Surprising market strength

Stocks finished up after Friday's session, but that's not the surprise, at least not for me.  What surprised me was the strength in the Dow transports.  That index closed at its highest level since early April.  It's now getting close to the 50-dma curve faster than I anticipated.

 

 

Here's something to keep in mind: there's a meeting of the Fed next week.  If there's going to be a rate cut, they'll announce it Wednesday.  Are we seeing some traders betting on a rate cut by buying in the days prior?  I don't know, but it's a possibility.

The real test will be the 200-dma.  If the transports can break through that in the next few weeks, then I suspect the market will be off to the races.  We'll have a bull-market summer, an oddity but not unheard of.  An interest rate cut would probably be sufficient to make that happen.

The calm after the storm

DISCLAIMER:  This blog post, and any other blog post of this sort, is for entertainment purposes only.  It should not be construed as personal investment advice.  If you want personal investment advice, hire a financial advisor.

 

Early April saw some wild action in the stock market, but things seem to have calmed down in recent trading sessions.  Will they remain calm through May?  Has the market already bottomed out?  Or is there more trouble on the horizon?

Well, I can't answer those questions definitively, but I can take a look at the data and see what's what.  So let's do that now. 

First, let's look at the last few weeks of the S&P 500 chart.

 

 

As you can see, the MACD at the bottom is seeing some significant spread between the main line and the signal line.  This often indicates an impending reversal (as you can see happened previously around April 7-8).  The RSI at the top is higher than it's been in several weeks, but it's only at 56, so it's not in overbought territory yet, so that indicator isn't really telling us much right now.  The most interesting thing about this chart is the last candle: it traded above the 50-day moving average.  It's still close to it, though, so I wouldn't go so far as to call this "broken resistance."  It will have to stay above the blue curve for a few days before I can make that call.  Also, the candle gapped up, and as the old trader's axiom goes, gaps want to be filled.  I wouldn't be surprised to see Friday's candle filling the gap and straddling the 50-dma curve.

Now let's look at the equally weighted version of the S&P:

 

 

Here we see a very similar situation as in the previous chart.  RSI and MACD are basically the same.  There's an important difference, though, and that's the last candle.  It bumped into the 50-day moving average, and the resistance held.

Let's look at the small-cap index:

 

 

Basically the same as the chart above it.  We can conclude from those three charts that a handful of mega-cap stocks are seeing the biggest gains in this recent upswing in the market.  The rest are doing okay but are trailing behind the mega-caps.

Now let's look at the Dow Transports.

 

Uh-oh.  This index is obviously performing the worst of the four.  The most recent candle is still well shy of the 50-day moving average.  The RSI is below 50.  There's really nothing bullish about this chart at all, at least not as far as I can see.

So what can we conclude from all this?  Well, the mega-caps will probably continue to outperform the broader market, but the other stocks are stagnating.  When the transport index gets close to its 50-dma, something will have to give, and then we'll have a better idea.  On the whole, though, I think the next leg up or down is more likely to be down.

Keep an eye on the VIX:

 

 

Last time the VIX hit the 200-day moving average, that proved to be a support line for that indicator and a top in the market.  If the VIX gets close to that red curve, it might be signaling another top and the start of a new leg down.

So those are the two things I intend to watch: the proximity of the VIX to its 200-dma, and the proximity of the Transport index to its 50-dma.  If nothing spooks the market beforehand--which is kind of a tall order, in my opinion, because of all the crazy things going on in the world right now--then look to those two convergences as indicators of a breakout to one side or another.

Random thoughts

Dire Wolves, man.  Crazy stuff.  Assuming they're viable and fertile and won't suffer horrible genetic defects over the course of many generations, this is a revolutionary development.  It won't stop with this species, nor will it stop with the woolly mammoth or the Dodo or any of the other critters being talked about.  We're going to see sabretooth cats roaming around and eating people before this is all said and done, I guarantee it.

Cold days are done.  Or, at least, that's the way it seems.  Good thing, too, because the bone-dry winter air was resulting in wildfires in this area, and the summer humidity should put a damper on that. 

The stock market has been crazy this month.  I'll do an in-depth post about it later.

The letter "t" on my keyboard is giving me problems.  Sometimes when I press it, it doesn't do anything.  Other times, it gives me two t's when I only press the key once.  Very frustrating.  I've already tried compressed air and vacuum cleaner on the keyboard, but it didn't help.

The improvements in AI-generated video over the last several months have been impressive bordering on astounding.  Even odds we'll be watching custom-made movies made from our prompts on Grok before year's end.  The porn industry will probably be affected first, so AI video's affect on that might be something of a bellwether and tell us what's in store for conventional Hollywood.

I'm over my illness, and I'm feeling pretty good right now.  That scares me.  Whenever I start feeling good or confident, some catastrophe happens.

I've been enjoying the spring flowers, and I hope you have, too, if it's spring where you live.  Modern living has rendered us too far removed from nature, and we should all make a concerted effort to spend more time outside.

Val Kilmer has passed away

Dead from pneumonia at the age of 65.  :(

https://www.yahoo.com/entertainment/val-kilmer-star-batman-forever-040433506.html

I'm a Gen Xer, so Val's movie performances were a big part of my childhood.  I thought he was the coolest guy I'd ever seen in Real Genius.  I wanted to be Chris Knight.

I'm glad he got to do the Top Gun sequel before he passed.  Major kudos to Tom Cruise for bringing him on for that.

And he should have won an Oscar for his performance in Tombstone.  I think most people would agree about that.

But yeah, this really sucks, man.  Call me delusionally optimistic, but I still held out hope that he'd recover from his throat cancer and make a heroic comeback to acting.  Instead, like Bill Paxton, a part of my cinematic childhood has been taken away too soon.  :(

R.I.P., Mr. Kilmer, and thanks for the movies.

 

Sinus infection

I was doing so well.  For the past couple of weeks, I had been steadily increasing my exercise routine and starting to get back into some semblance of decent shape.  Not dramatic progress, but measurable.  Baby steps.

And then I got sick, and now everything is on pause, because my body needs its limited resources to fight the germs.

Why have sinus infections always hit me the hardest?  I don't know.  Covid wasn't as bad as the average sinus infection.  Neither was the walking pneumonia I had back in my teen years.

I've got a wedding to attend in early April, and I really hope I'm not sick anymore by then.

Come on, body.  Win this fight, and do it fast.

Next leg down?

Disclaimer: This post is for entertainment purposes only.  It is not intended to be personal financial advice.  If you want financial advice, hire a financial advisor.  I'm just some guy on the internet, so please don't make any financial decisions based on this or any other blog post.

 * * *

After a sharp decline in the stock market, the last two trading sessions showed a nice rebound.  Will the rebound continue, or are we on the precipice of the next leg down?

Let's examine the charts.

Here's the S&P 500:

At the top, we see the RSI is below 50.  This suggests that the rebound hasn't yet played itself out.  At the bottom, the MACD is about to see the signal line cross over to the upside, so that's another bullish indicator for this week.  As for the 50-day and 200-day moving averages, there's lots of space between the two, so there won't be a crossover any time soon.  The 50 is above the 200, and that's a long-term bullish indicator.  The index, though, is trading below the 200-day average, so that curve acts as resistance.  We could see modest increases or mostly sideways action this week, but they might not break the 200-day moving average.

Moving on to the VIX...

 

The recent drop-off in stocks only sent the VIX to just under 30.  That's not a lot of volatility for a true correction or crash.  That tells me there might be more volatility on the way.  On the other hand, the MACD just crossed over to the downside, and that's a bearish signal (bullish for stocks).

What about small caps?  Here's the Russell 2000:

As you can see, small caps peaked in November and have been in decline since.  The recently low levels of the RSI are bullish--or at least, temporary rebound--indicators, and we're also about to get a MACD signal line crossover to the bullish side.  On the other hand, the bearish trend has been in place for nearly four months now, so it's firmly in control until we see evidence to the contrary.  Also, the 50-day moving average will soon cross over the 200 to the bearish side, and the index is trading well below the 200.  This index might tread water this week, and possibly next week, too, but then I expect it to resume its fall.

Now we get to the creme de la creme, the Dow Transports.  This index represents the movement of goods and services, and it has long been used as a leading indicator of the broader stock market.  When the market is going one way but the transports are going the opposite way, that's a good indicator that a change in the broader market is about to occur.

 

This chart looks similar to the small-cap chart.  The only significant difference I see is that the 50/200 crossover will happen sooner, probably after Tuesday's trading session.  My conclusions for the transport index is basically the same as for the Russell.

So that's my thinking right now.  Maybe I'm right, maybe I'm wrong.  We'll see.  But I'm not backing up the truck just yet.  Maybe in April or May.

Not as bad as I thought it would be

A powerful storm system blew through here Tuesday night.  I was watching it on the Doppler, and it looked like it might get violent.  Strange thing, though; when it moved into Georgia from Alabama, it started to fizzle out.  We got some rain and wind, but it wasn't anywhere near as bad as I though it was going to be.  A lucky break.

The wind is still a little blustery here right now, but there's no real risk of damage or anything, so it's just an annoyance.

I checked the long-term forecast out of curiosity.  High temps next Tuesday are predicted to be 75.  The following days eventually get a little cooler, but not winter-time cooler.  More like spring.  Is March 11th going to be the de facto first day of spring?  Do we only have five days of winter left?  Man, I hope so.  I can deal with the cold, but only if it's a humid cold, and that's not we get around here.  We get a dry cold, and that just destroys me.  My DNA is optimized for northwestern Europe's wetter winter climates, and my body reminds me of that every January.

I've gotten most of my winter-time outdoor chores done, which mostly consists of getting rid of dead stuff to allow room for new spring growth.  Hopefully we'll have a nice spring flowering season.