Week Ending January 29, 2017
As we stand now, with the red arrow identifying the collapse of the Bollinger Band width, we see we are at a historic low point in daily volatility for the DJIA. In fact, I ran the above back 20 years (5 year chart depicted) and the study reflected we are nearly as tight as we have ever been in that two decade time frame. – CAMS Weekly View January 16, 2017
After a month-and-a-half of attempts it finally happened this past week – Dow 20,000 was conquered to the upside. This does not necessarily mean anything in-and-of-itself, and yet it does. When markets exceed large round numbers it often gives a psychological boost to collective market participants that said market is strong and vibrant. At the same time, it in no way confidently assures the near-future performance will follow through on the strong and vibrant feeling by trending higher from here.
What is important in this case, and it is literally at the Dow 20,000 marker, is the fact that it represented the top of the tight range it had been trading in for the previous six weeks. The low end of the trading range was a mere couple hundred points lower which represented a very tight percentage range when looked at in context of a 20,000 price point. In fact, speaking to the header quote excerpted from a recent Weekly View, it represented some of the tightest, least volatile time we have seen in a couple of decades.
The most important point to the Dow trading north of 20,000 is the fact that it has been able to successfully breakout of the trading range it had been in while in digestion mode. That is digestion of its previous strong move, post-election, which is normal and constructive behavior that markets typically display. With this break upward, it is now important for it to hold above the breakout level of 20,000 to solidify this as a sound breakout and not a knee-jerk reaction upward.
To this point, what we have not seen occur is a simultaneous break higher out of notable, key leading post-election areas, exemplified by micro and small sized company indices, the Dow Transports, Financials generally and Banking in particular. Being these were leading areas along with the Dow Jones Industrial Average (DJIA) post-election, we are watching closely their behavior as they too should be joining in on breaking to new highs.
Conversely though, we have seen indices such as the S&P 500, Mid-sized companies, Basic Materials, Consumer Discretionary, and the NASDAQ Composite join in with the DJIA this past week by posting new highs themselves. Similar to the Dow, their new high breakouts have generally been one day experiences and then a continued pause if you will. This leaves us watching closely the aforementioned view of the importance of the Dow’s 20,000 new high actually holding, lest it turns into a knee-jerk move, rather than a solid, new high breakout that leads to even more strength following.
All told, as we currently stand, the stock market is reflecting a good mix of participating areas while others are literally on the cusp of joining in as well. At this point, one simple and key area to watch for is the Dow’s 20,000 price point to hold as a support level. With this level having been successfully taken out to the upside after offering notable resistance for several weeks, it should now be able to hold this if the market is strong and vibrant. A visual of this support level is depicted below with the red horizontal line. If you retain this you can click on the link periodically and the chart will update daily if you are so inclined.
(Larger view click link: http://schrts.co/D76EHv)
I wish you well…
Sincerely,
Ken Reinhart
Director, Market Research & Portfolio Analysis
Portfolio Manager, CAMS Spectrum Portfolio
Footnote:
H&UP’s is a quick summation of a rating system for SPX9 (abbreviation encompassing 9 Sectors of the S&P 500 with 107 sub-groups within those 9 sectors) that quickly references the percentage that is deemed healthy and higher (H&UP). This comes from the proprietary “V-NN” ranking system that is composed of 4 ratings which are “V-H-N-or NN”. A “V” or an “H” is a positive or constructive rank for said sector or sub-group within the sectors.
This commentary is presented only to provide perspectives on investment strategies and opportunities. The material contains opinions of the author, which are subject to markets change without notice. Statements concerning financial market trends are based on current market conditions which fluctuate. References to specific securities and issuers are for descriptive purposes only and are not intended to be, and should not be interpreted as, recommendations to purchase or sell such securities. There is no guarantee that any investment strategy will work under all market conditions. Each investor should evaluate their ability to invest for the long-term, especially during periods of downturn in the market. PERFORMANCE IS NOT GUARANTEED AND LOSSES CAN OCCUR WITH ANY INVESTMENT STRATEGY.
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