Seeking Alpha

Marc Chaikin's  Instablog

Marc Chaikin
Send Message
After more than 40 years on Wall Street, Marc Chaikin founded Chaikin Analytics LLC in 2009 to deliver proven stock analytics to financial service professionals and individual investors. With the Chaikin Power Gauge, an alpha-generating quantitative model as its centerpiece, Chaikin Analytics... More
My company:
Chaikin Analytics LLC
My blog:
Chaikin Power Gauge Stock Rating Blog
  • Chaikin Market Insights - May 4, 2014 0 comments
    May 5, 2014 1:48 PM | about stocks: XLP, XLE, XLU, CW, ESRX, GM

    Chaikin Market Insights - May 4, 2014

    Market Fails to Rally on Good Economic News … Runs into Resistance Once Again

    The S&P 500 Index closed at 1,881.14, up 0.95% on the week. A host of economic reports did nothing to clarify the economic picture as bad GDP numbers were blamed on the harsh weather in the 1st quarter. Robust employment numbers were criticized based on a shrinking number of people looking for work and, more importantly, a failure of the average hourly wage to rise, which normally rises when there is pent up demand in the labor market.

    This is why I shy away from predicting or analyzing economic reports. The stock market will tell you all you need to know about what the economy's impact on stock prices is and, in fact, is a good predictor of recessions. This enables me to focus on what I do best: find strong stocks in strong industry groups based on the Chaikin Power Gauge rating and, likewise, identify weak stocks to avoid.

    I recommend the same approach to all of you. Stay focused on what is in front of you. Avoid looking in the rear view mirror or predicting the future.

    The stock market is bifurcated right now with the Dow Jones Industrial Average at a new high and the S&P 500 banging on the door. Both of these Indexes are at or near new highs but with fewer and fewer stocks participating in the rally. In the S&P 500 Index, 103 stocks have bullish Power Gauge ratings and 90 have bearish ratings…not a healthy prognosis considering the market is within 1% of its all-time high. Only one Dow stock made a new 52 week high with the Index at a new all-time high.

    The Nasdaq Composite and the Russell 2000 small cap Index are decidedly weaker. Both are trading below their 50 day averages and have flirted with their respective 200 day average prices, a level closely watched by institutional and individual investors. The Nasdaq closed Friday 3.6% above its 200 day average while the Russell 2000 finished only 1.2% above its 200 day average.

    If these two Indexes break their 200 day support lines, the fallout would spill over into the S&P 500, whose 200 day average is at 1,777 and rising 5 points per week. Something needs to give, and unless the S&P 500 can breakout above 1,900 and the Nasdaq and Russell 2000 can reclaim their 50 day averages, the next move will be hard to the downside.

    There is support in the S&P 500 between 1,825 and 1,840 with the 200 day likely to be in the 1,790 - 1,800 area shortly. We are long overdue for a 10% correction which would take us down to 1,700. All of this could resolve to the upside but so far, what we have seen is a breakdown in small caps, high flying momentum stocks and social media with some Biotech stocks, both good and bad, thrown in for good measure on the downside.

    Stay cautious, raising cash on rallies and avoiding bearish Power Gauge stocks.

    ETF Sector Update

    The SPDR Energy ETF (NYSEARCA:XLE) and the SPDR Consumer Staples ETF (NYSEARCA:XLP) made new highs last week. The SPDR Utility ETF (NYSEARCA:XLU) made a new high on Thursday but then was pounded on Friday, finishing down 2%. As I pointed out last week the XLU was overextended and due for a correction. The weakness in the Bond market has confused investors and some of that spilled over into Utility stocks.

    What Should I do in My Portfolio?

    Play defense!
    Eliminate bearish Power Gauge stocks
    Sell on strength
    Raise some cash to put to work if the market sells off 10%

    Performance Recap of our 2014 Model Portfolio

    Our 20 stock 2014 model portfolio finished the month of April down -0.76% for the year vs. the S&P 500 Index which was up 1.93%. While there have been both positive and negative earnings surprises in this portfolio in the current quarter, Curtiss-Wright (NYSE:CW) reported better than expected earnings and Express Scripts (NASDAQ:ESRX) disappointed analysts last week to cite 2 recent examples. Our back-tested research has shown that as a group these stocks should outperform the market over the course of the year.

    We only make changes in the portfolio in the event that a stock reverts to a bearish Chaikin Power Gauge rating as happened with General Motors (NYSE:GM) in January.

    To read more of Marc's Weekly Insights, visit https://www.chaikinpowertools.com/market-insights.shtml.

    Stocks: XLP, XLE, XLU, CW, ESRX, GM
Back To Marc Chaikin's Instablog HomePage »

Instablogs are blogs which are instantly set up and networked within the Seeking Alpha community. Instablog posts are not selected, edited or screened by Seeking Alpha editors, in contrast to contributors' articles.

Comments (0)
Track new comments
Be the first to comment
Full index of posts »
Latest Followers

StockTalks

More »

Latest Comments


Posts by Themes
Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.