Professor’s Comments April 30, 2015
Posted by OMS at April 30th, 2015
The Dow started off the day negative, then rallied into the Fed announcement but still closed down 75 points at 18,036. Volume was heavy on the decline, coming in at 117 percent of its 10-day average. There were 54 new highs and 27 new lows. (Note how the number of new highs and new lows is getting closer)
The Fed kept short-term interest rates near zero, and eliminated the time line for any future increase. Based on the price action after the announcement, it appeared that the market didn’t know what to make of what the Fed was really trying to say. It might take a few days for yesterday’s non-event to sink in, but I believe that by not talking about raising rates, the Fed is getting concerned about the actual strength of the economy.
Yesterday’s GDP growth number of 0.02 percent vs. an estimate of 1.0 percent probably shocked a few Board members who for months have been saying that the economy was gaining strength. With a number like 0.2 percent growth, they can forget about raising rates. What they’re likely thinking about now is another stimulus program.
The earnings season is nearing completion and when I last looked, over half of the companies on the S&P500 have reported. While about 70 percent have met their reduced earnings estimates, the thing I noted was that only about 47 percent beat estimates on revenues. This is the first time this has happened in years.
In class I often talk about how a companies earnings can be suspect. But you can’t fudge revenues. They are what they are. And right now, most companies on the S&P500 are taking in less money than they were during the previous quarter. In other words, the consumer is buying less stuff.
The Fed saw this and it’s likely why they idn’t say much in yesterday’s announcement . No Janet, the economy is not growing, it’s slowing. And the lofty P/E multiple of over 17 on the S&P does not support current stock prices, especially with an economy only growing at 0.02 percent.
Maybe Ms. Yellen doesn’t see this, but you can bet the Smart Money on the street does. And this is likely why the market hasn’t gone anywhere for the past 4 months. The Smart Money is quietly unloading their stock. And once their bins are empty, and all the Joe Sixpack’s of America have put all their savings into stocks, prices will start to fall. After four months of distribution, the decline could start today, next week, or next month. But once investors start to digest yesterday’s Fed announcement, I believe they’re going to start asking themselves “Why am I putting my hard earned money into the current market?”
Anyhow, the thing I’ll be doing today is watching for the indicators to roll over. I was sort of surprised that yesterday’s decline did not cause The Tide and the Coaches (Money Flow) to turn negative. These indicators are my main triggers. Once The Tide starts to turn negative, I’ll go straight to the Dean’s List to look for inverse index ETFs to buy long. I’m currently holding a ‘trial position’ in DXDs and will add to this position once The Tide gives say so.
The second thing I’m doing is watching for both Coaches to turn negative. Once I get say so from the Coaches, I’ll start trading stocks from the Honor Roll aggressively.
Last night, Emeritus highlighted several shorts for the Honor Roll. So today, I’ll be looking to scalp trade these stocks on the shorter term bars (30s). I won’t be holding these positions until I see Red from The Tide, and both Coaches.
That’s what I’m doing.
h
Market Signals for 04-30-2015 |
|
---|---|
DMI (DIA) | NEG |
DMI (QQQ) | POS |
COACH (DIA) | POS |
COACH (QQQ) | POS |
A/D OSC | |
DEANs LIST | NEU |
THE TIDE | NEU |
Not sure of the terminology we use? Check out these articles
The Hockey Stick Pattern
The Creation of Waves and Trends
FAQ
All of the commentary expressed in this site and any attachments are opinions of the author, subject to change, and provided for educational purposes only. Nothing in this commentary or any attachments should be considered as trading advice. Trading any financial instrument is RISKY and may result in loss of capital including loss of principal. Past performance is not indicative of future results. Always understand the RISK before you trade.
Category: Professor's Comments