Stock Market Update 10-24-16

Oct 25, 2016

Stock Market Update 10-24-16

There have not been any major changes to the complexion of the market this past week.  Short-term risk is still somewhat elevated and as a result, odds are higher than normal that we could see more stock market weakness in the near-term.

The S&P 500 Index has formed a Descending Triangle, which is a Bearish chart pattern that indicates distribution. If prices break decisively below the lows of the triangle, that would be a strong bearish signal and forewarn of further short-term stock market weakness.

spx-triangle

Market breadth is still negative. Below is a chart of the NYSE Summation Index and it is still below its 10-day moving average and trending down.

summation

Most momentum indicators are flat since the market is consolidating sideways. However, some momentum indicators that incorporate volume are displaying a more definitive negative bias.

Below is a chart that displays two volume based indicators. The first one is On Balance Volume (OBV). In the top panel is the NYSE Index (black line) and OBV is the pink line. OBV measures buying and selling pressure as a cumulative indicator that adds volume on up days and subtracts volume on down days. Bullish and bearish divergence signals can be used to anticipate a trend reversal. These signals are based on the theory that volume precedes prices. As you will notice, OBV is displaying a negative divergence and that is a warning that we could see further stock market weakness.

In the bottom panel is the second volume related indicator, the Force Index. The Force Index is an indicator that uses price and volume to assess the power behind a move or identify possible turning points. When it is above zero it is signaling a positive stock market environment and a negative one when below zero. As you will notice it has been negative since the beginning of last month.

force-obv

The Bottom Line

Short-term stock market risk is currently high. Until Market Breadth Indicators turn positive, odds are elevated that stocks will fall or continue to churn sideways over the near-term.

Bias: Neutral (Short-term negative, long-term positive for stocks.)

  • Long-term stock market price action is positive and will remain so as long as prices remain above the June 2016 lows.
  • Market internals suggest a positive environment for stocks over the longer-term.
  • The short-term market weakness that was signaled by market internals as far back as mid-July has been confirmed. The market is now in the process of correcting/consolidating. Short-term market risk is high.

Client Update

Client accounts are between 55% to 75% invested in lower volatility funds.

I will be looking to add funds that I have identified as providing attractive risk-adjusted return characteristics once short-term internals turn positive.

For the most part, our accounts have trended up with very minor volatility this year.


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Craig Image_wires_skin40_level_grey_160pix

Craig Thompson, ChFC

https://assetsolutions.info/

Email: [email protected]

Phone: 619-709-0066

About Asset Solutions

Asset Solutions Advisory Services, Inc. is a Fee-Only Registered Investment Advisor specializing in helping the needs of retirees, those nearing retirement, and other investors with similar investment goals.

We are an “active” money manager that looks to generate steady long-term returns, while protecting clients from large losses during major market corrections.


Asset Solutions is a registered investment adviser.  Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.

 

 

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