“…the upside “chart trigger” signal of May 10th, when the
SPX broke out of its wedge chart formation…suggests the primary stock market
uptrend has resumed with an upside trading target above the old all-time high
of 2872.87. This view is reinforced by new reaction highs in the RUT, the NDX,
and the COMPQ.” Commentary at…
JULY MARKET COMMENTARY EXCERPT (Hussman Funds)
“…present market conditions reflect not only extreme
valuations (including a full syndrome of overvalued, overbought, overbullish
features), but also divergence and dispersion in our measures of market
internals. It’s that deterioration in market internals that threatens to
unleash the beast that has been patiently biding its time within extreme
valuations. Given those extreme valuations, I continue to believe that the
completion of this market cycle will be a terrible ordeal for passive
investors… Here and now, my impression is that complacency could prove to be a
costly instinct.” – John Hussman, PhD. Commentary at…
YIELD CURVE/SPREAD
The Yield Spread is the difference between long and
short-term Bond yields. Yields on longer term bonds should be higher than
short-term bonds. Investors demand a higher yield for the longer-term bonds due
to the risk of unknown economic conditions in the future. If the near-term
economic conditions are slipping toward recession, short-term Bond yields climb
and eventually they may invert relative to long-term rates, i.e. short-term
bond yields are actually higher than long term yields. Many believe (with good
reason) that an inverted Yield Curve forecasts recession.
To calculate the Yield Spread, I subtracted the 5-year
bond rate from the 30-year bond rate. I plotted the resultant in Red in the
following chart. The S&P 500 is plotted in Black. During the dot.com Bubble
the Yield Curve inverted (dropped below zero) in February of 2000 about
4-months before the S&P 500 topped.
Currently, the spread is +0.2% and the Red horizontal
line marks the current value. It was 0.2% in Oct 2007 at the top of the market
before the Financial Crash, but as the chart shows, the spread first hit +0.2%
in January of 2006 about 1-year earlier.
If we see the yield curve drop below zero we can infer a major top could
be a few months to a year or more away.
NOTE: One usually hears about the yield curve in terms of
the 2-yr and the 10-yr rates. When I started doing this I couldn’t find the
data. As seen in the above chart, the
30-yr/5-yr spread works too.
MARKET REPORT / ANALYSIS
-Monday the S&P 500 was up about 0.9% to 2784.
-VIX dropped about 5% to 12.69.
-The yield on the 10-year Treasury rose to 2.860%.
The Industrial Cyclical stocks (XLI-ETF) were up twice as
much as the S&P 500 today and today was the first day that the 10-dMA spread
of the XLI/SPY turned in favor of the XLI. XLI is now outperforming the S&P
500 on a 10-day basis. Investors sell
cyclical stocks when they are worried. Until today, the XLI was underperforming
the Index on every time frame I track; this turn up is a bullish sign. Utilities were down a whopping 3% today. This too is a bullish internal sign since the
S&P 500 was up nearly 1%.
-My daily sum of 17 Indicators slipped from +4 to +2, but
the 10-day smoothed version that negates the daily fluctuations improved from -40
to -32. The Sum of Indicators is moving up. This is bullish for the market.
I am bullish short-term.
My longer-term indicator system remained neutral, but I am
bullish there too.
MOMENTUM ANALYSIS:
TODAY’S RANKING OF
15 ETFs (Ranked Daily)
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)
The top ranked stock receives 100%. The rest are then
ranked based on their momentum relative to the leading stock. (On 5 Apr 2018 I
corrected a coding/graphing error that had consistently shown Nike
incorrectly.)
*I rank the Dow 30 similarly to the ETF ranking system.
For more details, see NTSM Page at…
I still have GE in my DOW 30 chart. I’ll have to update my calculations to delete
GE and add Walgreens Boots Alliance (WBA) since it has replaced GE in the DOW
30. WBA is best known for operating Walgreens drug stores.
MONDAY MARKET INTERNALS (NYSE DATA)
Market Internals slipped
to Neutral 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).
18 Apr 2018 I
increased stock investments from 35% to 50% based on the Intermediate/Long-Term
Indicator that turned positive on the 17th. (It has since turned Neutral.) For
me, fully invested is a balanced 50% stock portfolio. 50% is my minimum unless
I am in full defense mode.
On 10 May 2018 I
added stock positions to increase Stock investments to 58% based on more
evidence that the correction is over. This is high for me given that we are
late in this cycle (and as a retiree), but it indicates my bullishness after
the correction. I’ll sell these new positions quickly if the market turns down.
INTERMEDIATE / LONG-TERM INDICATOR
Intermediate/Long-Term
Indicator: Monday, the VIX, Price, Sentiment & Volume indicators were
neutral. Overall this is a NEUTRAL indication.
