Stock Market Cycles Fundamentals and Technicals

Stock market cycles have been the topic lately, as market fundamentals and technical indicators pointed to a potential change of trend. Macro data, namely sales and earnings, have been better than expected. And, with breadth improving, it should be no surprise that the majority of stocks are moving higher the past couple of weeks.

Stock Market Cycles

When NYMO tagged -82.16 a couple weeks ago, historical precedent came to the fore. At that time, we felt NYMO extremes would again predict aggressive buying at this nadir, as the cycle down was nearing completion. We also projected out +20 days, as the far right column depicts the best returns. Note this column is nearly all green with an average return of nearly 3%.

NYMO Cycles
NYMO cycles point to improving breadth once NYMO exceeds (-80).

Fundamentals and Technicals

The macro fundamentals are good. Sales, earnings, and growth are positive and trending. Nearly all of S&P500 companies have reported Data from Factset.

S&P 500 Aggregate Estimates and Revisions

  • Second quarter earnings are expected to increase 12.1% from Q2 2016. Excluding the energy sector, the earnings growth estimate declines to 9.5%.
  • Of the 492 companies in the S&P 500 that have reported earnings to date for Q2 2017, 73.6% have reported earnings above analyst expectations. This is above the long-term average of 64% and above the prior four quarter average of 71%
  • The Q2 2017 blended revenue growth estimate is 5.2%. Excluding the energy sector, the revenue growth estimate declines to 4.3%.
  • 69.0% of companies have reported Q2 2017 revenue above analyst expectations. This is above the long-term average of 59% and above the prior four quarter average of 56%.

With the fundamentals supportive and breadth improving, the current cycle turned upward. NYMO once again repeats. The chart of the NYSE Composite clearly shows an up cycle beginning. Given previous occurrences, duration of the current up cycle should last until the next cycle peak is observed. I imagine this will catch a lot of investors by surprise, as seasonality kept many traders on the sidelines in cash or short, waiting for the 5% dip everyone is predicting.

NYSE Coppock
NYSE Coppock depicting the ratio between two (RoC) rate of change oscillators.

With the above in mind, we as traders proceed to a Top Down Approach to winning stock picks and selection. We consider each market index, each sector, and all of the individual industry groups when selecting our next winning stocks.

Winning Stock Picks: Top Down Approach
Start with the market indices, then observe each sector, the industry groups therein, and finally scan for individual stocks in good setups to find the next winning stock picks. 

Check the past two weeks “watch lists”, as many of these candidates fit the criteria above. Most are moving higher. Below is the watch list from 08-20-2017.

Happy Trading,

Vinny

We will be broadcasting on LIVESTREAM at 9:15 AM.

 



Disclaimer:  Do your Own Research
Our content is intended to be used and must be used for informational purposes only. It is very important to do your own analysis before making any investment based on your own personal circumstances. You should take independent financial advice from a professional in connection with, or independently research and verify, any information that you find on our Website and wish to rely upon, whether for the purpose of making an investment decision or otherwise.
Investment Warnings
We would like to draw your attention to the following important investment warnings. The value of shares and investments and the income derived from them can go down as well as up; Investors may not get back the amount they invested – losing one’s shirt is a real risk; past performance is not a guide to future performance.
Vinny Gambini

Trade Fundamentals w/ Technical Analysis - CANSLIM method using high probability setups and Ichimoku Trend Analysis. Architect, Family Man and Father of three.