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Market Update - February 5, 2016

Friday, February 5, 2016

Economic Comment

The big news today was the monthly jobs report from the government. Consensus was for 185,000 jobs and the number came in on the light side at 151,000. The strong month of December, (292,000) was revised down to 252,000. This is setting the stage for the narrative that the US economy could be rolling over and going into a recession. This is not what we believe. Some important changes to our indicators this week.

Bullish Percent’s

10 Week Bullish Percent (Short-term) the 10-week was very oversold and did a good job of indicating the rally we got in the last two weeks. It has gone from 10% to 28% and is still in oversold territory. This indicator has been a good predictor of an oversold rally of 5-15%.

Optionable Stock Bullish Percent (Intermediate term) this indicator is now on OFFENSE and reversed up yesterday at 26.37%. The field position is good and this is now a positive for the US Equity markets.

NYSE Bullish Percent (NYSEBP) (Longer-term) this indicator is now on OFFENSE and starting off February on a positive note. Monday, February 1st, this indicator got over 28% and has reversed up. Historically, any reading under 30% is considered good field position for US Equities. (Source: Dorsey Wright)

Point and Figure Charts (Source: Dorsey Wright)

S&P 500 finished January on a strong note with a move over 1920-1940. We have seen a pullback to 1880 which should act as short-term support. The next big test for the S&P 500 will be if it can get over 1950-1960 which is a strong downtrend line. The S&P 500 has recovered the 1880 to 1920 level, but needs to hold in here. (Source: Dorsey Wright Website) 

S&P 500

NASDAQ some of the large cap technology stocks that make up the NASDAQ got sold off this week on earnings news. The NASDAQ did manage to get to 4620 before selling off. However, it has now fallen further than the S&P 500 to the 4400-4420 level which it needs to hold. The NASDAQ still needs to recover the 4500 level and stabilize. (Source: Dorsey Wright Website) 

Russell 2000  has seen some important improvement over the last two weeks and has gotten as high as 1036. A trading range of 980 to 1020 seems to be forming.  (Source: Dorsey Wright Website) 

US 10-Treasury Note:  New lows for 2016 for the 10 year with a move down to 1.8%. This was lower than the August, Chinese scare low and the October low. Maybe the 10-year spends 2016 under 2%. (Source: Dorsey Wright Website) 

10-year Treasury

Relative Strength US Equities are still holding on to first place. However, we are seeing movement underneath the water. Biotech moved down sharply this week and utilities have moved up. This is complementing our theme of pidends for 2016. Fixed Income is number 2. (Source: Dorsey Wright Website) 

Conclusion

After a rough first three weeks of January, the US Equity markets began to stabilize the last week in January and the first week in February. Several of our important indicators have moved to offense and the charts are starting to show signs of repair. However, nothing goes straight up. Our theme for 2016 of high pidend stocks seems to be gaining traction with the Utility sector the best performer so far this year. We view our indicators as a “dimmer” switch rather than a straight off and on switch. This means that we are growing optimistic and slowly increasing equity exposure. The fear of the first three weeks is still gripping the market as the VIX indicator is still elevated, and the equity markets are still focused on oil. However, our indicators are improving and showing that risk levels are low in the market.

Last big game of the year this weekend! Enjoy!

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