Special Bulletin: April 13, 2021

Is the Nasdaq Coming Out of Hibernation?

Unlike the Bears of Baylor (Congrats on your first National Championship! Praise God!), the “bears” of Wall Street committed a turnover and allowed the Nasdaq to win by confirming an uptrend with a follow-through day (FT day) on March 31st. The Nasy is again approaching all-time highs.

Two weeks ago we wrote, “Perhaps the Nasdaq will kick into gear early next week.” Indeed it did just 3 trading days later with a FT day of its own on day 19 of a new rally attempt.

While this is good news for the stock market bulls, they are not exactly stampeding like the ones in Pamplona, Spain do. Perhaps its too early yet. Maybe by July our “bulls” will be running with theirs creating exciting action on The Street. Interestingly, our bulls hate “red” too. 🙂

Our Current Market Outlook remains “Market in an Uptrend” with a green light. The TPM “Core Four” internal indicators show 3 green and 1 red (see top of page). The net result is a green light. We continue to commit capital back to work in our strategies, but slowly.

Unfortunately, the current rally still lacks in technical strength. Even as the “math of the market” signal has turned green, the tone of the NYSE internals is anemic- lacking in vitality; appearing listless and weak. The most notable area is in the daily volume totals traded on the stock exchanges. It has been poor.

A long-time ago, my mom (back in her E.F. Hutton days) taught me the importance of the market adage “volume precedes price.” Over the ensuing decades, my own research has revealed that it can apply both ways. Massive volume in the early stages of an up move often portends big price moves soon after. Conversely, persistent low volume at or near price highs often precedes a sharp drop (usually accompanied with a significant increase in volume). Said another way, up moves with high volume usually lead to higher prices; low volume to lower prices. 

Whether this period of low volume proves to be the countdown before the launch, or the calm before the storm, time will quickly tell. It won’t persist for long.

The S&P500 continues to be the darling of Wall Street by remaining comfortably above its rising 50-day moving average (50d mav) while hitting all-time highs. It too, however, lacks the volume exclamation mark that it takes to make wise old-timers feel secure.

A continuing technical bright spot is the rapidly falling level of the CBOE Volatility Index (VIX), now under 17. Our research shows that downside risks to the stock market are minimal when the VIX stays under its 50d mav.

Earnings season starts in earnest this week with many financial companies releasing their results for the 1st quarter. Based on the VIX level, it appears that investors are expecting a good EPS period most likely due to the Trump era stimulus taking effect along with the necessary and long over due re-opening of our economy (restaurants, stores, schools, airports, etc.). 

Earlier this week our team studied the stock market action of 1987. Since money goes where it’s treated best and we believe index moves are not random, we find it wise to study past time periods. We found that after an initial 25% three month burst, the market went sideways to down for 2.5 months and then staged a two month 10% melt-up. In case you’re not up on stock market history, within just two months of the August peak the market crashed 35%, with 21% of that happening on the now infamous “Black Monday.” Our two key takeaways: Markets can go up higher and for longer than the general public believes they can, and our current TPM Core Four (which had not been created at that time) would have identified through the “footprints of money” that the big investors were exiting hastily, thereby likely causing our internal indicator based signal to change to yellow on October 6th and to red on October 8th, at the latest. Moral of the story: The trend is your friend, but you must always have an exit strategy.

What should investors do now? Keep an eye on the US 10 year note rate. Add to the strongest ideas on your watch list. Watch the NYSE 52-week lows closely as the indexes reach new highs. 

Have a Triumphant day! ® 

Ps. We have closed our Twitter and Facebook accounts. Read about our decision here and here.