-- Weekly Market Summary --

The Fuse is lit. The Countdown has begun. And
there is Still Money to be made.

By Joe Duarte on Sept 24, 2017

It’s easy to get caught up in the daily hype of news coverage. But at the end of the day, for investors, it’s all about where money in the market is flowing and acting accordingly.

Don’t get me wrong. I don’t live in a bubble of price charts and research reports. These are extraordinary times for every person in the world. Nevertheless, experienced investors should focus their energy on carefully analyzing the markets, creating plausible outcome scenarios based on the current reality, developing contingency plans and waiting for events to trigger the direction of their actions.

Strangely enough, bull markets climb walls of worry. And yes, we are under the shadow of the mother of all such walls at the moment. Yet, with so many worrisome events unfolding simultaneously, the odds favor that one or more of them will achieve critical mass at some point and start a negative cascade of events. It’s got to happen, even if it takes another few months or years, given the fact that global debt levels are beyond the point of being reduced significantly in anyone’s current lifetime and that global wealth disparity is at a point wider than at any point in history.

In the meantime, there is no reason to panic. Ultimately, the market remains in a technical up trend, where there are still sectors which are showing signs of waking up after prolonged slumbers and having significant upward potential. Artificially fueled by robot traders, and influenced by central banks notwithstanding, this combination of events suggests that before we see a major market meltdown, we are more likely to see a rotation of assets from previous market leaders to areas where value can be found. So, while discerning minds can see the perils of the times they can also appreciate the potential for profitable investment under the right circumstances.

Another Week another New High in Advance Decline Line

Like clockwork, the most accurate indicator of this bull market, the NYSE Advance Decline line made a new high last week. This suggests money is still coming into the market and that the bull market is still alive with the potential for still higher highs, albeit in the context of a higher risk scenario.

Familiar readers will remember my frequent commentary about the current activity in NYAD being similar to what we saw in November 2016 and March 2017. Moreover, as another week has passed, the pattern remains intact. By the same token, note the RSI on NYAD is now overbought and the Bollinger Bands have stopped expanding. If this pattern continues to develop along a similar path as the previous two patterns I mentioned, we may see a reversal in NYAD to the lower Bollinger Band at some point, perhaps not too far in the future, perhaps over the next month.

Anomaly: Money Flows into Transports and Oil Simultaneously

Under normal circumstances, the prices of West Texas Intermediate Crude Oil (WTIC) and of the Dow Jones Transport Index (TRAN) move in opposite directions. However, this relationship is currently different, with both moving higher in synch. A plausible explanation is that the multiple hurricanes and the damage they’ve caused has created a unique dynamic in which oil supplies have been disrupted while demand for transportation services due to the need for relief and rebuilding supplies has risen simultaneously.

We could spend a lot of time parsing out the details as why this may or may not be happening, but the practical reality is that as investors it’s usually profitable to follow the money, which is what I’ve been recommending. My subscribers have been well positioned in both of these sectors for several weeks and I am analyzing new positions in these sectors to add to the buy list this week, if market conditions remain unchanged. As a result, this would be a good time to consider a free trial to the service if you’re no already on board.

Technically speaking, note the robust On Balance Volume (OBV) and Accumulation Distribution (ADI) indicators on TRAN that go along with the new high on the index. This is a bullish sign. Note the similar pattern on WTIC and the close above the key $50 price point. A continuation of this move could take WTIC to the $54 area, and although supply information on WTIC will be available on Tuesday after the market closes and in early trading on Wednesday could affect prices negatively, there is no fundamental data at this point which says it can’t happen.

SPX Remains near Recent Highs

Finally, I want to cover the S & P 500 (SPX) which remained near its recent highs last week. The key price point at this time is 2500, and the current consolidation is not necessarily a sign of topping action. Normally, SPX consolidates around round numbers, which is the most likely explanation at the moment. Also, keep in mind technology stocks have been pulling back some lately, while energy stocks have been moving higher.


What’s important at this time is money is still flowing into SPX, based on the positive configuration of the OBV and ADI indicators. Until this configuration changes the odds favor higher prices.

What’s an Investor to Do?

The bottom line is we are living in unprecedented times where money, politics, and the global economy seem to be converging on a major inflection point. No one knows when that point will be reached and what the outcome will be, although history would suggest that something very dramatic will happen when the moment finally arrives. You could worry, or you can prepare. If you choose to prepare, I recommend focusing on price action, contingency planning, and taking decisive action as required in response to events.

 

 

















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