Sunday, February 26, 2017

Weekly Stock Market Outlook 2/26/2017

Global Economy – Global stocks fell Friday amid worries about the potential impact of U.S. trade policies and as investors became more cautious about the market’s recent rally.  European stocks are down -1.19%. Uncertainty ahead of France’s presidential election in April and Tuesday’s speech to Congress from President Trump has fueled long liquidation in stocks.  European political risks have increased as far-right French presidential candidate Marine Le Penn, who wants to take France out of the EU, is seen gaining in polls, while President Trump promised something “phenomenal” with respect to tax reform three weeks ago, and his every word will be parsed when he addresses House and Senate lawmakers on Tuesday.

U.S. Economy – Consumer sentiment flattened out in the preliminary February reading, down nearly 3 points to 95.7 and signaling a possible end to the post-election confidence surge.  Americans bought more new homes in January after a steep fall-off the previous month, a sign the housing market is healthy despite higher mortgage rates.  The Commerce Department says new home sales rose 3.7 percent to a seasonally-adjusted 555,000 units. That is 5.5 percent higher than a year ago.
Solid job gains and some signs of rising wages have driven up consumer confidence, which has also risen since the presidential election. More confident consumers are more likely to buy homes. Sales of existing homes jumped to their highest level in a decade, according to data released earlier this week.

Earnings – The bulk of the Q4 earnings season is now behind us, with results from only about 18% of the S&P 500 members still awaited. The Retail sector is the only one at this stage that has a sizable number of reports still to come.  Total earnings for the 46.5% of Retail sector companies in the S&P 500 index members that have reported Q4 results already are up +5.8% from the same period last year on +7.1% higher revenues, with 55% beating consensus EPS estimates and a much weaker 20% beating revenue estimates. These are weaker results than we have seen from the same group of retailers in other recent periods.  Total Q4 earnings as a whole for the Retail sector, combining the actual results that have come out with estimates for the still-to-come retailers, are expected to be down -1.2% from the same period last year on +4.7% higher revenues.

We now have Q4 results from 411 S&P 500 members, or 82.2% of the index’s total membership. Total earnings for these 411 index members are up +8% on +4.9% higher revenues, with 68.9% beating EPS estimates and 54.7% coming ahead of top-line expectations.

Market Sentiment – The probability that the Federal Open Market Committee will increase its fed funds rate at its March 15 policy meeting is 18%, when 22% was predicted yesterday.  The probability of a rate hike at its May 3 meeting is 48%, which compares to 52% on Thursday and the probability of a rate increase at the June 14 meeting is 67%, which compares to 72% yesterday.

Stock Market Analysis – At the present time only 60% of stocks in the SP 500 are trading above the 50-day line, while price remains near all-time highs. This tells us that stocks are being driven by few larger cap stocks and the majority of smaller stocks are approaching the 50-day line to the downside.

                        feb24momentumlevels

Once the 50 day momentum line hits 50% we will see substantial weakness move into the overall stock market, which is needed to cause balance to current positions in the short term time period window.

Technically, stocks appear much stronger when you consider the price action in comparison to current momentum levels. I’m anticipating the SP 500 to correct all the way down to the 200 day line, which will cause increased balance to the overall stock market and create stability within individual sectors of the economy once again.


                        feb24spyb

RSI Oscillator remains above the 80th percentile and based on statistical analysis, especially in light of the current political climate, the odds are highly probable that stocks will begin seeing minor distribution in the near term.  Stocks can trade directionally based on sentiment for limited amount of time and if the sentiment doesn’t turn into reality, the most probable scenario is a strong pullback or retracement back to the base.



Courtesy of Market Geeks

Sunday, February 19, 2017

Weekly Stock Market Outlook 2/19/2017

U.S. stock indexes took a modest step back Friday, though they remain close to their record highs. Bank stocks fell more than the rest of the market as bond yields eased.

U.S. Economy – Leading indicators are coming to life, rising a sharp 0.6 percent in January on top of a 0.5 percent gain in December. Strength has been broad based with factory data giving the index a special lift.  The results are pointing to building strength for the first-half economy. The coincident index, however, is still very soft at only plus 0.1 percent.
The main report this week is FOMC from the FED. While no rate hike is expected, we may see volatility ahead of the renouncement. Keep in mind, there’s a 3-week lag in the data from the FED, but nonetheless, the minutes provide investors some degree of direction based on the medium term time frame.

Quarterly Earnings – The bulk of the Q4 earnings season is now behind us, with results from only about 18% of the S&P 500 members still awaited.  The Retail sector is the only one at this stage that has a sizable number of reports still to come, particularly from the traditional retailers like Wal-Mart, Macy’s and Nordstrom that are on deck to report results this week.  With another 49 index members reporting results this week, the Q4 earnings season will have come to an end for 92% of S&P 500 members by the end of this week.

As we have been saying for the last few weeks, the Q4 earnings season has turned out to be a good one. Not only is growth on track to be the highest in two years, but total earnings for the quarter are also on track to be a new quarterly record.  The overall tally of Q4 earnings for the S&P 500 index is on track to reach an all-time record for the index, surpassing the previous record achieved in 2014 Q4.

For Q4 as a whole, combining the actual results from the 411 S&P 500 members that have reported with estimates for the still-to-come 89 companies, total earnings are expected to be up +7.4% from the same period last year on +3.9% higher revenues.  This would follow the +3.7% growth in Q3 earnings on +2.2% higher revenues, the first instance of positive earnings growth for the index after five quarters of back-to-back declines.

Market Sentiment – Thirty-year Treasury bond futures are higher as a result of lower stock index futures and mostly weaker industrial commodities.  In addition, there was some support on news that China snapped a six-month streak of selling U.S. Treasuries in December, even though its holdings for the year declined by the most on record.  China’s holdings of U.S. Treasuries increased by $9.1 billion in December to $1.06 trillion. This was the first monthly increase since May.
There was also support due to lessened prospects of tighter credit policies from the FOMC.  The probability that the Federal Open Market Committee will increase its fed funds rate at its March 15 policy meeting is 18%, when 22%was predicted yesterday.  The probability of a rate hike at its May 3 meeting is 44%, which compares to 49% yesterday and the probability of a rate increase at the June 14 meeting is 70%, when 75% was expected on Thursday.
Stock Market Analysis – Stocks are losing directional bias and upside has been limited over the past 3 trading sessions. Most key indices are overbought with RSI moving into the 80th level. Historically, stocks tend to fizzle out and revert back to the downside after RSI reaches these levels and I’m expecting corrective pressure to begin moving into the market in the short term.

                          
                         

While stocks remain near all-time highs, the percentage of stocks trading above the 50-day line is not increasing, which tells me the buying we are seeing is not originating from large mutual funds.  The reason we know this is because large institutional funds accumulate baskets of stocks via program buying and that causes momentum levels to spike sharply, since multiple stocks are being bought at the same time.  When we see price moving higher but the percentage of stocks causing the upside to decline, even though price is moving higher, it means that accumulation is triggered by retail traders, which don’t have the power to continuously drive stocks higher, unlike institutional traders, which cause increase in momentum AND in price simultaneously.


                           

Lastly, I wanted to take a look at the financial sector, which has been extremely strong in the near term in anticipation of higher rates. Notice that RSI is above 70 and divergence between price and RSI began right around the November Presidential election.


                           

Till the divergence is resolved, price will not be able to generate substantial upside momentum, till we see minor corrective pressure, which should eliminate the divergence and give the financials enough balance to begin moving directionally once again, but currently this particular sector is getting a bit ahead of itself and the most likely scenario is a pullback to the 50-day line or 200 day line to the download over the near term time frame.



Complements of Market Geeks

Sunday, February 12, 2017

Weekly Stock Market Outlook 2/12/2017

U.S. stock indexes extended their climb into record heights early Friday, powered by rising energy prices. Oil and gas companies led the gainers as the price of crude oil headed higher.  Utilities and other key sectors are not rising, which is causing fewer stocks to rise in relationship to the overall market at this time.

Global Economy – World stock markets mostly kept rising on Friday after U.S. President Donald Trump promised he would soon cut taxes for businesses.  In a meeting with airline and airport executives, Trump vowed to roll back government regulations and said he would announce a plan in the next three weeks to reduce taxes for businesses. The comments were short on details, but encouraged investors who have been waiting to see how Trump follows through on campaign promises to boost economic growth.

Markets are awaiting the outcome of Japanese Prime Minister Shinzo Abe’s meetings with Trump on Friday and the weekend. Japanese companies, worried about Trump’s complaints over trade and exchange rates, hope Abe can get him to buy into a job creation and investment package.

Strong January trade data from China brightened investor sentiment. Exports rebounded, expanding nearly 8 percent while imports jumped 16.7 percent. The figures are a good sign for the world’s No. 2 economy, but could also be distorted as factories closed for the Lunar New Year holiday, which falls at different times in the first two months of the year.

U.S. Economy – Consumer confidence retreated in February from a 13-year high, as Americans tempered expectations of their finances and the economy. The University of Michigan said Friday that its preliminary index of sentiment cooled to a three-month low of 95.7 from 98.5 in January. The median projection called for 98.

Expectations for wage gains in the coming year deteriorated even as more respondents said this month that they were better off financially than at any other time in the past 12 years. More than half of those surveyed expect better economic conditions in the future, though the results reflected stark differences between Republicans and Democrats.

Petroleum is lifting import prices which rose 0.4 percent in January for a striking year-on-year rate of 3.7 percent. This is the strongest rate since early in the cycle, back in March 2012.  But the gain is isolated to petroleum which jumped 5.2 percent in the month for a year-on-year gain of 61 percent to underscore how easy energy comparisons have become.  Export prices rose 0.1 percent in the month for a year-on-year rate of 2.3 percent which is also the highest since early in the cycle, back in January 2012. Agricultural prices are closely watched on the export side and fell 0.1 percent in the month for a year-on-year rate of only plus 0.8 percent.

By country, import prices are weakest with China, at a year-on-year minus 1.7 percent, with the EU at minus 0.2 percent. Canada is at the top at plus 13.2 percent which reflects energy.  Overall year-on-year rates are improving but cross-border inflation is fundamentally flat right now. Yet recent weakness in the dollar, which makes foreign products more expensive, will work together with oil to support gains for import prices in the months ahead.

Quarterly Earnings – The bulk of the Q4 earnings season is now behind us, with results from 358 S&P 500 members, or 71.6% of the index’s total membership, already out.  With another 53 index members on deck to report results next week, we will have seen results from more than 80% of the index’s members by then.

For Q4 as a whole, combining the actual results from the 358 S&P 500 members that have reported with estimates for the still-to-come 142 companies, total earnings are expected to be up +7.5% from the same period last year on +3.9% higher revenues.  This would follow the +3.7% growth in Q3 earnings on +2.2% higher revenues, the first instance of positive earnings growth for the index after five quarters of back-to-back declines.

Stock Market Analysis – The SPY ETF that tracks the SP 500 is now at all time highs and 10 day RSI oscillator is moving above 70 level, which tells me that we should expect a pullback or a consolidation near the current price level.

                     
The reason we are seeing stocks rising is because of the large market cap coming from energy stocks, which are supporting higher price at this time.  Anticipate price to back down to the 50 day moving average and more than likely down to the 200 day line, before markets experience significant upside once again.

Expect defensive stocks and commodity stocks to trade higher and speculative stocks to become increasingly weaker in coming weeks. The reason volume is so low right now, is because large institutions are not aggressively trading at this time and markets are being driven by retail traders, which typically ends up in sharp, short term price corrections.

Courtesy of Market Geeks

Sunday, February 5, 2017

Weekly Market Outlook

U.S. stocks were stronger Friday after the government said employers stepped up their hiring last month, while not as fast as expected, it gave the market enough ammunition to rally after a few days of selling pressure. The biggest gains are going to small-company stocks, which stand to benefit from a pickup in the economy. Banks rose sharply after President Trump took a first step toward scaling back financial industry regulations. Major stock indexes remain slightly lower for the week.

U.S. Economy – Orders to U.S. factories rose a moderate amount in December, closing out a second rough year for American manufacturers who have been battered by a strong dollar and a plunge in capital investment. The Commerce Department says orders to factories rose 1.3 percent in December. A key category that tracks business investment was up 0.7 percent, a hopeful sign that 2017 may be a better year for manufacturers as investment in the energy sector rebounds.

For all of 2016, factory orders fell 1.4 percent following a 6.3 percent drop in 2015. It marked the first consecutive annual declines in 14 years, since orders fell 7 percent in 2001 and 1.2 percent in 2002.  Average hourly earnings were up only .12%, when an increase of .3% was expected, which will case FED to think twice about raising rates 3 times over the next 11 months. January nonfarm payrolls increased 227,000, which compares to expectations of a gain of 180,000 and private payrolls were up 237,000, when an increase of 175,000 were estimated. The labor participation rate showed an improvement, increasing to 62.9% from 62.7% that was reported last month.

Here is the weaker employment data. Average hourly earnings were up only .12%, when an increase of .3% was expected.  The unemployment rate increased .1% to 4.8%, when 4.7% was estimated.
January’s job gain was the best since September, and it exceeded last year’s average monthly gain of 187,000, the Labor Department said Friday.

Quarterly Earnings – We have seen Q4 results from 219 S&P 500 members or 58.8% of the index’s total market capitalization. Total earnings for these 219 index members are up +5.4% on +3.5% higher revenues, with 64.8% beating EPS estimates and 53.4% coming ahead of top-line expectations.  The proportion of companies beating both EPS and revenue estimates is 37.4%. The earnings and revenue growth for this group of 219 index members is notably above other recent periods.  The +5.4% Q4 earnings growth on +3.5% revenue growth compares to +2.7% earnings growth on +1.0% revenue growth for this same group of companies in 2016 Q3.  The Q4 growth relative to the 4-quarter and 12-quarter averages is even pronounced.

Looking at Q4 as a whole, combining the actual results from the 219 S&P 500 companies that have reported with estimates for the still-to-come 281 index members, total earnings are expected to be up +6.0% from the same period last year on +3.9% higher revenues.  The +6.0% earnings growth in Q4, the highest since 2014 Q4, would follow the +3.7% growth in Q3 earnings on +2.2% higher revenues, the first instance of positive earnings growth for the index after five quarters of back-to-back declines

U.S. Stock Market Analysis – Stocks are testing all time highs once again, but small caps are not participating in the rally, which tells me that stocks are overbought and have limited upside. Small caps are speculative stocks and speculative stocks typically lead the market higher during bullish market cycles.  If you look at the small caps, the highs are getting lower not higher, which tells me that the market is hitting resistance levels at the current price levels.

                   

Now take a look at the momentum levels for the small caps, this will really surprise you. While the trading range has been predominantly range bound, the number of stocks holding up the index or causing it to trade at the current price levels has been declining aggressively over the past few sessions.

                   feb5momentumsmall-caps

This means that the Russell 2000 is being driven by very few stocks that have higher market share. If the index was NOT capitalized weighted, we would have seen a decline in price by a large margin over the past few weeks. Either way, this is major narrowing of momentum, which creates increasingly more vulnerability to stocks at this time.

Expect momentum levels to catch up to price and stocks begin trading lower in the short term. Momentum levels and price can deviate for short periods of time, but eventually price ALWAYS catches up to momentum levels.

Courtesy of Market Geeks

Start Where You Are, With What You Have


A few years ago, when I was first beginning my journey into day trading, I saw this movie titled, “The Pursuit of Happiness”.  I am sure most of us have seen or heard of that movie so I won’t spend much time talking about it but just for reference I will give a brief synopsis.  This was the story of Chris Gardner, a man whose wife lost faith in him and his vision and left. A man who refused to have his son grow up fatherless the way he did.  A man who became homeless, and eventually took a job as an intern at a prestigious brokerage firm that unfortunately paid no money, and more importantly, no guarantee for a job at the end. But he didn’t look at what he was starting with, he was looking at what he could end up with.  He knew he would be homeless through this transitional phase in his life.  He knew that he would have to struggle to provide for his son during this time, but he believed in something bigger than what he had in his reality at the time.  He believed in himself and his potential to be great.  He was determined to make the best of this opportunity he was given.  He gave 120%.  Even though he didn't have any money, no home for his son, he was one of the first people in the office in the morning and one of the last one to leave. The company goal was to make 100 calls a day but his personal goal was to make 200.  He refused to be outworked.

This movie was the beginning of my inspiration to make a better life for myself and my family.  The beginning of my inspiration to pursue my happiness, because I knew if I achieved that, my family would receive countless benefits of my suffering and hard work.  But, there was a piece of the puzzle missing.  I tried to get things in place but it seemed like for every step I made forward, I made two or three steps back.  Every time I would come up with the same excuses: “If I just had a little more capital”; “If I just had more time to work on trading, “If I just could afford the right tools”.  “If I just had the right opportunity”. You know the list!

Fast forward a couple of years and my wife attended a conference in which Chris Gardner was the keynote speaker.  My wife knew how inspired I was by the movie and promptly bought both of his books.  One obviously was The Pursuit of Happiness, but the other was, Start Where You Are: Life Lessons in Getting from Where You Are to Where You Want to Be.  I’d have to say that was the book that nullified any excuse I ever had as I was trying to build a career in trading.  The speech he gave that day was really meant for me, but my wife received it in proxy and I am so thankful that she did.

So, now to the core of my message.  You all know by now I made a conscious decision to start with $1500 at the beginning of January with the goal of demonstrating how you can grow your account safely and consistently if you employ the right process.  My process is what brought me from $1500 that I had to start with to over 235k. You can check out my first interview here:  https://www.youtube.com/watch?v=M5mQ3Q7p_ew&t=798s  .  The updated story to $196k you can find here:  http://bit.ly/2a1JA6A  It all started from reading this book, Start Where You Are: Life Lessons in Getting from Where You Are to Where You Want to Be, by Chris Gardner.  As I mentioned before I had every excuse as to why I could not be successful.  But, after reading this book, thankfully I realized that none of those excuses held water.  They were just BS stories I was telling myself as to why I couldn’t be successful.
 
So, just as in 2017, In 2018 my message is start where you are, with what you have.  If you sit around and wait for the perfect moment in time, I can promise you that it will never come.  If everyone did that, we would not be where we are today as a human race.  I remember hearing a very prominent motivation speaker say that the richest places on earth are the graveyards, because in there lies most of the earths untapped potential.  Buried there are inventions that we will never have a chance to experience because someone was waiting for the perfect opportunity to take a chance.  Buried there are some of the world’s greatest minds who never shared it with the world because instead of creating an opportunity to share it, they were waiting on an opportunity to share it.  If these people had started where they were, with what they had, there is no telling where we would be as a people right now.

Start where you are with what you have.  Don’t focus on what you don’t have to start out 2018, focus on what you do have.  Don’t focus on your lack of resources, but on your resourcefulness.  The truth is our resources are limited but our resourcefulness is limitless! When I learned, and accepted this fact, I became a better person, a better trader, a better father, a better husband.  Everything that was once an obstacle in my trading became a potential gain.  I started looking at what I could do with what I did have, and maximize my potential with it.  This is what I challenge you to do in 2018:

       >  Believe in yourself!
       >  Change your limiting mindset. 
 >    >  Start where you are with what you have! 
       >  Stop thinking about what you don’t have, but what you can do with what you do have. 


Let’s make 2018 phenomenal!

Saturday, February 4, 2017

Can Learning Chess Improve Your Trading Skills?

The simple answer, yes it can!  One very important trait they both have in common is that once you make a move, you cannot predict the outcome of that move.  In chess, you can make your move, and have your next move planned, or even the next several moves planned, but you do not know how your opponent will react.  In trading, we make our move, we have our subsequent moves planned, but we do not know how the market will react. 

Day traders are always looking for ways to hone and sharpen their mental skills.  On the surface chess, may seem like a game that would not have any relevance to day trading, but it is actually a strategic game that can hone your decision-making skills and strengthen your mental game.  This can lead to more consistent profits from your trading.  In this blog, I will explore several reasons why I believe that the game of chess can be a big asset to day traders.

First and foremost, chess helps you improve your decision-making processes.  A solid chess player is analytical, and understands that with each of his moves, he will need to simultaneously reassess his position on the board, so he can take advantage of the opportunities that presents itself.  Each move will present the player with new data that he uses to determine his next move. Successful day traders are no different from this. Day trading, like chess, requires that you are steps ahead of your opponent, which in this case is the market.  They analyze each decision that they make in the market.  When a day trader is planning his trade, he is thinking about what his next move will be based on how he is predicting the way the market will react.  In both instances, you are planning an initial move, then planning subsequent moves based on a strategy and the predicted reaction from your opponent. While it is impossible to be right all the time, making decisions with the future in mind helps day traders plan to make decisions on trades when the market is behaving as predicted.

Secondly, and this could be considered a spinoff of the first, is that chess helps day traders adapt to the uncertainty in the market.  In chess, you learn to accept the fact that despite having a 50 percent chance of being right, that other 50 percent can creep up and hurt a perfect play setup.  Now in day trading, we are searching for strategies that will give us better odds, which are closer to 70-30.  But, chess helps teach us we cannot control our opponents moves, but we can develop the skill to react accordingly.  This is a very important skill for day traders.  We need to handle and react to that 30 percent uncertainty that is inherent on our trading.  A day trader, like a chess player, needs to be able to handle these losses without losing focus on the game.

Chess skills emphasize strategic intelligence. Good chess players will constantly search for their own weaknesses in their decision making and chess moves; therefore, it makes them a good chess player. As a good and consistent day trader, you need to constantly look for where your strategy or trading ideas may be weak and find ways to strengthen.

Lastly, chess teaches you the importance of the end game.  Playing chess can also help you develop the focus you need as a day trader. It takes tremendous focus to win chess games because it is not just each move you make but the entire process of analyzing the board for potential moves. Day trading is very similar. It’s not just about trading the stocks, but learning to value each step in the process of making the trade.  With each trade a series of decisions must be made. To make sure you make these decisions efficiently and effectively, you must focus on the end of the trade, your strategical final objective of the trade. Traders who are skilled in strategy games like chess develop these strong focusing skills needed to be successful day traders. They learn to stay in the game and look at it through to the end, not just individual chess pieces. They focus on how their opponent is playing as well as themselves. In trading, your opponent is the market, and staying focused on the market allows you to better navigate and make decisions within it.


So, as you can see, a trader who plays chess correctly, can bring these skills to their trading.  Not only can chess can improve a day trader's decision making and critical thinking skills, it can also help with managing the emotions inherent to trading.