US Update: Divergence In Market Breadth

Posted on | by Todd | Leave a Comment on US Update: Divergence In Market Breadth

As the SP 500 continues to trade near all-time highs, market analysts are reviewing various metrics to determine whether US Stock prices have more upside, or if they are ready for a downside correction.

One of these metrics is “Market Breadth.” Market breadth is a technique used to gauge the direction of the market by measuring the number of stocks trading higher versus the number of stocks moving lower

“Positive” breadth occurs when more stocks are moving higher than lower and vice versa for “negative” breadth.

The breadth numbers are used to determine whether the market has positive momentum or negative momentum.

The chart below shows that the SP 500 and market breadth have been diverging since late-April.

To put this divergence into perspective, as of last Friday, nearly 40% of SP 500 stocks were trading below their 200-day moving averages. In addition, 6% of the stocks listed on the NYSE hit new 52-week lows last week.

We will watch these measures closely to see if the current market pricing is resolved to the upside, or if the US Indexes commence a correction lower.

SP 500 vs Market Breadth

 

Chart Watch – Goldman Sachs

Posted on | by Leon Hinde | Leave a Comment on Chart Watch – Goldman Sachs

We’re watching the rebound in US financials as a leading indicator for momentum in the Australian banking shares.

The chart below of Goldman Sachs shows the minor bounce that’s recently taken place. However, it looks like selling pressure is now building and the short term momentum indicators have turned lower.

Unless, Goldman Sachs can trade back up through the $230 resistance, it looks like the rebound higher, could now be completed.

Chart – Goldman Sachs

 

Algo Sell Signal – General Electric

Posted on | by Leon Hinde | Leave a Comment on Algo Sell Signal – General Electric

Our Algo Engine generated a “short” or sell signal in General Electric back in mid December, when the stock was trading $32. In last nights sell-off in the US, GE was the worst performing stock within the Dow Jones index.

The overnight selling is a continuation of the downtrend that has been in place since the December high.

Chart – GE

 

 

OVERNIGHT News: FOMC and Crude Oil

Posted on | by Todd | Leave a Comment on OVERNIGHT News: FOMC and Crude Oil

The FOMC announcement to raise the target Fed Funds rate by 25 basis points to 1.25% was largely priced into the market.

However, the “hawkish” guidance  about further upward adjustments and the specific plans to reduce the FED’s $4.5 trillion balance sheet have raised concerns about current stock market valuations and the impact of tighter monetary conditions.

The major US indexes were mixed with the NASDAQ down .50%, THE Dow Jones 30 up .25% and the SP 500 down .10%.

US Energy stocks were all lower as Crude Oil prices slumped on a downbeat assessment from the IEA and increased production from both the US and OPEC nations.

The front month WTI Crude contract closed down over 3% to $44.65, which is the lowest closing price in over 18 months.

As a result, shares in both BHP and Oil Search have opened more than 2.5% lower.

Chart – Dow Jones

 

ETF Watch- NASDAQ Sell-Off

Posted on | by Todd | Leave a Comment on ETF Watch- NASDAQ Sell-Off

The NASDAQ stocks rebounded last night with Facebook, Google and Amazon all trading over 1% higher after the two day sell-off over the weekend.

According to several “high frequency” analytical reports, it’s too early to step back into the FANG stocks. Of the four times that a similar high volume sell-off has occurred since 1999, tech shares have needed several weeks to find a bottom.

In addition, as shown in the chart below, the last few days have seen the largest capital outflow since 2007 from the QQQ: the NASDAQ based ETF.

Our ALGO engine created a buy signal on the ASX BetaShare NASDAQ ETF on February 8th, 2016.

That ETF, with the symbol: NDQ has gained over 32% since then. Should the recent sell-off in the NASDAQ turn into a deeper correction, we will watch for the next ALGO buy signal.

QQQ ETF

 

BetaShare ETF: NDQ

Big Reversal In The FANG Stocks

Posted on | by Todd | Leave a Comment on Big Reversal In The FANG Stocks

Shares of Facebook, Amazon, Netflix and Google (also known as the FANG stocks) all fell over 3% today as investors pulled money out of the overheated US Tech sector.

The FANG stocks have been market leaders all year and have accounted for over 40% of the NASDAQ gains year-to-date. On a valuation basis, these names have added over $600 billion to the S&P 500 even though they only make up 13% of the index.

Many analysts have been expecting a pullback in the tech sector as P/E ratios and forward guidance data have approached the levels last seen prior to the 2000 and 2008 market corrections.

It’s worth noting as a point of reference that Microsoft, which is not a FANG stock, fell 62% after the 2000 tech bubble burst and dropped 45.5% during the financial crisis in 2008.

Even after today’s sharp decline, the S&P tech sector is still up over 18% for the year.

US Stocks Trade Higher On Weak Jobs Report

Posted on | by Todd | Leave a Comment on US Stocks Trade Higher On Weak Jobs Report

The US unemployment rate unexpectedly fell to 4.3%, a new multi-year low, but it is a misleading statistic for what was a very disappointing overall report.

Besides the decline in the unemployment rate, and a further decline in the under-employment rate (U-6) from 8.6% to 8.4%, there is little positive in today’s report.

Non-farm payroll growth fell to 138k, nearly 50k below expectations, which had been bolstered by the weekly jobs claims and the ISM jobs component.  Adding insult to injury, the back to months saw jobs growth revised 66k lower than first reported.

Moreover, the drop in the unemployment rate can largely be explained by the decline in the participation rate from 62.9% to 62.7%. This unwinds this year’s improvement in the participation rate, and bring it back to where it finished last year.

The  major stock indexes finished higher on the day, on thin volume, as the odds of a third rate hike for 2017 have been reduced

ETF Watch – IVV ETF (S&P500)

Posted on | by Leon Hinde | Leave a Comment on ETF Watch – IVV ETF (S&P500)

The IVV ETF is based on the S&P500 index in the US, the chart shows the market remains in a bullish higher low structure.

Investors continue to chase equity valuations higher as US GDP deteriorates.

Chart – IVV

The chart below is the BetaShares NASDAQ 100 ETF. Our Algo Engine triggered a buy signal in early 2016 when the ETF was trading at $10, it is now trading $13.50.