Market Health Tracking

Investing Strategies Technical Trader's Sanctuary
1

Today the market had a very ugly reversal. The S&P 500 and Nasdaq composite, up 0.9% and 1.2%, respectively, in midday trading, finished with losses of 1.2% and 1.4%. It was the worst reversal for both indexes since July 27, according to Dow Jones Market Data.

This appeared to coincide mostly with two Fed Governors that said “maybe no cuts this year”. In reality, the could mean “the economy is strong, so why would we need to cut”. Which is true, we keep postponing cuts (the bet was 6!), but no one cared because we are looking at a soft landing.

Anyway, in the last 25 trading days, the Naz has had 8 distribution days and the S&P has had 7. The market is now “Under Pressure” and exposure should be reduced for safety.

How To Spot Major Stock Market Tops: Track This Action | Investor’s Business Daily (investors.com)

A distribution day is a significant decline in the Nasdaq or S&P 500 in higher volume than was seen in the previous session. IBD defines a “significant decline” as a drop of more than 0.2%, with no rounding up.

A distribution day indicates unusually heavy selling by institutional investors, the heavyweights who largely set a market’s direction.

Four or five distribution days over several weeks nearly always signal that stocks have topped and are heading for a downturn. That’s similar to how persistent headaches, coughs and sneezes suggest that you ought to call in sick and break out the chicken soup.

IBD’s research has determined that investors shouldn’t count distribution days after 25 trading days have passed. At that point, those days of liquidation have become irrelevant.

A distribution day also falls out of an index’s count after the index climbs 5% above that distribution day’s close. IBD has developed this rule on the premise that when an index rallies and extends itself from a distribution day, it’s showing the strength to overcome high-volume selling.

Keep in mind that some drops in higher volume don’t carry as much weight.

Distribution days in this camp include those that come after a holiday, leading to an easy volume comparison. Plus, watch for those sessions on Wall Street where turnover is boosted by heavy options-expiration trading. Options-expiration days fall on the third Friday of every month. If that Friday is a holiday, expirations move to Thursday.

It’s still a distribution day even if turnover comparisons are distorted by a holiday or expirations. But such a day isn’t as significant as a sharp drop in higher trade without any distortions. The Big Picture column will note these nuances.

Keep in mind that you can have four different scenarios when it comes to determining what this means for the stock market going forward. Namely:
• High quantity of distribution, severe intensity of selling in each bout of distribution
• Low quantity of distribution, severe intensity
• High quantity of distribution, moderate to mild intensity
• Low quantity of distribution, moderate to mild intensity

2 Likes
2

“If we continue to see inflation moving sideways, it would make me question whether we needed to do those rate cuts at all,” said Federal Reserve Bank of Minneapolis President Neel Kashkari in an interview with Pensions & Investments magazine that was broadcast on LinkedIn.

Kashkari, who said he had previously predicted two rate cuts this year, added, "If we continue to see strong job growth, strong consumer spending and strong GDP growth, then that raises the question in my mind, “Well, why would we cut rates?’ Maybe the dynamics we have right now are sustainable.”

Kashkari’s comments come a day after Fed Chair Jerome Powell said the central bank is likely to lower its benchmark rate later this year, providing relief to consumers and businesses paying sharply higher borrowing costs after 11 rate hikes in two years. But inflation has remained stubbornly above 3% this year, even picking up speed in February, prompting Powell to caution the Fed is wary of cutting rates too quickly.

-from CBS News Money Watch

Volatility and VIX elevation courtesy of the Fed

2 Likes
3

4/9/24: Tomorrow the CPI comes out at 8:30am. That makes today’s action a little more interesting. The markets headed down early, but around 10:30 or so it starting climbing back and finished positive. Do people think they know something?

Thursday was a big down day for the markets and since then we have been trading inside days to that range. That is, there has been no new price discovery. My bet would be investors are waiting on CPI and tomorrow we will see a resolution to this range.

Below is a 60-minute bar chart of the Nasdaq. Thursday’s open is the vertical pink line. The horizontal red-line is about the 50% point of the day’s range (I may have made it a bit too low). The point is, we have been trading around that 50% retracement point for 3 days now. When we move significantly away from that, we will probably know where the market is going.

image

We are now at 7 distribution days for both the S&P and the Naz. One dropped of the Naz count due to age (over 25 trading days ago). Distribution days can also drop of if the market increase 5% or more from that day’s close.

This market pause is giving stocks a chance to build bases (IBD requires a minimum of 5 weeks for a new base). NVDA will have an official base by the end of the week, as will many other leading stocks that have paused.

2 Likes
4

Bonds were inversely correlated with money movement in the markets. People always think they know something, problem is, they aren’t always right. Unfortunately, especially me.

SPYBonds
SPYBonds990×744 40.1 KB

Money has moved to bonds for “safety,” what ever the heck that is…

Defensive groups “won” the day, such as it may be. Well Real Estate and Utilities were the top and Technology, Staples and Discretionary were third. But how do you interpret that. Again, anxiety for the CPI numbers.

image
image2953×1593 424 KB

I admit that I sold some winners today and trimmed a few other positions. Essentially all in Roth and IRA accounts, so who cares about wash sales or whatever in tax-free accounts.

I am not worried about the CPI number, suspect it will be flat to down, but am concerned over the “Reaction,” or over-reaction, in the markets to it. Kashkari laid the ground work for over reaction, let’s hope rational minds prevail.

Appreciate hearing others thoughts

Lakedog

1 Like
6

I think today’s reaction was good in the sense that it is taking a little frowth out of the market. I want the maket to go sideways and allow strong stocks to build a buyable base. I want it to make weak stocks show their hands as people bail. The indexes fell below the 21dma and are moving down toward the 10-week moving average, which is always an important test. I would like to see us putter along the 10-week, maybe a little below and above for a week or two. But I usually don’t get what I want.

I had not believed we would get a June or July cut. Employment is way too strong. Today’s CPI finally convinced a lot of optimists that that will not happen. The betting average is 1.82 for the whole year now. I would not be surprised if there were only one. So, how long will it take for the market to absorb that and head back up? We have had a series of 1-day “corrections”. Will this be another? Will everyone say “yeah, but the next move is a cut, so full steam ahead”?

7

Well, it looks like we got another 1-day correction like we have been see so many times this year. PPI came in a little cool, so now everyone seems to be happy. There is still a 50-50 bet that we get a rate cut in July, I just don’t see how that can happen unless unemployment sky rockets.

Here is what IBD said…

The strong gains for the Nasdaq and S&P 500 were enough to put the stock market back on a confirmed uptrend with an increased invested percentage of 60% to 80%. If you’re lightly invested, it’s OK to increase exposure in measured fashion. Don’t chase extended stocks. Instead, look for stocks finding support at their 10-week lines or forming new bases. Consider buying partial positions to start, adding as your stocks show progress.

I made small adds to a couple strong holdings today.

Here is the 60-minute chart of the Naz, you can see we didn’t quite finish above Thursday’s opening highs yet, but close.

image

3 Likes
8

Market got hammered Friday, in part due to worries about escalating tension between Iran and Israel. (Though if oil is not impacted much, the markets won’t end up caring). In addition, some big banks reported disappointing earnings.

The Naz was down 1.6%, leading to the third consecutive weekly decline. It is below the 21dma, but still above the 50dma. The S&P fell 1.5% and reversed below the 21dma and is testing support at the 50dma. Small Caps (Russell 2000) cratered 1.9% and growth stock were hurt even worse. (Note that NAZ is still trading inside days to the big Thursday reversal a week ago)

The CBOE Volatility index, or VIX, spiked Friday to the market fear gauge’s highest levels since late October on Iran concerns.

IBD says “If Mideast tensions ease, there could be a snapback rally in stocks. Various indicators suggesting the market is getting oversold also bolsters that hopeful case.”

Saturday, Iran “retaliated” in a very weak way. They apparently gave Israel and US a heads up, essentially saying “we will be sending drones and missiles so we don’t look too weak to the world, but please shoot them down because we don’t really want to get in a war with you because you would kick our butts”.

There are 7 distribution days on the Naz and 9 on the S&P, it is on the edge of a market correction, though some of the S&P days were not too bad. (These are counted over a 25 day period)

While IBD raised the market outlook to a confirmed uptrend yesterday, Friday’s negative action came as an expectation breaker. Instead of turning in further gains the market shifted lower and suffered more distribution. Leading names also were hit hard.

It’s unusual to change our market outlook and exposure level so quickly, but the market signals cannot be ignored. So we are back at “uptrend under pressure” and have reduced recommended exposure back to the 40% to 60% level.

The key thing this coming week is how the indexes act around the 50dma and 10-week line (which are almost the same thing).

Each market day, IBD produces a 15 minute or so video called “Stock Market Today”. They review the market charts and usually 3 stock charts. The discuss the health of the market. Starting last Friday, they are making the Friday shows with their senior market strategist, Mike Webster. He is very experienced in the CANCLIM system and particularly technical analysis. The first show last Friday was very good, but took 59 minutes. This show was also very good and was only 36 min. If that is your kind of thing, I think it is a good use of 36 minutes. They post these on Investors.com and YouTube. I can only post the link for YouTube.

Market Breaks Expectations; Coupang, Nvidia, Arista Provide Lessons | Stock Market Today (youtube.com)

2 Likes
9

Market Health continues to deteriorate, not news to anyone here. Markets decreased on lower volume, so no new distribution days were added and IBD did not change market status to “Correction”, stays at “Uptrend Under Pressure”. But, in my mind, I am already treating it as a correction with most trading positions closed. Here is a brief summary from IBD…

Let’s review the key changes in IBD’s current outlook:

Nov. 1, 2023: A follow-through day results in new confirmed uptrend.

Jan. 3, 2024: Distribution day count goes to 3 on Nasdaq; exposure trimmed to 60%-80% from 80%-100%.

Jan. 8: Exposure boosted back to 80%-100%.

Jan. 25: Stalling-like stock market action. Reduce to 60-80%.

Feb. 2: Exposure goes back up to 80%-100%.

Feb. 13: Major distribution day by Nasdaq; shift down to 60%-80%.

March 15: A cluster of distribution days, five in 10 sessions, but no change in outlook.

April 4: Another strong distribution day, but count still at 8; uptrend under pressure; exposure falls to 40%-60%.

April 11: Uptrend resumes; raise exposure to 60%-80%.

April 12: Uptrend under pressure; exposure returns to 40%-60%.

April 15: Nasdaq down 1.8% in heavy distribution day; exposure at 20%-40%.

The moves above show how April 4 became a turning point for investors to take profits on the way up, defend gains, cut losses quickly, and take extra care in making any new purchases.

Most recent breakouts or buy signals have struggled or outright failed in the past few days.

2 Likes
10

Friday 4/20/24 Update.
This is the IBD Friday video review with Mike Webster. About an hour, but pretty good for TA nerds (at the longer term level, not daily traders). (Mike worked very closely with Bill for many years developing a lot of the screens and back testing and “Market School” that power the system today.)

Bull Market Precedent Breaks Wide Open; Nvidia, SMCI Plunge | Stock Market Today (youtube.com)

Here are my show notes with some timestamps in case you want to view some specific items…

Summary:
• Last week they showed us the 2003 rally and correction and noted we were in about the same place and that in 2003, there was a dip, but not a big one. The hope was we would follow that pattern, but it looks like we have continued well past that bottom.
• Last week they discussed that big move on 4/11/24 and said that set the expectation that we would continue to move up. They showed the chart of FNGS and noted that move was a breakout.
• However, when we did not continue to move up, that was an Expectation Breaker and those make us rethink the world. We needed to become more defensive.
• Needless to say, the market has moved down rather quickly and we are below the 50dma on Naz and S&P
• The Naz Power Trend turned off when the 21dma fell below the 50dma.
• Mike showed some charts with trend channels and the median of the trend. He showed us the obvious, that the index prices had fallen below that mean and continued below the lower channel of 1 standard deviation.
• On the RSP (equal-weighted S&P500), Friday was actually a positive day, pointing to some rotation out of the Mag-7 and into smaller stocks.
• He then looked at some retracements to the 50% level for indexes. Paraphrase: “It is ok for a rally to retrace 50%, but we don’t want to see the markets living below that”
• “one of the most important things in technical analysis is the 200dma, because everyone looks at that. You need to stay above that.”
• At the 15:40 mark, he shows some charts he built to show Average True Range (ATR) (He uses TradeStation for this more complex analysis)
• Mike “We don’t predict, we interpret”. “So what are the facts: the 2003 precedent is broken, the power trend is over, we have enough selling to kill any rally. So now we wait for a rally attempt and then watch for a Follow-Through-Day.”
• IBD dogma, a rally attempt is the first up day (or a down day that finished in the top 70% of the range). Then a rally is confirmed by a Follow-Through-Day, usually on day 3-10. That is a strong up day (say 1.2% or more) on strong volume.
• At this point you should not own anything that is negative, you should have already sold those and be only in some winners with big cushions or all cash.
• Timestamp 25:26 – looking at NVDA.
• Bill always said to watch the leading stocks for clues, and NVDA is THE leading stock right now. NVDA is below 50dma and was down 10% today, this is a big flag saying “Be defensive”.
• If this was going to be a successful stock was going to be ok, then yesterday’s support at the 50dma should have held. It was the first pullback to 50dma and 10-week and that is NORMAL. But today was not normal. Our expectation is a strong stock will hold the first pullback, but now we have another expectation breaker to make us defensive.
• 29:15: talks about how he uses the RS moving averages to make a sell decision on a stock with a low basis, in this case NVDA at $500/sh. (really worth listening to). (focuses on the weekly charts)
• 33:55 SMCI review: Mike has been saying this was similar to the old Tazer (now Axon) moves. It is typical for great stock runs to have big reversals and survive them. Mike was seeing support at the 50dma and was trying to get in for a run back above $1000, but Thursday it went below the 50dma, which broke the precedent with Tazer and he got out. That kept him out of this 23% drop on Friday. The chart pattern was showing a head-and-shoulders, which likely brought in shorts that started shorting it at $1000, and then kept pressing hard today (Friday). Mike says he is don’t watching this stock for a while. He could be fine getting back in “months from now”.
• 40:00 – showing some screens Mike created on MarketSurge.
• Mike reminds us that most mutual funds have to be 95% or more invested. Since they can’t go to cash, when they want to get out of “the market”, the have to buy defensive stocks. So when you see utilities going up, that could be a sign that big money is moving out of aggressive stocks. Just another indicator of market sentiment. (Mike had created a screen of stocks above the 21 and 50dma. Insurance companies, etc are showing up.

1 Like
11

This was an oversold bounce today, so will it continue? I expect the 50dma the thwart any rally attempt, but will be glad to have my expectations broken on this one. We did have some breadth today, a nice sign. Big earnings week, including much of the MAG-7. PCE out on Friday, my expectations are that it will not provide anyone with enough optimism to stop the market fall, but MAG-7 might do that. CDNS reported tonight and as an AI-adjacent stock is has made a good run. Earnings were disappointing and it is down 9%. Is that a sign of things to come for other AI stocks?

For CANSLIM/IBD investors, today it technically the first day of a rally attempt (because it when up), look for a strong follow-thru-day in day 4-10 of rally. If the index prices go below the low of yesterday, then the rally is off.

1 Like
12

Pete,

As a JAFO, it is suggested that you BUY and SELL when the data goes above and below the RED Line. Place the mouse on 3/25/24 and what did Simon recommended you do.

CDNS_Barchart_Interactive_Chart_04_23_2024
CDNS_Barchart_Interactive_Chart_04_23_20241190×905 87.7 KB

look at what I did today

COST_Barchart_Interactive_Chart_04_23_2024
COST_Barchart_Interactive_Chart_04_23_20241190×905 90.2 KB

Tyme has come today in beating the market

You guys use 21 ema over 50 ema at what IBD teaches.

Go the bottom and observe all my charts. using 15ema over 50 ema for the past 40 plus years.

Find SLV as you kruz on down and click on the three (3) charts. How does the Black background chart look.

I smell a mild recession coming and your best friend is to learn how to Teeter Totter to help to protect your ASSets for POSITIVE CASH FLOW.

Quill -

2 Likes
13

oooops click on the Tyme has …blah blah blah line
Quill -

14

Day two of a rally. Breadth continues to be encouraging as the Russell 2000 performed very well, but so did techs. The RSP (equal weighted S&P is finally doing well) Is this just a rotation? Interest rates are down a bit, and thus, so is the dollar. A FTD involves one or more of the major indexes showing strong gains on higher volume than the prior session. That would indicate big institutions believe in the nascent rally attempt.

But, after such a quick decline, a couple days of bounce may be just that.

NVO broke above the 50dma is anyone is hot to get on the GLP-1 train.

1 Like
15

4/24: When I saw the futures this morning I was starting to think maybe this was another short correction, maybe the 50dma won’t provide resistance. But when I got back home at lunch, the market had reversed and my expectation of a longer-than-recent correction was still intact.
.

IBD: Perhaps Wednesday’s most-negative signal was the market’s most important stock. Nvidia slumped 3.3%, reversing lower from near the 50-day line. That it wasn’t technical action suggests that Nvidia stock won’t have a quick run back to new highs, which isn’t good news for AI stocks and the broader market.

Transports were slammed, with DJ Transport index off 2.3%. JBHunt got whacked last week and ODFL was down 11% after earnings and warnings about a soft economy.

Lots of earnings coming in the next couple of weeks, likely to keep us off balance. IBD investors are waiting for a FTD before doing too much.

1 Like
16

4/25: market started off bad again, but worked their way up to smaller losses by the end of the day. Still a losing day, but it is always nice to see a bullish reversal. Sometimes bad news is good news, and that is what I expected today when the GDP was way lower than expected. That used to mean the Fed could make rate cuts early. Apparently not today. PCE comes in tomorrow.

META finished down about 11%, partially because it will have more CapEx than expected. This extra spending seemed to help AI related stocks like NVDA, ANET, SMCI, etc. After hours, Google popped 11.6%

With the Google move after hours, the futures are up about 1%, this could turn into a FTD and the confirmation of this “attempted rally”, or people who buy early and drive up prices might get shot down again with a bearish reversal.

IBD rule: As long as the major indexes don’t undercut recent lows, the rally attempt remains intact, and the next uptrend could be just around the corner. IBD traders should be building their watch lists.

1 Like
17

Just look what Musk had to say on the conference call for Tesla.

** But anyway roughly 35,000 H100s are active, and we expect that to be probably 85,000 or thereabouts by the end of this year and training, just for training.**

Andy

1 Like
18

Friday felt like is was going to be an IBD follow through day and Bill O’Neil always told his people they had to buy something on and FTD. I added back some NVDA and tried some new, but small positions. NVDA breaking above its trendlines was significant. Stop-loss would be the low of Friday, that would break expectations that NVDA will continue to lead the market up.

1 Like
19

I added NVDA and SMCI. Felt like those two were finally turning around. Going to watch them on Monday. A lot of people think SMCI is done but I think they could go to 1500 so feels like a good risk reward.

Andy

20

Market staged a strong rebound after MSFT and GOOG more than compensated for META’s disappointing earnings. Ironically, the primary disappointment was that META would spend more than expected on AI. That helped stocks like ANET, NVDA, AVGO etc. MSFT and GOOG put the icing on that cake Thursday after hours, oh, and PCE was cooler than expected.

The Nasdaq composite surged 2% Friday and turned in an even more substantial weekly gain of 4.2%. The index snapped a four-week losing streak in the process and is now less than 1% below its key 50-day moving average. The tech-heavy index is now up slightly more than 6% so far this year.

The S&P 500 also did well, rallying 1% for the session. Its 2.7% gain for the week was its best weekly gain since November. It is a little more than 1% below the 50-day line but is back above the 21-day exponential moving average. The benchmark index is up just shy of 7% so far in 2024.
Russell 2000 turned in a 1.1% lift.

Indexes are still below their 50dma, so watch for them to overcome that. Also, there are still a ton of earnings coming in the next few weeks, that could cause big moves either way.

IBD did not declare a Follow Thru Day because vol was lower than day before, but they did raise their investment allocation from 0-20% up to 20-40% invested. Leaders like NVDA jumped above their important moving averages. Senior Market Technician at IBD, Mike Webster, said it felt like an FTD to him and he is treating it that way. He noted that if you were buying stocks like NVDA, then the stop-loss is the low of the day. Going below that low would break our expectation that the rally is back on.

The IBD Friday video review with Mike Webster was a good watch for those making more than just swing trade investing.

Summary
○ Mike Webster (Webby) Friday Review
§ We are above 21dma on S&P and IBD has don a ton of analysis on the 21dma. When we are above it good things happen and when we are below it, bad things happen (of course this means the probabilities are significantly different, no absolute guaranties.
§ Like Bill always reminded “us”, when the facts change, you have to change. We were bearish a few days ago and now we (Mike) are much more bullish.
§ It felt like a FTD, but at the time of the video, not all volume numbers were in. I looked Saturday and the volume of S&P and Naz seemed just below previous day.
§ Mike had the “Swing Trader” team buy NVDA Friday as it went above all its moving averages. For NVDA, the low of today is very important. If it cannot hold that, it is a bad sign. But everyone knows that and may try to push it down to force it. So maybe watch for that on a closing basis, maybe the last hour.
§ CMG is a leader in the group and had a strong breakout, so look for others in the group. CAVA is setting up.
§ Webby points out that previous precedent indicate we need to see a day where the low stays above the 21dma in order to really start putting on the gas in our buys. If you chop back and forth around it, then stay light.
§ Mike Webster says that when you are looking at charts, the upside reversal is probably the best entry above all others. This is because it gives you a clear indication of where you are wrong - if you break below the low of that day. That means your thesis is wrong and you must exit the trade.
§ 29 minute mark starts a great discussion of market precedents with similar action to this last week. Very interesting.
§ When Mike and others created the “Market School Rules” they wanted black-and-white absolute rules to guide investors. One of those rules is that if the market closes below the low of a follow-through-day, then the rally is broken and you need to get out. The rally could become valid again if there is an additional FTD or if it rises and stays above the 21dma.

Here is the video on YouTube…

Stocks Snap Back After Last Week’s Bad Break; Nvidia, ALAB, Cava In Focus | Stock Market Today (youtube.com)

1 Like