I’m nervous as all get out right now about the markets. I expect the rug to be pulled out from under the recent stock market rally any day now.
Which is one reason why I’m leaning short-term bullish.
Forgive me if you’ve heard this story before but one of my early experiences as an aspiring investor was to attend a workshop put on by a well-known technical analyst. There were about 200 hundred or so people in attendance. I was seated in the middle of the audience.
This analyst spent an hour or so going over all of his time tested indicators – techniques that he had refined over 40 years of active market participation.
Finally, he put up a price chart – I can’t recall what the stock was – that lined up perfectly with every single one of his bullish indicators and he asked the audience, “Now does anyone think this stock is going to go down?”
I, alone, sheepishly raised my hand from the middle of the audience … and the speaker called me out, “OK sir, why do you think that this stock is going to go down?”
“Because I’m going to buy it.”
The whole audience erupted in laughter! As did the speaker.
I’ve long marveled at the ability of the financial markets to make us all look like fools. It was eye opening to realize that the whole room of 200 plus investors felt exactly the same way I did.
I retain to this day a healthy skepticism of my own opinions.
So, on to our charts and market observations.
The rally after the August swoon continues to show constructive signs. The number of stopped out stocks from the major indices continues to decline as more and more stocks trigger Re-Entry Rules during this current rally.
To illustrate this point, I’ve put together a brand new chart that shows the percent of stocks (from both the NASDAQ 100 and the S&P 100) that have active SSI indicators.
SSI stands for “Stock State Indicator” and by “active SSI” I mean the green thumbs up state that we use these days in TradeStops Pro. It means that a stock has triggered a Re-Entry Rule but and has not yet been stopped out by its Smart Trailing Stop.
Here’s the chart:
What this chart shows is that more stocks have been triggering Re-Entry Rules and getting back into the “active SSI” state. The percent of active SSI stocks in the NASDAQ 100 and S&P 100 bottomed at 37% and 30% respectively. Since that time, the number of active SSI stocks has been steadily rising to about 50% today.
This “internal” strengthening in these two indices is reflected in the charts of the indices themselves:
I continue to believe that a lot hinges on the fate of the US Dollar. A strengthening dollar could wreak havoc on financial markets. Multi-national corporate profits will be hard hit. Emerging market debt priced in dollars will be hard to support and pay back. Everything that is priced in dollars will face strong headwinds if the dollar becomes more precious.
I’m personally still looking for a downside correction in the dollar (which would be supportive of an extending of the stock market rally) but time is running out on my dollar correction thesis.
Maybe yesterday was the start of the downside correction. Only time will tell.
I’d like to wrap up today with a review of the stocks that we’ve covered in these pages since I started publishing buy-side ideas a few months ago. How have our ideas fared?
Not bad so far! I’ll keep you updated as things progress.
Not that many stocks have pulled back into their Low Risk Zones this past week. I’ve only got one for you of the 300 or so stocks and ETFs that I track.
Simon Property Group (SPG) recently dipped into its Low Risk Zone after triggering a Re-Entry Rule.
SPG Is a global real estate investment trust primarily focused on regional malls, premium outlets, mills, and community/lifestyle centers.
If you’re interested in commercial real-estate play, SPG could be worth your time. It triggered a Re-Entry Rule and has dipped into its Low Risk Zone with support from a rising Smart Moving Average. It’s a low volatility stock with a current VQ of 13.7%.
Have a great weekend,
Richard M. Smith, PhD