Momentum of Money Flow

March 26, 2021No Comments

Today we’re going to cover the two blogs that I wrote during the week. And as I always try to do, I’m going to pass on a new chart with what I like to call a little bit of a bonus in it. So let’s get started with the first blog of the week. I covered a few reader’s questions, readers, sometimes post comments. And by the way, if you are a regular reader of my blog, please post your comments. I always read them. I almost always respond to them and they tell me what you’re interested in hearing about. So I can use that as new material for the book. So if you’re thinking it, you’re probably not alone, probably many people are wondering the same things as yourself.

Now, the first blog of the week, we covered the NASDAQ. We covered the long bond market and we covered oil. So I’m going to focus on oil today, but just a couple of quick comments regarding the NASDAQ and oil. The NASDAQ comment came from my observation that despite the fact that the NASDAQ corrected a little bit earlier this month, which is now we’re coming close to the end of March that correction didn’t bring it down enough. The United States is still more than 13% over its 200 days moving average. And I like to use a rule of thumb that’s, especially with indexes, that if they’re more than 10% over their 200 days moving average, the same thing as the 40-week moving average, by the way, then we have an overbought market. And I think the NASDAQ based on its chart pattern and the fact that it’s so much over its 200 day has a lot more room to go.

And this comment is going to tie into the second part of today’s video. So the next chart I looked at was the bond market and a reader asked me, “Hey, is the bond market about to get crushed?” So my comment was, and you can go to the chart. I won’t post it right now on the video. But if you go to the blog, you’ll see the long bond. And I’ve got a mightily long period of time. I think it’s about 30 years on that long bond. And it’s been in a perfect uptrend. Right now is the moment of truth for the long bond, because it is testing its long-term trendline. If it breaks, then yes, we’re in a bear market for the bond scene. We’re not there yet. So as my old teacher, I was originally trained by Ralph Acampora, a very famous technical analyst. I was very fortunate to be trained by him. And one of the things he taught was ‘what’s it doing? Don’t make a guess. What’s it doing, the long bonds still in an uptrend. Finally, I want to get right into oil because this is a fascinating chart. Now, this is your bonus chart of the day. I did post a chart on that first blog on oil, but I want to take a closer look and I hope that you’re going to find this interesting.

So this is a daily chart of the long bond and it’s a little bit closer view, than what I presented on my blog. And a couple of things I want to highlight. So people were asking me where I think oil might correct. So oil definitely, as I noted in the past, there’s a huge level of resistance around $65 a barrel. It hit that right on spot and fell. But right now you can see that it is in the process of forming perhaps a really tiny head and shoulders top. But that’s hard to say it does seem to be finding support right here. If this support level, which is somewhere around $57, $58 breaks, then you’re looking at $50. Okay. And you can see that on the chart here. What are the pieces of evidence that might suggest that the current support level of $57 or so will hold well, we’ve got this?

This is the top is money flow momentum. Now just to bring it down a little bit, this is cumulative money flow. And what I want you to see here is that money flow has been very positive for oil. Okay? And it’s been positive since 2020. Meanwhile, momentum of money flow, which is very up and down as any oscillator is falling a bit, but it’s down to a zero line and you can see, yes, it has fallen in the past, certainly during the COVID crash below the zero line, but more often than not, it likes to find support and maybe fall a little bit below the zero line and climb from there. So my suggestion is that the current correction may be close to its end. If it does break this neckline sure, could go down to $50 and that might bring money, flow momentum down a bit, but you can see where near the end, other pieces of evidence suggesting that the current correction, I know I was, you know, again, maybe a little bit more, but this is the stochastics.

Now, this is a daily chart. So it’s a very quick indicator, but you can see it peaked outright at $65, but now you’re near that oversold level. It’s not quite there like I’m saying it could go in the past it’s many times throughout, below the zero line for a little bit of time. So it could do that, but we’re not talking a catastrophic move on oil we’re talking a buck or two here. Same with MacD, not the has had many instances where it’s gone up looped down and cross the zero line. It could do that. That’s a longer-term indicator. My suggestion might be that it might be in a position to do one of these where it drops a little bit lower than the zero line and eventually finds a floor. So all in, based on support and based on some of these technical indicators, my suggestion is oil is likely corrected as much as I think it will correct with perhaps a bit more downside, but I’m not awfully bearish on oil.

So the next thing I want to get into, and I’m just going to walk you through this for a second. So the second blog I talked about and is one of the most important blogs I’ve written in a while. So every once in a while, I write a blog that I really want you to pay attention to. And please, even if you’ve been sleeping through the first five minutes of this video, wake up, because this is important. Back in the late summer of 2020, I was calling for a pullback on the highfalutin tech names like the fangs, but also I was very bearish on the stay inside stocks, Peloton, zoom, all of them. I was right. There was both a correction or a sideways market on all of these sectors that I talked about. The eventual pull back on the stay inside stocks and the fangs have more or less move sideways since my call.

But more importantly, the sectors that I was recommending we move into have shot up. So my recommendation is that right now, there is a new rotation happening on the market. And that rotation is into consumer staples, communication stocks, and utilities. Now, if you’ve been watching these videos on a regular basis, you’ll know about a month ago, I started talking about staples, utilities, communication stocks. We’ve been buying into those sectors at ValueTrend. They’ve already started to move. They’re not moving like gangbusters, but there’s the more important message is that they’re starting to outperform the market. Let me share the screen again. And I will present to you the evidence behind that statement.

So this is the past 30 days. These are 22 days of trading activity which is 30 days more or less. What I want you to look at is the outperformance. So this is the zero line. So this is, this would be exactly in line with the S&P 500. If this sector of energy is up 0.2, 9%, it means it outperformed the S&P index itself by 0.29 and 4%. So it’s a relative strength comparison over the past 30 days, take a look. What moved the most communication services.

Industrials continued to be strong, but the new sectors that are emerging – staples, which again, was along with the communication stocks were a call that I made about a month ago. And utilities take a look at the extent the communication services and utilities in particular, and the new move into staples. Interestingly, real estate is getting a bid, although I won’t call them a super strong performance. So what I want you to take note of as well is that technology and discretionary stocks are taking a back seat and they really started doing that just in the past month. So my suggestion on the blog and currently is that start to migrate some of your portfolio into these three sectors communications stocks, the utility sector, and of course, consumer staples. Okay. So those three sectors have been the underdogs, and it’s hard to find underdogs in this market as it goes like this.

But what is going to happen is there’s probably going to be a correction in the market pretty soon, maybe in the next month or two. If that occurs, I’m 90% certain it will. So that’s, that’s obviously a 10% error, but I’ve got my reasons and I can present that on another blog. But if that occurs, then there will be a flight to safety, or the flight to safety used to buy bonds, buy T-bills. That will still happen. There’ll be a certain amount of move in to cash, but not so much into bonds anymore, because quite frankly, there’s no return there. And there’s always the risk that we are facing a potential bond market break in trend. So with that in mind, the market is he’s going to want to look for a new home beyond cash. And it’s going to look at high dividend-paying stocks like the staples, like the communications, and like the utility sectors, these sectors all pay dividends, at least a lot of the stocks within them within the sectors pay dividends.

So I think that’s going to be a strong mover. It may not move in the next month, but I think these three sectors are going to be the place to be over, say the next rotation, which might last six months. This is a very rotational market. I know I sound like a broken record, but if you’re not out in front of these rotations, then you’re not going to be making a lot of money in this market. Okay. I’ll say it again. That the buy and hold index strategy, which has been so popular over the past six or seven years is not going to be the way to do it anymore. It’s true in the past seven years or so, you could do the couch potato routine, which is a popular way of saying, just buy index ETFs. That strategy works when everything is going up fairly steadily.

So the market was over-weighted in the fang stocks. If you look at the S&P 500, it was something like 30% in this technology and inside quote ‘inside stocks’, we’ve got 30% of an index weighted in those sectors and those sectors are moving up. It’s great to be an indexer. What if those sectors start to pull back? What if the chart I just showed you, that’s showing the discretionaries, which is the stay inside type of stocks. In many cases, the technologies continue to take a back seat. You’re not going to want to own indexes. So that’s the strategy I’m recommending. If you’re not comfortable doing it for yourself, if there’s one thing I can say ValueTrend is good at is sector rotation. And it’s dealing with uncertain markets. We actually don’t like trending markets as much as we like what’s happening now because we can trade these sectors. And we are trading. If you watch these videos, if you read my blog, you know that I have been rotating and I’ve been on top of those rotations and Craig was picking the right stocks within those sectors. So we’re doing our job. And if you can’t do that job for yourself with sector rotation and good stock picking, give us a call. Thanks for watching.


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