Washington Post Color of Money Book of the Month. To receive Joe’s exclusive stock, option and ETF recommendations in your mailbox every week, visit the Joe Duarte In The Money Options website.
Learn More

Subscribe to Top Advisors Corner to be notified whenever a new post is added to this blog!

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#Fed #Plays #Fire #Focus #Strength #Ignore #Intraday #Volatility #Expect #Unexpected

Stocks Retain Uptrend: Focusing on the Right Homebuilder in a Volatile Market

The release of the March payrolls numbers threw a wrench into the notion that the US economy is slowing. At the same time, given all the negative data which preceded it, the big question is when the market will start to doubt the veracity of the monthly employment numbers.

Just a week ago, the stock market was back in a technology sector-fueled uptrend. But, on April 4, a major trend reversal took hold as JP Morgan (JPM) CEO Jamie Dimon remarked that the banking crisis was nowhere near over and that the repercussions would last for years. His remarks were reinforced by a slew of data showing a rapid slowing of the US economy.

By Thursday, ahead of the Good Friday market closing, the market had found support. But when the employment data was released on April 7, 2023, everything was once again up in the air, although the stock index futures moved slightly higher on the news.

The report delivered lower-than-expected private jobs at 189,000. A higher-than-expected number of government jobs boosted the overall print, which totaled 236,000. Hourly wages rose slightly, but hours worked dropped slightly. The highest number of new jobs was in the waiter/bartender category.

That was seen as a middle-of-the-road number. Yet it doesn’t jibe with the private market data.

Private Market Data Points to Worsening Labor Market

Before Friday’s employment report, Purchasing Managers’ data (ISM, PMI) showed a slowing economy as new orders faltered. Government jobs listings (JOLTS) weakened. The ADP private sector jobs created showed job creation stalling. The recent Challenger Jobs Cut report showed an increase in layoffs.

Inside the ADP data, the numbers from the Southern US, an area of strength, showed net job losses. This is significant, as the South has been the strongest economic area of the country, boosted by the migration of people from the East, West, and Midwest.

Here is the regional breakdown of the ADP new jobs created numbers:

  • Northeast: 141,000
  • Midwest: 132,000
  • West: 95,000
  • South: (-) 228,000

These numbers reflect a slowing in new job creation, not necessarily layoffs. Reductions in manufacturing and financial services led the way, suggesting banking sector weakness. Moreover, manufacturers are struggling as export orders fall, a point made in the ISM and PMI data.

The Challenger Jobs Cut report and weekly jobs claim data from the Bureau of Labor Statistics added to the weakening picture. Challenger reported 89,000-plus job cuts for March, 270,000-plus for the year. The West Coast was the biggest contributor. Here is the breakdown of Challenger’s numbers:

  • East: 13,638
  • Midwest: 21,764
  • West: 48,123
  • South: 6,178

The Technology sector accounted for 102,391 during the first three months of 2023. The bottom line is fourfold:

  • New job listings are falling;
  • New job creation is stalling;
  • Layoffs are increasing; and
  • The number of people requesting unemployment insurance is on the rise.

Bond Yields Collapsed, Mortgage Rates Follow

Before the jobs number, stocks were volatile and bond yields fell. The 10-Year US Treasury Yield index ($TNX) broke decisively below 3.5%, finishing the week below 3.3%, as bond traders bet on a recession. The initial response in muted Friday bond futures trading was a rate uptick to just below 3.4%.

Of note, as I detail below, homebuilder stocks paused. The ADP data, showing job weakness in the South U.S., could be a problem, given that this is where the largest growth area for new homes is currently.

If the bond market is correct, the US economy is heading for recession, and the Federal Reserve will be pressed to lower interest rates. The Fed meets on May 2-3.

Mortgage rates continue to fall, which is generally bullish for homebuilders. A multi-year view of the relationship between bond yields ($TNX), the price action in the Homebuilders Subsector Index ($SPHB), and mortgage rates ($$MORTGAGE) document the close relationship between these three indicators.

To view my homebuilder picks click here.

Focusing on the Right Homebuilder is the Right Approach in a Volatile Market

In the short term, the SPDR S&P Homebuilder ETF (XHB) remains in an uptrend, as it is trading above its 50-day moving average. The current trading pattern suggests a likely continuation of a consolidation pattern. Still, in this market, it’s best to consider individual homebuilder stocks.

That’s because, even though XHB is a useful tool, it’s not a pure gauge of the homebuilder stocks. The ETF holds the stock of companies that supply materials to homebuilders, as well as specialty homebuilders such as Cavco Industries (CVCO). Cavco makes manufactured homes, and although its recent earnings and revenues have been excellent, any type of weakness in the economy—such as a precipitous decline in the job market for the Southern U.S. (ADP data above)—would likely affect it more negatively than other homebuilders.

Comparing CVCO to Lennar (LEN), a homebuilder that targets a higher income bracket, you can see the weakening employment situation in the South was not as large a negative on LEN.

As a result, the action in CVCO and other individual companies in XHB can assert negative pressure on the ETF. In other words, this is one of those times when owning individual homebuilder stocks may outperform owning the entire sector.

I discussed the long-term investment potential in homebuilder stocks in my latest Your Daily Five video, focused on investing in Megatrends. And I’ve just put the finishing touches on a Special Report titled: “How to Invest in the Housing Megatrend,” which is you can download my Buy me a Coffee page.

Breadth Pauses. Nasdaq Holds 13,000.

The market’s breadth did not break last week, but did show some weakness, as the New York Stock Exchange Advance Decline line (NYAD) dipped below its 50-day moving average while remaining above its long-term support line, the 200-day moving average.

The S&P 500 index ($SPX) also held up closing above 4100. 4100-4200 is still an important resistance band. On Balance Volume (OBV) and Accumulation Distribution (ADI) remained constructive.

Meanwhile, the Nasdaq 100 Index ($NDX) held above its breakout level 13,000, which now becomes support. This remains bullish, as it suggests money is now pouring into technology stocks. When tech stocks rally, they give the whole market a boost. Accumulation Distribution and OBV are very bullish for $NDX.

The Cboe Volatility Index ($VIX) has broken below 20, a sign that the bears are throwing in the towel. The recent low is 17. A break below that would signal a severe decline in bearish sentiment.

When VIX rises, stocks tend to fall, which is a sign that market makers are selling stock index futures to hedge their put sales to the public. A fall in VIX is bullish, as it means less put option buying, and it eventually leads to call buying, which causes market makers to hedge by buying stock index futures, raising the odds of higher stock prices.

The market’s liquidity remains stable as the Eurodollar Index ($XED) remained above support, near 94.75. A move above 95 will be a bullish development for sure. Usually, a stable or rising XED is very bullish for stocks. On the other hand, in the current environment, it’s more of a sign that fear is rising and investors are raising cash.


To get the latest up-to-date information on options trading, check out Options Trading for Dummies, now in its 4th Edition—Get Your Copy Now! Now also available in Audible audiobook format!

#1 New Release on Options Trading!

Good news! I’ve made my NYAD-Complexity – Chaos chart (featured on my YD5 videos) and a few other favorites public. You can find them here.

Joe Duarte

In The Money Options


Joe Duarte is a former money manager, an active trader, and a widely recognized independent stock market analyst since 1987. He is author of eight investment books, including the best-selling Trading Options for Dummies, rated a TOP Options Book for 2018 by Benzinga.com and now in its third edition, plus The Everything Investing in Your 20s and 30s Book and six other trading books.

The Everything Investing in Your 20s and 30s Book is available at Amazon and Barnes and Noble. It has also been recommended as a Washington Post Color of Money Book of the Month.

To receive Joe’s exclusive stock, option and ETF recommendations, in your mailbox every week visit https://joeduarteinthemoneyoptions.com/secure/order_email.asp.

Joe Duarte

About the author:
Joe Duarte is a former money manager, an active trader and a widely recognized independent stock market analyst going back to 1987. His books include the best selling Trading Options for Dummies, a TOP Options Book for 2018, 2019, and 2020 by Benzinga.com, Trading Review.Net 2020 and Market Timing for Dummies. His latest best-selling book, The Everything Investing Guide in your 20’s & 30’s, is a Washington Post Color of Money Book of the Month. To receive Joe’s exclusive stock, option and ETF recommendations in your mailbox every week, visit the Joe Duarte In The Money Options website.
Learn More

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#Stocks #Retain #Uptrend #Focusing #Homebuilder #Volatile #Market

Where’s the Money Going? Watch Volume and Price Action

A driver who goes with the flow of traffic and adjusts to traffic conditions usually gets places in good time and safely. Similarly, a good trader who trades in sync with price action is likelier to make better trades and preserve more capital.

The key: Recognize price movement and take advantage of the move. When you see a clear move in one group of stocks, identify the top performers and make your way into that lane. When the momentum slows, you may want to exit your position and join the next moving group. But that doesn’t mean you should constantly move in and out of stocks; it pays to be patient and ensure the odds are in your favor before bailing or jumping in.

Identifying the Movers and Shakers

There are different ways to identify groups of stocks that are moving. Technical analysts can choose to identify trends, turning points, and/or investor sentiment using the appropriate indicators. In addition to focusing on a handful of indicators, it may also help to keep an eye on volume.

In his book Technical Analysis Explained, Martin Pring states that volume often moves ahead of price. So an increase or decrease in volume could be an advance warning of a potential price trend reversal. If you think about it, volume gives you an idea of whether traders are bullish or bearish. If price moves up on strong volume, it’s generally an indication of bullish momentum. And when the volume starts falling, it could be a signal that the upward price movement is slowing down.

Combining volume with price movement can help identify developing trends and the end of a trend. Open up a long-term chart of your favorite stock and see how volume and trend move. The chart below looks at recent price movement in Microsoft (MSFT)’s stock price. Note the exponential rise in volume when price hit a high in the short-term move. After that, volume fell as the stock price traded sideways. If volume expands when price starts moving in a clear direction, it could indicate the strength of the next move.

CHART 1: VOLUME AND PRICE ACTION. Volume and price expand until it spikes at a short-term high. After that, volume drops as price moves sideways. Think of volume as a barometer for the next price move.Chart source: StockCharts.com. For illustrative purposes only.

You can do a similar volume and price analysis with different stocks by going back further in time. Better yet, analyze volume action in different groups of stocks, such as the S&P Sector ETFs. The CandleGlance tool on the StockCharts platform gives you a bird’s eye view of the different sectors.


How to Access It

  • From the Member Tools on Your Dashboard or from the Charts & Tools tab.
  • Select S&P Sector ETFs from the Predefined Groups dropdown menu. You’ll see charts of all 11 ETFs and a chart of the S&P 500 index ($SPX).
  • Select chart duration and indicator. There are different volume indicators you could use, such as Rate of Change (ROC), On-Balance Volume (OBV), Accumulation/Distribution, the Force Index, and so on. In the chart below, the OBV is added with an overlay of its 20-day simple moving average.

You can customize your CandleGlance charts and save it as a ChartStyle. That way your settings will automatically appear on the CandleGlance charts—major timesaver.


The recent regional bank crisis is an example of how investors started pulling out of the banking sector and moving their capital to other sectors. If you add a volume indicator such as OBV to the charts, some interesting observations surface.

CHART 2: CHARTS AT A GLANCE. The CandleGlance chart of the S&P Sector ETFs with a volume indicator of your choice (OBV was used here) helps to see where the rotation occurs.Chart source: StockCharts.com. For illustrative purposes only.

The OBV suggests that money is moving into the market, but only in some sectors. “The inflows are more concentrated on the large caps and specific sectors, and not the broad market,” said Buff Dormeier, CMT, chief technical analyst at Kingsview Partners.

What’s more interesting is how much money was flowing into the market. “In the week of March 13, the S&P 500’s capital inflows were $90 billion, the highest inflows in nearly 10 years,” added Dormeier. “Capital outflows totaled $36 billion and, if you take them together, it was the largest since March 2020, which was at the onset of the pandemic.”

The following week saw a similar trend. “In the week of March 20, cap-weighted inflows surpassed outflows with $30.5 billion out to $50 billion flowing in,” Dormeier continued.

Where Are the Inflows and Outflows? 

The CandleGlance view helps to see which sectors are experiencing the greatest outflows and which ones are experiencing significant inflows. Communication Services (XLC) and Technology (XLK) are seeing significant inflows, whereas Real Estate and Financials are seeing significant outflows. 

Generally, a falling interest rate environment helps growth stocks, and money is flowing into large-cap growth stocks and out of small- and mid-caps. Does that mean investors expect the Fed to stop raising rates soon? It’s possible, but let’s remember the other side of the coin. When money flows out of small- and mid-caps, it could mean that the underlying economy may not be stable. These are conflicting signals which means the market is still fickle.

Trading With the Flow

We’re not out of the woods yet. Even though volume in the stock market is increasing and the stock market seems like it wants to go up, it could change anytime. So, create your own CandleGlance charts so you always have a bird’s eye view of the market. When you see price action speeding up in one sector and slowing down in another, change lanes so you can keep up with price movement. Don’t rush, be patient, and, more important, be disciplined. It’ll get you where you want to go.



Disclaimer: This blog is for educational purposes only and should not be construed as financial advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional.

Jayanthi Gopalakrishnan

About the author:
Jayanthi Gopalakrishnan is Director of Site Content at StockCharts.com. She spends her time coming up with content strategies, delivering content to educate traders and investors, and finding ways to make technical analysis fun. Jayanthi was Managing Editor at T3 Custom, a content marketing agency for financial brands. Prior to that, she was Managing Editor of Technical Analysis of Stocks & Commodities magazine for 15+ years.
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#Wheres #Money #Watch #Volume #Price #Action

The Bears Are On Life Support And Hoping For A Fed Miracle

The end is at hand. Bears, just surrender now. Since the mid-June low (where I called the S&P 500 bottom), we’ve seen the fed funds rate jump from 1.00% to 4.75%. Of course, all we’ve heard since then is what?

Don’t Fight The Fed

Well, since that first 75 basis point hike on June 16th, the S&P 500 is UP, not down. We’ve had four 75-basis point hikes, two 50-basis point hikes, and two 25-basis point hikes. In my opinion, all of it was built into stock prices at the June 2022 low. How else do you explain the significant rate hikes over the past year and an S&P 500 that is 10% higher than it was when the first 75-basis point rate hike was announced? Stop listening to CNBC and the media clowns and pay attention to those who actually do research – like EarningsBeats.com. 2022-2023 isn’t the only period where we’ve seen a number of rate hikes coincide with stock market strength. Do you remember early 2016 when the market bottomed and then soared? That occurred during a period when the Federal Reserve raised rates 9 times:

This chart shows the “Effective” fed funds rate, which coincides with the direction of fed funds. Good thing we “fought the Fed” during that HUGE market rally. Ohhh! And what about the 2004-2006 period when the Fed raised rates at 17 consecutive meetings!?!?!?!?!?

Whatever you do, don’t fight the Fed! (sarcasm)

I’ve actually had plenty of folks come up to me and ask how the stock market can go up when the Federal Reserve is so hawkish – that the stock market has NEVER gone up when the Fed is hiking rates. My response? Do some research and STOP listening to the media. Many authors writing articles have never done an ounce of research, but those headlines drive lots of interested viewers! Quite honestly, that’s all that matters for most authors. Drive that viewership!

Market Rotation

Let me tell you what’s been happening “under the surface” of the stock market. Actually, before I do, let me show you why I told everyone that a cyclical bear market was a real threat as we entered 2022 at all-time highs. A huge part of it was sentiment (and I’ll get to that in a minute), but another big part was market rotation into defensive areas. As the S&P 500 printed its all-time high in January 2022, Wall Street was repositioning in those defensive areas. Lots of Monday morning quarterbacks will tell you how they pointed out the bear market. The problem is that most of them pointed out the bear market after it happened. What good does that do? I fired warning shots in December 2021. On the last day of that December, I wrote an article, “It Could Be A Very Rough Start To 2022”. That was just one day before the all-time high was set. I’ve had dozens and dozens of emails and feedback from EarningsBeats.com members, indicating how much money they saved by exiting stocks at the beginning of 2022. And it was as simple as following a few key charts. Here was one of them:

That red-dotted vertical line represented a MAJOR warning signal for stocks as the bulls’ last gasp came after significant bearish market rotation took place. Let’s see, should we follow the intermarket relationships or tune into CNBC? Those who used the former and avoided the latter did quite well in 2022.

But now the bulls are getting excited. Why? Because the intermarket relationships no longer favor the bears. Money is rotating quite bullishly into growth areas. Here’s the same chart as the one above, but this time for the past six months:

The growth ratios I follow are all soaring. Wall Street is repositioning into growth and this has been occurring throughout 2023. Ask yourself why. For everyone that’s now screaming “inverted yield curve” and “recession”, why would money rotate so heavily into growth stocks. It doesn’t make sense, and that’s why you need to pay attention to it.

But market rotation isn’t even the most bullish signal.

Sentiment

The equity-only put-call ratio ($CPCE) is my “go to” chart when I want to understand how retail traders feel about stocks. And when the 253-day (1 year) moving average of the CPCE begins to turn – and it doesn’t happen often – you need to take note. Extreme readings, either to the upside or downside, can mark major stock market bottoms and tops, respectively. Here’s how this chart looked on Saturday, January 8, 2022, at our 2022 MarketVision event:

The red arrows mark reversals in long-term downtrends. These are reversals off EXTREMELY bullish readings and sentiment indicators are contrarian indicators. They essentially tell you to “batten down the hatches” and grow much more defensive, or even think about shorting the stock market. The opposite is true when this 253-day moving average reaches a stop and begins to roll over. On the chart above, it doesn’t appear as though we’re quite ready to roll over, but I’ve used a User-Defined Index at StockCharts to track what I consider to be a much more reasonable CPCE. There were several outrageously-high daily readings in November and December of 2022, due to unusual hedging activities of institutions. They skewed the readings on the CPCE and needed some adjustment to more accurately reflect the true psyche of the retail trader. After making those adjustments, here’s how my “adjusted” CPCE chart now looks:

The long-term 253-day moving average is just beginning to roll over and if you look above at the earlier CPCE chart, you’ll see that when this rolls over, the S&P 500 begins to soar.

If the stock market was chess, and I was on the bull side, then I’ve been calling “Check” for a few months now. I’m calling “Check” one last time. We’re about to witness “CheckMATE”. It’s time to ditch your bearish thoughts. Stocks are about to scream higher. The Fed is our wild card short-term, but once the effects of this meeting dies down, stocks will soar.

If you’d like REAL research and facts and what truly drives the stock market, you need to join us at EarningsBeats.com. I’m never short on conviction. Even if you disagree with my views, I’ll provide you interesting insight to make better investment decisions. If you think knowing that a bear market was coming before it ever arrived would have helped you in 2022, then I believe following us at EarningsBeats.com in 2023 during a massive rally will prove quite beneficial as well. CLICK HERE to get your FREE 30-day trial started!

Happy trading!

Tom

Tom Bowley

About the author:
Tom Bowley is the Chief Market Strategist of EarningsBeats.com, a company providing a research and educational platform for both investment professionals and individual investors. Tom writes a comprehensive Daily Market Report (DMR), providing guidance to EB.com members every day that the stock market is open. Tom has contributed technical expertise here at StockCharts.com since 2006 and has a fundamental background in public accounting as well, blending a unique skill set to approach the U.S. stock market.

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Market Trend Model Turns Bearish

This week, stocks started in a position of strength and ended in a position of weakness. While some groups, like semiconductors, have managed to remain strong, the major benchmarks managing to pound out a positive return for the week, the broad market message appears cautious-at-best by my read.

My main Market Trend Model is based on weekly exponential moving averages and helps me gauge the market trend on three time frames on the same chart. On Friday’s close, the medium-term model turned slightly negative, which means the model is now bearish on all three time frames.

This has only happened 11 other times since the tech bubble in 2000, and represents a confirmed distribution pattern for equities. Meaning it’s either a raging buy signal (if you think we’re in a secular bull market) or a serious sell signal (if you believe we’re now in a secular bear).

Allow me to explain.

Building a Market Trend Model

Years ago, I was trying to create a systematic model to mirror the subjective analysis I was doing every week. I’d always look at a weekly chart of the S&P 500 and ask, “What is the short-term, medium-term, and long-term trend?”

After lots of trial and error, I ended with something similar to the current setup using three sets of weekly exponential moving averages. Why did I choose exponential instead of simple moving averages? I’ll get to that below!


This chart will be one of many we’ll discuss in our upcoming FREE webcast, Charting a Financial Crisis. Join me on Tuesday, March 21 at 1:00pm ET for a visual review of the evidence and where opportunities can emerge in a period of great uncertainty. Sign up HERE for this free event!


For my model, I use the PPO indicator to show these three moving average combinations. If the indicator is above zero, it’s bullish. Below zero, and it’s bearish. Simple.

The long-term model turned negative in May 2022 after being confirmed bullish since June 2020. The medium-term model was briefly bullish in March and August of last year, then switched to a more consistent bullish reading in November. The short-term model has been volatile, switching often between bullish and bearish settings.

I should note that the medium-term model is my main risk on/off gauge. When its reading is bullish, that suggests a risk-on positioning and that I should be actively looking for new long ideas. When the model is bearish, that tells me to go more risk-off; in other words, I should focus more on capital preservation than capital growth.

So what does it mean that the model is now bearish on all three time frames? Now we need to bring in more history.

Counting the Bearish Trifectas

Let’s go back to the market top in 2000 and see how often this “bearish trifecta” has occurred.

We’ve had this “triple bearish” reading now 12 times since 2000. Only three of those happened before the 2009 market low, and the other nine came after. Four of the signals have triggered since the 2022 market peak.

What does this mean? Well, the left half of the chart shows the secular bear market that I would loosely define as 2000-2013. The first three signals occurred after the long-term model was bullish for years, and the rotation to a negative LT trend was an unusual event. Selloffs in 2001-03 and 2008-09 happened really accelerated after this bearish pattern.

After the 2009 low, this bearish trifecta could almost be considered a contrarian bullish signal, similar to a stock pulling back to an ascending 50-day moving average or the RSI dropping down to 40 during an uptrend. The bearish trifecta signals pretty much line up with every major bottom since 2009. So where does that leave us today?

Don’t Fight the Fed

Here’s where the macroeconomic argument comes in. If you believe that the market drop since the end of 2021 represents a major change of character for stocks, and that the Fed’s tightening cycle represents an end to the “easy money” era of the 2010s, then this could be just the beginning.

I would have discounted the likelihood of this scenario in a big way up until about a week ago. But with the latest financial crisis potentially still in its early stages, a larger waterfall decline from current levels now seems like a scenario we should all be considering.

On the other hand, if you think of 2022 as another buyable long-term dip along the lines of 2018 and 2016, and you assume that the Fed will reverse course quickly to alleviate further market downside (and you assume that it will work!), then perhaps this is yet another buy signal in the great secular bull market.

In either case, I’ve learned not to get too married to a narrative, and to consider all the potential outcomes. That has helped me to be better prepared for whatever comes next. And in this environment, it will definitely pay to be prepared!

By the way, interested in learning more about why I used exponential instead of simple moving averages for my Market Trend Model? Head over to my YouTube channel.

RR#6,

Dave

P.S. Ready to upgrade your investment process? Check out my free behavioral investing course!


David Keller, CMT

Chief Market Strategist

StockCharts.com


Disclaimer: This blog is for educational purposes only and should not be construed as financial advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional.

The author does not have a position in mentioned securities at the time of publication. Any opinions expressed herein are solely those of the author and do not in any way represent the views or opinions of any other person or entity.

David Keller

About the author:
David Keller, CMT is Chief Market Strategist at StockCharts.com, where he helps investors minimize behavioral biases through technical analysis. He is a frequent host on StockCharts TV, and he relates mindfulness techniques to investor decision making in his blog, The Mindful Investor.

David is also President and Chief Strategist at Sierra Alpha Research LLC, a boutique investment research firm focused on managing risk through market awareness. He combines the strengths of technical analysis, behavioral finance, and data visualization to identify investment opportunities and enrich relationships between advisors and clients.
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