May 14

Weekend Review and Watchlist


A bit of a nothing week price-wise, with stocks starting strongly only to fade later and end the week slightly lower.

Having observed a reasonable amount of social media commentary this week, my overall impression is that bearish sentiment is elevated, but price action remains rangebound on a short-term and intermediate basis.

Here’s the 10-30 chart of the S&P 500 (10-days, 30 min bars):-


And here’s the S&P on a daily chart of the last nine months:-


Breaking the 50-day MA seems to have got some pulses racing, but so far there’s little evidence this is more than just a continued consolidation of the advance from the February lows.

Let’s look at the S&P on a weekly chart for some much-needed context:-


Consider for a moment, even if we’re being conservative and using a weekly close basis rather than a daily or intraday, that from the February lows the S&P rallied over 12% in 10 weeks.

It has since fallen 2% in 3 weeks. Hardly a crisis. In fact, it’s perfectly normal action.

From my perspective that’s a very modest consolidation, but then my timeframe is longer than my lunch break.

What’s really interesting however is that a consolidation as modest as this has already been enough to have some folks reaching for the sick bag and locating a parachute.

I follow some excellent analysts on twitter and I’m indebted to @RyanDetrick @Ukarlewitz @HMeisler @WalterGMurphy for their keen observations and commentary on sentiment surveys, fund flow reports, and technical readings that hit this week, among them:-

AAII bulls hit the lowest since the February lows at 22.3%.

Bulls have been beneath their long-term average of 38.6% for 59 of the past 61 weeks.

The 5-day equity-only put/call hit the highest since February 10th.

The cumulative advance/decline for $SPX hit the second highest level ever (Tues).

There was a $6.1bn outflow from equity funds/ETFs, which have been negative for 15 of the past 19 weeks.

The Citi Panic/Euphoria model is back near panic levels.

The NAAIM Exposure Index went from 82.50 three weeks ago to 49.55 this week.

The TRIN (Arms Index) spiked to 2.2 (Fri), a level which can signal capitulation following a period of weakness.

Not to mention the prevailing negative sentiment and concerns around seasonality (sell in May), the Fed meeting in June, the upcoming ‘Brexit’ vote in the UK, and the continued political uncertainty in an election year.

If I traded on those things I guess I’d be crapping myself too, it sounds more daunting than my honey-do list.

And yet here we are with the S&P -2% in 3 weeks, and 4% off its all time highs from a year ago.

Of course, we also shouldn’t be complacent. Things could get worse, that’s always a possibility we’re prepared for. The prevailing hand-wringing could prove to be justified and prescient, but for the moment it appears to me there’s a lot of strong emotions, opinions, and concerns, where price action simply doesn’t warrant it.

What about the other indices? The S&P alone isn’t the market.

Here’s the Dow, which ducked just below its 10-week MA:-


The Transports had a steeper decline in the last 3 weeks, as they did in the prior weakness into the January low:-


The NASDAQ fell for a fourth straight week as weakness in semis and biotech continues to weigh:-


The Russell is back below its 10 and 40-week MAs, at 5-week lows:-


Relative to the S&P however it’s hanging in there, and the nascent trend off the February lows remains intact:-


Clearly there are some indices faring better than others, and I see the lower highs, but without a new lower low this current 3-week period of weakness in baby steps appears counter-trend in nature.

The intermediate trend higher is intact. Price action alone would be enough to conclude that, but when combined with a backdrop of bearish sentiment it leads me to believe the path of least resistance remains higher also.


Sector Analysis

Of the nine S&P sector SPDRs, Utilities ($XLU) and Consumer Staples ($XLP) are both close to challenging their old highs, and I continue to like the longer-term progress being made by Energy ($XLE) and Materials ($XLB):-


Industrials ($XLI) and Consumer Discretionary ($XLY) looked set to challenge their old highs but pulled back late in the week to finish back below their 50-day MA. Longer-term though the damage looks contained for now.


Lastly we have Technology ($XLK) which remains above its 200-day, then Financials ($XLF) and Healthcare ($XLV) which both printed 4-week lows. The action that caught most attention however and likely contributed to the prevailing negative sentiment was continued weakness in Retail ($XRT), Biotech ($IBB) and Semis ($SMH).


Alpha Capture Portfolio

This week our portfolio was -0.1% vs -0.5% for the S&P.

That takes it to -2.6% YTD vs +0.1% for the S&P.

There were no changes during the week, but after Friday’s decline we have one exit signal for Monday which will still leave us over 90% allocated with 6.5% total open risk across 13 positions, all of which remain just below their highs in strong trends.




More of the same this week with staples, industrials, energy, and a handful of technology stocks.

Here’s a sample from the full list of 25 names:-

























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