Market Summary

By: Gregory Clay | Sun, Jun 21, 2015
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Rallies during the week helped main indexes record weekly gains. The S&P 500 recorded a 0.8% gain over the week. The Dow Jones Industrial Average posted a modest 0.6% gain over the week. The Nasdaq Composite clocked in a 1.3% gain over the week.

TYD Performance

The chart below indicates the smaller cap Russell 2000 Index is benefitting from a strengthening domestic economy. The larger cap DOW Jones Industrial Average and S&P 500 indexes are somewhat restrained because they more depend on struggling overseas economies.

SPX Daily Chart

A tool to help confirm the overall market trend is the Bullish Percent Index (BPI). The Bullish Index is a popular market "breadth" indicator used to gauge the internal strength/weakness of the market. It is the number of stocks in an index (or sector) that have point & figure buy signals relative to the total number of stocks that comprise the index (or sector). So essentially it is the percentage of stocks that have buy signals. Like many of the market internal indicators, it is used both to confirm a move in the market and as a non-confirmation and therefore divergence indication. If the market is strong and moving up, the BPI should also be moving higher as more and more stocks are purchased.

The updated chart shows last week's analysis is starting to play out "...The S&P 500 Bullish Percent Index (BPSPX) chart shows the large cap index trending down toward the February lows. Expect the BPSPX index to find support at the February low and then bounce back up toward the April highs..."

S&P500 Bullish Percent Daily Chart

The Transportation Index remains suppressed while the DOW Jones Industrial Index jumped last week. Usually the overall stock market doesn't break out into a new bullish leg until the DOW and Transports move higher in tandem.

Dow Industrials Daily Chart

In the chart below you can see as the dollar continues to sell off after the FMOC revealed that the central bank might not raise interest rates at its September meeting. Commodity prices responded by moving higher. Yields on Treasury bonds fell sharply in the week ended Friday, driven lower by concerns about a possible Greek default, and an unexpectedly dovish policy outlook from Federal Reserve policy makers. Gold rallied to its highest level in nearly a month as the Federal Reserve signaled it will raise interest rates at a gradual pace, further pressuring the U.S. dollar.

UUP Daily Chart


Market Outlook

U.S. investors are expected to keep an eye on the Greek debt drama next week amid reports that Greece's coffers are so depleted that its banks may not have enough money to open for business on Monday. "With the situation in Greece once again at the make or break point, there is some degree of nervousness," said Scott Brown, chief economist at Raymond James. Eurozone leaders have convened a Monday meeting where they will again attempt to craft a bailout package for Greece in what some see as a last-ditch effort to stave off bankruptcy. The summit comes after Greece and its creditors failed to narrow their positions last week on reforms that lenders are demanding in exchange for emergency funds.

Nasdaq stocks have been trending higher the entire second quarter. Even when the overall market stalled the past few weeks Technology and Pharmaceutical shares kept trending higher.

Querterly Performance

A standard chart that we use to help confirm the overall market trend is the Momentum Factor ETF (MTUM) chart. Momentum Factor ETF is an investment that seeks to track the investment results of an index composed of U.S. large- and mid-capitalization stocks exhibiting relatively higher price momentum. This type of momentum fund is considered a reliable proxy for the general stock market trend. We prefer to use the Heikin-Ashi format to display the Momentum Factor ETF. Heikin-Ashi candlestick charts are designed to filter out volatility in an effort to better capture the true trend.

The updated chart below highlights the Momentum Factor ETF finally breaking out above the top of its trading range. Look for the MTUM ETF to continue moving higher and establish a new resistance level.

MTUM Daily Chart

The CBOE Volatility Index (VIX) is known as the market's "fear gauge" because it tracks the expected volatility priced into short-term S&P 500 Index options. When stocks stumble, the uptick in volatility and the demand for index put options tends to drive up the price of options premiums and sends VIX higher. As you can see in the chart below the VIX actually started the week elevated above the S&P 500 index. The market reacted positively to this week's FMOC comments sending the S&P 500 index higher, while the VIX plunged as traders became less concerned about protecting long positions.

VIX Daily Chart

The Put/Call ratio had gotten excessively bearish early in the week, but toward the week's end traders started buying calls as the market moved higher.

Total Put/Call ratio

The American Association of Individual Investors (AAII) Sentiment Survey measures the percentage of individual investors who are bullish, bearish, and neutral on the stock market for the next six months; individuals are polled from the ranks of the AAII membership on a weekly basis. The current survey result is for the week ending 6/17/2015. At the moment, individual investors lack any particularly strong inclination to buy or sell, suggesting uncertainty about where stocks are going. The most recent AAII survey showed 40.30% of investors polled have neutral outlooks for the market for the next six months, while 25.40% are bullish and 34.30% bearish. Last week's analysis played out as advertised, "...From a contrarian perspective the current reading is extremely bullish. Expect the market to move back toward recent highs based on reaction to the FMOC meeting or positive second-quarter earnings expectations..."

AAII Bullish Percent

The Nation Association of Active Investment Managers (NAAIM) Exposure Index represents the average exposure to US Equity markets reported by NAAIM members. The blue bars depict a two-week moving average of the NAAIM managers' responses. NAAIM member firms who are active money managers are asked each week to provide a number which represents their overall equity exposure at the market close on a specific day of the week, currently Wednesdays. Responses can vary widely as indicated below. Responses are tallied and averaged to provide the average long (or short) position or all NAAIM managers, as a group. As the name indicates, the NAAIM Exposure Index provides insight into the actual adjustments active risk managers have made to client accounts over the past two weeks. First-quarter NAAIM exposure index averaged 83.02%. Last week the NAAIM exposure index was 68.70%, and the current week's exposure is 58.64%. Money managers' relatively low rate of current equity exposure is a reflection of last week's analysis "...With the June Quadruple Witching coming up, and the June quarterly rebalance, many investors remain sidelined in a market that many pundits think is just too high to buy, and too firm to sell..."

NAAIM Exposure Percent


Trading Strategy

According to the Stock Trader's Almanac the week after Triple-Witching Day is horrendous. This week has experienced DJIA losses in 22 of the last 25 years with average losses of 1.1%. S&P 500 and NASDAQ have fared slightly better during the week after over the same 25 year span, declining 0.7% and 0.2% respectively on average. The only two sectors to show any signs of life over the past month are Cyclicals and Health Care. Health Care stocks will get a boost if the pending Supreme Court ruling on Obamacare is decided in favor of the maintaining subsidies for state without a healthcare exchange.

S&P Secotor 30-Day Performance

Feel free to contact me with questions,

 


 

Gregory Clay

Author: Gregory Clay

Gregory Clay
Option Strategist
High Value Option Trader
Weekly Income Credit Spreads
Easy Money Options Income

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