The SmarTrend Trading Community

The SmarTrend Global Portfolio had a rebound in Uptrends last week, consistent with the rise in equity markets.  The number of Uptrends vs. total trends rose to 56%, up from 47% in the prior week.  A continuation of this rise will be necessary for the markets to break above resistance at 1100 in the S&P and 10,300 in the Dow.  The average Uptrend now stands at 108 days, down from 125 while the average return ticked lower to 38.5%, down from 41.5% in the prior week.  This suggests that a rotation is occurring where some winners in the prior up cycle were sold and laggards are now being picked up.  Check our Morning Call newsletter for insight as to which sectors are leading this rotation and keep an eye out for new trend alerts in those sectors. 

Last week was a bit of a transition week as the number of stock in a Downtrend, surpassed the number of stocks in an Uptrend.  Just over 47% of stocks in our global portfolio are now in an Uptrend, down from 53% in the prior week.  The number of our Uptrends calls that are profitable has ticked up from 75% to 81% suggesting investors are still hanging on and rewarding some of their best winners.  The performance of Downtrends has declined which is typical during periods of distribution as institutional investors lighten up but are then briefly lifted by retail investors.  We’ve seen up days in the market accompanied by low volume and down days in the market occurring on higher volume.  This is a theme that often implies a shift of equities from stronger hands to weaker ones.  We expect the market to continue to test its upper bound (~ 1100 S&P) and will be watching for higher lows on any future retracements to confirm that the intermediate uptrend remains intact.   In order to break above resistance on meaningful volume, we will need to see far more Uptrends vs. Downtrends each day - something we did not receive last week.  If and when this occurs, readers of our Morning Call newsletter will be among the first to find out.

What a difference a week makes.   Readers of our Morning Call newsletter were forewarned of the 4-5% correction in the market which indeed occurred as the S&P 500 closed the week sharply bouncing above and below its 50-day moving average.  The percentage of stocks in an Uptrend fell sharply to 53%, down from 73% in the week-ago period.  The drop to 53% is notable as it is lower than levels reached during prior corrections and may be indicative of a near-term top forming.  Holders of equities may be looking to cash in on some of the extraordinary gains realized since March as volatility, as measured by the VIX, has reached levels not seen since June of this year.   The return of the average Uptrend has declined with our Downtrend calls picking up steam - moving from an average of 0.9% decline three weeks ago to more than a 7% decline currently.  Also expected, the number of Downtrends that are now ”in-the-money” has also risen to 84%, up from 65% last week.  As these numbers point to a topping process, whether or not this is merely a leveling off after an incredible run or the start of a much larger correction remains to be seen.  In either case, readers of our Morning Call will be among the first to know which scenario is playing out.

As predicted in the Morning Call last week, equity markets took a breather after hitting resistance at the 1100 level on the S&P 500.  This despite a slew of positive earnings reports from a number of leading technology and materials companies.  The percentage of stock in an Uptrend dipped back down to 75%, from just over 78% in the prior week.  Also, the percentage of stocks in a Downtrend that are “in-the-money”, has been increasing steadily week over week to just above 65%, vs. only 50% last week.  The average return of each Downtrend stock is still slightly negative which may be a sign that while some profit taking may be taking stocks lower, selling pressure has not been strong enough to embolden the bears where they would push these stocks much lower.  For this to occur, a break below 1075 on the S&P would be required as that level has held and been defended several times now.  We will be watching these developments closely as earnings and economic data continue to trickle out and will report our findings each day in the Morning Call.

The market continued to move higher last week, enabling the SmarTrend Ratio (the percentage of stock in our Global Portfolio in a current Uptrend) to reach 78%, up from 75% in the week-ago period.  We have also seen the market get slightly more selective between winners and losers even though the total number of Uptrends increased and the total number of Downtrends decreased, the number of Uptrend winners ticked slightly lower and the number of Downtrend winners shot up from 40% to 50%.  This may be indicative of some profit taking on Uptrend winners that have been going up for quite some time (an average of 113 days - well above historical norms), and possibly some increase in bearish bets either in front of, or in response to, earnings reports.  Our team of analysts will be following all major earnings reports and the market reaction and we will report our assessment each day in our Morning Call newsletter.

Two weeks ago, when the market endured a 4-5% mini-correction, we saw many of our indicators move in-line with our historical averages.   That decline quickly reversed itself as the S&P 500 bounced off of its 50-day moving average and regained that lost ground to get back to new highs for the year.  As for our indicators, they also quickly reversed with the percentage of stocks in an Uptrend moving from 74% to 76% and the number of our Uptrend calls that are “in-the money” back near extremes at just over 88%, up from 83% in the week-ago period.  This quick shift in momentum, predicted in our Morning Call, comes ahead of a VERY important week in the Q3 earnings calendar with many major financial and technology companies on the docket.  Our prediction of Dow 10,000 several months ago may be tested this week, if investors find some comfort that the growth they have priced in is indeed forthcoming.  However, this market may be sensitive to any severe disappointments which, at this point, are not expected by the investing community.  That said, and with our near term target in mind, we encourage investors to favor Uptrends but to be mindful of the week’s earnings and economic events and to read the Morning Call for the latest insights to help determine any shift in this sentiment.

The market finally corrected after having been overbought for several weeks which sent the Dow Jones Industrial Average to its first level of support at 9600 - which we accurately predicted in the Morning Call.  We also said that if 9600 did not hold, 9450 would be the next level of support.    Both of these predictions came to fruition.  The extreme levels observed in this report (as measured by percentage of total Uptrends), in conjunction with our proprietary market indicators, led to these successful predictions.  As you can now see below, the percentage of Uptrends vs. all trends is now at 74%, down from 83% the week before.  Further, the “win rate” has also moved closer to our historical averages for Uptrends - 83%, down from 87% last week and over 90% a few weeks prior.  We also now see the number of Downtrends that are in-the-money has also ticked higher to 54%.  These are signs that the market is at a critical point of either forming a near-term top or trying to establish a new base from which to rally.   Should the market fail to hold the aforementioned support levels, we can expect to see continued outperformance by Downtrends and the average return will increase as it normally takes a few days for trends - in any direction - to materialize as there are often compensatory bounces.   If the market continues to hold these support levels and establishes a base, Uptrends wil outperform.  Also of importance is that in these questionable times, investors will often rotate into quality companies and so companies that remain in Uptrends are better bets so before placing any trades, it may be useful to check the trend status first.

We had a nice rally yesterday, albeit on light volume, back to the old support level of 9600.  This is where we expect some inflection to occur with the bears and bulls awaiting earnings season to begin in earnest, in addition to retail sales and other economic data.  This is an important week for the market as the outcome of these events should help determine whether we retest the 9450 support level or grind our way toward the 10,000 level - a target we predicted many months ago and came within 80 points of reaching on Sept 23.   Current signs point toward the latter - a resumption of the intermediate term Uptrend.  We will closely watch these important indicators and report them to you every day in our Morning Call report. 

Last week’s decline in the equity markets, foreshadowed by a very toppy SmarTrend Uptrend Ratio, led to slight declines in the average return of our Uptrend universe from just over 47% to about 45%.  As we stated here and in our Morning Call, stocks had reached a point where momentum had been stretched leaving fewer new Uptrending stocks to buy.  Consequently, the percentage of stocks in an Uptrend  ticked slightly lower from 83.3% to 83.1% - small but we will watch closely to see if it becomes a trend.  Also, the percentage of Uptrends that are “in-the-money” also retreated from over 90% to just over 87%, still high but closer to our historical average.  The percentage of winning Downtrend calls moved up from 40% to over 47% - an expected shift after a more than 2% decline in the S&P 500 last week.  The next few weeks will be critical as we approach Q3 earnings season and with Friday’s employment report expected to be a potential catalyst.   Please check our Morning Call each day for the latest insight on market direction and how it may impact the performance of both Uptrends and Downtrends.  Remember, in downtrending markets, our Downtrend calls outperform.  However, should the market find a base from which to rally, stocks that SmarTrend has in an Uptrend are to be watched for potential entry points.  

With last week’s more than 2% rally, the number of stocks in an Uptrend, as a % of all stocks in our global portfolio, reached over 83%.  When this figure reaches north of 80%, that usually is a reliable indicator that a near-term top may be close and that a pullback is overdue.  The rationale is that in order to propel the market to higher highs, investors and traders need stocks to buy.  However, when so many stocks have already been bought and their prices driven higher, that leaves little left to buy and sellers will then tend to dominate the action as they outnumber buyers.   

This phenomenon is clearly visible by the number of Downtrends now only 793 - indicating even some of the worst stocks in the marketplace have likely been bought and their prices taken higher.  The winning % of our Uptrend calls is also now north of 90% with the average Uptrend now returning 47% - both figures above our statistical average and indicative that almost all stocks are being pushed to extremes.  Can this continue?  Sure, anything is possible in this market but when placing bets with real money, we advise caution on any new long stock purchases and to protect gains where appropriate.  This market will take a breather and the longer it takes to do so, the greater the possible decline when it ultimately does.  Being the last one to sell is also never a fun trading experience.

Q: Don’t understand why this stock crashed so fast on the news of competition, hasn’t the competition always been there? Do you think this stock will ever get back to it’s latest high and do you see where it will stop going down.

Linda

A: Hello Linda,

Thanks for your email.  Our system currently has STEC in a DOWNTREND.  This new trend direction was called on 9/18/09, and will remain in this trend until our technical indicators determine a trend change has occurred.  Since our alert, the stock has dropped over 8% since our alert.  If you signup for a free trial of our system, you can add STEC to your personal Watchlist and be alerted the moment a trend change occurs, www.mysmartrend.com.  Please see below a one-year performance chart for STEC, showing all trend alerts issued by SmarTrend during this period.