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Market Update - May 5, 2017

Economic Comment

An important day today as the Government releases its payroll report for the month of April. If you remember, March was a “whiff” with a number of 85k. (Bloomberg). ADP’s job number on Wednesday gave us a preview of 211k jobs created; and the Government’s number showed a bounce back as well with 185k new jobs. Now the question is whether March was an aberration or a preview of what is to come for 2017. Earnings season is in full swing. So let us check our indicators and see what they tell us about the summer ahead!

Bullish Percent’s (Data source: Dorsey Wright, See definitions at the end of this report.)

10 Week- Bullish Percent (Short-term): The 10 week in April has traveled from oversold at 42% to overbought at 62%. So far, for the 1st week of May, the 10 Week is sitting in neutral at 56%.

Optionable-Stock Bullish Percent (Intermediate term): This indicator is now on DEFENSE and has floated slightly higher to 60.8%. It would need to go over 62% to turn positive.

NYSE Bullish Percent (NYSEBP) (Longer-term): The NYSEBP is on DEFENSE at 64.5%, floating higher with the help of financials. However, in order to turn positive, this indicator would have to get over 68%, which is approaching the “high risk zone”. (Source: Dorsey Wright)

Point and Figure Charts (Source: Dorsey Wright)

S&P 500: The March support has held, with the S&P 500 making a run at the highs of 2,400. The question is whether there is enough “juice” to break to new highs or is this a move to the top of a trading range. (Source: Dorsey Wright Website)

S&P 500

SP500 5.5.17

Horizontal Axis: Time (numbers represent months, for example, 1=January 2=February and so on, when you reach October, months are represented as letters, A= October, B= November & C= December).
Vertical Axis: Price

NASDAQ: Looking at the NASDAQ for a change of pace this week, which has been getting a lot of press lately. Several of the largest stocks in the NASDAQ have been on a tear with Tuesday night displaying one of the largest reported earnings that were deemed a miss. Does this put a halt to the NASDAQ’s run for the year or does this index start to consolidate? (Source: Dorsey Wright Website)


NASDAQ 5.5.17

Horizontal Axis: Time (numbers represent months, for example, 1=January 2=February and so on, when you reach October, months are represented as letters, A= October, B= November & C= December).
Vertical Axis: Price

US 10 - Year Treasury note: The uptrend line shown below was too strong for the 10 year to break through. We are noticing a bounce off this trend line with rates back to 2.35%. The 10 year could be at an important juncture for the next several months. A move above 2.5% could mean potentially higher rates later in the year. However, a break of 2.2% could open up a quick move under 2%. (Source: Dorsey Wright Website)

10-year Treasury

10YearTreasury 5.5.17

Horizontal Axis: Time (numbers represent months, for example, 1=January 2=February and so on, when you reach October, months are represented as letters, A= October, B= November & C= December).
Vertical Axis: Price

Relative Strength: No changes this week, Domestic Equities are #1, International Equities are #2. Fixed Income edged out Commodities again this week for the number three spot. Cash is #5 and Currencies are #6. (Source: Dorsey Wright Website)


We are now at the end of the typically, seasonally strong period from December through April, (sell in May and go away). What has been interesting this week is that when stocks miss on the earnings front, they are really being punished. Other economic news has been swirling. Auto sales have seen a fourth straight month of declines. (Bloomberg). Our local paper the Morning Call reported on Wednesday that the tax revenue for the State of Pennsylvania has fallen the most since the recession in 2008. We know that when investors see large cap tech stocks rallying, the fear of missing out becomes great. We are keeping track of our risk indicators and maintaining our defensive stance.

Have a great weekend!

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Bullish Percent Definitions

NYSE Bullish Percent: This is a major market indicator, which tells us whether to be on the offense or defense. It is calculated by dividing the number of NYSE stocks trading on point and figure buy signals by the total listed on the Exchange. The percent of stocks on buy signals in is then plotted on a grid from 0% to 100%, where each box equals 2%. Levels above 70% are generally considered overbought, and below 30% are considered oversold. The best buy signals come when the NYSE Bullish Percent goes below 30% and then reverses up (must reverse 6%). The best sell signals come when the indicator moves above 70% and then reverses below 70%. The most important concept to keep in mind is field position and what team is on the field. When the NYSE Bullish Percent is in X's, the offensive team is on the field and wealth accumulation strategies are the focus. Conversely, when the NYSE Bullish Percent is in O's, the defensive team is on the field and wealth preservation strategies are the focus.

The Bullish Percent can also be calculated on various indices, for example, the 10-week BP is a short-term indicator and is calculated on 10 weeks’ worth of NYSE price data. The optionable stock bullish percent is calculated off the index of all optionable stocks on the NYSE.

Asset Indexes

An index is unmanaged and not available for direct investment.
Dow Jones Industrial Average is a price-weighted average of 30 U.S. stocks traded on the New York Stock Exchange and NASDAQ.
Russell 2000® Index measures the performance of the 2,000 smallest companies in the Russell 3000® Index, which represents approximately 8% of the total market capitalization of the Russell 3000 Index.
S&P 500 Index is a capitalization-weighted index calculated on a total-return basis with dividends reinvested. The index includes 500 widely held U.S. market industrial, utility, transportation and financial companies.
A 10-year treasury note is a debt obligation issued by the United States government that matures in 10 years. A 10-year Treasury note pays interest at a fixed rate once every six months and pays the face value to the holder at maturity.

The NYSE Composite (^NYA) is a stock market index covering all common stock listed on the New York Stock Exchange, including American depositary receipts, real estate investment trusts, tracking stocks, and foreign listings.

Historical Futures Prices: Crude Oil Futures, Continuous Contract #1. Non-adjusted price based on spot-month continuous contract calculations. Raw data from CME. For more on the roll algorithm used please see this page: https://ww.quandl.com/collections/futures/continuous.


Relative Strength Calculation Explained: Tactical decisions are made utilizing the research and evaluation techniques of Dorsey, Wright & Associates who has extensive expertise in a technique known as Point & Figure charting. This type of analysis attempts to evaluate the supply and demand forces of particular asset classes and ranks the asset classes from strongest to weakest based upon relative strength (RS). We feel asset classes can be ranked similar to the way one might rank sports teams. If you think about your favorite sport, they rank teams based upon how well they perform against their opponents. The more games, matches or races won, the higher in ranking the team will go. We believe the same thing can be done in the investment markets. In the financial markets, a “game” is played each day and it consists of comparing the daily performance of one asset class to another. Each day we compare asset classes to one another to determine which asset classes are the strongest or weakest compared to one another. The ranking process is comprised of the following 4 steps and represents DWA's Tactical Portfolio Research strategy ("the strategy").


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