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What Seems Most Constructive and What Seems Most Worrying?

Today’s post is a question from a friend, “what seems most constructive to you and what seems most worrying?” As you might expect, I repeated comments shared with members during the daily LIVESTREAM broadcast. Below is our conversation.

Vinny: Most constructive? Stocks are making 52-week highs in key sectors. Very few are failing which suggests relative strength in the underlying stocks. The chart below, courtesy Arthur Hill over at represents more than 60% of the weight of S&P 500. All of these sectors are making 52-week highs. XLB XLI XLP XLV XLK


Sectors Making 52-week highs


Vinny: To be honest, I’m not worried about much. News ALGOs keep trying to shake the markets but SPY NDX IWM NYSE remain strong. Despite the constant bombardment of negative news from the financial media, aka CNBC and Bloomberg, tariffs and trade war fears have imparted minimal impediments. The intraday weakness has been an opportunity.


SPY Weekly 09-16-2018

SPY consolidated for over 8 months, then broke out 3 weeks ago. The fact that we are heading higher despite September being the seasonally weakest month of the year remains noteworthy from my perspective.
When something pops up that destabilizes the current conditions you’ll know it quickly.
One of the first signs will be failed breakouts; 52-week highs that DO NOT follow through.
Z: “Yes. Tho I would say non-US markets are in HORRIBLE shape ex-nikkei really. Amazing the global divergence Trump is creating.”

Vinny: Horrible shape? S&P is trading at all-time highs with a large portion of component companies reporting a beat in sales and earnings. Guidance has been bullish, next quarter.

  • For Q3 2018, the estimated earnings growth rate for the S&P 500 is 19.9%. If 19.9% is the actual growth rate for the quarter, it will mark the third highest earnings growth since Q3 2010 (34.1%). – FactSet
I’ll take that any day.
Z: “Outside the US I said. It’s a weird dynamic. Was just technology, healthcare and consumer discretionary, but now the industrials are trading better. S&P probably needs to break out of the ytd range.” (my comment: It already has.)

Vinny: S&P 1500 is on a buy signal, with no hint of a sell signal to date. The histogram is green producing tall bars on THUR/FRI. Price came back to its break out zone on Friday, two weeks ago, and bounced. Buyers stepped up in earnest.

Nothing bearish here. In addition, Bollinger Bands are contracting which is forecasting a big move in the short-term.
SPX 1500 BBands
Finally, consider where we are from a yearly perspective. In 1986 Reagan introduced tax reform. We ran higher for another 14 years into the dotcom bubble 2000. We are currently trading a similar condition, with Trump tax reform in place. SPX is currently beginning year six of a breakout of the 12-year base that started 2012. Keep in mind this is fact, not my opinion.
SPX yearly
This will probably be an opportunity to buy the dip. Wait for the Opening Range.
News ALGOs are programmed to seize on positive and negative media commentary. As we can see, they are playing on the negative rhetoric out this morning, with CNBC forecasting what tariffs will mean, using operative words like “maybe, should, might, could” instead of “markets have and markets are.” The latter is trading with the weight of the evidence, not an opinion of what the markets might do.
We will be broadcasting shortly, via LIVESTREAM from 9:20 AM to 4:15 PM. Join us, watch, listen and trade.
Happy Monday,

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