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CORRECTION TO CONTINUE, OR A RENEWED ASSAULT ON ALL-TIME HIGHS?

Jun 10

CORRECTION TO CONTINUE, OR A RENEWED ASSAULT ON ALL-TIME HIGHS?

The interim update published previously alerted investors that the recent mild correction may be nearing an end given the growing positive divergences being registered by both strategic and tactical supply and demand indicators. And, the issuance of a tactical buy signal by the SAMMY family of indicators. The update turned out to be extremely accurate, as the stock market proceeded to rally sharply for the balance of the week. By Friday’s close the first signs of some selling appeared as the S&P-500, and our preferred VOO ETF, had rallied back to marginally exceed the resistance at the 62% retracement level, which is also in the zone where the preceding rebound rally failed after the initial leg down in the correction. Having done some buying during the weakness, and having diagnosed the bottom correctly, what is the strategy and tactics for the days and weeks ahead?

TATY   —   A STRATEGIC FAMILY OF SUPPLY AND DEMAND INDICATORS

TATY is shown in the first chart above in yellow with the S&P-500 overlaid in red and blue candle format. During the recent weakness in the price, the Dow gyrated hundreds of points intraday almost every day, as the volatility we had been warning clients about roiled the market. However, as the price went through its violent gymnastics, TATY consistently stripped away the daily noise, and continued to suggest to investors that the big picture strategic view remained favorable. I must admit that given the velocity of some of the Dow moves, I was a bit surprised that TATY only declined marginally, and then bottomed in the red zone, which historically is a sign of strength consistent with a continuing bull trend.

The failure of the violent price moves to drive the premium/discount indicator, found in the bottom panel of the TATY chart, deeply into the discount to “value” zone is a concern, as the strongest bottoms often form, when the discount is forced below the minus eight level. Discounts below minus eight tend to signal that most would be sellers have been driven from the market, and the strong hands (deep pockets) are seizing control. The sharp rally of this past few days is evidence that buyers have seized control of the market, but the shallow discount to value makes me want to watch this indicator carefully now that the price has recovered back to an obvious math and chart resistance level. The implication is the rally may begin to struggle, and need to digest its gains before a renewed assault on new all-time highs. On the contrary, the shallow discount may have left enough would be sellers waiting at resistance to roll the rally over into a test of the recent low, which may actually be a positive development for investors with excess cash.

The second chart above shows an updated view of the daily chart of the VOO ETF, which was shown in the interim update. The rally has been quite persistent, and has now exceeded the math resistance at the VOO 263-4 level mentioned in the update. However, resistance is still evident just a bit higher, where the rebound rally failed previously. Also, please note how the strong positive divergence (bold green line) suggested the price would follow higher, and it has.

SAMMY   —   A FAMILY OF TACTICAL SUPPLY AND DEMAND INDICATORS

SAMMY is shown above in the third and last chart. The third chart shows SAMMY alone with the recent buy signal shown with a vertical blue line. Since we had already deployed some cash earlier during the correction, I elected to play the odds, and try to do another purchase on our terms on a retest of the low after SAMMY issued the buy signal mentioned in the update. Usually the initial rebound off a low will be tested in a matter of a few days, but unfortunately this time the rally turned out to be so strong it did not look back. However, the price has now reached both math and chart resistance, and only an exceptionally strong rally would likely take out the resistance, and then immediately assault new all-time highs without at least a brief digestion of gains, or even an outright test of the previous low. If the market dials up a pullback, then we shall attempt to take advantage of it for clients with excess cash.

THE BOTTOM LINE

A leg down, or possibly the entire correction, has ended and given way to a strong rally, which has now reached an important zone of resistance. Strategic supply and demand indicators are signaling a continuing favorable balance of demand relative to supply, which implies a renewed assault on new all-time highs, perhaps after a respite to digest the sharp gains of the past week. Given the positive strategic metrics, we shall attempt to add some VOO to accounts with excess cash, if given a relatively low risk trade entry on a digestion of gains pause, or an outright retest of the recent low. A decision to execute a purchase of VOO will be confirmed only to clients and research customers by text or email. Please note that most clients are already invested, but some do have new cash, which needs to be put to work.

 

DISCLAIMER: Optimist Capital LLC, does not guarantee the accuracy and completeness of this report, nor is any liability assumed for any loss that may result from reliance by any person upon such information. The information and opinions contained herein are subject to change without notice and are for general information only. The data used for this report is from sources deemed to be reliable, but is not guaranteed for accuracy. Past performance is not a guide or guarantee of future performance. Optimist Capital LLC, and any third-party data providers, shall not have any liability for any loss sustained by anyone who relied on this publication’s contents, which is provided “as is.” Optimist Capital LLC disclaim any and all express or implied warranties, including, but not limited to, any warranties of merchantability, suitability or fitness for a particular purpose or use. Our data and opinions may not be updated as views or information change. Using any graph, chart, formula or other device to assist in deciding which securities to trade or when to trade them presents many difficulties and their effectiveness has significant limitations, including that prior patterns may not repeat themselves continuously or on any particular occasion. In addition, market participants using such devices can impact the market in a way that changes the effectiveness of such device. The information contained in this report may not be published, broadcast, re-written, or otherwise distributed without prior written consent from Optimist Capital LLC.

Jun 3

There Will Be Volatility

We have been warning investors of increasing volatility as the calendar turns more toward the 2020 election. Elections cause uncertainty, and uncertainty is the enemy of the stock market. The stock market is not cheap, and has been touching new all-time highs for months, which implies the next series of marginal new all-time highs may require more and more effort on the part of buyers to achieve. And, if one adds into the mix the potentially fading effect of all that stimulus from the financial crisis back in 2009, which probably got a temporary boost from the two trillion dollars of debt added to the nation’s balance by the Republican’s narrowly focused tax cut, then it is easy to make a case for increasing volatility.

I should probably also mention the recent new item of uncertainty in evidence this past week, as institutions have begun to worry about an inverted yield curve, a condition which happens when long term interest rates drop below short term rates. Institutions are prone to take this as a  warning of a coming recession. So, the bottom line is the bull stock market now has a taller “wall of worry” to climb. Alexander and I expect more volatility in the coming months, with some months likely to experience some dramatic episodes of volatility.

The stock market has now declined enough for pundits to begin to talk about a new bear market in anticipation a recession, or at least the end of economic metrics like unemployment touching levels, which historically depict a strong and vibrant economy. This is the notion that when things are as good as they ever have been economically, then the only path forward are post peak conditions, or a long slide toward the next bottom in the economy. This notion was around in the 1990s, even though the bull stock market continued to roar along only to begin to encounter some headwinds after the Clinton administration accomplished a rare balanced federal budget. So the bottom line for this section is the bull market will end when supply begins to overcome demand, and no one knows if that will happen soon, or years from now. In the interim we shall monitor the ever changing balance of supply and demand, and then make portfolio adjustments as needed to manage the implied risks.

TATY   —   A FAMILY OF STRATEGIC SUPPLY AND DEMAND INDICATORS

TATY is shown in the first chart above with the S&P-500 overlaid in red and blue candle chart format. As the market has been gyrating hundreds of Dow points a day, TATY has continued to generate numbers consistent with firm underlying demand. This week’s persistent decline caused TATY to close in the red zone for the first time in a while, which is still consistent with demand stronger than supply in strategic terms. As long as TATY does not begin to paint out numbers in the caution zone surrounding the 115-125 level, then it is reasonable the expect a renewed assault on all-time highs once this current weakness is over. Should TATY make an excursion into the caution zone, then the probabilities that the stock market may be forming a major top would rise. The measured strength, or weakness, in the next rally would become critically important in determining, if investors should become aggressive in protecting accumulated profits, and begin lowering their risk profiles. Should the TATY rally begin to fail near the red zone, then the probability of a major top being formed would rise dramatically. Until such a “Big Chill” setup completes its necessary steps, then the probabilities will remain favorable for an assault attempt on new all-time highs after the current correction has reached its conclusion.

SAMMY   —   A FAMILY OF TACTICAL SUPPLY AND DEMAND INDICATORS

SAMMY is shown above in the chart above, and in the chart below with the SPXL 3X ETF overlaid. SAMMY painted a “whole body” candle below its lower Bollinger Band on Friday. When this happens it is usually a signal that sellers are entering a zone, where their propensity to sell normally exhaust itself. So SAMMY has now entered a zone, where we should begin to look for evidence of resurging demand in the short term. Upon evidence of resurging demand, we may decide to add new long positions to portfolios in an effort to enhance overall performance with an intermediate trade, or to absorb excess cash. There are also some growing positive divergences in some of the strategic indicators, so any tactical buy signal issued in the near term may have the added benefit of the strategic positive divergence. Investors may also observe that SAMMY is showing a positive divergence to the overlaid price in the last chart, so positive divergences now exist strategically and tactically. However, while the TATY premium/discount indicator (see lower panel of the chart) has declined below the zero line, it has not reached the red line at minus eight, which would signal a greater discount to “value” trade setup. The greater the discount to “value” the more washed out the sellers, and less implied risks for new purchases. I’ll monitor this potential setup, and then make a decision, if we want to participate in a tactical intermediate trade.

THE BOTTOM LINE

Investors will likely encounter increasing volatility from now until after the 2020 election. We plan to use this increased volatility to enhance the performance of client portfolios, so the more volatile investment environment would not necessarily be a negative. There are positive divergences beginning to grow in some strategic and tactical indicators, which implies the current leg down in the correction, or possibly the entire correction, may be nearing an end. If an opportunity for a low risk intermediate trade develops, then we will consider taking advantage of the current oversold conditions, and a discount to “value” situation to possibly initiate another purchase of VOO or QQQ.

DISCLAIMER: Alpha Wealth Strategies, LLC (AWS), and/ or Optimist Capital LLC, does not guarantee the accuracy and completeness of this report, nor is any liability assumed for any loss that may result from reliance by any person upon such information. The information and opinions contained herein are subject to change without notice and are for general information only. The data used for this report is from sources deemed to be reliable, but is not guaranteed for accuracy. Past performance is not a guide or guarantee of future performance. Alpha Wealth Strategies, LLC, and/or Optimist Capital LLC, and any third-party data providers, shall not have any liability for any loss sustained by anyone who relied on this publication’s contents, which is provided “as is.” AWS and Optimist Capital LLC disclaim any and all express or implied warranties, including, but not limited to, any warranties of merchantability, suitability or fitness for a particular purpose or use. Our data and opinions may not be updated as views or information change. Using any graph, chart, formula or other device to assist in deciding which securities to trade or when to trade them presents many difficulties and their effectiveness has significant limitations, including that prior patterns may not repeat themselves continuously or on any particular occasion. In addition, market participants using such devices can impact the market in a way that changes the effectiveness of such device. The information contained in this report may not be published, broadcast, re-written, or otherwise distributed without prior written consent from Alpha Wealth Strategies, LLC and/or Optimist Capital LLC.

May 28

A Summer To Fall Correction?

MEMORIAL DAY 75 YEARS AFTER D-DAY

During the pre-dawn hours of June 6, 2019 a restored C-47 (Douglas DC-3) transport plane will lead dozens of WWII vintage aircraft from England to Normandy in a reenactment of the D-Day invasion on June 6, 1944. The lead airplane will be the very same airplane, which led the 900 airplanes transporting thousands of paratroopers to Normandy on their missions to secure important roads and bridges, and take out enemy artillery targeting the beaches code named Omaha, Utah, Gold and Sword. The French have planned extensively with allied military to make this anniversary of D-Day especially significant (see the attached link https://www.nbcnews.com/news/military/d-day-anniversary-ceremonies-will-include-plane-rescued-boneyard-n1008181).

After the Japanese attack on Pearl Harbor, my father and his brothers Herbert, John, James, Robert and Harris all joined the Army. My mother’s brothers, Robert joined the Navy, and Uncle Frank joined the Army. Incredibly all these men survived WWII, but the things they witnessed stayed with them all the rest of their lives. In the post WWII era my cousin John Adams served in the Airborne, John Shedd served in the National Guard, and my cousin Marshall Shedd was career Navy, and was flown from Rota Spain during the Cuban Missile Crisis to Washington to brief president Kennedy on Russian ship movements through the strait of Gibraltar. My son-in-law, and a wonderful husband and father to my three grandsons, is a Marine Lt. Colonel, whose mother has worked in the Pentagon, and whose father was career Navy. And, my late father-in-law, Army General Bill Gantt, and my brother-in-law Army Ranger Colonel Matt Gantt have served with distinction on my wife’s side of the family. While we are grateful for the service of our family members, which have all come home safely, this weekend we are remembering all those, which as president Lincoln said: “gave their last full measure of devotion to their country”.

“Many forms of Government have been tried, and will be tried in this world of sin and woe. No one pretends that democracy is perfect or all-wise. Indeed, it has been said that democracy is the worst form of Government except all those others forms that have been tried from time to time.”  —  Winston Churchill

American War Fatalities: Civil War 750,000, WWII 405,399, WWI 116,516, Vietnam 58,209, Korea 54,206, Revolutionary War 25,000, War of  1812 15,000, Iraq 4497, and Afghanistan 2216 to date. The following link will take you to an appropriate tribute honoring those which have given “their last full measure of devotion to our country”,  https://www.youtube.com/watch?v=Omd9_FJnerY.

Alexander and I want to express our appreciation to all those receiving this update, which have served our country in uniform.

 

CLIENT AND RESEARCH CUSTOMER STOCK MARKET UPDATE FOR THE WEEK ENDING MAY 24, 2019

I have friends and colleagues of long standing in this business, whose work using other approaches to the stock market I respect. We often share our analyses, and recently one of these analysts made the case for the current correction to linger through the summer, and perhaps into the fall with a possible decline into the range of the December 24, 2018 low, plus or minus. He may be right. So, how would such an outcome look vis-à-vis our supply and demand approach to risk management, and should we change anything to account for this possible painful decline? Given that certainty is not possible in navigating the risks of the stock market, let us take a look at how this uncertainty may be navigated with the odds in our favor.

In the analysis which follows we shall assume that my friend is right, and by the way he spent part of his professional career as a strategist for Merrill Lynch in New York. In this hypothetical case we shall take a look at the potential decline not just re-visiting the zone of the December 24 low, which would be just shy of a bear market decline generally accepted as a 20% decline from a new all-time high, but all the way to a bear market exceeding the 20% guideline. Obviously there are multiple paths available for a bear market to develop along, but for this example will assume a quick and nasty decline as opposed to a complex overlapping decline taking many months. This outline will be done in the context of how the big picture strategic indicator, TATY, would likely develop as the onset of the hypothetical bear market progresses.

TATY   —   A FAMILY OF STRATEGIC SUPPLY AND DEMAND INDICATORS

TATY, shown in the first chart above, continues to signal that the big picture balance of supply and demand remains favorable for demand over supply, as it has continued to bottom in, or above the red zone. It is a bit curious that with the recent increase in volatility, which we have been warning about in these weekly updates, that there has been relatively little atrophy in the strength of TATY, as the stock market has gyrated hundreds of Dow points a day. If the bear hypothesis is correct, then the history of the TATY indicator strongly suggests that there will be an excursion of the indicator into the caution zone surrounding the 115 to 125 level. Excursions into the caution zone have preceded every major top over the last thirty plus years, and/or the expiration of substantial counter-trend rallies during bear markets.

Nothing has a perfect record in this business of dealing with uncertainty, but it is very likely that the onset of a new bear market would once again cause the TATY indicator to go through its “Big Chill” warning gymnastics, just as it has done so consistently in the past. The “Big Chill” setup makes psychological sense, as investors tend toward euphoria as tops form, and a sharp break in the market turns euphoria into caution. When caution comes into the mix the propensity to buy and hold changes toward an urgency to protect accumulated profits. TATY painting out the “Big Chill” warning is just holding up a mirror to the aggregate shift in investor psychology from euphoria to caution. And, since human beings tend to be evolutionary creators of habit, this phenomenon of human crowd behavior tends to repeat over and over.

The increase in market volatility to date has failed to trigger a “Big Chill” warning, so either the market will dial up a rare miss for the TATY indicator, or the current decline has more work to do in order to trigger the setup. Since the strategic big picture remains favorable according to TATY, I will continue to hold our long positions in the expectation that it is likely premature to harvest some of our accumulated profits. This does not mean I expect less volatility going forward. On the contrary, I expect an increasingly volatile investment environment, as the calendar turns toward the 2020 election.

So the bottom line for the bear market decline hypothesis is that given the lack of a “Big Chill” warning so far, the odds favor investors treating the current volatility and mild to date correction as part of a potentially incomplete topping process, or just a pause in an ongoing bull market. A TATY decline into the caution zone surrounding the 115-125 level would change this outlook into one of potentially harvesting some profits during any subsequent rally following a “Big Chill” warning.

SAMMY   —   A FAMILY OF TACTICAL SUPPLY AND DEMAND INDICATORS

SAMMY recently issued a tactical buy signal, which was followed by a rally to the 62% retracement level of the S&P-500 decline to date. Given the strategic picture remains favorable, I elected to hold our longs, even though the rebound rally appeared fatigued at the resistance level shown in previous updates. One of those updates stated that the math resistance level had to be breached in order for a another assault on new all-time highs to occur. Once the current decline is over, then I would expect another assault on the math resistance where the previous rebound rally failed. How that level is approached will be key to our trading tactics going forward. A rebounding rally with powerful metrics would likely take out the resistance level, but another fatigued type rally would likely cause me to consider taking some profits.

SAMMY is shown above with the SPXL 3X leveraged ETF overlaid, and in the last chart by itself. SPXL is traded only in selected family accounts and not in client accounts. Clients should note that the SAMMY indicator is in a rally, but the price is not rallying as sharply. This negative divergence is not a healthy sign for the rally in the price, and suggests the correction may have more work to do before it puts in a bottom sufficient to support another assault on first the math resistance, and if that is overcome. a subsequent assault on new all-time highs.

 

DISCLAIMER: Alpha Wealth Strategies, LLC (AWS), and/ or Optimist Capital LLC, does not guarantee the accuracy and completeness of this report, nor is any liability assumed for any loss that may result from reliance by any person upon such information. The information and opinions contained herein are subject to change without notice and are for general information only. The data used for this report is from sources deemed to be reliable, but is not guaranteed for accuracy. Past performance is not a guide or guarantee of future performance. Alpha Wealth Strategies, LLC, and/or Optimist Capital LLC, and any third-party data providers, shall not have any liability for any loss sustained by anyone who relied on this publication’s contents, which is provided “as is.” AWS and Optimist Capital LLC disclaim any and all express or implied warranties, including, but not limited to, any warranties of merchantability, suitability or fitness for a particular purpose or use. Our data and opinions may not be updated as views or information change. Using any graph, chart, formula or other device to assist in deciding which securities to trade or when to trade them presents many difficulties and their effectiveness has significant limitations, including that prior patterns may not repeat themselves continuously or on any particular occasion. In addition, market participants using such devices can impact the market in a way that changes the effectiveness of such device. The information contained in this report may not be published, broadcast, re-written, or otherwise distributed without prior written consent from Alpha Wealth Strategies, LLC and/or Optimist Capital LLC.

May 20

PRESIDENTIAL TEFLON

The rank and file American watching, what must seem to be an endless stream of chaos on the evening news, must be somewhat confused about why none of the chaos seems to result in negative consequences for those holding political power. This “Teflon” phenomenon has been well documented over the decades regardless of the label of the presiding administration.

Democratic president, Jimmy Carter, lamented a “national malaise” as high inflation, an energy crisis, hostages in Iran, and a stock market reflecting the uncertainty of the times. President Carter was turned out of office, as virtually everything his opponents threw at him stuck. Another Democratic president, Bill Clinton, got caught up in a “flute tooting” episode gone public, and not only survived as the stock market was roaring higher, but the attempt to impeach him failed, and led to the demise of Republican Speaker Newt Gingrich, and a huge wave election victory for Democrats running for the House. Republican president, Ronald Reagan, survived a one day stock market crash of almost 25%, and the Iran Contra Affair during another big bull trend in the stock market. Need I even mention Richard M. Nixon going from a landslide re-election to that uncomfortable to watch walk to Marine One after his resignation, as the Dow had been knocking on 500, down from 999. Yes a 50% bear decline, which was just one of multiple roundtrips between 500 and 999 from 1966 to August 1982.

Republican president George H. W. Bush won an extraordinary and quick war in Iraq, but was turned out of office when a very modest, and short lived, recession in 1990 weighed negatively on the stock market, and its attendant social mood. The bottom line in these observations is bull stock markets tend to wrap presidents in a form of political Teflon, which effectively deflects the attacks of the opposition. However, as the George H. W. Bush example so clearly illustrates, woe be unto any president unfortunate enough to preside over even a relatively mild bear stock market. Even George W. Bush sailed along with the wind at his back, September 11, 2001 notwithstanding, until summer gave way to fall 2008 and a free falling stock market, which swept Democratic president Barack Obama into office.

I’ll go out on a limb here and say that regardless of the attacks of his opponents, or his low poll numbers, Mr. Trump will be re-elected, if the bull stock market is still in place as summer turns to fall in 2020. On the contrary, if a bear stock market is firmly in place, then Mr. Trump’s presidential Teflon, which has served him so well, may go the way of the dinosaur, and virtually everything thrown Mr. Trump’s way will begin to stick. If a mild bear trend can take down Iraq war victor George H. W. Bush, then one can only imagine what a significant bear trend may hold for a much more unconventional, and controversial, president like Mr. Trump? If you want to know who will win the presidency in 2020, then watch the market and not the hype on the evening news.

We have been warning clients that volatility would likely increase as the 2020 election looms on the horizon. These last several days have seen the first volatility episode of the 2020 election season. It will very likely be followed by more episodes, which should be viewed as opportunity in disguise. The stock market has been gyrating several hundred Dow points a day in chaotic fashion. So far the damage to the underlying positive balance of supply and demand has been minimal according to a number of supply and demand based objective measurements. However, the recovery from the decline of the last several days has now reached an important math resistance zone, so what happens over the next several days may be an important “tell” for what is likely to happen as the calendar turns from spring to summer.

TATY   —   A FAMILY OF BIG PICTURE STRATEGIC SUPPLY AND DEMAND INDICATORS

TATY is shown above in the first attachment in yellow with the S&P-500 index overlaid in blue and red weekly candle chart format.

The decline over the last several days has pushed TATY into the red zone surrounding the 140 level on the chart. When this indicator is making bottoms in, or near, the red zone, then an established bull trend is likely to continue, as bottoms in the red zone are historically signs of strong demand and relatively weak supply. While the daily volatility has been quite high, this indicator tends to take out the daily noise, and can often tell investors important information about the big picture trend. As long as this indicator does not paint into the caution zone surrounding the 115-125 level the strategic picture will remain favorable. As long as the strategic picture grades out as favorable, the potential for an assault on new all-time highs will also remain favorable, once the current weakness has run its course.

SAMMY —   A FAMILY OF TACTICAL SUPPLY AND DEMAND INDICATORS

SAMMY is shown above  alone, and below with the SPXL 3X leveraged exchange traded fund (ETF) overlaid.

SAMMY has completed the required elements noted last week for a tactical buy signal, and with the strategic indicators remaining positive, we have undertaken a buying program to soak up some excess cash. Purchases were made on weakness after our premium/discount indicators reached into their discount zones. Putting cash to work when often fleeting discounts to “value” are being offered tends to lower risks, and raise the probability of such purchases becoming profitable sooner rather than later. This is a game of probabilities and not certainty, so not all of these kinds of trades will be winners, but such a discipline has been demonstrated to be successful in the aggregate over time.

In order for this latest trade to reward investors, the resistance zone shown on the last chart above must be successfully navigated. It is beyond the scope of this brief update to get into a teaching discussion about important math support and resistance levels, but clients need to known that there is a substantial body of evidence, which shows that such calculations tend to be useful in application. The resistance zone shown above on the last chart may take several days to overcome. The zone lies between a 50% to 62% retracement in the decline to date from the high. If the market can work higher than the 62% retracement level at S&P-500 2895, then the odds of a renewed assault on new all-time highs will rise significantly.

On the contrary, should the rebound rally stall in the math resistance zone between S&P-500 2878 and 2895, then the implication would be that the correction may run longer and deeper, and likely take out the recent low at S&P-500 2801.

THE BOTTOM LINE

A SAMMY tactical buy signal is now being tested at math resistance between S&P-500 2878 and 2895. A continuing rally above S&P-500 2895 resistance would significantly increase the odds of a renewed assault on new all-time highs. A rally failure at the resistance zone would imply a longer and deeper decline may be needed to rejuvenate demand sufficiently to mount the next assault on new all-time highs.

 

DISCLAIMER: Alpha Wealth Strategies, LLC (AWS), and/ or Optimist Capital LLC, does not guarantee the accuracy and completeness of this report, nor is any liability assumed for any loss that may result from reliance by any person upon such information. The information and opinions contained herein are subject to change without notice and are for general information only. The data used for this report is from sources deemed to be reliable, but is not guaranteed for accuracy. Past performance is not a guide or guarantee of future performance. Alpha Wealth Strategies, LLC, and/or Optimist Capital LLC, and any third-party data providers, shall not have any liability for any loss sustained by anyone who relied on this publication’s contents, which is provided “as is.” AWS and Optimist Capital LLC disclaim any and all express or implied warranties, including, but not limited to, any warranties of merchantability, suitability or fitness for a particular purpose or use. Our data and opinions may not be updated as views or information change. Using any graph, chart, formula or other device to assist in deciding which securities to trade or when to trade them presents many difficulties and their effectiveness has significant limitations, including that prior patterns may not repeat themselves continuously or on any particular occasion. In addition, market participants using such devices can impact the market in a way that changes the effectiveness of such device. The information contained in this report may not be published, broadcast, re-written, or otherwise distributed without prior written consent from Alpha Wealth Strategies, LLC and/or Optimist Capital LLC.

May 13

THE REQUIRED ELEMENTS FOR A TRADABLE STOCK MARKET BOTTOM

This past week volatility did increase as the Dow Jones Industrial Average gyrated hundreds of points intraday. These gyrations in the price did cause our measures of the balance of supply and demand to trigger the appropriate setup for the purchase of our preferred exchange traded funds (ETFs) the VOO, which tracks the S&P-500 index, and the QQQ which tracks the tech heavy NASDAQ. Trading operations were conducted during the week, when our proprietary premium/discount indicator signaled the nominal premium at which our domestic stock indexes normally trade had been compressed into a (fleeting?) discount. Friday was a particularly volatile market day, but by the close most of our purchases for the week were at breakeven, or in some cases profitable, as evidence of exhausted sellers gave way to the first evidence of resurging demand. It was a very tough week for those not armed with effective indicators with proven records of success in the crucible of the stock market.

TATY   —   A REPRESENTATIVE OF A FAMILY OF STRATEGIC BIG PICTURE SUPPLY AND DEMAND INDICATORS.

TATY is shown in the first chart above in yellow with the S&P-500 overlaid in red and blue weekly candle chart format. Most investors would agree that this past week was very volatile and violent, but TATY takes out the daily noise and gives us a bigger strategic perspective. The indicator did confirm that the nominal premium had been compressed into a modest discount during the week (see lower panel on the chart), and that for the time being no “Big Chill” warning had been issued even though volatility had spiked. This implies that the stock market is still likely to assault new all-time highs once this correction has run its course, if it has not already.

As long as TATY holds above the caution zone surrounding the 115-125 level, then the probabilities suggest that demand remains sufficiently strong enough for another assault on new all-time highs. TATY may have bottomed on Friday in the red zone surrounding the 140 level, which would be historically a sign of strength, if the indicator has indeed bottomed.

SAMMY   —   A REPRESENTATIVE OF A FAMILY OF TACTICAL SUPPLY AND DEMAND INDICATORS

SAMMY is shown in the second chart above with the SPXL 3X leveraged S&P-500 ETF overlaid, and in the last chart below by itself. SAMMY has completed a buy signal by painting out a “whole body” bar below the lower Bollinger Band shown in red. This is the first half of the signal, which represents the zone where sellers usually have exhausted their propensity to sell. Exhausted sellers is a necessary condition for a tradable bottom, but not a sufficient condition. Please note the SPXL is not traded in client accounts, but is traded in my personal account, and some selected family accounts.

To complete the SAMMY buy signal there must be objective evidence of resurgent demand, which did occur on Friday. Thursday’s candle is shown in the last chart above with a vertical blue line through it, and investors will note the fat part of the bar, the “whole body” portion, did paint completely below the lower Bollinger Band shown in red. Now please note how the next bar, Friday’s bar, painted a “whole body” completely above the lower Bollinger Band. It takes buyers coming into the market in size to have this kind of result paint on the chart! In my world this is objective market generated evidence of a significant change in the balance of supply and demand. Add to this the evidence of compression of the nominal market premium into a modest discount, and one can make a case that the probabilities favor a tradable bottom is in the process of forming, or perhaps is already complete. In a perfect world the discount would have touched the lower red line at minus eight on the weekly TATY chart, but alas the stock market is not a perfect world, and failure to touch the minus eight zone may be a hint that this correction is not quite done.

This is a game of probabilities and not certainties, and this is what favorable probabilities look like in terms of the objective supply and demand measurements shown above.

THE BOTTOM LINE

The bottom line is strategic big picture supply and demand indicators still favor demand over supply, which suggests another assault on new all-time highs is likely once the current correction has run its course. Tactical supply and demand indicators have completed the minimum requirements for the formation of a tradable bottom, which are evidence of exhausted sellers followed by evidence of resurging demand. While the Friday low may be tested in the days ahead, the odds remain favorable for a renewed assault on new all-time highs in the weeks ahead.

 

DISCLAIMER: Alpha Wealth Strategies, LLC (AWS), and/ or Optimist Capital LLC, does not guarantee the accuracy and completeness of this report, nor is any liability assumed for any loss that may result from reliance by any person upon such information. The information and opinions contained herein are subject to change without notice and are for general information only. The data used for this report is from sources deemed to be reliable, but is not guaranteed for accuracy. Past performance is not a guide or guarantee of future performance. Alpha Wealth Strategies, LLC, and/or Optimist Capital LLC, and any third-party data providers, shall not have any liability for any loss sustained by anyone who relied on this publication’s contents, which is provided “as is.” AWS and Optimist Capital LLC disclaim any and all express or implied warranties, including, but not limited to, any warranties of merchantability, suitability or fitness for a particular purpose or use. Our data and opinions may not be updated as views or information change. Using any graph, chart, formula or other device to assist in deciding which securities to trade or when to trade them presents many difficulties and their effectiveness has significant limitations, including that prior patterns may not repeat themselves continuously or on any particular occasion. In addition, market participants using such devices can impact the market in a way that changes the effectiveness of such device. The information contained in this report may not be published, broadcast, re-written, or otherwise distributed without prior written consent from Alpha Wealth Strategies, LLC and/or Optimist Capital LLC.

May 6

The Most Bullish Thing A Market Can Do Is Make New Highs!

CLIENT AND RESEARCH CUSTOMER STOCK MARKET UPDATE FOR THE WEEK ENDING MAY 3, 2019

Early this past week the stock market touched a new all-time high, and then closed down and on the low of the day a behavior, which completely “engulfed” the price action of the previous day. In a discipline I do not use in my analysis, but is followed by many other analysts, this kind of market behavior is believed to signal weakness, and is often thought of as a harbinger of a short to intermediate decline. I issued an interim update taking note of this event, but warned that more information would be required before taking any defensive action, and I warned that I had long held issues with price only type analysis. Some marginal weakness did occur, but was quickly reversed by Friday. The so far fleeting weakness was enough to drive tactical indicators into marginal oversold zones, and some marginal discounts did appear in some related premium/discount indicators, which triggered a SAMMY tactical buy signal when evidence of resurgent demand appeared on Friday.

TATY   —   A REPRESENATIVE OF A FAMILY OF STRATEGIC BIG PICTURE SUPPLY AND DEMAND INDICATORS

TATY declined intraday only to 146 during this past week’s short bout of weakness, which is well above the red zone. TATY continues to signal that demand remains in a favorable position to supply, which implies there will likely be more assaults on new all-time highs in the days, and possibly weeks ahead. This indicator cannot tell us if at some point short sellers will be forced to cover their losing positions, or if under-invested money managers cannot stand the pain of not being fully invested and begin to buy in size adding demand to the rally at the margins. Such an event could result in the conditions being present for a stampede higher, but please note this observation is a recognition of conditions prevailing at the moment, and most certainly is not a prediction. I only measure strength, or weakness, in supply and demand in the market, but always leave making predictions to those, which believe they have that talent.

The previous paragraph made the case that the conditions for a sprint higher maybe coming into place. On the contrary, a prudent investor would also be aware that the stock market is not cheap by historical standards, and recently there have been some creeping evidence of buyers fatigue. So the big picture remains favorable, but we do not yet know whether the eventual expiration of this leg higher will come as part of a buying climax as investors panic into stocks, or if like old age buyers fatigue overcomes demand as supply rises.

TATY is shown in yellow above with the S&P-500 overlaid in red and blue weekly candle chart format.

SAMMY   —   A REPRESENATIVE OF A FAMILY OF TACTICAL SUPPLY AND DEMAND INDICATORS

SAMMY is shown above in the by itself, and below with the 3X leveraged SPXL exchange traded fund (ETF) overlaid.

The marginal decline ended almost before it began, but it did force SAMMY to go through the required gymnastics to issue a tactical buy signal. The new vertical blue line on the attached chart shows where SAMMY, and the market, bottomed. The evidence of resurgent demand following immediately in the next bar confirmed that a short to intermediate term bottom had likely formed. While I never like buying close to new all-time highs, SAMMY is suggesting that all, or most, would be sellers have been exhausted for the moment, as the sellers caused SAMMY to paint out the “body” of its candle bar below the lower Bollinger Band, which is indicative of an exhaustion zone. And, then several premium/discount indicators (not shown) made marginal excursions into their discount zones. Given the potential for the development of a short covering type event, I am going to add some excess cash to our VOO and QQQ holdings on any weakness, which holds above this past week’s low. However, I am viewing this as a potential buy to soak up some excess cash as just a trade to potentially enhance overall performance, and not as a long term core investment.

I do not want to miss out on a short covering type sprint higher if it occurs, and if it does not then I’m willing to cash out with a relatively modest profit, or marginal loss if conditions change toward the adverse. I do not expect a loss given the accuracy of our proprietary indicators, but one must take into account that this close to new all-time highs volatility could spike at any time, even though the odds are significantly favorable for more rally. Investing is all about probabilities and not certainty.

THE BOTTOM LINE

The budding weakness of this past week was over almost as soon as it began. The issuance by SAMMY of a new tactical buy signal sets up yet another potential assault on new all-time highs. It also keeps alive the potential for a short covering, under-invested, type sprint higher, as a scramble to get invested may add demand at the margins to ignite an acceleration higher. Thankfully we have been following our own advice, and most of our clients have been, and remain, appropriately invested in equities, so this new buy signal will be primarily to add excess cash to existing holdings in an effort to increase overall performance by way of applying our tactical indicators to maximum advantage.

 

DISCLAIMER: Alpha Wealth Strategies, LLC (AWS), and/ or Optimist Capital LLC, does not guarantee the accuracy and completeness of this report, nor is any liability assumed for any loss that may result from reliance by any person upon such information. The information and opinions contained herein are subject to change without notice and are for general information only. The data used for this report is from sources deemed to be reliable, but is not guaranteed for accuracy. Past performance is not a guide or guarantee of future performance. Alpha Wealth Strategies, LLC, and/or Optimist Capital LLC, and any third-party data providers, shall not have any liability for any loss sustained by anyone who relied on this publication’s contents, which is provided “as is.” AWS and Optimist Capital LLC disclaim any and all express or implied warranties, including, but not limited to, any warranties of merchantability, suitability or fitness for a particular purpose or use. Our data and opinions may not be updated as views or information change. Using any graph, chart, formula or other device to assist in deciding which securities to trade or when to trade them presents many difficulties and their effectiveness has significant limitations, including that prior patterns may not repeat themselves continuously or on any particular occasion. In addition, market participants using such devices can impact the market in a way that changes the effectiveness of such device. The information contained in this report may not be published, broadcast, re-written, or otherwise distributed without prior written consent from Alpha Wealth Strategies, LLC and/or Optimist Capital LLC.

Apr 29

New All-Time Closing Highs

For weeks now these updates have been saying that objective measures of the balance of supply and demand were favorable, which implied a renewed assault on new all-time highs by the S&P-500 was very likely. This past week new closing highs were touched. The rally appears a bit fatigued, but the balance of supply and demand remains favorable toward demand over supply. These conditions imply that more new all-time highs continue to be likely, but without additional demand being added to the equation, perhaps coming from institutions being caught under-invested, any additional rally may occur in ragged fits and jerks with an upward bias?

TATY   —   A REPRESENATIVE OF A FAMILY OF STRATEGIC SUPPLY AND DEMAND INDICATORS

TATY was little changed this past week, but she did manage to close higher. This big picture strategic indicator in weekly format continues to signal a favorable balance of demand over supply. As long as this indicator forms bottoms in, or around, the red zone surrounding the 140 level the rally will likely remain intact. A “big chill” type event causing TATY to plunge into the caution zone surrounding the 115-125 level would be a warning that conditions were moving in favor of rising risks to accumulated profits, and a more prudent equity asset allocation may need to be revisited, given the history of the behavior of this indicator over the last few decades. TATY is shown in the first chart above in yellow with the S&P-500 overlaid in red and blue candle chart format.

SAMMY   —   A REPRESENTATIVE OF A FAMILY OF TACTICAL SUPPLY AND DEMAND INDICATORS

Sammy is a daily format tactical indicator with an enviable record of telling investors that the risk/reward ratio is favorable for putting excess cash to work, or initiating an intermediate trade to enhance performance. The indicator is shown above in candle format in the second chart by itself, and in the third chart with the VOO exchange traded fund overlaid. VOO is an extraordinarily low cost ETF, which tries to replicate the performance of the S&P-500. SAMMY did not flash any buy signals this past week, but investors should note that the price touched new highs, but SAMMY did not confirm setting up a very minor negative divergence. Should this negative divergence remain, or grow stronger, then it would be logical to expect some increasing volatility in the days ahead.

THE BOTTOM LINE

A series of supply and demand based indicators, which include derivative modules and NYSE data in their calculations, continue to signal that demand remains in the superior position to supply in the stock market. As long as this condition persists, investors should expect more attempts to assault new all-time highs.

The law of supply and demand is the absolute bedrock upon which all of the capitalistic system rests! Objective measurement of the balance of supply and demand is an essential requirement for appropriate, and effective management of risks, when attempting to navigate the uncertainties of the stock market.

 

DISCLAIMER: Alpha Wealth Strategies, LLC (AWS), and/ or Optimist Capital LLC, does not guarantee the accuracy and completeness of this report, nor is any liability assumed for any loss that may result from reliance by any person upon such information. The information and opinions contained herein are subject to change without notice and are for general information only. The data used for this report is from sources deemed to be reliable, but is not guaranteed for accuracy. Past performance is not a guide or guarantee of future performance. Alpha Wealth Strategies, LLC, and/or Optimist Capital LLC, and any third-party data providers, shall not have any liability for any loss sustained by anyone who relied on this publication’s contents, which is provided “as is.” AWS and Optimist Capital LLC disclaim any and all express or implied warranties, including, but not limited to, any warranties of merchantability, suitability or fitness for a particular purpose or use. Our data and opinions may not be updated as views or information change. Using any graph, chart, formula or other device to assist in deciding which securities to trade or when to trade them presents many difficulties and their effectiveness has significant limitations, including that prior patterns may not repeat themselves continuously or on any particular occasion. In addition, market participants using such devices can impact the market in a way that changes the effectiveness of such device. The information contained in this report may not be published, broadcast, re-written, or otherwise distributed without prior written consent from Alpha Wealth Strategies, LLC and/or Optimist Capital LLC.

Apr 22

A BIT FATIGUED?

The stock market marked time this past week in a tight price range approximately one percent below the S&P-500 all-time high at 2941. There are number of ways in which this current situation could resolve itself, but the two most important, and opposed, are a short covering powerful rally to new all-time highs, or the rally continues to show signs of fatigue, and then eventually rolls over into a downtrend, which may be destined to test the December 24, 2018 low first, or in the worst case, as the final leg down in a very large bear market. For now the probabilities remain favorable toward more rally, but that is subject to change.

TATY  —   A FAMILY OF WEEKLY SUPPLY AND DEMAND STRATEGIC INDICATORS

TATY recently made a bottom in the red zone surrounding the 140 level and has now resumed its rally. When this indicator is making bottoms in the red zone it is an objective measure of the strength of the underlying demand for stocks. This condition can linger for months, and it’s history suggests that this condition must change toward weakness before the danger of the stock market forming a major top becomes a significant concern. However, this does not rule out periodic episodes of short term volatility occurring. These kinds of episodes tend to never gain enough strength to push the indicator into the caution zone surrounding the 115-125 level. If such a decline in the indicator does occur, then it is objective evidence that the balance of supply and demand under the market is weakening, and investors must be vigilant for additional signals that a major top may be forming. The indicator is shown above in the first chart in yellow with the S&P-500 overlaid in red and blue candle format.

SAMMY   —   A FAMILY OF DAILY SUPPLY AND DEMAND TACTICAL INDICATORS

SAMMY gave an unconfirmed buy signal in late March, which has now worked out just fine. However, in an abundance of caution to limit client exposure to unnecessary risks, I do not take SAMMY buy signals unconfirmed by other indicators such as the premium/discount to value indicator. SAMMY applied in conjunction with the premium/discount to value indicator tends to give investors buy signals, which are extraordinarily low in risks, and appropriate for adding excess cash into the market, or participation in intermediate trades to enhance overall performance with as little exposure to risks as possible. While most professional futures traders would take SAMMY unconfirmed buy setups without hesitation, adding the premium/discount to value filter is more appropriate for risk adverse client accounts. Alexander and I are risk adverse money managers, and risk management is job one at Optimist Capital LLC. SAMMY is shown in the second chart above without the S&P-500 overlaid, and below with the S&P-500 super-imposed.

SAMMY is currently showing some signs of fatigue just below the S&P-500 all-time high at 2941. This suggests that the current leg up may not have enough fuel left in the tank to touch new all-time highs before this leg gives way to a period of consolidation to rejuvenate demand. However, as long as any such period of weakness avoids pushing TATY into the caution zone surrounding the 115-125 level, then any new buy signals issued by SAMMY, which are confirmed by the premium/discount to value indicator, would be evidence that the next leg up may generate enough strength to set new all-time highs in the S&P-500. Touching new all-time highs may set off a chain reaction of short covering by institutions caught leaning the wrong way with their asset allocation to equities. Given these realities, I’d take any confirmed SAMMY buy signals in client accounts, both to put excess cash to work, and to use as a likely intermediate term trade to enhance overall performance.

Please notice that this potential trade depends solely on objective market generated evidence, and not some “expert” opinion being expressed in the financial media. I make client investment decisions based only on information generated by the market itself, and the market in this case means both NYSE based data, and modules of data taken from the derivatives markets. Incredible percentages of overall dollars devoted to risk management these days are done in the derivatives markets. This is important information affecting the overall balance of supply and demand most analysts totally ignore at their client’s peril.

THE BOTTOM LINE

The price of the S&P-500 rests about one percent below all-time highs, and an assault on new all-time highs remains a favorable probability. However, the stock market may need to digest some of its recent gains before another attempt on new all-time highs occurs, because according to the SAMMY indicator the current push up is beginning to look a bit fatigued. Current conditions suggest investors should remain invested toward the upper end of their equity asset allocation.

 

DISCLAIMER: Alpha Wealth Strategies, LLC (AWS), and/ or Optimist Capital LLC, does not guarantee the accuracy and completeness of this report, nor is any liability assumed for any loss that may result from reliance by any person upon such information. The information and opinions contained herein are subject to change without notice and are for general information only. The data used for this report is from sources deemed to be reliable, but is not guaranteed for accuracy. Past performance is not a guide or guarantee of future performance. Alpha Wealth Strategies, LLC, and/or Optimist Capital LLC, and any third-party data providers, shall not have any liability for any loss sustained by anyone who relied on this publication’s contents, which is provided “as is.” AWS and Optimist Capital LLC disclaim any and all express or implied warranties, including, but not limited to, any warranties of merchantability, suitability or fitness for a particular purpose or use. Our data and opinions may not be updated as views or information change. Using any graph, chart, formula or other device to assist in deciding which securities to trade or when to trade them presents many difficulties and their effectiveness has significant limitations, including that prior patterns may not repeat themselves continuously or on any particular occasion. In addition, market participants using such devices can impact the market in a way that changes the effectiveness of such device. The information contained in this report may not be published, broadcast, re-written, or otherwise distributed without prior written consent from Alpha Wealth Strategies, LLC and/or Optimist Capital LLC.

Apr 15

Giddy Yet?

Last week’s update mentioned that breaking the negative divergence in the supply and demand strategic indicator named TATY boded well for an attempt to assault new all-time highs. The rally of this past week had the S&P-500 cash index approach within one percent of the all-time S&P-500 high at 2941. So for the time being the balance of supply and demand, as measured by a series of indicators, remains favorable. This suggests that investors should remain invested toward the maximum of their equity asset allocation, as an assault on new all-time highs remains a significant probability.

However, I am concerned that sentiment has become quite extreme in the positive according to a number of publications. The theory behind this observation is that when everyone is bullish there are no investors left to push prices higher. I have issues with sentiment indicators, which are beyond the scope of this brief update, so for the time being let us just say that expressing an opinion in a survey of professional investors is not the same as acting on one’s opinion in size with real money.

My proprietary indicators are attempts to track what investors are actually doing in real accounts, with real money, which drives the balance of supply and demand for stocks. So sentiment is not even a secondary indicator in my world, but sometimes they may be helpful, even as the blunt and crude instruments, which they tend to be. As an aside, we were visited this past week by a trust representative making an overture to us to manage some trust accounts. In the course of our conversation, he mentioned that he had attended a recent conference of over three hundred hedge fund managers here in Palm Beach, where all the presentations were very bullish in nature. Evidence of an extreme in bullish sentiment, or evidence that these very bright women and men are right about the stock market? For an answer, let us see what the market told us about itself this past week by checking in with TATY and SAMMY below.

TATY  —  A BIG PICTURE FAMILY OF STRATEGIC SUPPLY AND DEMAND INDICATORS

TATY, shown in the first chart above in yellow overlaid with the S&P-500 in blue and red candle chart format, shows that the break of the lengthy negative divergence in the tops of the indicator (aqua descending line on the chart) continued this past week. Both the price, and the underlying balance of supply and demand, suggest an assault on new all-time highs remains a favorable probability. And, as last week’s update suggested, perhaps sooner rather than later?

Long time readers of these updates know that since TATY is a weekly generated and plotted indicator, its most effective format, then it would take weeks for it to complete the normal gymnastics required for the indicator to signal that a major top was in the process of forming. These kinds of signals have been very accurate since the 1990’s, and probably before, if the data existed in eSignal format for me to calculate it. While no indicator is perfect, TATY has an outstanding record of signaling that risks have risen to levels consistent with prudent investors optioning for the risks of lost opportunity from scaling back equity exposure over the more cogent and dangerous risks of being trapped in a vicious, and often relentless, bear market for stocks. For now, the weight of the evidence remains favorable toward an asset allocation slanted in favor of stocks according to a series of strategic supply and demand indicators.

SAMMY  —   A FAMILY OF TACTICAL SUPPLY AND DEMAND INDICATORS

SAMMY is shown above in daily format alone, and with the SPXL 3X leveraged exchange traded fund (ETF) overlaid in the chart below. Please note that SPXL is a potent trading instrument best applied by experienced and highly skilled professional traders. I use the non-leveraged Vanguard VOO ETF in conservative and risk adverse client accounts, which is generally accepted as a more appropriate choice.

SAMMY has proven effective at locating low risk entries for putting excess cash to work, and for intermediate trades whose purpose is to maximize overall performance with as little relative risks as possible. I prefer to use SAMMY with the premium/discount to value indicator as a filter to expose client accounts only to the lowest relative risk intermediate trades possible. The added premium/discount to value filter results in fewer trades, but also trades with lower relative risks. Alexander and I are risk adverse managers, so risk management is always job one with us.

You will notice that even though the last two trade setups shown above for SAMMY (shown by the vertical blue lines on the chart) worked out just fine with SPXL, I did not take these trades in client accounts, because they failed to be confirmed by the premium/discount indicator. While this may be viewed as a lost opportunity due to an over abundance of caution, investors pay us to manage their risks, and proper risk management in our world always requires the application of confirming signals from other indicators. At some point we may offer a more aggressive ETF product for qualified investors wanting to put an appropriate portion of their wealth in a more aggressive strategy in addition to those already offered, since this family of tactical indicators have tended to be extremely accurate. However, this notion must be thoroughly tested with my own funds before being offered to clients, if ever.

SAMMY matched its recent high this past week, as the price pressed on to a higher high. If this persists, or if SAMMY actually rolls over into a negative divergence as the price continues higher, then the environment of giddy extremes in optimistic sentiment may become a “tell” that an intermediate top may be forming, intermediate as opposed to a major top at this point.

THE BOTTOM LINE

An assault on new all-time highs remains a favorable probability, albeit in an environment trending toward extreme optimistic sentiment.

 

DISCLAIMER: Alpha Wealth Strategies, LLC (AWS), and/ or Optimist Capital LLC, does not guarantee the accuracy and completeness of this report, nor is any liability assumed for any loss that may result from reliance by any person upon such information. The information and opinions contained herein are subject to change without notice and are for general information only. The data used for this report is from sources deemed to be reliable, but is not guaranteed for accuracy. Past performance is not a guide or guarantee of future performance. Alpha Wealth Strategies, LLC, and/or Optimist Capital LLC, and any third-party data providers, shall not have any liability for any loss sustained by anyone who relied on this publication’s contents, which is provided “as is.” AWS and Optimist Capital LLC disclaim any and all express or implied warranties, including, but not limited to, any warranties of merchantability, suitability or fitness for a particular purpose or use. Our data and opinions may not be updated as views or information change. Using any graph, chart, formula or other device to assist in deciding which securities to trade or when to trade them presents many difficulties and their effectiveness has significant limitations, including that prior patterns may not repeat themselves continuously or on any particular occasion. In addition, market participants using such devices can impact the market in a way that changes the effectiveness of such device. The information contained in this report may not be published, broadcast, re-written, or otherwise distributed without prior written consent from Alpha Wealth Strategies, LLC and/or Optimist Capital LLC.

Apr 8

The Burden Of Proof Is On The Bulls

Our weekly updates have been observing that objective measurements of supply and demand for stocks favored demand over supply, and that continues to be the case. The evening news continues to provide the ongoing bull trend in stocks with a “wall of worry” to climb, and so far the bull trend has demonstrated enough strength to keep the uptrend moving toward new all-time highs at S&P-500 2941. However, the lingering question of extending bull market, or a bear trap in the making remains an open one.

TATY  —  A STRATEGIC FAMILY OF INDICATORS

These updates have been monitoring a developing negative divergence in the tops of TATY, a strategic supply and demand indicator. The negative divergence, depicted by the down sloping aqua line on the first chart above, has been in place for weeks until Friday, when the downtrend was broken by the late week rally. New all-time highs, which seemed a long way away back on December 24, are now only marginally above Friday’s close. When a bull trend is moving higher it manifest itself by painting out bottoms in the TATY indicator in, or close to, the red zone surrounding the 140 level. As you can see on the chart the March price weakness did cause the indicator to dip into the red zone before it recovered to break the multi-week negative divergence. However, this minor price weakness was insufficient to push the premium/discount indicator into the acceptable discount range to confirm the corresponding SAMMY tactical buy signal.

Breaking the negative divergence bodes well for the rally, and suggests the prior all-time high at S&P-500 2941 may be assaulted sooner rather than later. However, as previously observed the rally has now reached into the danger zone, where the burden of proof is squarely upon the bulls to prove they are in charge of the stock market. On the contrary, should the bulls falter, then weeks of sideway congestion, or an outright decline may emerge to the surprise of many analysts. The break of the negative divergence is hard evidence that for the time being the advantage remains with the bulls. However, the failure to push the premium/discount indicator into the significant discount to value range suggests an assault on new all-time highs may run a bit short of the fuel needed to sustain a rally much above the all-time highs. Like the bear trap question, the extent of any new run to all-time highs remains an open question.

SAMMY  —  A TACTICAL FAMILY OF INDICATORS

When the strategic indicator, TATY, is signaling that the big picture is displaying a favorable balance of demand over supply, then the tactical indicator, SAMMY, has been shown to be effective at locating low risk opportunities to put excess cash to work, or to enter intermediate term trades in an effort to increase overall performance with relatively low risks. SAMMY signals alone have been proving that they can locate low risk entries for long intermediate trades, but I prefer to use this indicator with confirming indicators like the premium/discount indicator in order to keep client risk exposure to a minimum. I’ve shown the last two SAMMY entry setups in the chart above and below, Above (without the price overlaid), and Below (with the price of SPXL overlaid and scaled on the left side).

The last two trade setups in SAMMY worked out fine with SPXL, but would have struggled to be as meaningful using the non-leveraged VOO ETF. I suspect that the last two declines in price, which were insufficient to push the premium/discount indicator into discount zone, accounts for the tepid move higher had VOO been employed instead of SPXL. This is why we shall use VOO with SAMMY only when the SAMMY setup is also confirmed with a corresponding move into the discount zone by the premium/discount indicator. Yes those kinds of trades will be fewer in number, but also result in client accounts being exposed to very low relative risks during intermediate trades.

 

The Bottom Line

 

The probability of an assault on new all-time highs increased this past week as the developing negative divergence in the TATY indicator was broken, signaling renewed demand for stocks. However, the burden of proof remains on the bulls, as the price enters an obvious danger zone marginally below the all-time S&P-500 high at 2941.

 

DISCLAIMER: Alpha Wealth Strategies, LLC (AWS), and/ or Optimist Capital LLC, does not guarantee the accuracy and completeness of this report, nor is any liability assumed for any loss that may result from reliance by any person upon such information. The information and opinions contained herein are subject to change without notice and are for general information only. The data used for this report is from sources deemed to be reliable, but is not guaranteed for accuracy. Past performance is not a guide or guarantee of future performance. Alpha Wealth Strategies, LLC, and/or Optimist Capital LLC, and any third-party data providers, shall not have any liability for any loss sustained by anyone who relied on this publication’s contents, which is provided “as is.” AWS and Optimist Capital LLC disclaim any and all express or implied warranties, including, but not limited to, any warranties of merchantability, suitability or fitness for a particular purpose or use. Our data and opinions may not be updated as views or information change. Using any graph, chart, formula or other device to assist in deciding which securities to trade or when to trade them presents many difficulties and their effectiveness has significant limitations, including that prior patterns may not repeat themselves continuously or on any particular occasion. In addition, market participants using such devices can impact the market in a way that changes the effectiveness of such device. The information contained in this report may not be published, broadcast, re-written, or otherwise distributed without prior written consent from Alpha Wealth Strategies, LLC and/or Optimist Capital LLC.