Here’s my long-term view on US stocks | Exchange places with Tom Bowley

adminMay 7, 2024

EB Weekly Market Summary Video

If you haven’t already watched our latest Weekend Recording, you can do so now here on YouTube.com.

Sample – EB Weekly Market Report

This is a sample of the weekly market report sent to EB members every Monday. We also provide a Daily Market Report (DMR) every Tuesday through Thursday and a quick market update on Fridays, but these weekly market reports are designed with the long term in mind. I discuss many concepts each week in this report, many of which have been signals we have used over the past few years to keep our members on the right side of the market, including suggestions to get out of the market. Early 2022, just before a 28% cyclical bear market decline.

We’re also hosting a BIG members-only event tomorrow where we’ll discuss current market conditions and what to expect in the coming months. Sign up for a 30-day free trial and join us for tomorrow night’s event. Click here to get more information and register for this free event. Either way, enjoy this weekly market report.

Weekly Market Summary

major indices

Small and mid-cap stocks showed leadership last week. In fact, IWM has outperformed all other major indices over the past month and has been the second-best performer behind mid-cap stocks over the past three months. If we start another upward move now, it will be very interesting to see whether small caps continue to lead or if money moves back towards large cap growth stocks.

Field

Communications Services (XLC) wasn’t the best performer last week, but technically XLC appears to have broken its recent decline.

Both price action and PPO are bullish and we see RSI bouncing off the key 40 support level. The bears are hoping that (1) XLC fails to break above near-term price resistance near 81 and (2) RSI fails to break above 60 again. I believe neither will happen, but we have taken a more cautious course. Because this is a historical period, we must remain objective.

Top 10 Industries Last Week

Don’t calculate your finances just yet. The Full Line Insurance ($DJUSIF) group broke out of the cup with the handle today.

Top 10 industries last week

Consumer Finance ($DJUSSF) didn’t have a great week last week, but was this the completion of the ABC correction pattern? If so, we need to clear the 20-day EMA to see the possible start of another uptrend.

A sustained negative divergence indicates a possible loss of momentum, which means the likelihood of a decline increases. We saw that decline very clearly.

Top 10 Stocks – S&P 500/NASDAQ 100

Bottom 10 Stocks – S&P 500/NASDAQ 100

big picture

Monthly PPO continues to move away from centerline support and remain at higher levels. This is consistent and an indicator of how the S&P 500 behaves during long-term bull markets. Additionally, tests of RSI 40 support have been successful since the financial crisis of 2008/2009. This is another sign that the secular bull market is still alive and kicking.

Both the 10-year and 20-year rate of change (ROC) panels show that the highs of the current bull market period are not close to the highs of previous long bull markets. It tells us that we still have a long way to go.

emotion

Let’s take another look at the 253-day SMA for the stock-only put-call ratio ($CPCE). I’d like to refresh everyone’s memory on what happens to the S&P 500 when this sentiment indicator peaks at a level that indicates extreme fear.

Betting against this chart is at your own risk. Personally, I believe that sentiment plays a much larger role in stock market direction than most people give credit for. During this long-term bull market, every major advance in the S&P 500 occurred at a significant high above CPCE’s 253-day SMA. When this moving average falls, you want to be in a long position…..period! That doesn’t mean there won’t be setbacks. There is no downtrend that turns into a bear market.

Cyclical/Cross-Market Analysis

Below is an up-to-date look at key intraday rates, tracking where money is moving on an INTRADAY basis (ignoring spaces).

QQQ:Spy

First, a quick reminder. The name of this chart is “@SPYQQQ”, but it’s actually QQQ divided by SPY. When this line rises, it means QQQ is outperforming SPY (a “risk on” environment). A decline means SPY is outperforming QQQ (a “risk-off” environment). We were definitely on a downward trend as funds rotated into defensive and value-oriented stocks. In the last few days this has changed and we can see the line moving higher. The key to a sustainable uptrend is the continuation of this ratio to the uptrend.

IWM:QQQ

On an intraday basis, small-cap stocks (IWM) have performed well over the past few months. But the gap hasn’t worked in their favor, with small caps catching up with QQQ and SPY on a year-to-date basis and over the past six months. It seems to me that the gap is disguising the fundamental strengthening of IWM. Time will tell whether I am right or not.

XLY:XLP

XLY has not performed as well as XLP, but the widening gap is obscuring the real picture. This suggests that discretionary stocks are more stable than mandatory stocks, at least through 2024.

Key Sector/Industry Charts

Perhaps the largest industry group chart we’ll show you right now is Semiconductors ($DJUSSC). We know this group could ignite a long-term bull market rally and we are seeing a breakout of the recent downtrend/consolidation.

We can’t guarantee higher prices in the future, but if we had to pick one industry group, it would be this one. The PPO is now testing the center line from below, which can be difficult. However, we have already seen movement above major trendline resistance and both moving averages. The technical improvements are clear.

Transaction Settings

Since I started this weekly market report in early September, I’ve been discussing some of my favorite long-term trade candidates. These stocks typically have excellent long-term performance and most pay good dividends that grow every year. Only in very specific cases (exceptions) do we consider long-term entry into stocks with poor or limited long-term performance.

J.P.M.
bachelor’s degree
FFIV
mom
GS
FDX
AAPL
CHRW
JBHT
STX
HSY
DIS
MSCI
sex
make
ed
A.J.G.

Keep in mind that weekly market reports are preferred by those who are more interested in long-term market conditions. So, the list of stocks above are ones that I think are safer to own with the long term in mind (but nothing is 100% safe). Almost everything we do at EarningsBeats.com favors short-term momentum trading, so we wanted to provide an explanation of what we do with this list.

There is nothing to add to the “long term” list at this time.

Looking into the future

Upcoming Earnings:

First quarter results are ongoing and accelerating. I’ve listed the key companies reporting this week along with their market capitalization in parentheses. This is not a list of all companies reporting this week, so please check the earnings of all companies you own or have added. All companies in brave Represents a stock from one of our portfolios.

Monday: VRTX ($103 billion), PLTR ($50 billion), MCHP ($48 billion)
Tuesday: DIS ($207 billion), ANET ($82 billion); TDG (USD 71 trillion)
Wednesday: UBER ($143 billion), ABNB ($102 billion), SHOP ($93 billion)
Thursday: RBLX ($24 billion), AKAM ($15 billion)
Friday: ENB ($77 billion)

Key economic reports:

Monday: None
Tuesday: None
Wednesday: None
Thursday: First unemployment claim
Friday: May Consumer Sentiment

historical data

I am a true stock market historian. I am absolutely passionate about studying stock market history to give me more clues about the direction of the stock market and potential sectors/industries/stocks to trade. I know that I never use history as a primary indicator, but I always use it as a secondary indicator. I like it when history matches my technical signals, which gives me much more confidence when making certain trades.

Below you can find historical data and trends for the next two weeks for the three major indices I watch most closely.

S&P 500 (since 1950)

May 6: -35.12%
May 7: -37.30%
May 8: +58.06%
May 9: -41.62%
May 10: -13.57%
May 11: -50.36%
May 12: +18.78%
May 13: -7.49%
May 14: -20.15%
May 15: +9.23%
May 16: +11.47%
May 17: -18.79%
May 18: -13.84%
May 19: -25.73%

NASDAQ (since 1971)

May 6: -57.65%
May 7: -58.48%
May 8: +76.53%
May 9: -53.65%
May 10: -17.03%
May 11: -19.11%
May 12: +33.12%
May 13: -16.95%
May 14: +13.42%
May 15: +35.21%
May 16: +52.22%
May 17: -36.99%
May 18: -9.09%
May 19: -42.21%

Russell 2000 (since 1987)

May 6: -85.09%
May 7: -95.97%
May 8: +77.52%
May 9: -36.57%
May 10: +1.29%
May 11: -50.24%
May 12: +0.46%
May 13: -84.43%
May 14: +10.37%
May 15: +29.02%
May 16: +20.18%
May 17: -23.07%
May 18: +82.33%
May 19: -41.25%

S&P 500 data dates back to 1950, while NASDAQ and Russell 2000 information dates back to 1971 and 1987, respectively.

Below is a brief historical analysis of the S&P 500 in May since 1950.

May 1-5: +29.94%
May 6-25: -12.10%
May 26-31: +37.27%

final thoughts

The bulls took advantage of a historically strong week (May 1-5) and we saw a nice rally to close the week. We are now in a much better position to handle short selling and, frankly, we are not far from breaking out of several major indices/sectors/industry groups. I like the VIX to bounce back above 16 on Wednesday and Thursday before falling back below 14. Of course, the VIX rose above 19.50 in April, staying just below my key level of 20.

Here are some things to consider for the week ahead:

economic report. There are only two meaningful economic reports released all week: initial jobless claims and consumer sentiment, both of which are scheduled for release later this week.
income. There are fewer and fewer market-moving earnings reports this week. ABNB and UBER are large cap stocks so you can research the health of their consumers, but otherwise you’ll get a bunch of small and mid cap quarterly reports.
Interest Rates: The 10-year Treasury yield ($TNX) appears to have hit a new high last week. There was a chance to break through the key yield resistance area of 4.65%-4.70%. It closed slightly above 4.70%, but it now appears to have been a false breakout. After losing 20-day EMA support last week, the question this week is whether TNX can maintain key yield support at 4.39% to 4.30%. If TNX continues to fall, it would be good news for small-cap IWM.
Semiconductors ($DJUSSC): In my opinion, this industry group is the most important industry group in a long-term bull market and it appears that the group is breaking a two-month downtrend line. Let’s see if this breakthrough is confirmed or if it turns out to be a head fake.
Goods. Is Energy (XLE) eligible for 50-day SMA support? Can gold ($GOLD) jump back above the 20-day EMA? Could Materials (XLB) surpass last Wednesday’s high and close there?
Growth vs. Value. Growth stocks have been down compared to value stocks over the past two to three months, but historically, May through August is the best four-month period of the year for growth stocks compared to value stocks.
history. We literally just started a challenging historical period for stocks today, from May 6th to May 25th.