JEFFREY SAUT COMMENTARY EXCERPT (Raymond James)
“…a “meteor shower” is getting ready to “hit” Washington
D.C. as the Mueller investigation is nearing its conclusion. Washington
Whispers have it that some meteoric “bomb shells” are going to be revealed….
…[Regarding current market weakness, Lowry Research wrote]…“All
these signs of an improving trend in Demand over the past month are consistent
with a market correction and unlike the rapid rise in Supply and decline in
Demand that typically occurs during the start of a bear market. There are,
however, ongoing signs this bull market is beginning to age, primarily through
weakness among small cap stocks.” – Lowry Research. Commentary at…
my cmt: Rumors of bomb shells in the Mueller Report are
not god news for the markets. The Lowry
Research note indicates we are in a correction not a bear market. It hints that we are closer to the end of it
than the beginning.
HOUSING SENTIMENT IS FALLING (CNBC)
“Rising mortgage rates and continued home price growth
are hurting affordability and fast becoming a toxic cocktail for the nation’s homebuilders.
Sentiment among homebuilders dropped 8 points in November to 60 in the National
Association of Home Builders/Wells Fargo Housing Market Index. The reading was
the lowest reading since August of 2016, but anything above 50 is still
considered positive.” Story at…
MARKET REPORT / ANALYSIS
-Monday the S&P 500 dropped about 1.7% to 2691.
-VIX jumped about 11% to 20.1.
-The yield on the 10-year Treasury was unchanged at 3.068%.
Today we saw very high unchanged-volume. In other words,
a lot of volume today was associated with stock sales having no change in
price. I had to go back 2 months to find a value as low as today’s. The usual interpretation of high unchanged-volume
is that investors are confused. As a result, high unchanged volume can indicate
a change in market direction. I’ve looked at this and never managed to develop
and indicator that was predictive.
Last week we saw higher highs and higher lows on the
S&P 500 chart. That bullish pattern got tripped up today. The prior higher-low
was taken out and replaced with today’s lower-low. That would give us either a
neutral or bearish sign. There is a small Head and shoulders pattern in the
S&P 500 over the last 3-weeks. That’s generally bearish so we have to feel
that my earlier statement that we would probably have a re-test of the 2641
prior low still holds. It is not certain though. Mr. Market may not agree with me.
My daily sum of 17 Indicators slipped from -5 to -7 (a
positive number is bullish; negatives are bearish) while the 10-day smoothed
version that negates the daily fluctuations slipped from +7 to -2.
Today is trading day 42 for this pullback (counting from
the top). The drop from the top is now 8.2% (9.9% max). These numbers are based
on closing data. Over the last 10-years, for drops less than 10%, the average
time from top to bottom has been 32-days to a final bottom, including a retest.
(The low usually occurs at the retest.) Except for major crashes, the average
correction was about 12% and lasted 53 trading-days including retests.
The 200-dMA is sloping down. The last time that happened
was during the correction that ended in Feb 2016. That one had a 14% dip, top to bottom. One wonders whether this might presage more
down moves for the S&P 500. Unfortunately, we don’t have enough data to say
one way or the other.
The 150-day advance-decline line, turned negative today. Over the last 150-days more stocks on the
NYSE have declined than have advanced. I said earlier that if it goes negative “it
would be a significant bearish sign according to Lowry Research.” Interestingly,
Lowry Research indicated in the Jeffrey Saut/Raymond James excerpt above that they
believe we are in a correction, not a bear market. We’ve also seen shorter term
values of breadth (%-stocks advancing) improve on each of the recent big down
moves. That suggests that we are getting
closer to a bottom.
On a positive note, 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.
Overall not much has changed. The most likely course
remains that there will be retest of the correction low, though it is far from
certain. The Index is about 1.7% above its prior low. We’ll have to see what
happens if and when the S&P 500 tests that 2641 low.
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…
*Over the last 2-months the only ETF that is up is the
XLU (Utilities) and it is up about 5% over that time frame. The current 40-day
divergence of the Index and XLU has only been exceeded twice in the last five
years, both times in corrections of 12% and 14%.
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…
MONDAY MARKET INTERNALS (NYSE DATA)
Market Internals declined
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).
I am now 30% invested in stocks. For me, fully invested
is a balanced 50% stock portfolio.
Given that the S&P 500 has dropped below its
trendline (going back 2-1/2 years) and closed below the 200-dMA on consecutive
days, I have a defensive stance now. If
we have a successful test of the prior low, and that could happen soon, I’ll be
right back in. On the other hand, since
we don’t really know where the bottom is, I am taking the conservative route.
This move may result in underperforming the S&P 500, but there is a risk
that declines may be more than we expect resulting in even bigger losses.
INTERMEDIATE / LONG-TERM INDICATOR - HOLD
Monday, the Price
indicator was positive; Volume and Sentiment were neutral; the VIX indicator
was negative. Overall this is a NEUTRAL indication. (The first sell signal of
this corrective cycle by this indicator was on 11 October.)
