August 9, 2017 Market close: Yesterday I posted on the main page that the Connolly Financial Advisors Top 25 from June 30, 2017 had 17 gainers and 8 decliners. Today, the market was unsettled by the threats from North Korea and the US response. A down day that rallied at the close to see the S&P 500 down by only 0.90 points after having been down by as much as 12.86 points earlier. I find it curious that the market rallied yet by the end of the day the June 30 Top 25 saw the number of gainers decline from yesterday’s 17 to 15, and the decliners increase from 8 to 10. This was validated as the number of NYSE declining issues for the day were double the number of advancing issues on a day when the S&P 500 was basically unchanged. Internal deterioration is showing up in many ways.
July 13, 2017 7:08 AM: The equity market is like the teflon don that slows but does not deviate from its upward path regardless of the negative events that occur. I see danger to the asset values of investors who remain largely committed to asset allocations that overweight equities. One of the variables that is persistently flashing a warning sign is actual cash flow and forward cash flow projections. Consider that the actual rate of growth in cash flow since 2007 has been 5.4% per year. The actual rate of growth in equity prices over that time frame has been 14.0% per year. This disparity results in a price change since 2007 of +110.4% vs a cash flow change of 73.89%. This divergence is further exaggerated when we look at today’s prices vs cash flow since 2015 where price is up 28.54% and cash flow is up by only 6.50%. This divergence is not sustainable, and I do not see the correction arising from abnormal cash flow growth to support prices as much as I see a correction in pricing to better align with cash flow generated on assets owned for their returns from operations. See the chart of cash flow forecasts in the Chart section to see the continued decline in analysts projections of cash flow growth over time.
June 4, 2017: The analysis performed this weekend has me very concerned for a significant and sustainable downturn in the equity markets. I emailed my subscribers the reasons for the concern and post this as a public service warning.
May 12, 2017 6:51 AM: One of my key directional indicators of the equity market has crossed into a major sell signal. I am setting up to be ready for a decline, liquid and poised to go short.
May 7, 2017: I anticipate a move higher in the Monday open, but a sell-off that gathers momentum later in the day and through the week.
April 28, 2017 10:37 AM: Concerned about the dynamics of the market internals. Over the past five days, the DJIA is up 388 points, with a net sum of 2,025 advancing issues and 535 billion shares in advancing volume over declining volume. The Issues and volume deltas are too small for the point gain. Historically, on average a weekly point gain of 200 DJIA points has 2,335 net advancing issues over declining issues, and net volume of 775 billion shares in advancing over declining volume. The current week data shows a lack of internal support for the index gains, which often results in an index reversal. Trade accordingly.
April 27, 9:45 AM: Waiting patiently, playing defense. Oil looks attractive to me as does the U.S. dollar. Silver is down more than I anticipated, so watching that too. Patience is required to maximize return.
April 26, 2017 8:16 PM: A tumultuous day. So many assets moved with volatility. Being nimble in managing a portfolio paid nice dividends today. Post-close, the earnings releases from New Gold and Gold Corp were favorable, and given their current prices it is of great value to think of these two companies as being at entry or add points for a diverse portfolio.
April 26, 2017 7:27 AM: Pretty amazing that we have rallied these past two days on a French outcome that was expected, and now an expected tax plan from the U.S. that will be long on beneficial promise and short on congressional passage potential. Yes, it does seem like the animal spirits are alive and well. According to Bloomberg’s Mark Cudmore – “is that no matter what Trump says today, it will almost certainly lead to more stock buying, leading to yet another “Trump Bump.” As for me, I am like the cat in the brush, waiting patiently to pounce.
April 25, 2107 8:19 AM: The fireworks of Sunday night into Monday following the first phase of the Presidential election results in France have been dramatic. I closed Dollar short and EURO long positions after they moved capturing strong profits. I added to an E-Mini short position that is presently under-water. Gold and Silver were bought on weakness. Now it is time to be patient and to assess market internals for waning support or confirmation that the we are headed higher.
March 1, 2017 12:39 PM: Amazed by the blow-off move I am witnessing. Parabolic gains are wonders to see for they happen so infrequently. There is much economic strength emerging across the world that is feeding this advance in the stock market indexes globally. I am not participating, but do enjoy the spectacle. I will wait for the reversal that is sure to come. I expect to profit from the contraction, the fall in stock prices, that must occur given the growth restriction that the large debt balances, both governmental and private, place on greater expansion. The market forsees expansion and the buy fever is alive, but without capacity to fund the expansion, the fever will abate. Patience is the watch word of the day.
February 15, 11:47 AM: Tone is still not aligned with technical and fundamental aspects of the market. Patience is called for. Early steps taken to set the foundation for when the tone does change. Opened a small EuroDollar short position, added a small gold and silver futures position, opened an initial position in the ETF for emerging markets (EEM), and a modestly tiny buy of PAAS shares given their earning release this morning (a beat on earnings) and the sell-off that strikes me as being unwarranted. One last idea, which is more of a prediction, and that is two-fold: (1) Viacom will be acquired in the future by Amazon; and (2) Apple will acquire Hulu in a transaction with the current owners that locks in production deals for the long-term.
February 13, 10:26 AM: Two elements are pointing to caution. Fundamentals and technicals are not positive. While fundamentals have been stretched for a while, it is the recent joining of technical indicators that are exhibiting a lack of commitment to the buying of equities. The missing ingredient for a market decline is tone. Enthusiasm by the general market is present and that enthusiasm is showing itself in rising prices. I am not a buyer, and given the presence of only two of the three needed elements to justify a greater commitment to the short side, I remain for the most part on the sidelines with a small short option position on the S&P 500.
February 13, 2017: I have spent the recent past re-tooling my trading approach. Previously, the fundamentals governed the positions in the market that I established. This proved to be profitable over longer periods of time but caused me to miss greater return opportunities in the short-term. Coupling fundamentals with techncial analysis on the market’s internal metrics, with an appreciation of the market tone, provides a better risk-reward approach to my trading activity. Utilizing this approach with a clear money management strategy forms the bedrock of what will be my performance from this point forward. It is with great expectations that I commence trading under the Connolly Financial Advisors, LLC brand.