In this week’s Alpha Over Beta Market Outlook:
The market is on a bullish run without looking back,It’s in record breaking territory, Listen to our weekly podcast to find out what’s our outlook for the short-term.
Market still on the rise
As always, let’s start looking at the market. The S&P500 moved up again for the fifth straight week. This is five straight weeks in a row that the market had moved up, and this week it was up about 1%. The market made a very nice move from the lows of about 288, and we are standing very close to the 309 levels right now when we broke the 302, 303 level that we spoke about for many, many podcasts. So, that move up, especially with the gaps up and backed by very significant volume is a nice move to the upside, which we have forecasted a couple of podcasts ago, and, as you can see, the market is not actually looking back and just making a dash to the upside.
Now the fact that it did run to the upside without actually looking back is a bit of an anomaly because usually when any price breaks resistance and goes over to uncharted territory, which is the all-time high, there’s usually a retest of the previous resistance that, as we spoke, stands at around 302, 303. So, this market didn’t really go back to retest the 303, and this is what we forecast in the short-term, but more about that when we move on into the podcast.
So, what we see right now is that the fact that we didn’t have a retest is a bit of a concern. Financial sector and energy sectors are our favorites. You can maybe check out previous podcasts to see specific symbols, but financials and energy sectors are our favorite sectors and they led this week up move as well, and the real estate sector and the utility sector are lagging behind. Now if you look back a year ago, you can see that real estate and utilities made a very nice move to the upside, but if you look only in the short-term, over the last week, utilities and real estate are lagging behind, the energy and financial sectors.
If you look at the fundamentals, fundamentals are not that bright. We actually had a -2.7% decline for the quarter in earnings. So, If that’s gonna be the case, it will be the first time that the market made a decline year over year since the year of 2016. It’s the first earning decline in the past three years, and most of the companies that have reported really reported a decline in earning. Now that doesn’t mean that they don’t make money or they’re not profitable; they sure are, but they’re not as profitable as they were three quarters ago. There is a decline in earning.
And there are many reasons for that. Reasons that we can detail here and we have detailed in previous podcasts ,it’s a business cycle and if you look at a business cycle, the business cycle can move up. And we’re now in our downtrend in the business cycle. There is a global slowdown; many countries in Europe, Some of them are the strongest economies in Europe. Like Germany are reporting a slowdown. So, there is actually a slowdown in the global economy. China as well reported numbers that we haven’t seen in the last 25 years. Companies that have global exposure that are in the S&P500 will report a decline in earning, and that’s understandable. As long as it is what the market expected and there are no surprises, the market will absorb that and move to the upside since everybody know that this is a cycle and you put your money once the cycle moves down so you can enjoy your investment once the cycle moves up.
So, we are standing in a downtrend in the business cycle as a result of the global slowdown, and this is the reason that there are some choppy roads for many companies with global exposure. But the market doesn’t like surprises and there were no surprises, so even though we had some fundamental factors that are not as bright as we used to see them in the last, let’s say, two to three years, still we have a market that is moving up despite the fact that we have a slowdown and a decline in earning.
Mixed signals from US – China front
One more fundamental fact is the mixed news regarding the agreement in the US and China front. We heard some conflicting messages from both parties. China said that they have made an agreement and they signed it with the US, and the messages from the White House and the other financial officials are not that positive. They are not confirming the fact that they have signed yet, but the market, as usual, runs with the rumors and with the optimism. And there is an assessment, probably; an underlying forecast that says that China and the US will probably sign some kind of agreement, which is a Phase 1 agreement in an all-inclusive agreement that will conclude this war between the US and China. So, Phase 1 is probably on its way to be declared and signed, and once it does that, there is the first positive step in that trade war between the US and China.
All right. So, we have a bit of optimism there from that front. So that’s really most of the forces that are turning the market into an up-trending market. The expected decline in earning and the good news from the US and China front.
If we’re looking at technicals, we see that in the short term we are a bit oversold, and we are ready for a correction. So, we talked about this retest, technical retest, of the last resistance line that was about 302, 304. I think that the market is going to go back and retest those levels. It’s only a natural move after such a nice move to the upside. I think that the retest will be around those levels; 302, 304. Once the market retests those levels, then it’s going to be a healthy run to the upside and we are ready to make a significant leg.
Again, what are our forecasts to the upside? We think that the market is going to reach 320, 325, which is about 10, 15 points from where it’s standing right now. So, this is our forecast for the long-term. We think that for the long-term the bullish move will take us up to the 320, 325. Those levels are probably good levels to forecast in case of a nice leg to the upside. But in the shorter term, we still think that there is going to be a retest and the market’s going to go back in the next, let’s say, a week or two retest the 302, 304, so protection is in place, of course.
If you’d like to receive the full technical analysis of Alpha Over Beta regarding the US stock market, please send me an email, that’s email@example.com, and I can send you the detailed technical report from Alpha Over Beta; the one that we’re generating every week for the market, helping us to forecast the next move, as we have forecasted this move to the upside, which I’m hoping that you are a part of.
What we’ve opened; what did we close?
All right. So, let’s take a look at our portfolios. Our portfolio managers didn’t really make any significant decisions this week as this was a normal week as a part of an up move. So, really no news there, so I wouldn’t repeat the previous decisions that we have elaborated in this podcast before. And we haven’t made any really significant move, but I can say that we have open and close positions.
So, what we have on the open, close positions front, we opened ticket symbol SYF in the financial sector. As I said, we like the financial sector and we are overweight on the financial sector as long as the market is moving to the upside. So, SYF was up almost three percent for the week. That was a nice gain. We still haven’t closed that yet. Once we do, I’ll be sure to let you know, but for now SYF is one of our open position, which we have opened in the beginning of the week. And you can check out the move that it made. It really broke up and we made about three percent for the week in SYF.
Another ticket symbol that we have opened this week, the beginning of the week, was US Bank Corp ticker symbol USB, and that stock moved up about one and a half percent; another nice move, nice investment, and nice call from our portfolio managers. So, both of those symbols are form the financial sector. As we said, we’re overweight. SYF and USB we haven’t closed those yet, and in case we close those, we’ll be sure to let you know in one of our podcasts, or you can sign up for our alerts in alphaoverbetta.net and you can get them in real time delivered right into your inbox.
What did we close this week? We closed the ticker symbol ES. It made a nice move to the upside and then we closed it. And another one that we have closed this week is CMS.
All right. So, to conclude this podcast. The market made a very nice move to the upside five weeks in a row up. We hope our listeners were able to profit from it, since we have forecasted this move to the upside. Now there are some clouds in the horizon. These clouds are not really heavy thunderbolt clouds. They’re just clouds that forecast a slight move to the downside; the retest of the previous levels as we said, and it’s only going to confirm the fact that this up move is healthy. We need and we search and we want corrections. Corrections really indicate that this is a healthy move to the upside. So, I’m hoping for a correction. This correction will enable most of our listeners to enter our recommendations at really nice levels, and we’re hoping that in the next one to two weeks we’re gonna have a correction that is going to enable us to purchase some more stocks in favorable prices.
So, this is what we forecast for the shorter term, but longer term, as we said, 320, 325 is what we think the market’s going to be at in the next few months, so that’s our forecast for the longer term.
Thank you for taking the time to listen to this podcast. As always, if you have any questions and comments, please do not hesitate to shoot me an email, that’s firstname.lastname@example.org, and I will be more than happy to comment.
Thank you again and have a great trading week,