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BWC Market Update - April 27, 2018

Economic Comment

Earning season is upon us hot and heavy and a number for big companies reported nice earnings surprises to the upside this week, only to sell off hard later in the day. The equity market seems to open up on good news only to sell off during the day. This was the case on Tuesday when a 131 point gain on the DJIA was erased and the decline intraday was as much as 500 points. It has been several weeks since we have updated our indicators. Let us see what is going on.

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

10 Week- Bullish Percent (Short-term): The month of April has seen this short-term indicator move from oversold at 26% to overbought at 64%. This week’s action has brought it back to a more neutral range at 52%.

Optionable-Stock Bullish Percent (Intermediate term): After being on defense at 44%, enough stocks have had positive point and figure buy signals to move this indicator over 50% and flip it back to OFFENSE. It has recently come back down to 48%.

NYSE Bullish Percent (NYSEBP) (Longer-term): This indicator came down to 44% and saw the same reversal from defense to OFFENSE. You may ask- How can this happen. Well, many stocks in a sector can move these bullish percent indicators, such as, the recent weakness in the financial stocks, the main reason last month for the downward reversal. Improvements in the oil and oil service stocks are the main reason for the reversal back up. (Source: Dorsey Wright)

Point and Figure Charts (Source: Dorsey Wright)

S&P 500: April has seen the S&P 500 move all over. The low at 2560 has held in a recent test. A poke over 2700 is encouraging to the bull. However, there is a clear series of lower highs. It appears that more backing and filling is needed for this chart to improve. Concern is at the 2540-2560 level. If that level is broken, there is no real support until 2300 (11-12% lower). (Source: Dorsey Wright Website)

S&P 500

SP500 4.27.18

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

The FAANG trade really seems to be affecting the NASDAQ. The chart demonstrates much more violent swings back and forth. 6800 is important near term support.(Source: Dorsey Wright Website)

NASDAQ

NASDAQ 4.27.18

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 banging against 2.925% four times, the big news this week is that the 10-year made print at 3%. This hasn’t happened since 2014. Usually the first breakout sees a retracement back down. The new “normal” could be a range of 2.8-3.2% for 2018. Below is a long-term multi-year chart. (Source: Dorsey Wright Website)

10-year Treasury

10yearTreasury 4.27.18

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

Crude Oil, continuous Crude is resuming its rally mode with a breakout. Next stop, could be a move to $70-$75. (Source: Dorsey Wright Website)

 CrudeOil 4.27.18

Conclusion

The markets don’t repeat themselves, but they do rhyme. I know I might be making a controversial comparison, however, in 1987 the first half of the year was characterized by a choppy stock market that continued to rise. 1987 saw interest rates increase for the first half of the year. Everything reversed in August of 1987 and we all know what happened in October of 1987. The 1st quarter of 2018 was only the eighth time both stocks and bonds had a negative quarter. The 1st quarter of 2018 was also the first negative quarter for the S&P 500 in NINE quarters. We don’t believe the sharp sell offs that marked the 1st quarter of 2018 are the end of corrections in the stocks market. We remain cautious.

Have a great weekend!

Beirne Wealth Consulting Services, LLC (“BWC”) is a growing, privately owned, SEC Registered Investment Advisor* with just over $2 billion in assets under advisement and 21 employees in Connecticut, Pennsylvania and Florida. BWC provides independent, fee-based investment management services and customized financial planning solutions. Our institutional business provides consulting expertise to defined benefit and defined contribution plans, endowments, foundations and non-profit organizations. Our private clients include high net-worth individuals and prominent families, many of whom bring complex wealth management challenges and multigenerational planning needs. For more information, please visit www.beirnewealth.com or give us a call today at 888-231-6372

*Registration does not imply a level of skill or training.

© 2018 Beirne Wealth Consulting Services, LLC (BWC). All rights reserved. Reproduction or Use without permission is prohibited.

This market update 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 update 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.

Information contained herein has been obtained from a range of third party sources. While the information is believed to be reliable, BWC has not sought to verify it independently. As such, BWC makes no representations or warranties as to the accuracy of the information presented and takes no responsibility or liability (including for indirect, consequential or incidental damages) for any error, omission or inaccuracy in the data supplied by any third party.


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.

https://www.quandl.com/data/CHRIS/CME_CL1-Crude-Oil-Futures-Continuous-Contract-1-CL1-Front-Month

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").

5steps

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