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“THE EXPERTS WERE SURPRISED” — A FAMILIAR PHRASE IN THE FINANCIAL MEDIA

Jul 8

“THE EXPERTS WERE SURPRISED” — A FAMILIAR PHRASE IN THE FINANCIAL MEDIA

Greetings from Château des Fines Roches.

We have made our way from Paris down through the Alps to Provence. As this is being written dusk is creeping across the vineyards surrounding Chateauneuf du Pape, as we are finishing off a wonderful dinner overlooking a valley filled with vineyards, which produce world famous wines. The nearby village of Tavel promotes itself as producing the “Premier Rose de France”, and for those of you, which know your wine, any vintage of a Chateauneuf du Pape is desirable. There are many reasons France is the most visited country in the world!

Americans, which have never traveled in Europe, are often surprised by what they find.

Paris is obviously a one of a kind city with very large open spaces in the old section of the huge metropolis. One can walk out of the Louvre, and then look down the Champs Elysees and see the L’Arc de Triomphe far in the distance, or walk over to the beautiful Jardin de Tuileries, which covers many acres. The Opera House, Napoleon’s Tomb, The Galleries Lafayette, and for those of you in good physical shape the Eiffel Tower are all in walking distance, as are other museums and notable venues along the river. However, for Notre Dame I would recommend taking a taxi. On the day we visited there was lots of heavy equipment and construction crews attempting to stabilize the stone walls, which are still standing, but in various stages of damage after the intense fire consumed the roof, which collapsed into the interior. Money for the restoration is pouring in, but realistically it will likely take years, if not decades for a complete restoration of the church.

Folks taking a stroll along the narrow streets just off the Avenue de Rivoli may feel as if they have strayed into a bad section of town, until they walk through the door of one of the salons, copious in number in the area around the Louvre. Once inside the salons turn into marble palaces hosting names like Chanel, or other haute fashion brands. This phenomenon happens all across France, and other European cities, given the long history of the region, as large cities grew up around the original ox cart roads, often ancient Roman roads. The exterior of the weathered stone buildings often look tired and run down, an appearance accentuated by the very narrow streets.

For example, last year we arrived in the French town of Annecy, and followed the GPS to our B&B, which Paige had researched carefully in advance. As we arrived at the GPS destination I began to wonder, if the internet had handed us some “fake news” about our B&B. The picture above was taken from the street, as I waited double parked for Paige to try and locate an entrance, and our host to direct us to our private parking, a necessity if you rent a car in France. Our apartment, hidden behind the rusty metal gate pictured above, turned out to have been the home of the area’s Roman Governor centuries ago, and is now an elegantly restored multi-floor B&B complete with the Governor’s huge wine cellar, which is still in use. And, a couple blocks away the area turned into a gorgeous and walkable historic area with a river running through it, flowing from the lake with large promenades several blocks away. The old cliché “don’t judge a book by its cover” comes to mind.  Even seasoned travelers can be surprised by what they find as they ramble off the tourist paths in France.

So what does any of this have to do with the stock market? Well for those of us, which have been following the markets for a few decades, the phrase “the experts were surprised” comes to mind.  While we have been in France there has been an article in the financial media by an “expert” forecasting a soon to be complete meltdown of the stock market, and another article by another “expert” calling for a run-away bull market. The authors of these articles have been quoted in the financial media over the years. It appears inevitable that one, or both, of these fellows may be “surprised” at some point by what actually happens going forward. Me, I want my wife to be pleasantly surprised by once again finding a jewel of a destination off the beaten path in France, but Alexander and I are always working diligently to prevent our clients from being exposed to costly market surprises.

As the S&P-500 approaches the round number of 3000, the rally may encounter some resistance, as round numbers tend to become psychological barriers, which often take multiple attempts to penetrate. The financial media may make much ado about this next milestone, so over the days and weeks to come we will be briefing client’s only about the balance of supply and demand for stocks, and not the news, or some prediction du jour by the “experts”, which are often surprised!

CLIENT AND RESEARCH CUSTOMER UPDATE FOR THE WEEK ENDING July 5, 2019

 

These weekly updates have been making the case that the balance of supply and demand remains favorable, and last week’s update stated that any positive catalyst would likely result in the popular stock indexes touching new all-time highs. New all-time highs were touched during this past week’s holiday shortened trading. Given that the balance of supply and demand continues to remain favorable, the  potential for additional new all-time highs, perhaps after several attempts to break through the psychological barrier of S&P-500 3000, would appear to be a likely probability. However, clients would do well to remember that markets tend to move in fits and jerks as opposed to in straight lines.

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

TATY, shown in the chart above in red and blue candle chart format, finished the week at a strong 152, which helped diminish the negative divergence, shown by the orange down sloping line, of the prior two weeks, but the negative divergence remains. Only a TATY bottom in, or near, the red zone surrounding the 140 level will assuage my lingering concern about this negative divergence with the rising price. However, new all-time highs are new all-time highs, so for now we will just monitor the divergence, as concern is not the same as being compelled to take action, given that the objective measures of supply and demand remain favorable.

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

SAMMY, shown above and below, alone and with the SPXL 3X ETF overlaid, did not issue any new buy signals this week, as the stock market continued to touch new all-time highs. The new highs reaffirmed the previous two buy signals issued in May. So for now we simply hold our core positions, and the recently added May purchase and let the market work for us.

THE BOTTOM LINE

The balance of supply and demand remains favorable, and both our core positions, and our recently added position purchased in May continue to touch new all-time highs. Until the balance becomes more of a concern, we will hold all our longs, and let the market work for us.

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.

 

Regards,

Gregory H. Adams

 

Jul 1

Wall Street Goes On Vacation

The second quarter has ended with the Dow and S&P-500 holding on to most of their gains for the year, and threatening once again to touch new all-time highs. However, investors on Wall Street tend to become more interested in weekends in the Hamptons, or long vacations to other destinations as the Dog Days of summer approach. This time of year volume tends to decline and trading is often dull and listless, as the players take a break and go on vacation. This past week the trading did turn dull, and the S&P-500 futures contract traded in a tight ranges intraday, which was blamed on waiting for news coming out of the G-20 meeting in Japan. Given the current condition of the balance of supply and demand, any positive catalyst in the near term has the potential to push the popular stock indexes to new all time highs. However, the developing negative divergence in the TATY strategic indicator mentioned last week is still in place, and is beginning to cast a shadow on the continuing strength of the rally.

TATY   —   A FAMILY OF STRATEGIC SUPPLY AND DEMAND INDICATORS

TATY, shown above in the first attachment in yellow with the S&P-500 overlaid in red and blue candle chart format, continues to paint out numbers above the red zone, albeit with a negative divergence shown by the down sloping red line. When TATY is making bottoms in, or near, the red zone surrounding the 140 level, bull trends tend to continue in the price. This condition can linger for weeks, or months, as TATY bottoms near the red zone are objective measurements of the favorable balance of demand over supply. While no indicator is perfect in this exercise of navigating uncertainty in the markets, it would likely take an excursion in the TATY indicator into the caution zone surrounding the 115-125 level to signal a change in the balance significant enough to threaten the continuation of the bull trend. So, the strategic picture bottom line is conditions remain favorable for new all-time highs, but the growing negative divergence in the indicator suggests any new all-time highs may only be marginal, as the rally is likely to attempt to struggle higher in the face of the growing negative divergence.

SAMMY   —   A FAMILY OF TACTICAL SUPPLY AND DEMAND INDICATORS

SAMMY did not issue any new buy signals this past week, as the rally in the price suggested by SAMMY’S most recent two buy signals (vertical blue lines) issued in May has crept higher. SAMMY is shown above in the second chart by itself, and below with the SPXL 3X leveraged ETF overlaid. As stated previously, SPXL is traded only in selected family accounts, and never in client accounts. Taken together the current objective measures of supply and demand depicted by TATY and SAMMY suggests that the odds remain favorable for new all-time highs in the stock indexes.

THE BOTTOM LINE

Objective measurements of the balance of supply and demand suggests the odds of the popular stock indexes touching new all-time highs remain favorable. However, the growing negative divergence in the TATY strategic indicator is a concern, and this divergence is suggesting that any new all-time highs may only be marginal in nature, and perhaps fragile should the divergence grow even more negative. A decline of the TATY indicator into the caution zone surrounding the 115-125 level would be an initial warning that the underlying strength in the balance of supply and demand for stocks had weakened to a significant enough extent to perhaps compel us to take defensive action in equity portfolios. The negative divergence with TATY above the red zone is a concern, but a TATY excursion into the caution zone surrounding the 115-125 level would potentially be a call for defensive action on any subsequent rally.

 

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 24

NEW ALL-TIME HIGHS, ET AL

These weekly updates have been consistently urging clients to disregard the constant stream of bad news in the financial media, and concentrate only upon what the market itself is telling us about the strength, or weakness, in the balance of supply and demand for stocks. Objective measurements of the balance have continued to show that demand for stocks remains in the superior position to supply. The implication of demand being in the superior position is that the aging bull trend remains viable, and the probability of new all-time highs being touched remains favorable. On Thursday and Friday of this past week new all-time highs were touched by a number of the popular stock indexes, including the S&P-500. Investors also likely earned a quarterly dividend on their holdings this past week as VOO and QQQ often go ex-dividend around June 15 to June 21. I should have confirmation of the exact ex-div date before we leave for France.

TATY   —   A STRATEGIC FAMILY OF SUPPLY AND DEMAND INDICATORS

TATY, shown above in the first attachment in yellow with the S&P-500 overlaid in red and blue weekly candle chart format, recently made a bottom in the red zone, which is indicative of strength in the balance of demand over supply. TATY has a long history of remaining above, or painting out bottoms in the red zone surrounding the 140 level, during bull trends. Excursions of this indicator into the caution zone surrounding the 115-125 level are often the initial sign that demand may be becoming vulnerable to increasing supply. So for the time being the odds of the stock market making additional attempts to touch new all-time highs remain favorable. However, astute investors will notice that while TATY did manage to remain above the red zone this past week, it also painted out a concerning negative divergence with its recent strength, as the price touched new highs. This may be a one off, but should this negative divergence persist, or grow worse, then I may elect to cash out our recent long tactical trade of VOO, or a portion thereof. Core long holdings of our VOO and QQQ will remain in place, unless TATY takes the first step toward a “Big Chill” warning by taking an excursion into the caution zone surrounding the 115-125 level. Such an event would then compel us to take perhaps a more defensive posture toward protecting our accumulated gains.

SAMMY   —   A TACTICAL FAMILY OF SUPPLY AND DEMAND INDICATORS

SAMMY is shown above in the second attachment alone, and in the third with the SPXL ETF overlaid. Please note that the 3X leveraged SPXL is not traded in client accounts, but is traded in some selected family accounts.

SAMMY issued two buy signals during the recent market volatility, and both are now successful. Tactical trades exist to enhance performance, and some of these may turn into long term capital gains holdings, when coordinated with TATY signals. For the time being we will treat the purchases made after the first SAMMY signal as an intermediate trade subject to daily management. Unfortunately, the second signal did not result in a purchase, as I elected to use it to make an additional purchase on our own terms, and only at an extreme discount to value, but our purchase target price was not touched.

I generally try to make at least two purchases, or more, to dollar cost average into really advantageous prices, but alas the downside is sometimes my targets below the market may miss being executed by pennies, but over time this is the way to buy into a bull trend with the least risks, and why clients need pros like Alexander and I to manage their market risks. Individual investors, regardless of their sophistication and skills, simply cannot do what we do routinely to manage market risks. Even most pros do not have the kinds of tools necessary to employ our strategies and tactics, and even if they did most would lack the courage to pull the trigger, when the golden discounts to value are being offered. Superior market tools proven in the crucible of the market are necessary, but not sufficient for successful trading without the requisite courage to employ them. I’m talking the level of training and courage taught by my Marine Lt. Colonel son-in-law, and his non-commissioned officers, to young Marines bound for hot war zones. The markets Alexander and I operate in are no less an investment war zone requiring proven risk management tools, and most importantly the courage to properly apply them during the chaos attendant with fleeting discounts to value. For example, during the last two SAMMY signals issued when tariffs, inverted yield curves, impeachment, and war with Iran dominated the news of the day.

THE BOTTOM LINE

The longstanding favorable balance of demand over supply has now yielded new all-time highs in the stock market. Our core positions in VOO and QQQ continue to reward clients with both capital gains and dividends. We will continue to employ tactical trades to enhance performance, when buy signals are generated by the SAMMY family of tactical indicators. All our trades, both strategic and tactical, will continue to be managed daily during my vacation in France. For the time being, we will allow our trades to move higher with the rising tide of the aging bull trend, which I suspect may develop as a struggle as opposed to a sprint?

 

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 18

A PAUSE AT RESISTANCE ON THE WAY TO NEW ALL TIME HIGHS?

After our tactical SAMMY indicator flashed a buy signal the stock market commenced a strong rally back to our previously identified resistance zone. Given the current status of an array of both strategic and tactical supply and demand indicators, the odds remain favorable for the path of least resistance to remain an eventual assault on new all-time highs. However, the price will likely need some time to overcome this obvious resistance zone, so an assault on new all-time highs will likely be delayed until the stock market has digested the gains made during its sharp rally.

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

TATY has not touched the 160 level shown by the blue line on the attached first chart since January 2018, when the buying fever broke after the stampede higher following the 2016 election. However, TATY continues to paint out numbers consistent with demand remaining in the superior position to supply. For more than three decades, when TATY is making bottoms in, or near, the red zone surrounding the 140 level these conditions have reflected an ongoing bull price trend. So, currently TATY continues to generate objective numbers, which remain consistent with an ongoing bull trend. No indicator is perfect in this business of dealing with uncertainty, but in the absence of objective information to the contrary, investors will likely continue to be rewarded by being significantly exposed to equities in their asset allocation.

Yes, we are aware of the current dire warnings of the dreaded inverted yield curve, but even if those warning turn out to be accurate, history suggests for such a change to affect equities may take months. We cannot measure what may be, but we do a consistently and accurately measure what is, and for now those measurements are saying the odds favor demand over supply.

SAMMY   —   A FAMILY OF TACTICAL SUPPLY AND DEMAND INDICATORS

SAMMY recently flashed a buy signal, which is shown by the blue vertical line on the attached second chart above. The stock market has responded with a powerful rally back to the previously identified resistance zone. So this new family of indicators continues to crank out reliable buy signals for tactical intermediate trades, some of which may turn into long term capital gains trades, as we march through time and additional signals are triggered. While testing has shown SAMMY signals to be extremely accurate, investors need to be aware, that the shorter the time frame, the less accurate signals tend to be. So SAMMY will likely have misses from time to time, but its construction will tend to make it a substantially profitable tool over time, if administered by an experienced professional trader with a record of success in navigating the stock market. And, I continue to evolve this family of tactical supply and demand indicators, as testing for the best prototypes never ends.

What you see above is only one prototype of this family, which there are several more representing different variations on the same theme. Over time these protypes will be winnowed down to just one survivor. I can say with some confidence that I know professional traders, which would pay a handsome price to purchase any of the prototypes rejected during the winnowing down process.  SAMMY is shown in the second chart above alone, and in the third chart with the S&P-500 overlaid.

THE BOTTOM LINE

The odds favor the current rally to struggle to overcome the resistance zone it has entered. This struggle will likely take some time to be resolved, but the current status of an array of both strategic and tactical indicators suggest the rally will overcome the resistance, which will then probably setup a renewed assault on new all-time highs. An excursion of the strategic indicator, TATY, into the caution zone surrounding the 115-125 level would substantially change the outlook for new all-time highs.

 

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 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.