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Market Update - March 4, 2016

Friday, March 4, 2016

Economic Comment

Well, today was the all-important monthly government jobs numbers for February. The ADP number Wednesday gave us a preview to expect a stronger number and the number did do just that. Consensus was for 195,000 jobs created in February and the number came in at 242,000. This was hotter than expected. December and January’s number was also revised higher by an additional 30,000 jobs as well. The US Equity markets had over a 2% rally on Tuesday. So the question is: Will these good numbers continue to help? Let’s check our indicators.

Bullish Percent’s

10 Week Bullish Percent (Short-term) the 10-week has had a very good two weeks and has moved from 38% all the way to 68%, which is now overbought. Pullbacks could happen at any time.

Optionable Stock Bullish Percent (Intermediate term) this indicator is now on OFFENSE and continues to gain ground with a move for March up to 38%. This indicator has now moved out of the “low risk zone”, (under 30%), but field position is still good.

NYSE Bullish Percent (NYSEBP) (Longer-term) this indicator is now on OFFENSE and has had a better move higher to 42%. The next level to watch will be 50% the high for November. If the NYSEBP takes out 50%, it might mean that this move up in equities is more than just an oversold bounce. (Source: Dorsey Wright)

Point and Figure Charts (Source: Dorsey Wright)

S&P 500 is showing a classic chart pattern. The S&P 500 rallied right up to the downtrend line, pulled back, and then broke through this line decisively. This is a good sign for higher prices ahead. However, pullbacks can be expected at any time. It looks like the next level of resistance is 1900-2000. (Source: Dorsey Wright Website) 

S&P 500

NASDAQ the NASDAQ has now rallied up to the downtrend line at 4680. This could be short-term resistance. However, if the NASDAQ follows the S&P 500, look for a pullback before a move higher. (Source: Dorsey Wright Website) 

Russell 2000 the Russell 2000 is joining the party with a rally, however, the Russell 2000 is still 4.9% away from the downtrend line. The price action still favors large company stocks for now. (Source: Dorsey Wright Website) 

US 10-Treasury Note:  The 10 year made a new low; down to 1.57%. This was followed by a rally back to 1.8%. If you look at the chart you can see a higher low at 1.65%, followed by a higher, high at 1.85%. With strong employment numbers, a run to 2% on the 10 year would not be out of the question. (Source: Dorsey Wright Website) 

10-year Treasury

Relative Strength Fixed Income is still #1, Money Funds #2, and US Equities are #3. Even with the rally in the US Equity markets and the decline in bond prices, there have been no changes in the last two weeks. (Source: Dorsey Wright Website) 

Conclusion

The bullish theme this week seems to be that the US Economy is not rolling over into a recession. This is our view. We believe that the US Economy is doing better than expected. The improvement in the US Equity markets seems to be signaling the same. There is still the possibility that the S&P 500 could finish the 1st quarter in the green, even after the rough start in January. As of today, the S&P 500 is down 2.5% for the year. Tuesday’s rally was worth 2%. The Bullish Percent’s and Point and Figure charts are positive. However, the Relative Strength measures are leaving us somewhat cautious. We continue to monitor clients’ portfolios.

One more blast of winter this weekend!

Christopher P. Englebert

Managing Director

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