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Market Update - January 22, 2016

Friday, January 22, 2016

Economic Comment

No real economic news this week, the real event has been the continued selling in the oil and global stock markets. Wednesday’s down 560 Dow points with a late day recovery felt like a win. We have had some important changes to our indicators to tell you about.

Bullish Percent’s

10 Week Bullish Percent (Short-term) every cloud has a silver lining and the 10 week is giving us some hope. This week the 10-week Bullish Percent got down to 10%.This was not quite as low as August’s 8%, but still the same, when this short-term indicator gets this low it is a good indicator of an oversold rally of 5-15%. October of 2015 saw a 10.5% rally. This is giving us some good hope.

Optionable Stock Bullish Percent (Intermediate term) this indicator has been on DEFENSE and is now in the low risk zone at 18.6%. Not as low as the August 2015 low of 18%, but still the low risk zone. A move above 26% would get the offense back on the field. (Source: Dorsey Wright) 

NYSE Bullish Percent (NYSEBP) (Longer-term) this indicator is DEFENSE at 18.85% as well. The low in October of 2015 was 18%. Remember, under 30% is the low risk zone for equities. (Source: Dorsey Wright)

Point and Figure Charts (Source: Dorsey Wright)

S&P 500 has approached the 2013 break out level which is acting as support. Lots of intermediate technical damage has been done. The S&P 500 needs to recover the 1900-1950 level, and then build a base if any rally is to be formed in the next 1-3 months. (Source: Dorsey Wright Website) 

S&P 500

NASDAQ the good news on the NASDAQ is that it hasn’t taken out the August 2015 low at 4300. The NASDAQ got close by getting to 4320. The NASDAQ needs to get over 4500 and stabilize. (Source: Dorsey Wright Website) 

Russell 2000   not only did we not get a Santa Claus rally, in late December/early January, but the index has fallen off a cliff. Now in the 960-980 range this index has found support at the May of 2013 breakout levels. 1050 will be resistance on the upside and this index is now down 25.5% from the June 2015 peak.  (Source: Dorsey Wright Website) 

US 10-Treasury Note:  The fear trade has pushed the 10-year down to 1.95%, not quite as low as the lows in the summer. If the global equity markets stage a bounce next week I would expect the 10-year to float back up to the 2.1% level. (Source: Dorsey Wright Website) 

10-year Treasury

Relative Strength A lot of damage has been done to the US Equities ranking at number 1. Fixed Income is a strong number 2. It would not take much additional deterioration in US Equity averages to displace the front runner. Although number two is not a bad spot for US Equities, it would signal more muted equity returns for 2016. (Source: Dorsey Wright Website) 

Conclusion

The first three weeks have obviously been rough for investors to start 2016. Global equity markets are much oversold and a sharp, several day rally could come at any time. Earnings have been on track and better than expected, this could help to stabilize markets in the next several weeks. However, we are not complacent. With our intermediate indicators turning negative we may have to use any rallies to play more defense. As always we will keep you updated.

Big snow storm this weekend!

Christopher P. Englebert

Managing Director

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