Investment Flow Chart Analysis - 08-12-2022


The methods described below borrow heavily upon the lessons learned from Ernie Zahn, Ralph Hansmann and William T. Golden at Cornell, Linder & Co. & Ben Graham during my time on Wall Street in the 1960ís utilizing fundamental research including Point & Figure charting.


Since then, I have incorporated ideas from William OíNeilís CANSLIM methodology, Ian Woodard and High Growth Stocks as well as Stock Charts.


The first decision is to determine what the daily, short-term or long-term trend of the investment market is.To make this determination, look at the 50- and 200-day simple moving averages on a weekly chart as shown below to determine if both the NASDAQ and the S&P 500 averages are either both positive, both negative and/or split.




As can be seen in the above charts of the NASDAQ and the S&P 500, the two indices have climbed above both the 8- and 20-day simple moving average lines, so the presumption is that the market is in a longer-term negative trend.† However, in both cases, the past eight weeks have seen the moving average lines attempt to build a base from which a rally might occur. The SPX index is right at the 50 day moving average whereas the NASDAQ index remains somewhat lower.


Now, the question is whether the negative trend will continue.Both the NASDAQ and the S&P 500 remain above their 200 day lines so a full donnybrook possibility of a market decline remains ahead.  In my opinion, the advances of the last few weeks has been a bear market rally and the market could turn sharply lower at any moment.


So now the question is whether to:


1.       Be long,

2.       Be short, or

3.       Be on the sidelines.


Remember pigs get slaughtered.


The daily charts show recent daily action in both the NASDAQ and the S&P 500.The view to the right of each chart shows in detail recent trends and volume movement.  Notice that the volume has been somewhat higher on days that the market has gone lower. In the old days, this would be characterized as a "Pump & Dump" operation.




The longer-term trend shown in the first set of charts suggests a negative market while the  daily charts suggest a turning point is at hand. Friday's upward move was  accompanied by a large increase in volume so one could suspect that the rally might continue until the economic data suggests that the recession is at hand..


The market call has changed to "Market in Confirmed Uptrend". The Accumulation/Distribution chart is shown below. As can be clearly shown, the number of ďAĒ rated stocks according to IBD has climbed above the red zone. The short-term trading methodology which I use has a rule that states that when the line falls below the green zone, profits need to be taken.Further, when the line falls below the red line, the trading portfolio should be in cash.  As the line approaches the red line, trading positions with tight stops can be entered.




The Strategic Investing Portfolio added a few additional positions during the past week.In running the various screens in both IBD stock screener and StockCharts, we have  found few positions in which to recently invest. We maintain very tight selling points on our positions.


We continue to run the various IBD and StockCharts screens each day but the current political and economic conditions suggest that prudence is justified.


With the uncertainty concerning Russia and the mess in Ukraine and the outlook for the future, investing at the moment contains a high element of risk.  However, changing the rules to prevent a breakdown in the markets has been around for centuries.The bullion banks and the commodity exchanges have changed the margin requirements multiple times to prevent them from going bankrupt.Doesnít anyone remember the Huntís foray into the silver market back in the 70ís and how the exchange survived?


Nothing is new Ö. Just a new group of sheep to be shorn.


Fred Richards

13 August 2022 p.m.