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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