BWC Market Update - October 19, 2018
Almost as soon as the third quarter ended, fireworks and volatility made their reappearance in October. Wednesday, October 10th and Thursday, October 11th, saw the three major indices, (DJIA, NASDAQ and S&P 500) decline over 5 ½% during a two day sell off. Then on Tuesday, October 16th, these three indices had a sharp rally higher of over 2%. (CNBC) We have had some major changes in our indicators.
Bullish Percent’s, (Data source: Dorsey Wright, see definitions at the end of this report.)
10 Week- Bullish Percent (Short-term): So far for the month of October, this short-term indicator has sold off sharply down to 15% which is much oversold. This week it has rebounded to 24%, which is still oversold. (Source: Dorsey Wright 10/16/2018)
Optionable-Stock Bullish Percent (Intermediate term): Still on DEFENSE, and now has taken out the April low of 44%. Now at 38%. (Source: Dorsey Wright, 10/16/2018)
NYSE Bullish Percent (NYSEBP) (Longer-term): On October 5th, this longer-term indicator went to DEFENSE and took out the April low of 44%. Now at 40%. (Source: Dorsey Wright, 10/18/2018)
Point and Figure Charts (Source: Dorsey Wright, 10/17/2018)
S&P 500: The new highs of September were immediately followed by a 7.4% decline. The sell-off stopped at the important long-term trendline and the S&P 500 has closed back over this trend line, which is a short-term positive. This trend line is very important and if the S&P 500 has several closes below it, the trend will have changed to negative. (Source: Dorsey Wright Website 10/17/2018)
The NASDAQ has seen a sharper sell off from its recent highs. The move from high to low has been 10.1%. The NASDAQ is struggling to get back above that important long-term uptrend line. (Source: Dorsey Wright Website 10/17/2018)
US 10-Year Treasury Note: The rise in interest rates is being blamed for the sharp stock market correction. When rates come down slightly, the stock market then has a recovery rally. It is unusual for both stocks and bonds to decline at the same time. The recent move higher in yields, has the bond market very overbought. It still looks like interest rates may enter a period of consolidation for the near term. (Source: Dorsey Wright Website 10/17/2018)
Crude Oil, Continuous: The month of October has seen a new high for the year for crude oil at $76 per barrel. Now in a pullback phase, this market could also consolidate, but the uptrend is in place. (Source: Dorsey Wright Website 10/17/2018)
Complacency has turned to fear as investors see how quickly stock market gains made over six months can disappear in a matter of days. In September, our indicators began to persistently flash caution signs. We don’t believe this period of volatility is over. With extreme moves down, the markets can reverse and present extreme moves back on the upside. However, long-term trends lines have been challenged and are holding for now. In our last note, we presented the idea that the fourth quarter of 2018 could see the gains for the year, realized through September, wiped out in the fourth quarter. We remain cautious.
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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.
10-week Bullish Percent is a short-term indicator and is calculated on 10 weeks’ worth of NYSE price data.
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.
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.
Nasdaq is the market capitalization weighted index of over 3,300 common equities listed on the NASDAQ stock exchange.
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 Crude Oil Continuous price is showing chart data presented in such a way that the expiring contract, i.e. the present front month, “feeds into” the next contract month. This is repeated monthly to get a “continuous price”.
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.
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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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