Weekly Investment Outlook: May 8, 2017

weekly update

 

The equity markets rallied on Friday on the heels of strong jobs report and The S&P 500 touched a new high on Friday although did not close at the all-time high. The breadth remained mix as the NYSE advance-decline lines remained flat. The NYSE composite has not followed the expansion in the breadth in April 2017 and must rally to confirm the bullish thesis.

 

Another focal point has been the absence of volatility in recent months. According to Sam Stoval from CFRA

 

“Year to date through May 5, the S&P 500 experienced only three days in which it rose or fell in price by 1% or more. Since 1950, the “500” averaged 4.25 times per month, or 51 per year. However, at this pace, 2017 should see a total of fewer than 10. Is such a low number of 1%+ days something to worry about, or to feel thankful for? Well, if history is any guide, for it’s never gospel, a low frequency of volatility actually hints at a double-digit price return for this calendar year, and a very high likelihood of posting another up year.”

 

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Source: stockcharts.com

 

Also on Friday some chatter about the Hindenburg omen grew louder. Just like any other indicator there seems to be a number of loopholes in this thesis as well and its track record is very patchy. In the chart below the blue dots shows the time period when the Hindenburg Omen was triggered and worked half of the time. The omen like other indicators does not guarantee a big market correction but can focus on the facts that the breadth of the market has been declining and market may be more prone to downside.

 

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Source: SentimentTrader

 

According to wikipedia “The Hindenburg Omen is a technical analysis that attempts to predict a forthcoming stock market crash”. Now on the other there can similar arguments made for the bullish thesis. According to CFRA   – 62% of all 147 sub-industries advanced in price, with health care technology, household appliances, and security & alarm services gaining the most, while coal & consumable fuels, oil & gas drilling, and trading companies recorded double-digit declines. Finally nearly two out of every three sub-industries are now trading above their 50-day moving average, versus the recent low of 29% recorded on 4/14/17.

 

 

This information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Any opinions are those of Chintan Shukla, CFA and not necessarily those of Raymond James. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. You cannot invest directly in any index and Past performance may not be indicative of future results. Investing involves risk and investors may incur a profit or a loss. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. Forward-looking statements are subject to uncertainties that could cause actual developments and results to differ materially from the expectations expressed. Securities offered through Raymond James Financial Services, Inc, Member FINRA/SIPC. VIX is the Chicago Board Options Exchange (CBOE) Volatility Index, which shows the market’s expectation of 30-day volatility. It is constructed using the implied volatilities of a wide range of S&P 500 index options. It is a widely used measure of market risk. Goldfarb Financial is not a registered broker/dealer, and is independent of Raymond James Financial Services. Investment Advisory Services are offered through Raymond James Financial Services Advisors, Inc.