Despite a small sell-off into the close the NASDAQ 100 again led Monday’s gains, closing higher by 0.95%. Both the S&P and NDX made new highs for 2023 on the back of yesterday’s rally. Internally the market was weak with the McClellan Oscillator closing lower at +87. The second-quarter earnings season kicks into high gear this week with Tesla (TSLA) being the first among the “Magnificent Seven” growth and technology stocks to report its results on Wednesday. These seven stocks have been driving the U.S. stock market’s rally this year, with significant gains ranging from 40% to over 200%. The high expectations for earnings from these mega-cap stocks mean that any disappointments in their results could have a severe impact on Equity Indexes. Alongside Tesla, other major companies such as Bank of America (BAC), Goldman Sachs (GS), Johnson & Johnson (JNJ), and Netflix (NFLX) are also scheduled to release their earnings reports during the week. One sector of the market is the most overbought it has been in more than two years. No, I am not talking about technology stocks or the usual high-growth sectors. Instead, I am talking about the transportation sector. It is full of boring companies that make sure goods get where they need to go. Yet, the group has been soaring in recent weeks. Today, I am breaking down why that recent run is overheated. I will also share what is most likely to happen as a result. First, we need to look at one of my favourite ways to measure “overbought” or “oversold” levels – the bullish percent index (“BPI”). The BPI measures overbought and oversold conditions with a reading between 0 and 100. The number represents the percentage of stocks within a group that are at an overbought level. The key thing you need to know is what BPI levels are meaningful. A reading of 70 or higher indicates a market or sector is overbought and due for a correction. A reading of 30 or lower indicates a group is badly oversold and due for a rally. Sectors bounce between overbought, neutral, and oversold levels. For a bullish signal, you want to see an oversold BPI (below 30) turn higher. And for a bearish signal, you want to see an overbought BPI (above 70) turn lower. You don’t need to wait for it to leave overbought or oversold territory, as the change in direction is the signal. Now, let’s move along to the current setup for transportation stocks. The transportation group is not merely overbought – its BPI reading is at a multiyear high. Today’s reading of 100 is the most overbought reading you can get. And it tends to lead to quick sell-offs shortly after. Looking at the extreme overbought signals in early December 2022 and February 2023. In both cases, the sector rose to a BPI of 80 and turned lower. Transportation stocks fell 9% from November 30, 2022, through December 28. That is nearly a double-digit drop in less than a month. They fell 14% from their February peak to their April low. All three cases led to quick drops. When the BPI indicator starts to turn lower, we will likely see another one. But currently, the transport sector is still climbing. This group is up 16% since May 31. The BPI indicator has not turned lower yet. You do not want to bet against this trend while it is still ripping higher. But it is setting up a good trading opportunity after momentum shifts in the other direction. The BPI will give a bearish signal when it starts falling. Meanwhile, the higher it climbs, the more powerful a following correction is likely to be. There is a lot of pressure to take profits when close to 100% of stocks in a group are running hot. A pullback is already overdue. It could lead to big profits when this sector cools off. In the meantime, though, I would not recommend chasing this sector higher, just like the NDX. European Markets closed lower. Investors will closely monitor the release of June inflation data in the U.K. as it is expected to influence the Bank of England’s next rate hike decision. The headline consumer price index (“CPI”) is projected to decrease to 8.2% year-over-year from 8.7% in May, primarily due to lower food and fuel prices. Core inflation is also anticipated to decline slightly, while the services component is expected to remain at a post-COVID high of 7.4%. In the June Meeting Minutes, the Bank of England stated that further tightening would be necessary if there were signs of persistent inflationary pressures, particularly in services CPI. If expectations hold true, it could solidify expectations for a 50-basis point rate hike. In Asia, China’s economic data release confirmed a loss of momentum in its post-pandemic rebound, raising expectations for additional stimulus measures from Beijing. The Gross Domestic Product (“GDP”) showed annualised growth of 6.3% in the second quarter, well below expectations of 7.3% and compared to 4.5% in the first quarter. However, this figure will be distorted by the significant decline in economic activity during the spring when lockdown measures were in place. Deflationary pressures and a decline in trade have further fuelled concerns about the outlook for the world’s second-largest economy. Elsewhere, Oil closed 1.67% lower while Gold again closed flat.
To mark my 2800th issue of TraderNoble Daily Commentary I am offering a special 2-Year Rate of Euro 2750 for my Platinum Service which includes 1 to 4 updated emails throughout the trading day to demonstrate this value, a monthly subscription over the same period would cost 4440 euro in total This offer represents a 38% discount and is open to both new and existing members. If anyone is interested in this offer can you please email me on bryan@tradernoble.com for details
For anyone following my Platinum Service it made 110 points yesterday and is now down 83 points for July, after closing June with a gain of 2683 points. May closed with a gain of 3205 points. April saw a gain of 3354 points while March closed with a gain of 6168 points. The Platinum Service made 3164 points in February, 4687 points in January 2054 points in December, 4789 points in November and a record 9619 points last October. Since I started this New Platinum Service in June 2015 it has averaged a monthly gain of over 1900 points. I have a YouTube Channel which contains recent interviews I have given This can be viewed by clicking HERE Please subscribe to this for new interview notification
Equities
The S&P 500 closed 0.39% higher at a price of 4522.
The Dow Jones Industrial Average closed 76 points higher for a 0.22% gain at a price of 34,585.
The NASDAQ 100 closed 0.95% higher at a price of 15,713.
The Stoxx Europe 600 Index closed 0.63% lower.
This morning, the MSCI Asia Pacific closed 0.3% lower.
This morning, the Nikkei closed 0.25% higher at a price of 32,471.
Currencies
The Bloomberg Dollar Spot Index closed 0.02% lower.
The Euro closed 0.1% higher at $1.1237.
The British Pound closed 0.2% lower at 1.3074.
The Japanese Yen fell 0.1% closing at $138.71.
Bonds
Germany’s 10-year yield closed 1 basis points lower at 2.44%.
Britain’s 10-year yield closed 2 basis points lower at 4.43%.
U.S.10 Year Treasury closed 2 basis points lower at 3.81%
Commodities
West Texas Intermediate crude closed 1.67% lower at $74.16 a barrel.
Gold closed 0.1% higher at $1955.10 an ounce.
This morning on the Economic Front we have no data of note from either side of the Atlantic. At 1.30 pm we have U.S Retail Sales and Canadian CPI. Next, we have U.S. Industrial Production and Capacity Utilisation at 2.15 pm. Finally, we have the NAHB Housing Index and Business Inventories at 3.00 pm.
Cash S&P 500
Much to my frustration the S&P keeps rallying. There is little denying that markets appear to simply track the seasonality chart all year and so far, nothing else has mattered. There has hardly been a single down day of note since the Fed intervened with the bank crisis in March, crushing volatility in the process. Market Cap is now 172% to GDP. The $NYSI is max overbought while the $BPSPX 14-Day RSI is now at a severely overbought 86. Normally this combination would lead to a sell-off for a test of the 50 Day Moving Average (4293). I have not seen such a disconnect to this key support in many years. Most economists are saying we will not have a recession this year. This is incredible as history tells us that every time inflation falls, we get a subsequent recession. How anyone can say that we will not have a recession is hard to fathom when the time lags from the 11 successive rate hikes have not hit fully yet is beyond me. In my opinion this market is an accident waiting to happen hence my stubbornness in trying to be a seller, fighting what seems like only I am the only ‘’Bear’’ left. I am still short the S&P from Thursday at an average rate of 4505. I will now raise my T/P level to 4490. I will leave my ‘’Closing Stop’’ unchanged at 4531. If this view changes I will be back with a new update for my Platinum Members.
EUR/USD
Overnight, the Euro rallied to my second sell level at 1.1260 for a now 1.1240 average short position. I will now raise my T/P level to 1.1180. The 14-day RSI closed at a severely overbought 74 last night. Meanwhile, I will leave my 1.1325 ‘’Closing Stop’’ unchanged. Interestingly French Bank Credit Agricole came out last night stating the Euro is overbought and that the fair value for EUR/USD is 1.0957. If any of the above levels are hit, I will be back with a new update for my Platinum Members.
June Dollar Index
No Change. I am still long the Dollar at 99.70 with the same 100.50 T/P level. I will Continue to look to add to this position at 99.10 with the same 98.45 ‘’Closing Stop’’. If any of the above levels are hit, I will be back with a new update for my Platinum Members.
Cash DAX
My DAX plan worked well with the market trading higher to my 16100-sell level before trading lower to my 16020 T/P level and I am now flat. Today, I will again be a seller from 16140/16240 with a higher 16305 ‘’Closing Stop’’.
Cash FTSE
The FTSE is opening unchanged this morning and I am still flat. Today, I will continue to be a small buyer from 7290/7350 with the same 7235 ‘’Closing Stop’’. I still do not want to be short the FTSE at this time.
Dow Rolling Contract
After the Dow rallied to my initial 34600 sell level, I emailed my Platinum Members to exit any short position at my revised 34570 T/P level and I am now flat. I have a lot of open positions at this time that I am trying to ‘’nurse’’ and was the main reason for exiting this short position. Today, I will be a small seller from 34720/34950 with a tight 35105 ‘’Closing Stop’’. I will continue to be a buyer on any dip lower to 34000/34220 with a tight 33895 ‘’Closing Stop’’.
Cash NASDAQ 100
The NDX made a new 2023 high at 15748 late yesterday before having a small 60 sell-off into the close. I will continue to add to my 15620 short position at 15770 with the same 15905 ‘’Closing Stop’’. I have outlined extensively over the past number of weeks why I feel this market is severely overbought led by a few stocks whose valuations make absolutely no sense to me. I will leave my 15490 T/P level unchanged on this position. If any of the above levels are hit, I will be back with a new update form my Platinum Members.
September BUND
I am still flat. The Bund rallied to an afternoon high at 133. 45 before falling 50 points into the close. I am reluctant to chase the Bund higher despite the positive price action over the past week. Yields are too low relative to the continued expectation of more ECB rate hikes. I will continue to be on any dip lower to 131.10/131.90 with the same 130.45 ‘’Closing Stop’’.
Gold Rolling Contract
I am still flat. Gold hit a low at 1945 yesterday afternoon before having a small rally into the New York close. Gold is heavy after rallying $60 over the past 10 days. I am not going to chase the market higher leaving my 1918/1933 buy level unchanged with the same 1907 ‘’Closing Stop’’.
Silver Rolling Contract
No Change. Silver has continued to push higher since my exit last Thursday. Trading at 24.82 this morning. I will now raise my buy level to 23.60/24.30 with the same no stop.
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