Sunday, November 8, 2015

Friday, November 6, 2015

Market outlook: 6 November 2015

The Dow Jones Industrial Average has risen 174% from its 2009 low and the S&P 500 is up 210%. Both are within 2.5% of a record, nearing levels where they topped out in May, June and July.

Some money managers and analysts say stocks have risen so much they may not keep pace with corporate earnings, which are looking unsteady. The prospect of a Federal Reserve rate increase, considered likely after Friday’s strong report on October wages and job creation, makes the stock outlook even murkier.

The Dow Jones Industrial Average has surged 14% since its Aug. 25 low. The S&P 500 now trades at 23 times its companies’ net profits for the past 12 months, far above the 15.5 historical average and above the level of 20 hit in September, according to Birinyi Associates.

David Kostin, chief U.S. stock strategist at Goldman Sachs Group Inc., forecasts that the S&P 500 will average a total annual return of 5% for the next 10 years, including 2% from dividends and 3% from price gains.

He forecasts that the S&P will fall about 4% between now and year-end, not including dividends, leaving the index down about 2.9% for 2015. He projects a 5% index gain in 2016, with dividends adding 2% more.

Monday, October 5, 2015

Gun stocks

Guns a much better investment than Apple, gold or the S&P500 (6-month chart).

Saturday, October 3, 2015

Technical analysis: Positive divergence

In evaluating whether a positive (or negative) divergence exists on a chart, you must remember to use closing prices. If you use candlesticks, it's not always easy to spot divergences.  On the chart below, the top portion is a candlestick chart and the bottom portion is a line chart. Evaluating divergences is one of the few times a line chart is preferred. Take a look:

On the candlestick chart, the huge gap lower and long tail to the downside produces "noise" on the chart and you may try to connect those lows with the lows made the following month. If you do, you'd incorrectly determine that prices have not moved lower and therefore you cannot have a positive divergence. However, the line chart - which only uses closing prices - clearly shows that we've seen lower lows in price. That, combined with a higher MACD produces the positive divergence, which is a sign that selling momentum is slowing. Always remember that hollow candlesticks have closes at the TOP of the rectangle. Opens are at the bottom. The "tails" or "wicks" mark the intraday high and low.

Friday, October 2, 2015

Market outlook: confirmed uptrend (2 October 2015)

  • Key reversal day
  • Follow-through on S&P500
Stocks staged a positive reversal Friday, turning big losses at the open into solid gains by the close. The Nasdaq scored a 1.7% advance after being down 1.6%. The S&P rose 1.4%.  Volume rose on both major exchanges.

  • The gains in rising volume pointed to institutional buying.
  • The S&P 500's thrust came on Day 4 of an attempted rally, which along with the volume and price gain qualify as a follow-through day.
  • A follow-through day confirms that an uptrend is underway.
On Friday, beaten-down groups provided most of the day's leadership. Gold miners, and oil and steel stocks were up.  On the downside, banks suffered the most damage.

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