Investment Flow Chart Analysis - 10-11-2024

The methods described below borrow heavily upon the lessons learned from Ernie Zahn, Ralph Hansmann and William T. Golden at Cornell, Linder & Co. & Ben Graham during my time on Wall Street in the 1960’s utilizing fundamental research including Point & Figure charting.

Since then, I have incorporated ideas from William O’Neil’s CANSLIM methodology, Ian Woodard and High Growth Stocks as well as Stock Charts.

The first decision is to determine what the long-term trend of the investment market is. To make this determination, look at the 50- and 200-period simple moving average on a weekly chart as shown below to determine if both the NASDAQ and the S&P 500 averages are both either positive, negative and/or split.

As can be seen in the above charts of the NASDAQ and the S&P 500, the two indices have rebounded from recent lows and are above the 8- and 20-weekly simple moving average lines, hence the conclusion is that the market has positive momentum.

Friday's close as of 10/11/2024 for both the NASDAQ and the S&P 500 are above their 8- and 20- weekly moving averages which suggests that momentum remains in positive mode.

Of course, most investors fail to understand the loss of purchasing power has upon the market. The U.S. dollar has lost 20% of its value since 2020.

Now, the question is ... will the positive trend prevail? So now the question is whether to:

1. Be long,

2. Be short, or

3. Be on the sidelines.

Remember pigs get slaughtered.

The NASDAQ and S&P 500 daily chart for the last two years show recent action using the Elder impulse system.

Both indices are showing signs of positive momentum as indicated by the green bars on the Elder chart.

The IBD market call is "Market in Confirmed Rally" and they recommend a 80-100% market exposure. I am somewhat hesitant as a lot of the recent upturn was in anticipation of further reductions in the FED rate at upcoming meetings.

The number of “A” rated stocks according to IBD is shown below. The number of “A” rated stocks rose in December 2023 above the red line. The methodology which I use states that when the "A" line moves above the red line, trading positions should be initiated in high-quality stocks with tight 3% initial stops. More importantly, until the "A" line has created a bottom, trading should be very careful.

In trading during early October 2024, the number of "A" rated stocks has risen above the red line. After peaking on July 16th, the "A" rated stocks have been under pressure indicating that things might get worse in the markets going forward. While the "A's" have moved back above the red line, the last few days has not seen significant upward movement despite the DJIA, SPZ and NASDAQ all near record highs. The failure to make new highs is of concern to me.

The Magnificent Seven continues to dominate the market. Since the first of 2024, only TESLA has not performed very well as shown in the following table. As of 10/11/2024, these seven stocks represent about 22% of the total value of the U.S. stock markets. NVDA has been an out-sized winner and dominates the growth of these seven stocks during the last six months.

As Minsky said ... it only takes one grain of sand to destroy ....

Fred Richards
11 October 2024 p.m.