Major Market Buy/Sell Review: 09-09-19

Each week we produce a chart book of the major financial markets to review whether the markets, as a whole, warrant higher levels of equity risk in portfolios or not. Stocks, as a whole, tend to rise and fall with the overall market. Therefore, if we get the short-term trend of the market right, our portfolios should perform respectively.

HOW TO READ THE CHARTS

There are three primary components to each chart:

• The price chart is in orange
• The Over Bought/Over Sold indicator is in gray
• The Buy / Sell indicator is in blue.

When the gray indicator is at the TOP of the chart, there is typically more risk and less reward available at the current time. In other words, the best time to BUY is when the short-term condition is over-sold. Likewise when the buy/sell indicator is above the ZERO line investments have a tendency of working better than when below the zero line.

With this basic tutorial let’s review the major markets.

S&P 500 Index

• As noted in our daily portfolio commentary we added a 2x long with the breakout last week.
• We are still maintaining our core S&P 500 position as the market has not technically violated any support levels as of yet.
• However, with the market now on a registered “Sell” signal, it is unlikely the current advance is going to go far unless that signal can be reversed.
• The upside for this rally is the July highs but remains a rally to sell into.
• Short-Term Positioning: Bullish
  • Last Week: Hold position
  • This Week: Hold position.
  • Stop-loss moved up to $285
  • Long-Term Positioning: Neutral due to valuations

Dow Jones Industrial Average

• Like the SPY, DIA is broke above resistance and the next target is the previous highs.
• DIA has registered a “Sell” signal which will put pressure on DIA to the downside. This rally needs to last long enough to reverse that signal.
• Look for this rally to fail likely next week.
• Short-Term Positioning: Neutral
  • Last Week: Hold current positions
  • This Week: Hold current positions.
  • Stop-loss moved up to $255.00
• Long-Term Positioning: Neutral

Nasdaq Composite

• We noted that QQQ had rallied modestly, but was uninspiring. On Friday, QQQ rallied into resistance.
• Like DIA and SPY, a “Sell signal” has been registered. It will be important for the market to rally enough next week to get above resistance and reverse the signal.
• Short-Term Positioning: Bullish
  • Last Week: Hold position
  • This Week: Hold position
  • Stop-loss moved up to $175
• Long-Term Positioning: Neutral

S&P 600 Index (Small-Cap)

• The buy signal has reversed to a sell, and performance continues to deteriorate.
• The rally last week was uninspiring and failed to get above important resistance. With a sell signal in place there is nothing suggesting taking on exposure currently.
• As we have repeatedly stated, there are a lot of things going wrong with small-caps currently so the risk outweighs the reward of a trade at this juncture.
• Short-Term Positioning: Bearish
  • Last Week: No position
  • This Week: No position.
  • Stop loss violated.
• Long-Term Positioning: Bearish

S&P 400 Index (Mid-Cap)

• MDY, like SLY, is technically not in great shape, but did manage to hold the 200-dma support for now.
• MDY has now registered a “sell” signal which must be reversed before considering adding exposure.
• Short-Term Positioning: Neutral
  • Last Week: No holding
  • This Week: No holding
• Long-Term Positioning: Bearish

Emerging Markets

• EEM continues to underperform. The sector did rally last week on hopes of a trade resolution, but that is an outcome that will not come soon. Look for this rally to fail.
• A sell signal has been triggered as well.
• EEM is running into heavy overhead resistance so next week will be important.
• As noted previously we closed out of out trading position to the long-short portfolio due to lack of performance.
• Short-Term Positioning: Bearish
  • Last Week: No position
  • This Week: No position
  • Stop-loss violated at $41
• Long-Term Positioning: Neutral

International Markets

• Like EEM, EFA continues to drag.
• EFA broke its downtrend line while maintaining a “buy signal” but did hold support at the 200-dma.
• EFA has also triggered a sell signal
• As with EEM, we did add a trading position to our long-short portfolio model but it, like EEM, was not performing so we closed it.
• Short-Term Positioning: Neutral
  • Last Week: No position
  • This Week: No position.
  • Stop-loss was violated at $64
• Long-Term Positioning: Neutral

West Texas Intermediate Crude (Oil)

• Oil continues to languish and remains on a sell signal currently. This doesn’t really bode well for either economic growth, or energy stocks near-term.
• More importantly, oil is confined to its downtrend and continues to fail at the 200-dma which is trending lower. A break of support at $54 and oil will test $50/bbl fairly quickly.
• Oil is not oversold and is in a downtrend. There is no reason to be long oil currently.
• Short-Term Positioning: Neutral
  • Last Week: No position
  • This Week: No position
  • Stop-loss for any existing positions is $54.
• Long-Term Positioning: Bearish

Gold

• Gold remains extremely overbought including its longer-term “buy signal.”
• As noted a month ago, we said that if support holds we will be able to move our stop-loss levels higher. That was indeed the case and we moved stops higher.
• Gold is too extended to add to positions here and we have been looking for a pullback which now seems to be in the works. We are looking to add further to our holding between $136-138 or whenever an oversold condition is achieved.
• Short-Term Positioning: Neutral
  • Last week: Hold positions.
  • This week: Hold positions
  • Stop-loss for whole position move up to $134
  • Long-Term Positioning: Neutral

Bonds (Inverse Of Interest Rates)

• Like GLD, Bond prices have surged on Trump ramping up the trade war.
• The overbought condition is rather extreme, so be patient and wait for a correction back to the breakout level to add holdings.
• Prices could pullback to the $135-137 range which would be a better entry point.
• Short-Term Positioning: Bullish
  • Last Week: Hold positions after taking profits.
  • This Week: Hold positions
  • Stop-loss is moved up to $130
  • Long-Term Positioning: Bullish

U.S. Dollar

• The dollar had rallied above, and is holding support, at its 200-dma. This is bullish and suggests a stronger dollar as foreign dollars flow into U.S. Treasuries for yield and safety.
• We noted previously the dollar broke above key overhead resistance and suggests a move back towards $98-99 is likely. We have hit our target for now so take profits if you are long a dollar trade.
• USD is holding support at the previous resistance line. The rally has now triggered a “buy” signal.