“Wages and prices moved higher in the Federal Reserve’s
12 districts through mid-October but not faster than a “modest to moderate”
pace, according to the latest Beige Book report released by the
central bank on Wednesday. Districts across the
country reported tight labor markets.” Story at…
NEW HOME SALES (Reuters)
“Sales of new U.S. single-family homes fell to a near
two-year low in September and data for the prior three months was revised
lower, the latest indications that rising mortgage rates and higher prices were
undercutting the housing market.” Story at…
CRUDE INVENTORIES (Houston Chronicle)
“The nation's stockpile of commercial crude oil rose by
6.3 million barrels last month, but the jump was more than offset by declines
in the storage of gasoline, distillate fuel oil and other products. The U.S.
Energy Department's report Wednesday on crude inventories is a smaller jump
than the 9.8 million barrel oil build projected by the American Petroleum
Institute…” Story at…
MARKET REPORT / ANALYSIS
-Wednesday the S&P 500 dropped about 3.1% to 2656.
-VIX jumped about 22% to 25.23.
-The yield on the 10-year Treasury slipped to 3.102% as
of 5:01pm.
Today is trading day 24 for this pullback and except for
a few days here and there, the S&P 500 has been falling throughout the
selloff. We’re due for a break.
The drop is now 9.4%. Over the last 10-years, for drops
less than 10%, the average time from top to bottom has been 32-days. Except for
major crashes, the average correction was about 12% and lasted 53 trading-days.
XLU (Utilities) is outperforming the S&P 500 by 12.3%
over the last 2-months. In the past 5-1/2 years that spread has only been
exceeded twice – during corrections in August of 2015 (12%-drop) and Feb 2016
(14%-drop). That doesn’t prove that this is the bottom, but this is another
stat that is stretched. RSI, Bollinger Bands, and the Overbought/Oversold ratio
are all oversold suggesting a bottom too.
We see a lot of other bottoming stats, but we saw them a
few days ago (along with those mentioned above); Mr. Market has not been
persuaded by my stats.
Today was a statistically-significant, down-day. That just means that the price-volume move
down exceeded statistical parameters that I track. The stats show that about
60% of the time a statistically significant move down will be followed by an
up-day the next day. Bottoms occur either on a statistically-significant, down-day
or a few days afterward; but all statistically-significant, down-days are not bottoms.
We had hoped to call a bottom Wednesday with a successful
test. The test of the 2728 prior low deteriorated into a bloodbath that was not
successful.
The NTSM long-term indicator switched to negative on 10
October with the market at 2728 after the S&P 500 had already dropped 6.9%
so we waited for chart confirmation. Now we have a chart confirmation to go
along with the indicators. It’s not an easy choice though; the market is down
9.4% and the market is overdue for a bounce. My inclination is to take a
conservative, protect the portfolio position and cut back on stocks. One can
make a case for cutting stocks now or waiting for a bounce.
The averages and technicals suggest that this correction
is almost over so waiting seems reasonable. This choice could lead to more pain
since I would not be surprised to see the Index fall for a couple more days
into next week. If this is the start of a crash, it could lead to a lot
more pain. I am inclined to play the percentages and wait. At 50% invested in stocks I am not over
invested, though I would sleep better right now if I owned less stocks.
The other option, cutting stocks holdings now, saves
potential losses, but will be disappointing if the market bounces up.
Either way, without a successful test of the prior low,
we can’t call an end to this retreat.
MOMENTUM ANALYSIS:
(Momentum analysis is not useful in a selloff.)
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.
*I rank the Dow 30 similarly to the ETF ranking system.
For more details, see NTSM Page at…
WEDNESDAY MARKET INTERNALS (NYSE DATA)
Market Internals improved
to Neutral due to an improvement in new-high/new-low data.
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).
I am now 50% invested in stocks. For me, fully invested
is a balanced 50% stock portfolio. As a retiree, this is a position with which
I am comfortable unless I am in full defense mode or feeling especially
optimistic.
INTERMEDIATE / LONG-TERM INDICATOR - SELL
Wednesday, the
Price indicator was neutral; Sentiment was neutral; Volume & VIX indicators
were negative. Overall this is a NEGATIVE indication that suggests reducing
stock allocations, but we are watching the charts and will examine the numbers
if we have a retest of the prior low.
