Contact Us    855-RIA-PLAN (855-742-7526)

Major Market Buy/Sell Review: 02-17-20

By Lance Roberts | February 18, 2020

Each week we produce a chart book of the major financial markets to review whether the markets, as a whole, warrant higher levels of equity risk in portfolios or not. Stocks, as a whole, tend to rise and fall with the overall market. Therefore, if we get the short-term trend of the market right, our portfolios should perform respectively.

HOW TO READ THE CHARTS

There are three primary components to each chart:

  • The price chart is in orange
  • The Over Bought/Over Sold indicator is in gray
  • The Buy / Sell indicator is in blue.

When the gray indicator is at the TOP of the chart, there is typically more risk and less reward available at the current time. In other words, the best time to BUY is when the short-term condition is over-sold. Likewise when the buy/sell indicator is above the ZERO line investments have a tendency of working better than when below the zero line.

, Major Market Buy/Sell Review: 02-17-20

With this basic tutorial let’s review the major markets.

S&P 500 Index

, Major Market Buy/Sell Review: 02-17-20
  • As noted last week: “With the market now trading 12% above its 200-dma, and well into 3-standard deviations of the mean, a correction is coming.” But the belief is currently “more stimulus” will offset the “virus.” This is probably a wrong guess.
  • Extensions to this degree rarely last long without a correction.
  • Maintain exposures, but tighten up stop-losses.
  • Short-Term Positioning: Neutral Due To Extension
    • Last Week: Hold position
    • This Week: Hold position
    • Stop-loss moved up to $320
    • Long-Term Positioning: Neutral due to valuations

Dow Jones Industrial Average

, Major Market Buy/Sell Review: 02-17-20
  • As goes the S&P 500, goes the DIA, especially when MSFT & AAPL are the two top holdings and drivers of the advances in both indexes.
  • Like SPY, DIA is very overbought and extended from long-term means.
  • Take profits, but as with SPY, wait for a correction before adding further exposure.
  • Short-Term Positioning: Neutral due to extensions
    • Last Week: Hold current positions
    • This Week: Hold current positions
    • Stop-loss moved up to $280
  • Long-Term Positioning: Neutral

Nasdaq Composite

, Major Market Buy/Sell Review: 02-17-20
  • The Nasdaq remains “extremely” extended currently and is 21% above the long-term average which is historically rare. As noted last week, “With QQQ now pushing towards a 4-standard deviation event. A correction is inevitable, it is just a function of time now.”
  • The rally this week has pushed overbought conditions to extremes.
  • The Nasdaq “buy signal” is also back to extremely overbought levels. It is likely a correction is coming and it may be bigger than expected.
  • Short-Term Positioning: Neutral due to extensions.
    • Last Week: Hold position
    • This Week: Hold position
    • Stop-loss moved up to $215
  • Long-Term Positioning: Neutral due to valuations

S&P 600 Index (Small-Cap)

, Major Market Buy/Sell Review: 02-17-20
  • Small caps corrected more than the major markets, but they also haven’t moved as much.
  • The buy signal has continued to correct as small-caps have struggled to maintain recent support levels.
  • Hold positions for now, but move stops up to recent lows.
  • Short-Term Positioning: Neutral
    • Last Week: Hold positions
    • This Week: Hold positions
    • Stop loss moved up to $69
  • Long-Term Positioning: Neutral

S&P 400 Index (Mid-Cap)

, Major Market Buy/Sell Review: 02-17-20
  • MDY remains extremely extended above the 200-dma, so more corrective action is likely. MDY is still on a buy-signal but is pushing rather extreme deviations from long-term means.
  • The previous breakout level held which is very bullish, so if the overbought condition can get worked off with some consolidation, we will have a good entry point to add exposure.
  • Short-Term Positioning: Neutral
    • Last Week: No holding
    • This Week: No holding
  • Long-Term Positioning: Bullish

Emerging Markets

, Major Market Buy/Sell Review: 02-17-20
  • EEM held support at the 200-dma which is encouraging, and the extended buy signal is getting worked off.
  • However, the Dollar (Last chart) is the key to our international positioning. The dollar has reversed its move lower and is rising which isn’t beneficial for international or commodity exposures.
  • Also, the coronavirus has yet to be priced into to global risk.
  • We are maintaining our holdings but tightening up stops.
  • Short-Term Positioning: Neutral
    • Last Week: Hold positions
    • This Week: Hold positions
    • Stop-loss set at $42
  • Long-Term Positioning: Neutral

International Markets

, Major Market Buy/Sell Review: 02-17-20
  • Like EEM, EFA also rallied off support last week.
  • As we stated last week, “Any good news with the virus and international exposure should rally. EFA looks better than EEM, so we will likely revisit our holding on a rally.” Hopes of a containment of the contagion was what drove markets last week. This is likely fleeting.
  • As with EEM, the key to our positioning is the US Dollar which is rallying strongly.
  • Short-Term Positioning: Neutral
    • Last Week: Hold positions
    • This Week: Hold positions
    • Stop-loss set at $67
  • Long-Term Positioning: Neutral

West Texas Intermediate Crude (Oil)

, Major Market Buy/Sell Review: 02-17-20
  • As noted last week:
  • “Oil completely broke down last week, and collapsed below all of the important levels. Oil is now testing critical support at $51. A failure there and a break into the low $40’s is probable.”
  • The support is barely holding and oil looks extremely weak. However, oil is extremely oversold so a counter-trend rally is highly likely. We got a little bounce this week, but not much.
  • We remain on hold for now, as stops are close to being triggered.
  • Short-Term Positioning: Neutral
    • Last Week: No positions
    • This Week: No positions
    • Stops Triggered for any direct crude oil positions.
  • Long-Term Positioning: Bearish

Gold

, Major Market Buy/Sell Review: 02-17-20
  • Gold rallied sharply and broke out to new highs, suggesting there was something amiss with the stock market exuberance.
  • On Friday, gold rallied holding support at the previous breakout level which is bullish.
  • Our positioning looks good particularly since gold has registered a new “buy signal.”
  • Short-Term Positioning: Neutral
    • Last week: Hold positions.
    • This week: Hold positions
    • Stop-loss for whole position adjusted to $138
    • Long-Term Positioning: Neutral

Bonds (Inverse Of Interest Rates)

, Major Market Buy/Sell Review: 02-17-20
  • The correction in bond prices we had previously suggested occurred as bonds broke out of their declining trend sending yields lower. That breakout was a decent entry point to add exposure to bonds if you need it. However, that opportunity has now passed.
  • Take profits and rebalance holdings and look for a trade on the equity side short-term. However, another trade for bonds is likely setting up shortly with a buy signal approaching. Be patient.
  • Short-Term Positioning: Bullish
    • Last Week: Hold positions
    • This Week: Hold positions
    • Stop-loss is moved up to $136
    • Long-Term Positioning: Bullish

U.S. Dollar

, Major Market Buy/Sell Review: 02-17-20
  • As noted previously: “The dollar has rallied back to that all important previous support line. IF the dollar can break back above that level, and hold, then commodities, and oil, will likely struggle. It may be too early for a sharper dollar decline currently, as the U.S. economy is still the “cleanest shirt in the dirty laundry.”
  • That is exactly what happened over the last two weeks and the dollar has strengthened that rally as concerns over the “coronavirus” persist. With the dollar testing previous highs, a break above that resistance could result in a sharp move higher for the dollar.
  • The rising dollar is not bullish for Oil, commodities or international exposures.
  • The “sell” signal has began to reverse. Pay attention.

Talk with an Advisor & Planner Today!

lance_sig

Lance Roberts is a Chief Portfolio Strategist/Economist for RIA Advisors. He is also the host of “The Lance Roberts Podcast” and Chief Editor of the “Real Investment Advice” website and author of “Real Investment Daily” blog and “Real Investment Report“. Follow Lance on Facebook, Twitter, Linked-In and YouTube
Customer Relationship Summary (Form CRS)

2020/02/18
> Back to All Posts