Last week US-based equity market indices, especially the S&P 500 (SPX) and NASDAQ-100 (NDX), retraced some of the prior weeks gains in a topsie turvie trading week, states John Person of PersonsPlanet.com.
The bulls party was somewhat spoiled when the Biden administration announced a plan to raise capital gains taxes on the “wealthy”. That term was defined as those making a million or more per year. However, most traders suspect if the Biden Administration does pass that legislation, then there’s probably reason to run for the hills. Remember, where there’s smoke there’s fire, and in market conditions like we have (huge price gains on relatively light volume) then shoot first and ask questions later becomes the course of action people take.
Talk also prevailed to raise taxes on cryptocurrency and that sent some shivers down the spine of Bitcoin which lost 18.86 % last week. Interesting enough was the fact the markets were slightly lower on the week (see below) while the volatility index rose 6.65% last week. This is a sign investors were buying downside put protection and potentially selling upside call premiums.
Technically speaking the bull market is still thriving: The Weekly Persons Pivots remains bullish for SPY, QQQ, NYSE, and DIA but bearish/neutral for the IWM. Advance/Decline readings are neutral, with the McClellan Osc. overbought for the weekly time period and neutral/positive on the daily time frame. Volume is now turning slightly negative from last week’s action in the S&P. The weekly charts formed a doji for the SPY, QQQ, and DIA. The S&P 500 is rubbing up against its monthly and quarterly pivot resistance, a confluence of multiple time frames, combined with a higher time frame Doji is worth noting and monitoring and with seasonality trends that tend to move lower in May is now raising my cautionary red flag.
This week: we conclude the last trading week of April and then it’s the “Sell in May and Go Away” time period. Theres a barage of earnings, FOMC Meeting and economic reports to contend with. In all honesty, if the Biden administration continues on the path of higher tax talk and if the Fed cautions about rising inflationary presures then that’s the potential market killer event. We already have increased inflationary expectations, grain prices are at multi-decade highs. Corn Futures are near 6.75 per bushel, that’s over double the average price since 2015. If the Fed hints at anything remotely like rates can go back to “normal” this party will end with a major hangover, at least for those in leveraged positions at high-entry-level prices.
What I do know is this we have a new sherrif in town and we are seeing changes. These “changes” may upset the apple cart, especially if in the near-term we hear more jargon by members of congress to act on raising taxes. We have most of the “FANG” stocks or heavily cap weighted names reporting earnings this week, like Amazon, Apple, Microsoft, Alphabet, Facebook, and a couple stocks we have long positions in like Molson Coors and Kraft Heinz. This could be the catalyst that breaks the bear's back and get more people comforatble not just to hold current positions but to buy more stocks at the highs.
My take is this: The overall stock market can make newer all-time highs in the near-term and this weeks economic news and earnings should do the trick. By all means we should test the highs, but the rally may be short lived. If we are to peak out then most distribution type top pattern can take several weeks to complete. I believe as we move forward in time, now that vaccinnes are out people want to celebrate go out and enjoy life, this will change consumer spending habits, there's not likely to be more free stimulus money to throw around. As for corporate earnings, companies will now need to “earn their price valuations”, but more importantly, investors need not be afraid to be invested in the market. If companies post bad earnings and negative guidance, and if investors feel its time to hit the bricks, that’s when the house of cards will collaspe. Until then stay long with trailing stops.
As always there's always something to worry about here are a few more observations I wanted to point out:
- The VIX has a weekly bullish outlook from Persons Pivot. It is currently in a PPS buy mode.
- The CFTC COT data shows small speculations remain long the ES futures. Where the professional speculators are short.
- Long full position in Junior Gold Miners (GDXJ) 41.46, using 45.01 as the hard stop.
- Long full position in Walgreens (WBA) 39.22, raised stops up to 51.18.
- Long full position in Kinder Morgan (KMI) 14.84, stops raised to 15.23.
- Long full position in Molson brewing (TAP) at 48.11, stops raised up to 49.02.
- Long full position in Citi Group (C) at 70.21, using stop loss order at 66.81.
- Long full position in Williams Co. (WMB) at 23.70, stops at 21.71.
- Long full position in Conagra (CAG) at 37.63, stops at 35.10.
- Long full position in JetBlue (JBLU) at 20.24, stops at 18.55.
- Long full position in US Bancorp (USB) at 55.66, stops at 52.67.
- Long 50% position in Incyte (INCY) at 81.36, stops at 76.44.
- Long full position in Kraft Heinz (KHC) 39.71, stops at 36.02.
- Long full position in Schlumberger (SLB) at 26.61, using 23.18 as the stop.
- Long full position in Nordstrom’s (JWN) at 35.28, using 33.02 stop.
- Long 50% position in Johnson & Johnson (JNJ) at 166.39, looking to add 50% at 163.57, stops at 160.01.
To learn more about John Person, please visit PersonsPlanet.com.