Investment Flow Chart Analysis - 2-9-2024

 

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 1960s utilizing fundamental research including Point & Figure charting.

 

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

 

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

 

 

 

 

 

As can be seen in the above charts of the NASDAQ and the S&P 500, the two indices are above both the 50- and 200-weekly simple moving average lines, so the presumption is that the market has positive momentum.

 

Friday's close as of 2/9/2024 for both the NASDAQ and the S&P 500 was above the previous weekly close suggesting that positive momentum continues. In fact, the S&P 500 closed at an all-time high on Friday.

 

Of course, most investors fail to understand the loss of purchasing power has upon the market. The U.S. dollar has lost 18% of its value since 2020.

  

Now, the question is ... will the positive trend prevail? So now the question is whether to:

1. Be long,

2. Be short, or

3. Be on the sidelines.

Remember pigs get slaughtered.

 

The NASDAQ and S&P 500 daily chart for the last two years show recent action using the Elder impulse system.

 

 

 

 

The IBD market call  remains "Market in Confirmed Uptrend."

 

The number of A rated stocks according to IBD is shown below. The number of A rated stocks rose in December 2023 above the green line.   The methodology which I use states that when the "A" line moves above  the red line, trading positions should be initiated in high-quality stocks with tight 3% initial stops.  More importantly, until the "A" line has created a bottom, trading should be very careful.

In trading during January, the number of "A" rated stocks has fallen from the 2100 level in December to about 800 which is below the green line.  At the moment, the "A" rated stocks are seeking to consolidate a base. If they move higher, the prospects for a positive market are improved. However, if the decline continues towards the red line, it would appear that the market is facing challenges.

 

 

Recent market movement has propelled the A/D line to a level well below the green line.

 

The Magnificent Seven continues to dominate the market. From the peak in early January, the decline in the number fof "A's has been fast and disturbing.  Earnings season emotions are probably affecting the stock market more than the actual economic conditions going forward.

We continue to run the various IBD and StockCharts screens each day but the current political and economic conditions suggest that prudence is justified.Nothing is new . Just a new group of sheep to be shorn.  Based upon the economic fundamentals, the recent week reminds me of the tulip craze markets of bygone time ... crypto anyone? 

 

As Minsky said ... it only takes one grain of sand to destroy ....

 

Fred Richards
9 February 2024 p.m.