Saturday May 30, 2015

$SPY, $STUDY, Friday’s GDP number knocked the blue chips lower by triple-digits and buyers were again reluctant to step in. Several of the major averages ended the week flirting with their 50-day moving average and the DJIA and Russell 2000 closed slightly below that support level.  The Major Market Model remained in a Buy mode as did the Asset Allocation recommendation at 50% Long and 50% Cash, which again is confirmed by the 49.3% Long status of the weekly analysis which is run on the six watch lists which are tracked here.  The short term Trades Model again reflects Buy recommendations on the four members of this group but with a 50/50 spilt in the Opinion column.

Monday will see us trade Under Armour Inc (UA) and most likely replace this holding with an equally weighted position in Integrated Device Technology Inc (IDTI). But I am still not feeling aggressively Bullish and will not increase the equity weightings at this time.

Despite weakness in the broader market, pockets of strength remain in technology and healthcare and the Philadelphia Semiconductor Index posted a gain today. That could bring buyers back in next week. There are nine names on the Watch list for those who feel braver than I to peruse over.

Saturday May 23, 2015

$SPY, $STUDY  The market continues to languish and the old saying “Don’t short a dull market” applies. In spite of the fact that the Alpha Major Market model remains at a Buy status, with a consensus Neutral opinion, there are some signs that stocks could be in for more pullbacks. The DJ Transportation index is in an intermediate term downtrend as it broke below its April low recently, and each bounce in the past couple of months was capped by its 50-day moving average. The numbers of stocks reaching new 52-week highs on both the NYSE and the NASDAQ are still way below those counts in March, suggesting a narrow market with gains driven by a small number of stocks, mainly large cap techs. Some near term retracement of stock prices will not be surprising. For the S&P 500, watch for support near 2100.

The Asset Allocation recommendation remains at 50% Long and 50% Cash which again is confirmed by the Long rating on 50% of the members of our Watch Lists which are subjected to similar analytical review.  

For your weekend review we have six names on the Watch list this week as compared to just one last week.  Some may want to read more into this than warranted, this is remains a stock pickers market and caution is the name of the game.

Have an enjoyable Memorial Day weekend, go fishing or play golf and enjoy your families, I will be doing all of the above.

Saturday May 16, 2015

$SPY, $STUDY, The technical condition of the market was mixed last week while the overall direction of the Alpha Major Market Model remains unchanged.  The Technical indicators firmed but there was additional weakness in the Strength indicators resulting in Buy recommendations for all four members of the group along with Neutral Opinions. The Asset Allocation recommendation remains at 50% Long and 50% Cash which is confirmed by the 43.6% Long rating on the sum of the members of our Watch Lists.

The past week we closed both ROST and ICLR positions on opinion downgrades and had three day trades in our Option strategy resulting in approximately a 20% return on the capital employed for day trading.

The major averages inched higher for the week stretching the upper boundary of the trading ranges. The S&P 500 recorded new all-time highs on both Thursday and Friday. The DJIA came within 16 points of its record close. Several of the indexes successfully tested their 50-day moving averages during the week and the Philadelphia Semiconductor Index reclaimed its 50-day moving average for the first time since mid-April confirming strength in technology shares. That bodes well for the broader market going forward.

Friday closed the week with a slow but steady session with VIX (12.38) finishing lower. This favors the bulls as investors become more bullish but yet not too complacent. However, it isn’t probably going to be a quick and easy breakout for stocks. Many technical indicators of the major indexes remained relatively neutral, suggesting more sideway grinds.

FactSet StreetAccount Summary -US Weekly Recap: Dow +0.45%, S&P +0.31%, Nasdaq +0.89%, Russell 2000 +0.73%

Saturday May 9, 2015

$SPY, $STUDY,  The uptick jobs report (nonfarm payrolls +223K with unemployment rate at 5.4%) set off a big rally in the stock market Friday, wiping off all the losses from earlier in the week. The number of job gains suggested that our economy was growing while it was not too hot to cause the Fed to hike rates in June.

It was only two days ago when the media was dominated by some investors calling for a bear market. Now the S&P 500 is back within 2 points of its record close. The question now is whether Friday’s surprisingly large rally can last. Short term momentum readings, which turned bullish Friday, suggest that we should get a follow-through. However, with all four major indexes back nearly at the top of the ranges they have been stuck in for over two months, stocks are likely to run into some resistance. With that said, there is still too much doubt among investors that this market could go higher.

I sold Dollar Tree (DLTR) this week when the recommendation when to Sell, there is another name in the portfolio which is also nearing a sell signal and that is ICLN PLC (ICLR).  There was not an offsetting purchase for the DLTR sale. Even though the equity markets are close to all-time highs the technical condition of the markets continues to deteriorate.  The overall Asset Allocation recommendation remains at 50% long and 50% cash which is supported by the declining number of long recommendations which are generated by the daily analysis of the six watch lists from which names are chosen.  All-time highs with weakening fundamentals is not a time to go long. 

And why would we, the weighted return year-to-date for the combined Alpha One Model and the Alpha Two model is 42.6%.  Again most of the gain comes from the daily option trading but none the less the Alpha Two model is up 4.8% and the equity only gain is 11.44%.  Those two averaged would be up 8.12% while the S & P 500 is up 2.8%.  I will continue to day trade options and watch with caution for the next buy move.

Earning season is about half over with about 75% of the companies reporting thus far with the positive surprise number holding at about 60% of total.

With such middle of the road reading on investor sentiment, coupled with a lack of imminent negatives on both the fundamental and technical fronts, suggests that the path of least resistance is to the upside for the foreseeable future.  Remain cautious and resist paying too much attention to the media bobble heads.

Large Upside Earnings Surprisesvs. Lowered Estimates for the S&P 500

Why Are Q1 Earnings for theS&P 500 Now Up Year-Over-Year?

Saturday May 2, 2015

$SPY, $STUDY The stock market proved it again on Friday that it is a difficult place for the bears. Just when many investors were calling for corrections after Thursday’s sell off, stocks bounced back sharply, recouping almost all of the prior day’s losses.

The fact is, if you look at the chart of the S&P 500, the broader market has not gone anywhere for two months. Sector rotations have kept the S&P 500 going sideways and that confuses many long-term investors. On sell off days like Thursday, investors were afraid to buy, fearing that stocks would fall further. And on rally days like Friday, they were afraid to sell, worrying about missing out the upside. The thing is that until stocks break up or break down, we probably can’t get too giddy or too worried. Be selective, buy stocks which have reacted well to earnings on pullbacks and don’t be afraid to take profits on run-ups.

The Alpha One Model portfolio again had a very nice week with the equity holdings giving up about 1% in value as compared to the prior week and the Option Trading contributing heavily once again to the YTD gains.  While the current portfolio holdings appear to be getting slightly long in the tooth there is not much out there at this time to step up and replace them with.  There are three fresh names on the Watch List but given the current market status I most likely will remain where I am at for the foreseeable future.

The conviction of the Major Market Model has been reduced by the technical weakening of the four major’s which it tracks.  While the overall call remains 3 Buy’s and 1 Sell all four members are now caring Neutral Opinions.  Couple this weakening with the downgrade to 50% Long and 50% Cash by the Asset Allocation model confirms the cautiousness set out in the second paragraph above.

Last year I began tracking the quarterly earnings reports last on a daily basis as they were reported. On average each quarter of 2014 had approximately 4,015 reports with 55.7% surprising to the upside and 54.3% surprising to the down side of analysts’ estimates.

This year the first quarter, which remember is reflecting the closing quarter of 2014 came in at 57.6% to the upside and 52.4% to the downside on 4,323 reports.  As of April 30^th we had a little less than half the reports in and we are at 63% surprises to the upside and 37% to the downside. To say there is a lack of understanding and/or conviction among investors is a little mild in my opinion. Too much opinion on the part of the media and too little fundamental analysis perhaps.

FactSet Street Account Summary - US Weekly Recap: Dow(0.31%), S&P (0.44%), Nasdaq (1.70%), Russell 2000 (3.11%)