Dr. Duke's Blog
Do you know any trading coaches who publish the results of their trades daily? Dr. Duke posts the trading track records of his Flying With The Condor™, Conservative Income, Dr. Duke's Trading Group, and The No Hype Zone Newsletter services in the free downloads section of this web site. If you have questions about any of the trades, Ask Dr. Duke.
Waiting on the Deal
- Written by Dr. Duke
The Standard and Poors 500 Index (SPX) declined over the first three days this week, but recovered most of those losses by the end of the week, closing at 2942 today, essentially flat for the week (actually down nine points or 0.3%). The recovery over the past two days seems to suggest that traders are expecting a resolution to the trade negotiations this weekend.
Trading volume ran below average all week, until today when volume spiked to 2.7 billion shares, well above the 50-day moving average (dma) at 2.0 billion shares. I find it curious that we have seen trading volume spikes for the past two Fridays, but below average volumes in between those spikes. Is this the result of bullish expectations for trade news over the weekends?
The volatility index for the S&P 500 options, VIX, was running above 16% earlier this week, but declined to close at 15.1% today. That puts volatility right on the edge. Values below 15% are reasonably complacent, but higher values start to get my attention. The markets are bullish, but not relaxed and confident either.
The Russell 2000 Index (RUT) gapped open higher this morning, closing up twenty points at 1567. In two trading sessions, Russell wiped out four days of losses. This is the most bullish signal we have observed in the small cap index in some time. This is very encouraging because the small caps normally lead bull markets higher. But we need to get a trade deal done with China before we jump on the bulls’ bandwagon.
The NASDAQ Composite index gapped open higher this morning and closed at 8006, up 38 points. NASDAQ outperformed SPX in trading volume with a huge spike up to 4.1 billion shares, well above the 50 dma at 2.1 billion shares. The China trade negotiations continue to be the principal dark cloud hanging over this market. The prospect of an agreement this weekend encouraged traders, resulting in today’s spike in the markets on increased volume.
But that bullish attitude may be premature. Until we see a definitive resolution of the China trade negotiations, this market will be volatile. And that may be especially true this coming week. Even if we have a confirmed trade agreement on Monday, it isn't clear which way this market will move. I remain very cautious.
Market Moves Higher This Week
- Written by Dr. Duke
The Standard and Poors 500 Index (SPX) came back to life and took another step higher this week, closing at 2950 today and up 2.1% for the week. SPX is attempting to break out above the highs set in early May, but thus far that resistance level is holding. S&P 500 trading volume rose with the bull market this week. Today’s volume spiked up to 2.9 billion shares, much higher than the 50-day moving average (dma) at 2.0 billion shares. One must go back to March 15th to find higher trading volume figures.
This week’s bullish run resulted in SPX running just below the upper edge of the Bollinger bands for the last four days of this week. Will next week repeat the pattern of the past two weeks and take a pause after this week's run higher? A slower rate of increase is probably the best the bulls may expect, but a flat week of treading water may be more likely in view of the G20.
The volatility index for the S&P 500 options, VIX, declined early in the week, as one might expect in a rising market. But the situation changed yesterday. VIX hit an intraday low of 13.2%, but then moved up to close at 14.8%. Today’s market took volatility a bit higher, closing up a little over half a point at 15.4%. This is a VIX divergence, with VIX moving higher as the market moved higher. This often foretells a drop in the market in the next trading session.
The Russell 2000 Index (RUT) has steadily traded higher since June 1st. In fact, RUT’s pattern of gains has been steadier and more consistent than SPX or NASDAQ. Russell gained 1.8% this week, but traded lower today, closing down 14 points to 1550.
The NASDAQ Composite index closed today at 8032, down 20 points, but rose 2.7% this week. On Tuesday, NASDAQ gapped open higher and solidly broke through its 50 dma. Perhaps more importantly, NASDAQ held that breakout through the rest of the week. Similar to SPX, NASDAQ’s trading volume spiked today to 2.9 billion shares, well above the 50 dma at 2.1 billion shares.
We enjoyed a pretty strong bull market this week, but several warning signs are concerning:
• Today’s trading volume spiked on a weak market, and this was amplified by the same pattern in SPX and NASDAQ.
• The volatility divergence for the past two trading sessions; VIX is trading higher with a flat to increasing market.
• Russell declined more strongly today, as compared to SPX and NASDAQ.
Today’s spike in trading volume could represent some profit taking as the large institutions saw the market flatten. They also may be hedging their bets ahead of the G20 Economic Summit and that may be raising VIX as they buy protection.
The China trade negotiations are the principal dark cloud hanging over this market. The announcement that Trump will meet with Xi Jinping while attending the G20 buoyed the market, but I think traders worried about it as the week wore on. A scheduled meeting is certainly a positive development, but it doesn’t guarantee an agreement on terms to end the trade tariff threats.
I expect this next week’s market to trade flat or possibly even slightly lower simply as traders pause to wait for news from Trump and Xi. I remain in a moderately bullish, but cautious stance. Until we see a definitive resolution of the China trade negotiations, this market will be volatile. And that may be especially true this coming week.
Just a Pause?
- Written by Dr. Duke
This is the key question that keeps coming up since the first of the year. The Standard and Poors 500 Index (SPX) broke down through the 200-day moving average (dma) on March 8th, but immediately turned back higher and closed this past Thursday at 2855, a market high since the September and October highs before the corrections last fall. In total, SPX had gained 504 points or 21% since the low point on December 24th. But then the market tumbled Friday and, even more ominously, closed at its low for the day at 2801, down 54 points or 1.9%.
Before we panic too much, let’s check the trading volume. Volume rose slightly this week, but it barely exceeded the 50 dma, even on Friday with this perceived run for the exits. I conclude that we are seeing some minor profit taking, not wholesale unloading of positions by the large institutional trading firms.
The S&P 500 volatility index, VIX, increased slowly this week and spiked Friday up to 17.5% before pulling back to close at 16.5%. This level of volatility doesn’t reflect panic mode at all, but it is moderately cautionary. Economic data and corporate earnings remain very positive, but the trade negotiations with China worry traders. The growing economic slowdown in Europe has raised concerns about possible negative effects on our economy.
The Russell 2000 Index (RUT) continues to trade more weakly than the broad market. RUT never did break through the 200 dma, and after Friday’s sell off, Russell has even broken below its 50 dma. Russell closed Friday at 1506, down 56 points or 3.6%. By contrast, the S&P 500 declined 1.9% on Friday. Russell’s weakness is the principal bearish signal for the current market.
The NASDAQ Composite index closed Friday at 7643, down 196 points or 2.5%. NASDAQ remains well above its 200 dma at 7490, but remains far off of the September and October highs around 8100. Trading volume in the NASDAQ stocks rose steadily this week and spent the last four days of the week above the 50 dma.
Corporate revenues and earnings reported during this earnings cycle have been excellent, but traders are worried about the Mueller probe, the China trade negotiations, and slowing economic conditions in Europe. With the release of the Mueller investigation report Friday, we may put some of these anxieties to rest, although I expect much of the political turmoil to continue. The trade negotiations with China may be making progress, but that isn’t clear. I think this remains the primary concern for market analysts. All of these factors will result in continued market volatility.
In volatile markets, the best advice is cautionary. When you face a choice in your investments, take the conservative alternative.
- Written by Dr. Duke
The broad markets slowed this week, with the Standard and Poors 500 Index (SPX) closing Friday at 2804, up 19 points for the day, but dead flat for the week. It appears that SPX bounced off resistance around 2817, the highs reached in mid-October and early November after the first couple of downdrafts last fall. It will be difficult for the market to make new highs until the trade negotiations with China reach a conclusion. Trading volume on the S&P 500 continues to run well below average, but trading volume broke above the 50-day moving average (dma) on Thursday’s decline. It is a nervous market.
The S&P 500 volatility index, VIX, closed at 13.5% on Friday, almost precisely at its close the previous Friday. Volatility rose this week as the market weakened, but then declined Friday as the market strengthened. This level of volatility is far from calm and complacent, but not really alarming either. It just underscores the cautious nature of this market.
Whereas the S&P 500 index solidly broke above its 200 dma last week, the Russell 2000 Index (RUT) cannot quite make that break higher. This week’s trading just tracked sideways along the 200 dma. The severity of last fall’s corrections is evident in RUT’s chart with the 50 dma so far below the 200 dma. The gap is closing, but remains significant.
The NASDAQ Composite index closed Friday at 7595, up 63 points. NASDAQ confirmed last week’s break out above its 200 dma by consistently trading above the 200 dma all week. Wednesday’s weakness bounced off the 200 dma to recover for a gain and close higher.
My analysis of the market’s condition remains the same as the past several weeks. The series of corrections that lasted through December 24th were not founded on solid economics. The excellent revenues and earnings reported during this earnings cycle are exceptional, but you wouldn’t know it from the broad market averages. The market has recovered significantly, but the China trade negotiations remain the largest worry for market analysts.
My market index iron condor positions are all profiting from this slowly rising and almost sideways market. We now have booked a full year with no losses.
In spite of the overall market being rather sluggish this week, a few stocks continue to make new highs. CYBR, LLY, IBRT, and XLNX all were called away from me this week because the stock price had traded so much higher that I could not roll the calls out for a reasonable credit.
Until we see a definitive resolution of the China trade negotiations, this market will be volatile. Some stocks are trading bullishly in spite of the overall market. Be picky and be cautious.
The January Barometer
- Written by Dr. Duke
The Standard and Poors 500 Index (SPX) has traded higher since December 26th and closed Friday at 2707, up 2.3% for the week. Monday and Tuesday of this week, together with most of last week, consisted of a sideways pause in this rally, but the last three days were very strong, including two gap openings higher. Trading volume in the S&P 500 remains below average, as it has since December 26th, the beginning of this bullish run. Volume only exceeded the 50 dma once this week. This suggests that the large institutions remain uncertain about this market.
Volatility, as measured by the S&P 500 volatility index, VIX, declined for the last three days, closing Friday at 16.1%. I normally think of 15% as the borderline before I become concerned. By that standard, we should remain cautious.
The Russell 2000 Index (RUT) broke through the resistance set by the February correction low at 1464 last Friday (1/25), and stayed solidly above that resistance level this week. Similar to the S&P 500, Russell had strong positive days for the last three trading sessions, closing Friday at 1502, up 3 points.
The NASDAQ Composite index traded higher on Wednesday and Thursday, but was held back Friday by Amazon. Traders were disappointed with Amazon’s earnings announcement and weak forward guidance on Thursday evening. AMZN took it on the chin Friday, losing 92 dollars per share or 5.4%. That resulted in the NASDAQ Composite trading weaker than the other broad market indices.
The market’s recovery since December 26th has been impressive. The S&P 500 has gained 15% since the opening on December 26th. But we should keep that gain in perspective. Today’s level is equivalent to that of October 23rd, just before we tipped over to the October correction low on October 29th. In spite of our strong recovery in January, we remain about 8% below the highs in early October before the series of fall corrections began.
The January Barometer was developed by Yale Hirsch, creator of the Stock Trader’s Almanac, and this indicator has an 88% record of success since 1950. The essence of the January Barometer is that the S&P 500 index for the year will follow January’s performance. Yesterday’s close made it official with a 15% gain; the January Barometer is now in the books, predicting a positive year for the S&P 500 in 2019. That would be a welcome prognosis after last year’s 7% loss. However, traders remain concerned about continued political turmoil and the outcome of trade negotiations with China. Each day’s market is subject to the latest news or even rumors of news. That makes it dangerous for traders.
I am focusing on stocks that have weathered the fall storm of corrections well, and are now trading well above their 50 and 200 day moving averages. For example, take a look at ADI, ADSK, NOW, PANW, and PAYC. I remain in a more conservative stance during this bullish run. When I can close trades with even modest gains, I am taking that opportunity. This is a nervous market, and so am I. Be cautious.
Proceed With Caution
- Written by Dr. Duke
This week’s trading continued the positive price trend with the Standard and Poors 500 Index (SPX) posting a 2.4% gain for the week and closing yesterday at 2596. SPX broke through the resistance level at 2581 set by the February correction on Wednesday and held those levels for the balance of the week. The one worrisome observation this week was the declining trading volume in the S&P 500. Volume steadily declined all week and had returned to holiday levels by Friday. Are the trading desks still partially empty or is money waiting on the sidelines?
SPX broke through the 20-day moving average (dma) in the center of the Bollinger bands on Monday and is now entering the upper quartile of the bands. Perhaps the market will be taking a breather after solidly breaking through the February correction resistance.
The S&P 500 volatility index, VIX, closed yesterday at 18.2%. VIX has steadily declined from its opening December 26th at 36%. However, volatility levels at 18% are far from calm. We have only just returned to the volatility levels we experienced through October and November.
The Russell 2000 Index (RUT) closed yesterday at 1447, up 2 points. Russell led this correction, trading down 25% from early October to December 24th. It was encouraging to see Russell gain 4.8% this week. RUT is now leading SPX higher.
The NASDAQ Composite index closed yesterday at 6971, down 15 points, but NASDAQ gained 3.2% this week, and similar to SPX, NASDAQ broke the resistance levels set by the February correction on Tuesday and held those levels the balance of the week.
Both the NASDAQ Composite and the Russell 2000 outperformed the S&P 500 this week. Russell led the race with its gain of nearly five percent this week. The NASDAQ Composite and the S&P 500 both broke through the resistance level set by the February correction, but Russell has the largest losses to recover and has not yet broken that key resistance level.
One of the traditional forward-looking indicators for the coming year is to monitor the S&P 500 gains or losses for the first five trading days of January. That indicator is solidly green for 2019, but was way off the mark in 2018. The first five trading days of January indicator has historically been accurate 83% of the time. That indicator plus the very strong market performance since the December 24th low prompted me to venture back into the market this week with a couple of trades. The January Barometer was developed by Yale Hirsch, creator of the Stock Trader’s Almanac, now edited by his son, Jeffrey Hirsch. The January Barometer states that as the S&P 500 goes in January, so goes the year. This indicator has an 88% record of success since 1950. Neither the First five Days nor the January Barometer were on target for 2018, but that was an odd year in the markets in many ways.
I was encouraged by the follow through day on January 4th and the consistent positive price action this week. However, volatility remains relatively high, so proceed with caution.
Is the Correction Finally Over?
- Written by Dr. Duke
It now appears that this severe correction hit its low on December 24th, when the Standard and Poors 500 Index (SPX) closed at 2351, representing a decline of 20% since October 3rd. SPX closed Friday at 2532, up 84 points on the day. The major market indices rallied strongly the day after Christmas, and gave traders hope. Technical analysts often look for what they call a follow through day after a correction low is recorded. This follow through day is considered the signal that traders may once again enter the market with some confidence that the correction is past. One begins counting days after the strong bullish move following the correction low (December 26th). The day count continues as long as the low price of day one isn’t broken. On day four or later, the analyst watches for a strong bullish trading day with volume equal or higher than the previous day. When that is achieved, the follow through day has occurred. Friday’s strong push higher satisfied the criteria for the follow through day. Trading volume in the S&P 500 has run below the 50-day moving average (dma) throughout the holidays. Thursday and Friday’s trading volume finally reached back up to the 50 dma.
Volatility, as measured by the S&P 500 volatility index, VIX, closed yesterday at 21.4%. The high point for VIX came on December 24th at 36%. This was almost an exact match of the peak in volatility in the February correction at 37%.
The Russell 2000 Index (RUT) closed yesterday at 1381, up 50 points. Russell has led this correction, down 25% from early October to December 24th. The NASDAQ Composite index closed yesterday at 6739, up 275 points. NASDAQ lost 23% from early October to the low on December 24th. I am a little surprised that NASDAQ’s correction wasn’t the largest of the broad market indices given the damage incurred by many of the high-tech names in the NASDAQ. Russell has led this correction from the beginning, trading lower and more consistently lower week after week.
Price trends since December 24th have been reassuring and the achievement of the follow through day this week probably contributed to Investors Business Daily changing their market assessment on Friday from “Market in Correction” to “Market in Confirmed Uptrend”.
I have never understood this correction from day one since it seemed to have no basis in solid economic terms. Yes, prices are higher, but companies have not grown earnings this rapidly in many years. Likewise, we have not seen GDP growth in the 3.5% range in decades. I believe this correction was largely self-inflicted. The financial news has been infected with the rancor of the front-page news. I am amazed at how often I have heard and read the term “recession” over the past several months. In my first economics course as an undergraduate, I learned that a recession is defined as two consecutive quarters of negative economic growth. That definition hasn't changed, and we have been posting GDP growth numbers in excess of three percent. Recent GDP growth rates are light years from going negative. Businesses are complaining that they can’t hire people fast enough. Wage growth is at historic highs, while unemployment is at historic lows. Talk of recession makes no economic sense.
Why have we turned into a crowd of Chicken Littles?
I am encouraged by the recent market trends, but remain somewhat concerned about the volatility that appears to have become part of the normal market. Therefore, I may send out a trade alert this week, but I remain cautious. This market is going to have to show me that it has gotten over its “sky is falling” fears.
The Fed Correction
- Written by Dr. Duke
According to what we all learned in Econ 101, higher interest rates are the tool used to slow a raging economy that is triggering runaway inflation. When the Fed was striving to recover from the financial meltdown of 2008, the FOMC’s target for inflation was a minimum of 2%. Bernanke frequently assured us that low interest rates weren't a problem as long as inflation remained contained at or below the FOMC target of 2%. Was Powell just trying to flex his muscle and show Trump who’s boss after Trump’s earlier tweets about the previous interest rate hikes? If so, Powell’s ego is costing ordinary Americans a lot of money. Earlier rate hikes this year could be justified, but this week’s rate increase, the fourth increase this year, just sent the market into the toilet for absolutely no good reason.
The Standard and Poors 500 Index (SPX) closed today at 2417, down 51 points. SPX is now down 21% from October 3rd, meeting the traditional definition of a bear market as opposed to a correction. The S&P 500 lost 6.7% this week alone and is now down 10% for the year. Unless something dramatic happens, 2018 is going into the record books as a losing year.
On Wednesday morning, the markets appeared to be finding support amid speculation that the Fed would not raise interest rates again. After the announcement, the positive gains for the day were erased and the plunge began in earnest. Trading volume in the S&P 500 companies ran above the the 50-day moving average (dma) all week and spiked today, but that was to be expected since this was quadruple witching.
SPX has run along the lower edge of the Bollinger bands every day this week, and this is very unusual. The February correction was more normal, with occasional pops back higher during the pullback. This was an unusually severe week in the markets.
Volatility, as measured by the S&P 500 volatility index, VIX, closed today at 30%. As one might expect in a week like this one, VIX moved higher each day this week after opening Monday at 22%. VIX reached highs around 25% in the October correction, and hit 37% in February. This correction is getting serious.
The Russell 2000 Index (RUT) closed today at 1292, down 34 points. Russell opened the week at 1411 and lost 8.4% this week, once again leading the overall market lower, just as it has been since early October.
The NASDAQ Composite index closed today at 6333, down 195 points, or 3%. NASDAQ broke through its February’s correction low at 6874 on Monday and has not slowed down all week. NASDAQ’s trading volume mirrored SPX, running above average all week and spiking today with quadruple witching.
SPX joined NASDAQ in breaking its February correction low on Monday, but Russell had already broken that support level last week. That effectively leaves market technical analysts without an obvious support level to watch for a bounce, signaling the end of this correction. It leaves us wondering, when will the market find the bottom?
The final estimate of third quarter GDP growth was reported this morning at +3.4%. The disconnect of our economy’s health and this market is remarkable. But four interest rate hikes this year are taking their toll. And the uncertainties surrounding the trade negotiations with China continue to worry investors.
Could It Get Worse Before It Gets Better?
- Written by Dr. Duke
The Standard and Poors 500 Index (SPX) closed today at 2659, down 4.1% for the week. Today’s price action was wild, trading down as low as 2628 before recovering 31 points to close just above Wednesday’s close at 2656. Since SPX’s closing high on September 20th, this blue-chip index has lost 9.3%. Even more ominously, SPX is now underwater for the year, after opening at 2684 on January 2nd. The 200-day moving average (dma) that appeared to be acting as support last week is now long gone. Today’s close is 108 points below the 200 dma at 2767. Put another way, it would require a 4.1% gain for SPX next week to recover the 200 dma, close to what was lost this week. Trading volume in the S&P 500 companies steadily rose this week, peaking at 3.2 billion shares today, well above the 50 dma at 2.2 billion shares. Was this the so-called capitulation trading session, where everyone throws in the towel? Trading volume hit 3.3 billion shares at the low of the February correction.
VIX, the S&P 500 volatility index, peaked on Wednesday at 25.2% and declined a bit to close at 24.2% today. This is certainly a higher level of volatility, but I admit to being a bit surprised it isn’t higher. VIX peaked at 41% in the August 2015 flash crash and reached 33% in the recent February correction.
The Russell 2000 Index (RUT) closed today at 1484, after hitting an intraday low of 1459. Interestingly, RUT’s February correction low was 1464. It appears as though the February correction acted as support for RUT. Let’s hope so. RUT has been leading this market lower thus far. Since RUT hit a high on 8/31, this index has lost 14.8% of its value.
The NASDAQ Composite index easily broke through its October 11th low on Wednesday and looked like it was going lower yet this morning, hitting 7057 intraday. But NASDAQ recovered to close at 7167, down 4.3% for the week. The NASDAQ Composite index is down 11.6% since August 31st. NASDAQ’s trading volume rose steadily all week, peaking at 2.9 billion shares today, well above the 50 dma at 2.3 billion shares. NASDAQ’s trading volume peaked at 3.1 billion shares during the February correction.
I spent some time reviewing overall bull/bear market indicators this afternoon. Here are the salient points:
• The CBOE put/call ratio was lower this week at 0.80, but the values posted on October 5th and 19th at 0.82 and 0.84, respectively, were closer to those of the February correction at 0.88.
• The percent of NYSE stocks trading above their 200 dma dropped to a low of 26% today. The August 2015 flash crash and January 2016 correction posted similar numbers, but this indicator only declined to 57% in the February correction.
• The percent of NYSE stocks trading above their 50 dma hit 12% today. The February correction drove this percentage to the same neighborhood, at 16%.
• The CBOE SKEW index is a measure of the far OTM puts being bid up, suggesting the possibility of a black swan event. SKEW hit 122 today and posted a higher value of 137 during the February correction.
To my surprise, the various ratios and values are negative, but not nearly as severe as I would have expected. I shudder to think it might get worse before it gets better.
Serious damage has been done to previous market darlings:
• ALGN is down 42% since this correction began. GRUB is down 41%; FB is down 33%; NVDA is down 32%; NFLX is down 29%; AMZN is down 19%; LULU is down 18%.
• The IBD 50 stocks are down 22% since October 1st.
But there is some good news:
• AAPL is only down 7% since the market highs, and ULTA is down 5%.
• AAPL, MSFT, V, and UNH are all at or near relative strength highs since the correction began.
The severity of this correction is difficult to understand in light of such positive current economic data. Fear of the Fed increasing interest rates too rapidly and shutting down economic growth seems to be central to investor worries. I have read several articles citing fears of runaway inflation, but the current rate of inflation is at or near what previous Fed governors cited as the target for a healthy economy. Tariff wars and toxic politics round out the concerns. The market reaction certainly seems to be overdone.
I am waiting for the storm clouds to clear before entering any new trades. I am keeping a close eye on AAPL, MSFT, ULTA, UNH, and V. These are attractive candidates, but I don’t want to jump too soon.
Pause or Trend Change?
- Written by Dr. Duke
The overall markets were down this week, with the Standard and Poors 500 Index (SPX) closing Friday at 2914, down 16 points from last week’s close. Should we be concerned? There are certainly plenty of doomsayers on the sidelines who cry loudly each time the market falters even a bit. But I think they have cried wolf too many times.
Friday’s close was precisely at the all-time high logged by SPX on September 20th and remains well above the previous high at 2873 from January 26th. Therefore, it is much too early to speculate on any trend change, especially just after posting a GDP growth rate of 4.2%. Even if we figuratively back up and draw a trendline on SPX for the past two to three months, it is unquestionably strong and continuing to grow. Trading volume for the S&P 500 this week was near the 50-day moving average (dma) most of the week, and moved a bit higher on Friday. In general, trading volumes remain lackluster. It suggests that many traders are just letting their positions run and leaving any additional cash on the sideline.
Market volatility, as measured by the S&P 500 volatility index, VIX, wandered sideways this week, reaching intraday lows and highs of 11.6% to 13.2%, but closing Friday at 12.1%. This VIX trend, together with low to average trading volume, suggests relative calm among the large market participants. The exception to our story among broad market indices is the Russell 2000 Index (RUT) which has trended steadily lower since marking an all-time high of 1741 on August 31st. RUT broke its 50 dma on Wednesday, but posted a gain Friday.
The NASDAQ Composite index closed Friday at 8046, up over 107 points from Monday’s opening. NASDAQ’s has largely traded sideways during September, banded by the highs set at the end of August and bouncing off the 50 dma on the lower end of the trading range. Friday’s close is only 64 points or 0.8% off the all-time high on August 31st. Trading volume in the NASDAQ stocks was well above the 50 dma all week with the exception of Thursday.
With the title of this article, I posed the question of whether this week’s downtrend is merely a healthy pause in a bull market or represents a trend change. We should remind ourselves that markets always represent a discounted future view of the market’s collective corporate cash flows. The economic data remain very strong. When was the last time we saw a 4.2% quarterly GDP number? I don’t need to look it up. It has been a long time.
We stand at a unique point in American history. The old rule of journalists’ ensuring that their personal viewpoints were only visible on the editorial page is long gone. One of the consequences of this sea change is that my perception of the general state of the economy may be significantly distorted by a barrage of bad news and generally hateful commentary.
Focus on the economic facts. The economy is growing; unemployment is at record lows; wages are growing at strong rates; companies are complaining about being unable to fill jobs. In the last earnings cycle, more S&P companies beat analyst earnings estimates than has been the case in several years.
In spite of the weakness we saw in the broad market averages this week, the following stocks continue to trade higher: ILMN, LULU, MA, V, and WWE. AAPL has rebounded and is nearing its all-time high.
However, due to the generally negative news environment I described above, this market is very volatile. Watch your positions carefully and take your gains whenever you can. My trading group enjoyed a large gain on NKE with a trade on its earnings announcement this week. I could have almost doubled that gain by carrying the trade into next week, but I closed Friday for a 64% gain rather than hold for a gain of over 100% next week. It’s that kind of market. It doesn’t have to make sense. It just is.