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Is Barrick Gold Close To Finding A Bottom?

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Barrick gold has been a…

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The App That Democratized Trading Is Now Worth $5B

Investors and customers have rallied…

Market Summary

Wall Street stocks chugged through a week light on US economic data and heavy on anticipation of news on Greece and the US Federal Reserve. "Investors are still very uncertain as to which way the market will break," said Sam Stovall, chief investment strategist at S&P Capital IQ. "Investors are still concerned about the very high valuations, worried about when the Fed will be raising rates... and they are concerned about what will transpire regarding Greece." For the week, the Dow was up 0.3%, the S&P 500 was up 0.1%, while the Nasdaq Composite fell 0.3%, its third straight week of declines. DOW, S&P 500 and Gold Miners stocks are basically flat for the year as Treasury Bonds have plummeted.

YTD Performance

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 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 Index Daily Chart

Keep an eye on the Nasdaq Composite Bullish Percent Index (BPCOMPQ) chart. As long as the BPCOMPQ remains above its trend line this should be considered a positive sign for the overall market. If the Nasdaq Composite BPI does break into a downtrend along with the other major indexes, then this will confirm the market is pulling back.

NASDAQ Bullish Percent Index Daily Chart

Last week we said, "...Expect both indexes to converge and start trending in the same direction..." The updated chart confirms the DOW Industrial and Transportation indexes briefly converged last week before the DJIA jumped. At weeks end the DJIA turned down to move back towards the Transportation index.

Dow and Transports Daily Chart

The U.S. dollar is still smarting from an aggressive selloff this week on reports the U.S. government is uncomfortable with the greenback's strength. That selloff, and sliding two-year U.S. Treasury yields, has weakened the dollar against a basket of foreign currencies. Rising interest rates typically hurt gold prices, but the Gold ETF is up 2.7% over the past 90 days, a period in which 10-year Treasury yields have surged 17.5%. Although Gold ETF brethren have defied interest rate logic, investors are not waiting around to see how long that trend will last. GLD has lost more than $26 million in assets under management this year. Treasury bonds continue to suffer as rates trend higher.

Gold, Dollar and T-Bonds Daily Chart

Market Outlook

Upbeat consumer sentiment and other data added to views the economy may be regaining momentum, which increased anxiety for investors ahead of next week's Federal Open Market Committee meeting, the U.S. central bank's last meeting before September. Higher rates will tighten the flow of easy money. Economists and top Wall Street banks expect the Fed to raise rates in September, in what could be its first hike in almost a decade. It's difficult to justify high stock prices when you're staring down the gun barrel of a hike in interest rates by the Fed. Also, the endless Greek debt melodrama is dragging on sentiment, with stocks veering up and down depending on whether a deal seemed more or less likely.

Recent analysis is still valid "...June is historically one of the toughest months for markets...Treasuries, Real Estate and Gold are already sinking as a precursor to action by the Fed. In the second-quarter chart below, Nasdaq shares remain the best performers. This is mostly due to biotechnology stocks being a major component of the Nasdaq index and these shares have been soaring all year..."

Quarterly Performane

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.

Last week analysis said, "...The next question is whether the trend will convert into a new trading range or drop all the way to long-term support..." The updated chart below shows how the index sank to the long-term term support level before bouncing up into a new uptrend. Expect the Momentum Factor ETF to continue up to its resistance level to sustain a range-bound trading environment.

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. The S&P 500 ticked higher along with the other major indexes this week which pushed volatility down to low levels,

VIX Daily Chart

The current Put/Call ratio has been equally bearish and bullish over the past few weeks to further confirm market indecisiveness.

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 6/10/2015. 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 47.40% of investors polled have neutral outlooks for the market for the next six months, while 20.00% are bullish and 32.60% bearish. The bullish figure is at a record low, while the neutral figure has exceeded 45% for ten weeks, longest in the 28-year history of the survey. 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 Weekly Sentiment

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 71.07%, and the current week's exposure is 68.70%. Money managers' interpretation of next weeks' FMOC comments will influence whether they increase or decrease their equity exposure. 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

Chart indicators are giving neutral to bearish readings. But, from a technical analysis point of view, the stock market is still stuck in a tight trading range, which will probably remain for the short-term. Keep in mind that the longer and more narrow the trading range, the bigger the market's move will be when it breaks out. A lot of traders are leaning toward buying puts as portfolio insurance. Over the past month Health Care is the strongest as this group is actually the best performing S&P sector for the entire year. Financial stocks are moving higher based on rising interest rates.

S&P500 Sector ETFs 30-Day Performance

Feel free to contact me with questions,


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