AI market analysis for kicks n’ giggles

February 14, 20242 Comments

Some thoughts regarding the current status of the markets, including some overbought/oversold and pattern analysis.  And – a look at the current market trend using a new whiz-bang AI tool!

My rule of % > 200 day SMA

You guys may know my rule of thumb for stocks and indices and their relationship to the 200 day Simple Moving Average (SMA). Basically, my rule (as explained in my book Smart Money/ Dumb Money) suggests that:

Stocks: a stock moving about 15% or more ahead or below of its 200 day SMA is overbought/oversold.

Markets: My rule suggests a market index is overbought or oversold if the spread vs the 200 day SMA is much more than 10%.

Below is a chart of historic spreads going back to 2011 for the SPX. Note the circled spreads – well over 10% in 2011, 2018, 2019, and 2021. We are approaching that zone.

All four of those spreads gave us heads up to corrections on the SPX. You’ll note on the above chart that the market is not quite in the “overbought” zone (currently about 9% ahead of SMA). But its close…Here’s the price chart:

 

Is there a reason to own Mag 7 (or 6) stocks after the summer?

The charts above illustrate a potentially overbought market. That, as we all know, is being driven by a handful of stocks known as the “Magnificent 7 (or 6, if you remove TSLA).  Ok, so perhaps we get a neartermed correction of some sort. Then what?

Here’s a consensus earnings view for 2024.

  • Note that the Mag’s lead the charge at this juncture for earnings growth (dark blue).
  • Note the consensus projections by FactSet (trust them, or not…) for the “other” stocks (light blue) earnings by Q4.

 

AI analysis for kicks & giggles

I’m an old fashioned kinda guy when it comes to a lot of stuff. I like involved driving with a manual transmission ICE engine car. I hold the door for ladies.  I believe in hard work & merit rather than entitlements. When it comes to Technical Analysis, I like drawing trendlines and using traditional TA tools to identify crowd behavior and trends. Fib numbers, EWT, and Financial Astrology are of intellectual interest to me, but not part of my trading strategy.

So, take this next chart for what it is. The SPX chart below has a sentimentrader.com back testing engine applied to it. Its called a “Pattern Correlation Match”. Basically, this is an in-house sentimentrader.com AI program that examines whatever historical lookback period you wish for similar patterns (trend). This is a “SPX vs SPX” pattern recognition program, not a “NYSE vs NASDAQ” comparative.

So – It then illustrates periods with a 90% match on the SPX. In this case, I used the past 30 trading days and all data available to look back for a pattern match. The results go back to the 1950’s. The current pattern (past 30 trading days/ 6 weeks) is shown historically on the chart–this is the period from mid January to now – which is when the massive market surge began.

As you will see on the 3-year chart (similar pattern over the longer term), there’s a tendency for corrections most (not all) of the time after similar patterns as we’ve seen over the past 30 trading days. These periods are marked with blue bubbles on the chart.

Take that for what it is. I still like my trendlines more!

 

2 Comments

  • off topic kicks and giggles.
    nat gas is sooooo low right now that there must be a case to buy a stock that tracks one time the value of gas. In my expectation at least once a year, if not more, nat gas has at least hit or come close to $3. so buy nat gas now and hold until the fall when the probability is quite high to hit $3.That would be close to a 90% gain.
    rsi is well below 30. fundamentals are against gas now as inputs will push inventory even higher. But can’t you argue there is a large opportunity for a large gain inside of 12 months, likely 9 months per equity charts.
    what am I missing other than tieing money up for a long period?
    Thanks

    Reply
    • Yes its quite washed out–and I believe its seasonal period is March to June–so you are probably right on that line of thought

      Reply

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