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Market Update - July 10, 2017

Economic Comment

This past shortened holiday week provided some economic clues as to the tone of the US Labor markets. Thursday, ADP gave us a preview of Friday’s government jobs report indicating only 158k jobs were added in June, rather than the consensus of 185K. The consensus for the government jobs report ranged from 140k to 200k. The number came in better than expected with 222k jobs in June. The April’s jobs number was revised up; and the May number was revised down significantly more than initially reported. (Bloomberg Website) It will be interesting to see the Federal Reserve’s response to continued rate hikes in the face of such uneven labor market numbers. It has been several weeks, so let us check our indicators.

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

10-Week Bullish Percent (Short-term): In the month of June, the 10- week indicator traveled from 44% to 62% and then back to 48%. For July, this indicator has reached 60%, which in the short-term is overbought.

Optionable-Stock Bullish Percent (Intermediate term): Still on DEFENSE, this indicator in May reached 56% and remains there. Next level to watch is the lows of last November at 46%.

NYSE Bullish Percent (NYSEBP) (Longer-term): Still on DEFENSE and at 60%. (Source: Dorsey Wright)

Point and Figure Charts (Source: Dorsey Wright)

S&P 500: In June the S&P 500 hit 2,450 on two different occasions. Since then, it has been downhill. A quick sell off to 2,410 to test support, but a clear picture of lower highs. (Source: Dorsey Wright Website)

S&P 500

SP500 7.7.17

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


The FANG stocks have really driven the NASDAQ in 2017, which could prove to be a curse for this index. A move to all-time highs at 6,340 has seen a quick move lower. Right now, the NASDAQ is in danger of breaking short-term support at 6,100, which could lead to a quick sell off to 5,820-5,920 the next zone of support. (Source: Dorsey Wright Website)


NASDAQ 7.7.17

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: After hitting a low for the year at 2.125%, the rise in global yields seem to have dragged up US 10-year treasury yields. So far, for the month of July, this has been a sharp move higher, but if US economic data starts to soften more, the 10-year could quickly revisit the 2.25% level. (Source: Dorsey Wright Website)

10-year Treasury

10YearTreasury 7.7.17
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 the last two weeks. Domestic Equities are #1, International Equities #2, Fixed Income #3, Cash #4, Commodities #5, and Currencies #6. (Source: Dorsey Wright Website)


Troubles with the FANG stocks and the NASDAQ seem to be grabbing more and more headlines as this once hot area seems to be rapidly cooling off. We still view risk as elevated over the next several months and remain cautious. It looks like when the selling occurs in popular stocks it is quick, sharp and rapid with price discovery often times 10-15% lower.

We are maintaining our defensive positions!

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This report is not intended to be a client‐specific suitability analysis or recommendation, an offer to participate in any investment, or a recommendation to buy, hold or sell securities. Do not use this report as the sole basis for investment decisions. Do not select an asset class or investment product based on performance alone. Consider all relevant information, including your existing portfolio, investment objectives, risk tolerance, liquidity needs and investment time horizon.

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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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