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There is a beautiful ebb and flow to the stock market. The people with bullish bias are searching for reasons to buy and the people with bearish bias are searching for reasons to sell. It is this constant battle that creates the rise and fall of stock prices. Last week the S&P 500 triggered the sell signal from the prior week. The bears didn’t take the S&P 500 too far down, only .89% for the week. The bulls now have an important week to decide whether or not they will come in to hold prices, raise them, and flush the bear’s dreams of a substantial move down in the next couple of weeks.
The longer-term action of the S&P 500 is still positive overall. We refer to longer-term as the monthly trend. When you look at the monthly action, we are simply in a leg up to test the highs from the beginning of the year. Closing this month on the highs for the month would indicate strength for the bulls and would put them in a position to push the S&P 500 to new all-time highs. The bear ‘o’ meter again didn’t move this week.
The swing indexes we like are the following: Extended Treasury / Australia / EAFE Value / Global Wind Energy / Healthcare Sector / Transportation
The big loser this week was the EAFE International Value play. It is trading right down close to support. This is an important level of support as it is an area in which created a gap in prices back from April of 2017. We are watching to see if there is follow-through. If there is no follow-through, this past week could be exhaustive and nature, form a buy signal that could be a start of a leg up. I’m not really excited about it, but now is the time to pay close attention. The international markets have certainly been lagging the US markets and this move down in the EAFE Value Index is just an example of why we want to rotate out of the weakest markets.
We are also close to the stop price in treasuries. They are still sitting on support from trading in 2015, 2017, and from earlier this year. The more prices bang around near support, the more likely they are to break support for another leg down. On a side note, the downward pressure on bond prices along with an equities correction or worse can certainly cause havoc to traditionally balanced portfolios. This is why we focus on market trends and absolute risk rather than relative risk.
This should be an exciting week. We are watching to see if the bulls can squeeze the bears or if the bears will pull hard and continue the start of a leg down. Each has a reasonable case. With regards to new additions, we have a buy signal in Natural Gas. If we can get a buy trigger, it would be buying in a long withstanding trading range with the thought that we’ll get a breakout to higher levels. Other than that, we are going to continue looking for opportunities and pay close attention to our current positions.
The Education/Gratitude Book Club
Still reading this month’s book “Habit Stacking: 127 Small Changes to Improve Your Health, Wealth, and Happiness (Most are Five Minutes or Less)” by S.J. Scott. This month is almost over. Have you read a good book lately? I’d like to hear about it. Have a great week!
Adam Straseske, CMT
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