Major Market Buy/Sell Review: 09-30-19

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

• We are still maintaining our core S&P 500 position as the market recently tested all-time highs.
• The bullish news is that the “sell signal” has been reversed. However, without the market breaking out to new highs, it doesn’t mean much especially given the more extreme overbought condition.
• We will wait for a confirmation breakout to add to our core equity holdings as needed.
• 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 but failed at previous highs.
• As with SPY, DIA has also reversed its previous “Sell signal” as well, but has failed to breakout to new highs and is back to more extreme overbought conditions.
• With October tending to be more volatile, we will wait for confirmation before adding broad market exposure.
• 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

• The technology heavy Nasdaq not only failed to test previous highs but failed at the previous highs from earlier this year. This is concerning as it appears to be more of a topping process currently.
• The “Sell signal” has been reversed, but only barely so. QQQ needs to break out to new highs to confirm the bullish trend.
• 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 sell signal has reversed to a buy with the strong rally two weeks ago. However, as fast as it came, it seems to have gone away.
• We suggested last week that with SLY back to extreme overbought, and below previous resistance, and in a negative trend, that it looked like a better selling opportunity rather than a buy. That was good advice.
• However, 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 previously violated.
• Long-Term Positioning: Bearish

S&P 400 Index (Mid-Cap)

• MDY, like SLY, is technically not in great shape, and also failed at the downtrend line and failed to hold above previous resistance.
• MDY has now registered a short-term “buy” signal, but needs to be confirmed by a break above resistance. That has yet to occur. Be patient and take profits for now.
• Short-Term Positioning: Neutral
  • Last Week: No holding
  • This Week: No holding
• Long-Term Positioning: Bearish

Emerging Markets

• EEM continues to underperform. As noted last week, the market did rally previously on hopes of a trade resolution, and the ECB cutting rates, but that rally is simply another rally in a long-term downtrend.
• A sell signal has been triggered but has failed to reverse. EEM needs to move above the downtrend line to become of interest again. The failure to hold above the 200-dma is not encouraging.
• 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 remains in a downtrend and is testing the top of that range.
• EFA has also triggered a buy signal, so a rally above the downtrend line will be needed to establish a tradeable opportunity. That has failed to occur so far.
• As with EEM, we closed out of previous trading positions due to lack of performance.
• 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)

• Last week, I wrote:
  • Then on Monday, oil spiked with the explosions in Saudi Arabia over concerns of supply disruptions. Unfortunately, the rally failed to stick and oil traded back down below important resistance.
• That spike in oil continued to diminish again this past week and is now testing critical support at the 200-dma. Oil has been unable to break out of its downtrend
• Oil is working off its extreme overbought condition. 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

• Finally, Gold is back to a slight oversold and is holding important support.
• We added to our Gold position previously, and will continue to add to any correction down to our support levels at $132-134. With GLD oversold, we will likely be able to raise that entry level to $138-140. We will update positioning next week.
• Short-Term Positioning: Neutral
  • Last week: Hold positions
  • This week: Hold positions
  • Stop-loss for whole position move up to $132
  • Long-Term Positioning: Neutral

Bonds (Inverse Of Interest Rates)

• Like GLD, Bond prices finally cracked and have reversed a good chunk of the overbought condition.
• As with GLD, we swapped bond positions previously by selling short-term bonds and swapping into longer duration Treasuries.
• With the overbought condition being worked off, it is likely we will be able to further add to holdings as we head into the end of the year.
• Short-Term Positioning: Bullish
  • Last Week: Swapped GSY for IEF
  • This Week: Hold positions
  • Stop-loss is moved up to $130
  • Long-Term Positioning: Bullish

U.S. Dollar

• The dollar had rallied to our $99 target which we laid out back in June of this year when we started tracking the dollar.
• Last week we said that with the dollar overbought look for a pullback in the dollar to $97 which will provide a decent entry point for long-dollar trades. That correction occurred and the dollar is rallying back to the top of the downtrend as concerns over global growth continues.
• It is highly likely the dollar will continue its bullish trend with negative rates spreading all over Europe.
• The rally has now triggered a “buy” signal which keeps us dollar bullish for now.