Season-trader

Market Radar 28. November 2022

Market

Defensive industries look a bit overbought
The SPY closed on shortened Black Friday Day below Wednesday’s closing price, but above the opening. The 400 mark was not touched. Friday was known to be bargain day. Are the 400 points in the SPY a bargain price or not?

Confidence in trend-following strategies continues to rise
On Friday, we saw more 52-week highs than 52-week lows in the S&P 500 for the fifth day in a row. As a result, confidence in trend-following strategies for US equities has risen again. Since October 25, we have seen more 52-week highs than 52-week lows in the S&P 500 on most days. In between, however, there were always individual days at short intervals on which more 52-week lows than 52-week highs were counted. In a market that is also trending in terms of market breadth, there should be no such days at all. Another popular indicator for a start in trend-following mode is the RSI Wilder in the 6-month setting. If this indicator rises above 50, then some portfolio managers will be willing to increase the long quota and hold stocks longer. This indicator rose above 50 in the SPY on Wednesday, the day before Thanksgiving, for the first time since August 25.

However, if you take the Dow Jones Industrial Index (ETF symbol: DIA) and not the S&P 500 (SPY) as a benchmark for US equities, then the DIA has already risen above the 50 mark in the RSI on October 28 in the 6-month setting. So the DIA runs ahead of the SPY.

According to risk-on / risk off logic, I find it difficult to evaluate the DIA / SPY pair. Is the DIA riskier or is the SPY riskier?

If more money flows into the DIA than into the SPY, then one might conclude that fund managers are forced to put money into US equities. If you know that you want to buy, but don’t know what to buy, you buy the 30 stocks from the Dow Jones Index.

We do not actually monitor the DIA for the market radar and will not continue to do so.But taking a look at it from time to time can’t hurt.

The volatility of volatility (VVIX) closed slightly positive on Friday, as did the VIX. Since the SPY closed slightly in the red, the quite extreme divergence observed on Wednesday has now evaporated. Such divergences have only a short half-life and can be shelved in good conscience on a trading day later if this divergence does not persist.

However, if such a divergence between VVIX and SPY were prevalent over a longer period of time, it would have been a reliable signal for an early correction in the US equity market in the past. So for the S&P 500, we continue to pay attention to the ratio of volatility measurement to price movement. If divergences accumulate, we report them here.

Get the Seasonal Tradingsignals on you cell phone

What do we see under the radar of the major US stock indices?
On Friday, defensive sectors, especially REITs stocks, were in demand. Banks, beverage manufacturers and travel stocks were also in demand. Among the losers were semiconductor stocks and actually everything related to technology and the Internet.

No bargain buying on lithium stocks
Lithium shares were also sold. Livent (LTHM), which was mentioned on the market radar on Friday, fell by double digits and tested the important support level around $26 faster than I expected. Albemarle (ALB) lost about 4% and is now up in the air in terms of charts. However, Standard Lithium (SLI) was able to escape a price slide and closed only slightly in the red.

Thin trading turnover: On Black Friday you look for bargains outside the stock market
Because of the thin trading turnover, not too much should be interpreted into the movements of Black Friday. It remains the case that defensive industries are leading the way in the sector rotation that began on November 10, when the SPY was able to “overrun” resistance at 390 points with high trading volumes.
Forecasts into the future work best in batches

In general, sector rotations, if they are to be used to forecast the future, should be recounted again and again: when the major US stock indices make a powerful push upwards. That’s how the cops do it. The bears recount when there is a powerful push downwards.

Many stocks from the defensive sectors I now prefer, consumer staples, healthcare, insurance, utilities look a bit hot at the moment.

A non-overbought healthcare leader stock
From the healthcare sector, however, I still find Dexcom (DXCM) interesting. Dexcom belongs to the health diagnostics industry and is in the diabetes sector. The company specializes in continuous monitoring and measurement of glucose levels in real time. After strong earnings, the stock is trading at the lower end of a flat base. The upper limit of the flat base is $120. The lower limit at $110. The stock closed at $112 on Friday.

With the handle close enough to reach the high?
Finally, a conservative trading idea for a small cap stock from the regional banking sector. Regional banks (KRE) receive the daily stamp “buy or top-up” and have recently developed somewhat weaker than large banks (XLF). Many shares of regional banks are on the right side of a base and have been attractive to traders for some time. So far, however, most regional banks have not been able to ignite the “turbo” as much as some major banks. Take a look at JPMorgan Chase & Co. (JPM) from the big banks. While scanning, I noticed the Townebank (TOWN) based in Portsmouth, Virginia: Townebank, capitalized with about $ 2.5 billion, offers people in Virginia and North Carolina banking and real estate transactions in addition to insurance. The 52-week high can be located on the chart on January 13 and is $33.99. Currently, a handle is forming in a cup formation started at this high point. This handle has been forming between $32 and $33 since the beginning of November. A breakout above $33 and thus a quick run to the high at $34 should only be a matter of time. Compared to the peer group, the stock looks low, especially in terms of the P/E ratio. The P/E ratio expected from 2023 is around 11, the P/E ratio is around 3.