3-18-18 Market Commentary


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Market Breadth: With this past week’s market advance, our Bull/Bear Point and Figure Ratio at 0.92 rose from 0.89 last week, advancing slightly, but still within bearish territory. The total count of securities in bullish or bearish patterns decreased 3% to 2632. The count of bearish stocks decreased 5%, while the count of stocks in bullish patterns decreased 1%. The Sand 2 Pirls P&F Market Breadth Summary Chart shows us a market now seven weeks in bearish territory. Paid subscribers have access to the OpenOffice Calc data from which the chart is generated.

The well known market breadth indicator, the NASDAQ McClellan Summation Index (NASI) rose 139 points for the eleventh advance in 22 weeks. At a positive 280.82 points, it has risen above the July 2017 to, continues below all remaining seven tops in the last 30 months, and continues above all five bottoms below -100 in the last 30 months. 

Volume Analysis: In this week’s volume analysis, the NASDAQ Composite Index ended in Accumulation mode with average daily volume higher than the prior week. In the last two weeks the NASDAQ had six (6) Accumulation days and one (1) Distribution day. (Accumulation days are counted when the index closes up on higher volume than the prior day while Distribution days occur when the index closes down on volume higher than the prior market day.) Last week, the NASDAQ ended Accumulation mode on lower average daily volume.

Momentum: At Monday 3/5 close, the CCI(20) daily in a Woodie’s Up trend within the +/-50 range formed a ZLR Long entry signal. At +79.14, down from +157.68 last week, it fell below +100 at Thursday 3/15 close, signaling our exit for Friday 3/16 open. The result of this trade simulation was a gain of 137.7602 points on the NASDAQ or $3.17 per share of QQQ.
In Woodie’s CCI trading system, six consecutive bars above or below zero are required for a change of trend. The Weekly CCI(20) of the NASDAQ Composite Index began a Woodie’s up trend ninety-eight weeks ago, while the Daily CCI(20) began a Woodie’s up trend two weeks ago.
Following last week’s successful trade simulation, the CCI(20) rose this week to +132.79 from +124.27 last week, and continues outside the +/-50 range for a new ZLR Long entry signal.
Industry Rotation the last two weeks: All of the top five industries are  positive and all of the bottom five are negative. Summary: Some tech on top; Gold & Silver, and KBW Bank on the bottom. Bullish: Semis PHLX, Disk Drives, Networkers, and Computer Hardware continue in the top five. Gold & Silver continues in the bottom five. Bearish: KBW Bank has entered the bottom five. Brokers has left the top five. Oil and Oil Services have left the bottom five.
Focus this week: From www.zerohedge.comFANG + Apple Now Account For A Quarter Of The Nasdaq, And Some Are Getting Worried“. The following are some key points and charts.

  • While many parts of the market have experienced a rise in price volatility in recent months, it has largely been a one-way street for the tech darlings of Wall Street: Apple, Facebook, Amazon, Netflix and Google, also known as FANG + Apple, have grown their collective market value by more than 40% in the past year to $3 trillion, and now accounts for a staggering 25% of the Nasdaq Composite…

    … with Apple ($900BN in mkt cap) and Amazon ($760BN) racing to see which company hits the historic $1 trillion in market cap first.

  • Below we show the Bloomberg consensus forward estimates for these five companies:
    • Amazon: 2018P non-GAAP EPS: $16.75; 2018 Adj. Net Income: $7.56BN; fwd P/E 189.9x
    • Netflix: 2018P non-GAAP EPS: $3.07; 2018P Adj. Net Income: $1.435BN; fwd P/E 116.4x
    • Google: 2018P non-GAAP EPS: $12.11; 2018P Adj. Net Income: $8.55BN, fwd P/E 27.3x
    • Facebook: 2018P non-GAAP EPS: $8.388; 2018 Adj. Net Income: $24.65$BN; fwd P/E 25.6x
    • Apple: 2018P non-GAAP EPS: $11.51; 2018P Adj. Net Income: $58.5BN, fwd P/E 15.5x

    Adding across, the 5 companies are projected to make just over $100BN in adjusted net income in 2018 (far less on a GAAP basis), much of which is expected to come from ad sales. Which means that as a sector, these 5 companies are now trading at a 30x blended forward P/E multiple.  Hardly cheap.

  • However, momentum for some major technology stocks is already showing signs of moderation. Facebook has fallen 5% after hitting a record high at the start of February, with some investors worried that people are spending less time on the social media platform, while others are concerned about Zuckerberg’s increasingly more frequent appearances in Congress as a result of ongoing “fake news” scandals.
  • People are going with what works, and if tech was working before the shakeout in February, then they’re going to stay in it,” said Joe Saluzzi, co-manager of trading at Themis Trading, loosely paraphrasing Chuck Prince’s legendary words from the summer of 2007: “When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you’ve got to get up and dance. We’re still dancing.” A little over a year later, the S&P was trading over 50% lower.

–Donald Pirl www.s2pmarketsignal.com

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