BWC Market Update - July 10, 2018
It’s was the first Friday of July last week and while many people were on vacation, the government released the jobs number for July. Expectations were for an increase of 195,000 for the month, but the number topped expectations and came in at 213,000. (BLS) Tariff talk is still in the headlines so let’s review our indicators.
Bullish Percent’s (Data source: Dorsey Wright, see definitions at the end of this report.)
10 Week- Bullish Percent (Short-term): After peaking at 68%, (short-term overbought), this indicator went to 50% at the end of June. It has since gotten back to 56% the first week of July. This is almost neutral. (Source: Dorsey Wright)
Optionable-Stock Bullish Percent (Intermediate term): This indicator is still on OFFENSE at 52.98%. It’s in the middle of the field but only a small amount away from reversing down. 52% would be a negative reversal. (Source: Dorsey Wright)
NYSE Bullish Percent (NYSEBP) (Longer-term): Still on OFFENSE at 53.52% which is father away from the reversal level of 52%. (Source: Dorsey Wright)
Point and Figure Charts (Source: Dorsey Wright)
S&P 500: Very well-defined trading range developing between 2680 and 2800. 2740 has been short-term resistance which was broken on Friday. Next test will be 2790. (Source: Dorsey Wright Website)
A new high for the NASDAQ was made in June. This was followed by a quick pullback. Will the June highs be taken out? Or has the FAANG trade made its last run? (Source: Dorsey Wright Website)
US 10- Year Treasury note: The 10-year peak at 3.1% looks to be intact. The real surprise is that with the strength in the payroll numbers the 10 year has headed back lower. Is the decline in yield in the 10-year telling us something about the future strength of the US economy in the 2nd half of 2018? (Source: Dorsey Wright Website)
Crude Oil, continuous: That pullback didn’t last long. After the recent 10% pullback, Crude oil has made a run to the $75 level. A breather would not be out of the question, but the pattern looks higher. (Source: Dorsey Wright Website)
Daily news of trade tariffs has created a choppy, sideways trading range for US equities. It looks like the US equity markets want to resume an uptrend. What is very interesting is the fact that the weakness in European and Emerging Market equities hasn’t spilled over to the US equity markets. 2018 for US equities in shaping up to be the exact opposite of the low volatility, one way up, equity markets of 2017. The real question is if weakness in global equity markets will spill over to US equity markets. We still believe equity valuations are rich and the surprise for US equities could be on the downside. We remain cautious.
Have a wonderful week!
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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.
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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.
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 asset classes and ranks the asset classes from strongest to weakest based upon relative strength (RS). We feel asset classes can be ranked like 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").