Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Stock Market Investing LESSON - Buying Value - 27th Nov 21
Corsair MP600 NVME M.2 SSD 66% Performance Loss After 6 Months of Use - Benchmark Tests - 27th Nov 21
Stock Maket Trading Lesson - How to REALLY Trade Markets - 26th Nov 21
SILVER Price Trend Analysis - 26th Nov 21
Federal Reserve Asks Americans to Eat Soy “Meat” for Thanksgiving - 26th Nov 21
Is the S&P 500 Topping or Just Consolidating? - 26th Nov 21
Is a Bigger Drop in Gold Price Just Around the Corner? - 26th Nov 21
Financial Stocks ETF Sector XLF Pullback Sets Up A New $43.60 Upside Target - 26th Nov 21
A Couple of Things to Think About Before Buying Shares - 25th Nov 21
UK Best Fixed Rate Tariff Deal is to NOT FIX Gas and Electric Energy Tariffs During Winter 2021-22 - 25th Nov 21
Stock Market Begins it's Year End Seasonal Santa Rally - 24th Nov 21
How Silver Can Conquer $50+ in 2022 - 24th Nov 21
Stock Market Betting on Hawkish Fed - 24th Nov 21
Stock Market Elliott Wave Trend Forecast - 24th Nov 21
Your once-a-year All-Access Financial Markets Analysis Pass - 24th Nov 21
Did Zillow’s $300 million flop prove me wrong? - 24th Nov 21
Now Malaysian Drivers Renew Their Kurnia Car Insurance Online With Fincrew.my - 24th Nov 21
Gold / Silver Ratio - 23rd Nov 21
Stock Market Sentiment Speaks: Can We Get To 5500SPX In 2022? But 4440SPX Comes First - 23rd Nov 21
A Month-to-month breakdown of how Much Money Individuals are Spending on Stocks - 23rd Nov 21
S&P 500: Rallying Tech Stocks vs. Plummeting Oil Stocks - 23rd Nov 21
Like the Latest Bond Flick, the US Dollar Has No Time to Die - 23rd Nov 21
Why BITCOIN NEW ALL TIME HIGH Changes EVERYTHING! - 22nd Nov 21
Cannabis ETF MJ Basing & Volatility Patterns - 22nd Nov 21
The Most Important Lesson Learned from this COVID Pandemic - 22nd Nov 21
Dow Stock Market Trend Analysis - 22nd Nov 21
UK Covid-19 Booster Jabs Moderna, Pfizer Are They Worth the Risk of Side effects, Illness? - 22nd Nov 21
US Dollar vs Yields vs Stock Market Trends - 20th Nov 21
Inflation Risk: Milton Friedman Would Buy Gold Right Now - 20th Nov 21
How to Determine if It’s Time for You to Outsource Your Packaging Requirements to a Contract Packer - 20th Nov 21
2 easy ways to play Facebook’s Metaverse Spending Spree - 20th Nov 21
Stock Market Margin Debt WARNING! - 19th Nov 21
Gold Mid-Tier Stocks Q3’21 Fundamentals - 19th Nov 21
Protect Your Wealth From PERMANENT Transitory Inflation - 19th Nov 21
Investors Expect High Inflation. Golden Inquisition Ahead? - 19th Nov 21
Will the Senate Confirm a Marxist to Oversee the U.S. Currency System? - 19th Nov 21
When Even Stock Market Bears Act Bullishly (What It May Mean) - 19th Nov 21
Chinese People do NOT Eat Dogs Newspeak - 18th Nov 21
CHINOBLE! Evergrande Reality Exposes China Fiction! - 18th Nov 21
Kondratieff Full-Season Stock Market Sector Rotation - 18th Nov 21
What Stock Market Trends Will Drive Through To 2022? - 18th Nov 21
How to Jump Start Your Motherboard Without a Power Button With Just a Screwdriver - 18th Nov 21
Bitcoin & Ethereum 2021 Trend - 18th Nov 21
FREE TRADE How to Get 2 FREE SHARES Fractional Investing Platform and ISA Specs - 18th Nov 21
Inflation Ain’t Transitory – But the Fed’s Credibility Is - 18th Nov 21
The real reason Facebook just went “all in” on the metaverse - 18th Nov 21
Biden Signs a Bill to Revive Infrastructure… and Gold! - 18th Nov 21
Silver vs US Dollar - 17th Nov 21
Silver Supply and Demand Balance - 17th Nov 21
Sentiment Speaks: This Stock Market Makes Absolutely No Sense - 17th Nov 21
Biden Spending to Build Back Stagflation - 17th Nov 21
Meshing Cryptocurrency Wealth Generation With Global Fiat Money Demise - 17th Nov 21
Dow Stock Market Trend Forecast Into Mid 2022 - 16th Nov 21
Stock Market Minor Cycle Correcting - 16th Nov 21
The INFLATION MEGA-TREND - Ripples of Deflation on an Ocean of Inflation! - 16th Nov 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Is the Stock Market Tide Turning?

Stock-Markets / Stock Markets 2015 Jul 27, 2015 - 07:46 AM GMT

By: Puru_Saxena

Stock-Markets

According to our methodology, the primary uptrend on Wall Street is still intact; however, we are starting to observe some troubling signs which suggest that we may be in the final innings of this bull market. 

You will recall that for several months now, we have been stating that this remains a very split market with only half of the sectors participating in the ongoing advance.  Accordingly, we have been suggesting that our readers only stay aligned with the leading stocks in the strongest areas and sectors. Given the price action of the past few trading sessions, we feel it is now absolutely essential to stay extremely disciplined and promptly eliminate any laggards from one’s investment portfolio.


Looking at the technical picture, it is notable that even though the NASDAQ Composite recently climbed to a record high, the Dow Jones Industrial Average and the S&P500 Index did not confirm this move; thereby setting up a negative divergence.  More importantly, it appears as though the NYSE Advance/Decline Line peaked in April and even though the S&P500 Index closed at a record high in May; this breadth indicator continued to decline; thereby setting up another negative divergence.  Remember, during each of the previous stock market cycles, the NYSE Advance/Decline Line always peaked a few months before the bull market top, so if this breadth indicator continues to languish during the next stock market rally attempt, it will be bearish.

In addition to the poor market breadth, it is worth noting that the number of 52-week NYSE lows has expanded significantly and it is now greater than the number of 52-week NYSE highs.  Moreover, this number has stayed elevated for several days now and this shows that more and more stocks are breaking to new 52-week lows (not a healthy sign).  Elsewhere, only 40% of the NYSE stocks are currently trading above the 200-day moving average which is another sign that the market’s internals have deteriorated.  Last but not least, the energy, materials, industrials, transportation and utility sectors seem to have rolled over.

At the time of writing, only the consumer discretionary, consumer staples, financials and healthcare sectors are performing well and due to the recent earnings misses/poor forward guidance by Apple, IBM, Microsoft and Qualcomm, even the technology sector has run into some turbulence!

As you can see from the above, we are dealing with an extremely tricky market and it is imperative that our readers only stay invested in the strongest areas and sectors. 

Make no mistake, when the market is healthy, every sector participates in the festivities.  However, as bull markets progress and mature, individual sectors start topping out along the way and in the final innings of the game, the leadership narrows to only a handful of sectors.  Eventually, the primary uptrend exhausts itself and in the very end, the generals of the bull market (stocks with the biggest gains) are shot down.  

At this stage, we cannot guarantee whether Wall Street is simply consolidating or topping out; but if this is just a pause in the primary uptrend, then the major US indices will soon need to break out to new highs on heavy volume.  Moreover, after breaking out, these indices will need to move away from the multi-month trading range.  Conversely, if the S&P500 Index takes out its early July low, it will increase the odds of a rolling top.

For our part, given the weakening market, we have recently liquidated some equity positions and re-allocated capital to long dated US Treasuries and ‘short’ positions which will benefit from a downtrend in the stock market.  However, since our primary trend filter is still in ‘confirmed uptrend’ mode, we are staying invested in stocks in the strongest areas and sectors. Even if the broad market tops out here, based on historical evidence, it is possible that the leading sectors may continue to rally for several months. So, until our primary trend filter goes into ‘correction’ mode and our trailing stops are triggered, we will remain invested and in any event, our ‘short’ positions will hedge our book.
As far as sectors are concerned, it is notable that consumer discretionary (apparel, auto dealers, discount retailers, footwear, home builders, home furnishing, home improvement retailers and restaurants), consumer staples (brewers and food), financials (asset managers, banks, broker dealers, credit cards, insurance, regional banks) and healthcare (pharmaceuticals, select biotechnology stocks, medical devices) are still performing well and we recommend exposure to these areas.  Conversely, energy, materials, industrials, technology and utilities are showing signs of weakness and these securities must be avoided. 

In terms of our performance, we are pleased that since inception (1 January 2013), both our Equity and Fund portfolios have outperformed the MSCI AC World Index. Moreover, on 1 August 2014, we launched our Blue-chip portfolio and this strategy is also performing well.

Below is the performance summary of the various strategies (month-end fact sheets are attached):

Net return since inception (1 January 2013)

Equity Portfolio                       Fund Portfolio             Benchmark (MSCI AC World Index) 

(+) 29.43%                                 (+) 27.75%                             (+) 25.88%      

Net return since inception (1 August 2014) 

Blue-Chip Portfolio                  Benchmark (MSCI AC World Index)

(+) 4.87%                                 (+) 1.18%

Turning to commodities, the primary downtrend is playing itself out and the CRB Index is trading just above its March low.  Elsewhere, the price of copper has now fallen to a 6-year low and crude oil has slipped below US$50 per barrel.  The path of least resistance is clearly down and our readers should either be ‘short’ or out of this sector.

Over in the precious metals patch, as per our expectation, both gold and silver have now sliced through the lower boundary of their multi-month trading ranges.  Furthermore, the Gold Bugs Index is now trading at levels not seen since 2002!  The miners tend to lead the metals, so it is conceivable that both gold and silver may deflate over the following weeks.

In the currencies arena, the US Dollar has not moved since the last Weekly Update and a close above the 98 level will confirm the next up leg.  In our view, the world’s reserve currency remains in a primary uptrend and over the following months, it should appreciate against the Australian Dollar, British Pound, Canadian Dollar, Euro and Japanese Yen.

Finally, over in the debt market, it seems as though long dated interest rates in the US have commenced a topping process and they should not rise much from these levels.  If anything, a stock market downtrend may drive capital to long dated US Treasury Bonds.  Over in the corporate debt space, the daily chart of the high yield bond ETF reveals that junk bonds have topped out and our readers should be out of this vulnerable sector.

Puru Saxena is the CEO of Puru Saxena Wealth Management, his Hong Kong based SFC regulated firm which offers discretionary portfolio management and research services to individual and corporate clients. The firm manages two trend-following strategies – Discretionary Equity Portfolio and Discretionary Fund portfolio.  In addition, the firm also manages a Discretionary Blue-chip Portfolio which invests in high-dividend world leading companies. Performance data of these strategies is available from www.purusaxena.com

Puru Saxena also publishes Money Matters, a monthly economic report, which identifies trends and highlights investment opportunities in all major markets.  In addition to the monthly report, subscribers of Money Matters also receive “Weekly Updates” covering the recent market action. Money Matters is available by subscription from www.purusaxena.com

Puru Saxena
Website – www.purusaxena.com

Puru Saxena is the founder of Puru Saxena Wealth Management, his Hong Kong based firm which manages investment portfolios for individuals and corporate clients.  He is a highly showcased investment manager and a regular guest on CNN, BBC World, CNBC, Bloomberg, NDTV and various radio programs.

Copyright © 2005-2015 Puru Saxena Limited.  All rights reserved.

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in