“A survey that tracks the performance of service-oriented
companies such as hotels, restaurants and banks surged in January to a 13-year high of 59.9, the
Institute for Supply Management said. Employment activity set a record.” Story
at…
JEFFREY SAUT COMMENTARY - EXCERPT (Raymond James)
“Never on a Friday” is a mantra we came up with years ago
meaning that once the equity markets get into one of these downside skeins they
typically do not bottom on a Friday. It gives participants time over the
weekend to brood about their losses and then they “show up” in sell-mode on
Monday/Tuesday leading to Turning Tuesday. With the McClellan Oscillator
EXTREMELY oversold we would look for some kind of throwback rally attempt early
this week. Regrettably, we do not think it will stick.” Commentary at…
Note: I got the idea of “Turn-around Tuesday” from Jeff
Saut. Note that this time he does not mention a turn-around on Tuesday, but
instead mentions that it won’t “stick”.
MARKET REPORT / ANALYSIS
-Monday the S&P 500 dropped about 4.1% to 2649. (More
than 6% down in 2 days.)
-VIX vaulted about 116% to 37.32. (I couldn’t
think of a strong enough adjective.)
-The yield on the 10-year Treasury dropped to 2.707%.
I mentioned Friday that both Bonds and Stocks were
selling off. Finally, today, bonds rose as the 10-year rate slipped. The Bond
Interest rate moves inversely with the Price, i.e., when interest rates rise
the value of bond holdings fall. This has been cited by many as the cause of this
stock drop. With this kind of stock
selloff, it looks like a flight to safety (bonds) was going on. Today,
investors bought bonds.
Wow. What a day. It reminds me of the 2007-2008 crash
when 4 & 5% down-days were the norm. The drop did some damage.
-The index fell thru the 50-dMA and now sits nearly 3%
below that key level.
-The 200-DMA is the next important support level and that
is 4.5% below today’s close.
-Today was another high-volume day; only 3% of the total volume
was up-volume. That’s 2-days in a row with extreme high down-volume; and with
an S&P 500 close in the bottom 10% of the day’s range. Those are dangerous bear signals. What we need
to see to relieve our fears is a strong up-volume day (90% up-volume) with a
strong finish at the close; that could signal a reversal of this down turn.
Still there were some positive signs:
-Bollinger Bands were oversold on a 14-day SMA basis and
RSI was nearly oversold – these signals suggest a bounce.
-The Overbought/Oversold Ratio (aka the Advance-Decline
Ratio) is oversold.
-VIX hasn’t been this high since 24 Aug 2015 when it
registered 40.74 at the bottom of a 12% drop in the S&P 500. Extremes can
signal turn-arounds.
-Today was a big down-day that was satisticallly-significant
in my system. That means that on a
statistical basis, today’s move in Price-Volume was large enough to suggest a
reversal to the upside tomorrow. As a
result, an up-day is suggested Tuesday.
While these are encouraging signs in the short run, we
must be very concerned because the Sentiment value that I mentioned Friday, was
MORE BULLISH Friday night when I accessed the data. These values are in line
with extremes seen during the dot.com era. (See Friday’s blog for more on how I
calculate Sentiment.) That is not a good
sign for the Bulls. This level of bullishness is not healthy. One would think
there would be more shorts stepping-in, given the continuing selloff. I’m guessing we need to see some shorts move
in before this drop will stop. I expect more dip-buyers will move in today and
Sentiment will be even higher tomorrow. We’ll see.
My sum of 17 Indicators slipped from -11 to -12 today. (A
“-” number means that most indicators are bearish.) On a Longer term, smoothed
basis to avoid the daily fluctuations, the indicators remain bearish.
I am bearish short-term. I suspect we will see a bounce
Tuesday, but like Jeffery Saut, I don’t expect the overall trend to turn
positive. I think there is more downside
ahead after a bounce. It has been 6-days since the top; surprisingly, only 3 of
those days have been down on the S&P 500.
I think we go lower.
Longer term is problematic. My long-term indicator turned
negative today. I will wait to see what
sort of bounce we get before I sell back to 30% invested in stocks. 30% is my
bear market position. Is this a bear market? It could be, but I think we’ll
retest the highs down the road before the start of a bear – at that point we
may have a better idea of what is going on.
TODAY’S RANKING OF
15 ETFs (Ranked Daily)
In corrections
this chart may be of little value – all stocks are falling.
The top ranked ETF receives 100%. The rest are then
ranked based on their momentum relative to the leading ETF. While momentum isn’t stock performance per
se, momentum is closely related to stock performance. For example, over the 4-months
from Oct thru mid-February 2016, the number 1 ranked Financials (XLF) outperformed
the S&P 500 by nearly 20%. In 2017 Technology (XLK) was ranked in the top 3
Momentum Plays for 52% of all trading days in 2017 (if I counted correctly.)
XLK was up 35% on the year while the S&P 500 was up 18%.
*For additional background on the ETF ranking system see
NTSM Page at…
TODAY’S RANKING OF THE DOW 30 STOCKS (Ranked Daily)
In corrections
this chart may be of little value – all stocks are falling.
The top ranked stock receives 100%. The rest are then
ranked based on their momentum relative to the leading stock. Avoid GE, Procter
& Gamble and Merck. Their 120-day moving averages are falling.
*I rank the Dow 30 similarly to the ETF ranking system.
For more details, see NTSM Page at…
MONDAY MARKET INTERNALS (NYSE DATA)
Market Internals
remained to Negative on the market.
Market Internals are a decent trend-following analysis of
current market action, but should not be used alone for short term trading.
They are usually right, but they are often late. They are most useful when they diverge from
the Index. In 2014, using these
internals alone would have made a 9% return vs. 13% for the S&P 500 (in on Positive,
out on Negative – no shorting).
LONG TERM INDICATOR
Monday, Sentiment,
Price, Volume and VIX Indicators were negative. The Long-Term Indicator switched
to SELL. I am going to keep the indicator at HOLD, because I want to see if we
bounce from here. I don’t want to get whipsawed with a Sell and then a quick
Buy signal.
MY INVESTED STOCK POSITION:
TSP (RETIREMENT ACCOUNT – GOV EMPLOYEES) ALLOCATION
I shifted to a
conservative 40% invested in stocks and 60% in cash on 31 Jan. For the TSP,
that would be 40% in the S&P 500 Index fund (C-Fund) with the remainder 60%
G-Fund (Government securities) on 31 Jan.
