Stock Market Early Morning Insights – September 22, 2016

Stock Market Early Morning Insights – September 22, 2016


I want to thank Gil Morales for his participation in our webinar yesterday. As usual, Gil provided great insight into how he trades, and how he uses HGSI. We have had many positive comments about the webinar, and if you have not yet had the opportunity to view it, this is the link.

As most expected, the Fed is holding off on rate increase for now. The news immediately propelled the NASDAQ composite to a new all-time high as a risk trade resumed. Money flowed into gold, silver and precious metal stocks as an inflation hedge, and also a hedge against systematic risk. Evidently, George Soros is loading up on gold rather than buying stocks due to this overheated market.

Years ago, Marty Zweig advised investors never to fight the Fed, and his advice still holds true. This rally, which began back in 2009 has been mostly the result of the Fed and other central bankers lowering interest rates, and keeping them low. Consequently, there have been few other places to invest money for a return other than stocks. At some point, it will come crashing down as it always has in the past, we just don’t know when.

Yesterday seemed like an overreaction to news that most of us had anticipated. In my opinion, it was a perfect opportunity to squeeze the shorts, and when they had to cover, they became reluctant buyers to cover their losses. Money also flowed into utility stocks which provide a yield, but the heaviest buying was in the Precious Metal Mining stocks. The group was up an astounding 7.87%! 

Semiconductors Devices was the most in demand group with 59 advancing stocks compared to only 5 decliners. Pollution Control Equipment, Communications Equipment, Biotech, E-Commerce Discretionary and Application Software were also at the top of the demand list. The Precious Metal Mining group had 30 advancers and only 1 decliner. The Industry Groups index stood out. It had 169 advancing groups compared to only 3 declining groups. Rarely have I seen lopsided buying across the board with this kind of ratio.

Oil has reversed in the short term and is up for the fourth day in a row. The crude light daily chart is a mess with no clear sense of direction. It is going to have to break above $47.76 as its first resistance area to break above the W which is currently forming. The dollar index fell yesterday due to the inaction of the Fed, and it is down again this morning. Stock futures are up following a rally in world markets.

So where do we go from here? Nobody knows, but with the NASDAQ composite out to a new high, the current momentum is up. The NASDAQ composite broke out to a new high a couple of weeks ago, and it was a trap move. The same thing can happen again, and all you can do is control your risk by knowing where you are getting out if your trades go against you. Whatever you do, do not chase extended stocks. The risk reward ratio is not in your favor.


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