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Weekly Economic and Stock Market Commentary: October 25, 2021


Weekly Economic and Stock Market Commentary October 25, 2021

As for the stock market specifically:

It’s official. The stock market appears willing to shake off the October spookies with a week to go in the notoriously dangerous month. The Dow Jones Industrial Average and Standard and Poor’s 500 each made record highs last week, before declining on Friday. Nevertheless, it was a good week for the major market averages.

The news attributed the gains to good earnings reports, and while that may or may not be accurate in reality, it’s a good enough explanation for me.

Once again, the investors ignored bad news indirectly affecting investments and continued buying.

What follows for the next few paragraphs is stock text that I present occasionally.

Stock Market Commentary October 25

On the left I highlighted a bullish chart pattern that I will call a double top break. This is a column of demand that exceeds the previous column of demand. The “signal” occurs when the stock shows demand (buyers) at $35.00.The blue numbers and letters are used to tell time, 1 for January, 2 for February, etc., with A for October, B for November, and C for December.

On the left I highlighted a bearish chart pattern that I will call a double bottom break. This is a column of supply that exceeds the previous column of supply. The “signal” occurs when the stock shows supply (sellers) at $38.00.

The blue numbers and letters are used to tell time, 1 for January, 2 for February, etc., with A for October, B for November, and C for December.

The bullish percent is the number of stocks that have bullish patterns, nothing more, nothing less. It is calculated by counting the bullish charts, and dividing that number by the number of stocks in a sector/market. Then multiply by 100 to get the percentage. A key item to remember is that all stocks that have traded for some time will be either bullish or bearish, not both.

About once a quarter I explain the difference between a market capitalization-weighted index, such as the S&P 500, and the “one-stock, one-vote” weighting of the bullish percents. Today is that day.

The Bulls

The discussion comes down to a variation of this: “Why are the bullish percents increasing, but the numbers I see on TV are a little up, flat, or a little down?” Since this is election season, think of the difference in terms of the composition of Congress.

There are two basic answers. One potential answer comes from the nature of the bullish percent. It is based on the notion that a stock as large as General Electric counts as much as a stock of the size of the smallest stock on the NYSE. Think of the bullish percent like the US Senate – California counts as much as South Dakota.

The other potential answer stems from the composition of the index, such as the Dow Jones Industrial Average, S & P 500, or Nasdaq. The S & P 500 and the Nasdaq are known as capitalization-weighted. That means the largest companies in the respective index hold greater influence than the smaller companies. The metaphor here is to the US House of Representatives. There, California has approximately 52 representatives, while South Dakota has 1.

It was another good week for bullish percent indicators. The NYSE and Optionable indicators are back on offense. Once again, the defense held and picked up some points. The OTC remains on defense, but in 2021 it doesn’t seem to matter which side has the ball. We have a split recommendation of WEALTH ACCUMULATION for the NYSE, and WEALTH PRESERVATION for the OTC.

Remember, Xs mean OFFENSE or wealth accumulation, while Os mean DEFENSE, or wealth preservation.

Below is where our indicators stand as of October 22, 2021 (Courtesy Dorsey, Wright, and Associates).

On a general note:

The Federal Reserve released September’s Industrial Production numbers. The report showed a decline of  1.3% for the month. There were drops in utility production and automotive manufacturing. Manufacturing also declined when the impact of automotive was removed as a factor. Capacity utilization fell by 1 percentage point to 75.2. The report cited the new scapegoat – supply chain disruptions – for the decline. I am not sure if supply chain disruptions are the chicken or the egg.

The National Association of Realtors reported September existing home sales rose 7% to a seasonally adjusted annualized rate of 6.29 million units. This was the strongest sales rate since January 2021. The report told us the average time on the market was 17 days for the second month in a row. The current inventory is 2.4 months. The median sales price in September was $352,800. This was up 13.3% when compared to September 2020.

If you have questions about our Weekly Economic and Stock Market Commentary October 25, 2021, or want to talk – email me at philip.rongo@ibexwealth.com.