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Market Update - July 25, 2016

Economic Comment

Earnings are starting to come in hot and heavy; and last week, we saw banks and semiconductor stocks do well with some earnings beats and increased review. On Thursday, a large railroad reported okay earnings, but guided down. That seemed to set the tone for some profit taking as the DJIA and the S&P 500 had been grinding higher. Now let’s review some changes to our indicators!

Bullish Percent’s

(Data source Dorsey Wright, see definitions at the end of this report)

10 Week Bullish Percent (Short-term) the last two weeks has caused this short-term indicator to move sharply higher to 78%, which is overbought. Pullbacks and pauses should be expected.

Optionable Stock Bullish Percent (Intermediate term) this indicator is now on OFFENSE as of July 12th. It has gone from 48% to 58% in the last two weeks, which was its high in April.

NYSE Bullish Percent (NYSEBP) (Longer-term) this indicator is on OFFENSE as of July 11th. The high for the NYSEBP was 66% in April. This index has a lot of financial stocks in it; which have done well over the last several weeks.(Source: Dorsey Wright)

Point and Figure Charts (Source: Dorsey Wright)

S&P 500 after breaking down to 2,000 with the Brexit selloff; the reversal and move higher for the S&P 500 has shot up to 2,170. The bulls have been relentless; and the move from 2,120 to 2,170 has been rapid. Look for 2,120 to be support. We noted several weeks ago that all the extreme bearishness in the media might move the S&P 500 to new highs for the year, and that has happened. (Source: Dorsey Wright Website)

S&P 500

SP5007.25.16

Dow Jones Transports This chart is what is keeping a lid on our enthusiasm for this rally. The transports have had a sharp recovery, but have not made a new high on this move. Thursday’s reversal puts a move to new highs in doubt. There is a Dow Theory sell signal that when the DJIA makes a new high unconfirmed by the Transports, it is a bearish sign. (Source: Dorsey Wright Website)  

Dow Jones Transportation Average

DowJones7.25.2016

US 10-Treasury Note: sooner or later some profit taking had to be experienced in the 10-year after its race to 1.35%. The last two weeks have seen yields float higher to 1.6%. If the 10 year is really going to get under 1% in 2016, this could be a buying opportunity. (Source: Dorsey Wright Website)

10-year Treasury

10yearTreasury7.25.16

Relative Strength Commodities are still #1, Fixed Income #2 and US Equities #3. The difference between the top three is still tight with US Equities increasing ever so slightly, even though US stocks had a good two weeks and bonds didn’t. This close “horse race” could continue for weeks or even months before one asset class asserts itself and shows a large amount of strength versus other asset classes. (Source: Dorsey Wright Website)

Conclusion

The S&P 500 and Dow Jones Industrial Averages have broken out to new highs. The NYSEBP and Optionable stock BP have reversed up. However, we are still cautious. With 30 years of experience, it feels very suspect when the markets rally in mid-summer, which is typically one of the historically weakest periods, (sell in May and go away). Our risk indicators are at mid-field and our relative strength measures are giving no “strong” winner. If the transportation average would consolidate and show some renewed strength, we might be changing our tune. We are still watchful for that forceful “pop” up thunderstorm that could dampen the financial markets.

After one of the hottest weekends of the year, it doesn’t look like there is much relief in the near future! Keep hydrated and have a great rest of the week.

Christopher P. Englebert
Managing Director
Beirne Wealth Consulting, LLC
4905 Tilghman Street, Suite 210
Allentown, PA 18104
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