Investment Flow Chart Analysis - 7-12-2024

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 1960’s utilizing fundamental research including Point & Figure charting.

Since then, I have incorporated ideas from William O’Neil’s 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 at new high levels and 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 6/28/2024 for both the NASDAQ and the S&P 500 remain near the previous record high suggesting that momentum may be continuing upward.

Of course, most investors fail to understand the loss of purchasing power has upon the market. The U.S. dollar has lost 20% 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.

Both indices are showing signs of market exhaustion as indicated by the blue bars on the Elder chart.

The IBD market call remains "Market in Confirmed Uptrend" and they recommend a 80-100% market exposure.

The number of “A” rated stocks according to IBD is shown below. The number of “A” rated stocks rose in December 2023 above the red 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 May 2024, the number of "A" rated stocks has risen above the red 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.

During June 2024, the "A's" appear to have struggled around the red line seeking a direction. However, note that the A's are remaining in a very tight band and could decide to move either direction.

The fact that the number of A's has moved above the red zone and the economic numbers remain unsteady, investors are overlooking the economic uncertainties going forward and believe that IBD's call of 80-100% invested is optimistic going into July 2024, particularly, with the November election just four months away.

The Magnificent Seven continues to dominate the market. Since the first of 2024, only TESLA has not performed very well as shown in the following table. As of 7/12/2024, these seven stocks represent about 22% of the total value of the U.S. stock markets. NVDA has been an out-sized winner and dominates the growth of these seven stocks during the last six months.

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

Fred Richards
12 July 2024 p.m.