BWC Market Update - January 4, 2019
Happy New Year everyone! The last day of trading December 31st ended on a high note, after the scary sell off we had the day before Christmas. The day after Christmas saw the first 1000-point rally in the Dow Jones Industrial Average. This was from a deeply oversold market. News of possible trade deals are still dominating the headlines and market forecasters are making predications for 2019. We follow our risk indicators and there have been some changes.
Bullish Percent’s, (Data source: Dorsey Wright, see definitions at the end of this report.)
10 Week- Bullish Percent (Short-term): During the last week of December, the 10-week hit 6% which is deeply oversold level. The last time the 10-week hit single digits was August of 2011. You can see this doesn’t happen very often. When this short-term indicator hits such an extreme level, it typically signals the low in the equity markets for an intermediate 3-6 month’s time frame. This indicator is now at 12%. (Source: Dorsey Wright,12/31/2018)
Optionable-Stock Bullish Percent (Intermediate term): This indicator is on DEFENSE and at 16%. This means the stocks in the options universe are in a low risk position now. (Source: Dorsey Wright,12/31/2018)
NYSE Bullish Percent (NYSEBP) (Longer-term): This indicator is also DEFENSE and at 16% which is lower than October of 2011. Buying equities at these levels tends to be an attractive entry point. However, we typically wait until this indicator reverses to OFFENSE before getting uber bullish. (Source: Dorsey Wright, 12/31/2018)
Point and Figure Charts (Source: Dorsey Wright, 11/30/2018)
S&P 500: The trading range we thought might happen, broke to the downside, sharply, several days before Christmas. A huge rally on December 26th from a deeply oversold perspective then happened. It looks like quite a bit of technical damage was done. 2320-2340 seems to be short-term support. 2600 is now resistance. The best picture for the S&P 500 would be to trade sideways and stabilize for the next several weeks. (Source: Dorsey Wright Website,12/31/2018)
NASDAQ: The NASDAQ has seen the same sharp selloff. On a positive note, the Bullish Percent for the NASDAQ has turned positive which is a good intermediate sign for this index. Support at 6800-6850 has now become resistance and 6100-6200 looks to be support. (Source: Dorsey Wright Website 12/31/2018)
US 10-Year Treasury Note: There was a big flight to safety the last two weeks of 2018. Stocks were sold, and bonds were bought and the 10 year went right through 2.8%. As we have said before, the 10 year above 3% might mean the economy is doing okay. The 10 year below 3% might mean we are in for a slow-down in the economy for 2019. (Source: Dorsey Wright Website 12/31/2018)
Crude Oil, Continuous: Crude oil also ended the year on an ugly note, breaking to $43 per barrel. However, looking farther back to the chart of August 2016, it looks like $40-$44 per barrel could be near term support. (Source: Dorsey Wright Website 12/31/2018)
Crude Oil, Continuous
2017 was a poor year for Global Equity markets and December was a rough month. We find it interesting that at the end of 2017, no one saw a poor 2018 happening. What is even more interesting is that now that 2018 ended on a sour note, many market pundits are more negative on 2019.
- Our Current Strategy: Our risk indicators have reached levels that we have not seen since March of 2009 which was the low in US Equity markets during the global financial crisis.
- We are putting clients’ money to work in “Value” stocks and Dividend stocks.
- The sharply oversold levels of Growth stocks are also making them attractive.
- During the month of December, the US Stock market has been pricing in a “hard” recession in 2019. Homebuilder, Autos and Bank Stock have all sold off sharply.
- Although we believe the US Economy could slow down in 2019, the severe overreaction in US Equities looks to be a good investing opportunity.
- Our indicators also show improvement in International and Emerging Markets as well.
Let’s see what 2019 brings investors! Have a great weekend!
Bullish Percent Definitions
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.
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.
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.
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.