Last week’s tape action began the fourth quarter and the month with a strong bullish bias. We even ended up with new highs in the Advance/Decline comparative ratio lines for most of the major averages, states John Person of PersonsPlanet.com.

Follow through strength from quarterly “window dressing” was prominently featured last week as pension and 401k monies hit the market, along with individuals who now want in on what appears to be a never-ending or rotational “raging bull” stock market. Adding more fuel to the fire, according to the CFTC Commitment of Traders Data, small speculators increased a short position. My suspicion is a short squeeze helped fuel Thursday and Friday’s rally and volume remained light. Typically, this is the type of a short squeeze from those who had margin calls and those who are “short bought” meaning not in stocks.

The bullish fundamental analysts continue to claim the market is healthy and some valuations metrics like price-to-earnings ratios might be stretched, but they are very positive that earnings are going to be great in this upcoming reporting season. The two big questions are:

  • Can we expect gains like last week to continue without a pause?
  • Was last week’s stock market rally just a fluke? 

I think not, but let’s take a look at where we stand on a percentage change on a year- and week-to-date basis.

Here are the year–to-date (YTD) & week-to-date (WTD) performance figures:

S&P 500 (SPY) up 9.46% / weekly: +4.04%
NASDAQ 100 (QQQ): up 35.28% / weekly + 4.29%.
Dow Jones Industrial Average (DIA): up +2.10% / weekly: +3.45%
Russell 2000 Small Cap Sector (IWM): down – .49% / weekly: +6.67%

  • Weekly Persons Pivots: Outlook is Bullish for SPY, QQQ, IWM, & DIA 
  • Monthly Persons Pivot: Outlook is Bullish for SPY, QQQ, IWM, & DIA
  • Quarterly Persons Pivot: Outlook is Bullish for SPY, QQQ, IWM, & DIA
  • Seasonal Price Trends: Major averages tend to post bottoms in early October, mixed on Presidential years
  • Ten-day ATRS declined suggesting volatility declining / traders can put more “risk-on”
  • Breadth analysis: daily & weekly readings broke out to new annual highs in SPY, QQQ, DIA, & NYSE

Last week, stocks surged after a violent “Tuesday turnaround.” The Volatility Index (VIX) fell 9.52% yet remains above $25.00. Some argue it’s still elevated risk environment, and I agree. Gold was up 1.42% compared to the Junior Miners ETF (GDXJ), which was up 7.56%. This is one of our core positions. Another interesting comparison is the weekly gains in Amazon was up a healthy 5.17% versus the non-sexy utility company, American Electric Power (AEP), which was up 5.3% and National Beverage (FIZZ) gained 13.36%. 

Even last week’s trade idea for “self-directed” traders to buy 3M (MMM) on a breakout with a daily close greater than $164.48 generated a bigger gain than Facebook (FB) (“Self-directed traders watch MMM for a daily close greater than $164.48 to enter a long. I suggest using a 7-10% stop loss from entry price”). This action supports the idea money is coming into the stock market rather than a pure asset reallocation rotation.

With Treasury Bond prices sharply lower, this may be where money is coming from rather than “under the mattress” or sidelined money. Either way, this is a healthier market environment, which is what the breadth analysis was suggesting as I pointed out in this advisory service. It also shows “man can’t live by FANG stocks alone,” at least not all the time.

Last week, we also advised to get long the Russell 2K as my research showed it would start to outperform relative to the S&P 500. Unfortunately, the leveraged ETF (TNA) I recommended gapped 3% higher on Monday's open, and it never looked back. A move that substantial is hard to chase, therefore we took advantage of other trade opportunities as indicated in my email alerts. Namely the call spreads in SPY and the stock, National Beverage (FIZZ).

In the S&P 500 index there were 63 new weekly bullish HCD’s generated and only one weekly bearish LCD triggered. Low-risk, higher-profit outlook for the next 90–150 days, I like generic drug maker Teva Pharmaceuticals (TEVA) and Seagate Tech (STX). Look for a 2-5% pullback for a better long entry, once fill risk no more than 8% from your entry price. For more trades I would like to see how market conditions look by late Tuesday afternoon.

Earnings season begins this week with the big banks, remember Monday is a “quasi” holiday with banks closed thanks to Christopher Columbus, who discovered this great land on October 12, 1492.  It is one of 10 official federal holidays, which means federal workers get a paid day off. Do you think they wanted to tear down his statues across America and give up a paid day off? For the record, to be completely politically correct, it is also known now as “Indigenous Peoples' Day.”

To learn more about John Person, please visit PersonsPlanet.com.