Ideas to make the coming week both Profitable and Enjoyable…

 

Can the S&P 500 Futures help you stay in tune with the market trend?

 

 

The equity markets closed Friday mixed, finishing a losing week that saw the rally to start 2023 stall because of worries about inflation and the Fed’s efforts to slow it down. The Dow and S&P 500 were in the green Friday, while the Nasdaq declined. For the week, the Nasdaq sank 2.4%, the S&P 500 dropped 1.1%, and the Dow lost about 0.2%. The big winners in Friday’s session were fossil fuel providers. They held most of the top spots among the best-performing S&P 500 stocks as oil prices jumped 2% following Russia’s announcement it would reduce output.

U.S. consumers are more upbeat about the economy this month despite believing that inflation will rise more than previously thought, according to a survey by the University of Michigan. The school’s preliminary February Index of Consumer Sentiment (MCSI) was up 2.3% from the previous month to 66.4, the highest it’s been since January 2022. The measure of current economic conditions was 72.6, a gain of 6.1% also the best level in 14 months.

Inflation reports will be in the spotlight in the coming week, with the January Consumer Price Index (CPI) out on Tuesday, and Producer Price Index (PPI) due on Thursday. Also on Tuesday, the U.S. Senate Committee on Banking, Housing, and Urban Affairs will hold a hearing on cryptocurrencies and digital assets, amid calls to regulate the industry and safeguard crypto investors. On Wednesday, last month’s retail sales figures could offer insights into consumer confidence and willingness to spend. More updates on the housing market with January building permits and housing starts are due Tuesday.

The market breadth was mostly negative for the past week with advancing issues beating declining issues by 153 units on the NYSE, but declining issues beating advancing issues 1.3:1 on the NASDAQ. Declining volume was 50% on the NYSE and 60% on the NASDAQ. The VIX eased 0.18 (-0.87%) and closed at 20.53. Crude oil prices jumped 1.74 (+2.23%) and the March contract closed at $79.80 a barrel. Gold prices fell 3.00 (-0.16%) and finished at $1875.90 an ounce.

Analysts expect earnings to continue to decline for the first half of 2023, but are holding to a forecast of earnings growth for the second half of 2023. For Q1 2023 and Q2 2023, analysts are projecting earnings declines of -5.1% and -3.3%, respectively. For Q3 2023 and Q4 2023, analysts are projecting earnings growth of 3.4% and 10.1%, respectively. For all of CY 2023, analysts predict earnings growth of 2.5%.

 

In our February 5^th edition, we spoke of the need to be cautious in the up-and-coming week.  Following our own advice, we did not add to the ten positions which we had put on the previous Friday. The positions held up through the week as you can see below. Nine of the ten positions remain in Buy status with one Hold.  The dollar value has diminished as you would expect, and we will be looking to close six positions should the market continue downward in the coming week. Those under consideration for closing are ABNB, AMD, COF, CRM, EXPE and NUE.  All good companies but with currently weakening trends.

All that we do stems from the S&P 500 constituents, broken down into seven major indices along with twelve sector groupings.  This is also where signs of weakening can be seen with two of the members now rated ‘Hold,’ four ‘Sell’ and eleven ‘Buy.’ Nothing to panic over at this time, but we will be watching this grouping closely as the new week opens up.

A tip for the inquisitive, keep your eye on the trend in the /ES futures contract around 10:00 AM each morning, 71.3% of the time the market will close in the direction of this contract each day.  Based upon the strength of the trend over time, you will be able to determine if hanging around the market will be worth your time or not for the day. 

To access the current copy of the data behind our trading please follow this link: Trading with AlphaVL

Good luck and Good Investing!

Vince

 

 

Trading with AlphaVL: The Newsletter for Growth and Momentum Investing

AlphaVL Trading: The Key to Profiting from S&P 500 Industrials.

 

“In trading / investing it's not about how much you make, but how much you don't lose.” Bernard Baruch

  

The market direction for equities advanced Friday, with market participants taking note of a softer tone from members of the Federal Reserve's committee. This has raised expectations for a 0.25-point rate hike at their next meeting and another 0.25-point hike in March.

 According to the CME Group's Fed Watch, there is a 55% probability that US interest rates will pause in May, suggesting market participants are optimistic about economic growth momentum over this period. With upcoming big cap tech earnings reports being released next week, investors will be keeping an eagle eye on market fluctuations, looking to capitalize on any potential soft-landing scenarios resulting from the data.

 Friday’s close showed that growth - momentum had again changed direction as equity indexes rose. The bullish market breadth on both the NYSE and NASDAQ was encouraging, advancing issues beat declining issues at a ratio of almost 4:1 on the NYSE and 2.6:1 on the NASDAQ, with volume at 83% and 86%, respectively. This increase in positive activity pushed stocks up along with oil prices rising 1.07 to $81.40 per barrel, accompanied by gains in Gold for a change; this precious metal gained 5.50 and closed at $1929.40 an ounce. The VIX retreated 3.27% down to 19.85, closing strong, despite a turbulent few days in the markets prior to Friday's gains. All of the movements demonstrate that growth after weeks of a negative outlook may be poised to make a quick turnaround.

 Despite the holiday-shortened trading week with volatile market conditions, our bullish signal on January 12th remains intact. Evidence of this strong signal lies in both the wider market, where a positive direction is suggested by improving breadth, as well as in our smaller trading watch list that is detailed in the spreadsheet attached. Analysis over the weeks ending January 20th clearly indicate that profitability is achievable even in unpredictable markets.

As the quarterly earnings season progresses, investors have held on to positive reactions despite the potential for weaker growth in leading stocks. Goldman Sachs saw a decline following their Q4 earnings miss, but Morgan Stanley stood in stark contrast when their earnings miss was met with larger optimism as the Nasdaq Composite reclaimed all YTD losses by Friday's close. The Dow Jones Industrial Average and S&P 500 saw an upwards movement as well and managed to overcome a sizable portion of their weekly losses. This positive directional change had traders optimistic and bullish over positive growth potentials by market close on Friday.

 

While there is no denying the fact that the market had a poor week ending the 20^th, we must not lose focus on the Year to date (YTD) results through  January 20^th. The Dow Jones Industrial Average is up 0.71%, the S&P 500 is up 3.52%, the NASDAQ 100 is up 6.16% and the Russell 2000 is up 6.13% and the SMH is up 12.03%.  Lest you are not familiar with the SMH, it is an ETF, the Vanek Vectors Semiconductor ETF, which  seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the MVIS US Listed Semiconductor 25 Index (MVSMHTR). 

 

I  entered this past week, you may recall that I had set up ten Bull Call Spreads for possible trades on Tuesday, believing that the upward trend would remain intact.  Tuesday’s action was such that I changed course for the week while only placing three trades, in LW, SPY, and ASML. The week ended up with two losing and one winning trade, however it was a profitable week with a 23.1% return on the premium spent. The SPY trade carried the week.

 The fourth quarter earnings season for the S&P 500 is off to a less than impressive start. Companies are reporting surprises mostly to the downside with the number and magnitude of positive surprises well below their 5-year and 10-year averages. Looking back, this marks the first year-over-year decline in earnings since Q3 2020. To date, the situation continues its downward trajectory as companies report negative surprises and analysts revise estimates further downwards. Thus, the overall trend in earnings decline for this quarter looks set to continue, while feeding the market volatility. 

 As such, I will set up possible trades in the DIA, IWM, QQQ and SPY on both sides of the screen Bull Calls and Bear Puts while waiting for the market to do what it will do best, day by day.  These trades may end up as Day Trades or Swing Trades, but I will not be holding anything for a long period over the next three or four weeks.

 To access the current copy of the data behind our trading please follow this link: Trading with AlphaVL

Good luck and Good Investing!