“Nonfarm payrolls increased by 155,000 in November, the
Labor Department says. Economists surveyed by Dow Jones had been expecting
payroll growth of 198,000…the unemployment rate again held at 3.7 percent, its
lowest since 1969…” Story at…
MICHIGAN SENTIMENT (MarketWatch)
“The University of Michigan on Friday said its consumer-sentiment
index in December was unchanged at 97.5, keeping most
of the gains upbeat consumers have registered over the last two years.” Story
at…
WHICH YIELD CURVE REALLY MATTERS (Real Investment Advice)
“While the 3-5 yield spread is currently in negative
territory, it has not been confirmed by other yield spreads across the
spectrum. As shown in the chart below, the best signals of a recessionary onset
have occurred when a bulk of the yield spreads have gone negative
simultaneously. However, even then, it was several months before the economy
actually slipped into recession…However, the market is already beginning to
adjust to the reality the economy is beginning to weaken, earnings are at risk,
valuations are elevated, and the support from Central Banks has now reversed.”
Chart and commentary at…
MARKET REPORT / ANALYSIS
-Friday the S&P 500 dropped about 2.3% to 2633,
testing the prior low.
-VIX rose about 10% to 23.23.
-The yield on the 10-year Treasury slipped to 2.852% as
of 4:52pm.
It looks like the computers on Wall Street are still in
charge. It didn’t help that today the 50-day moving average (50-dMA) fell below
the 200-dMA. That’s the so-called “Death
Cross” that probably triggered more computer selling. My opinion: approximately
S&P 500 - 2633 remains the likely bottom.
My methodology for determining a correction bottom is
pretty good. We don’t always get a
signal (e.g. last January’s correction), but when we do, it is usually a good
one. Of the 10 or so corrections/pullbacks since 2009 (not counting major crashes)
there has only been one failure of the bottom signal. In April of 2010, there
was a bottom signal that failed and the S&P 500 went on to make a bottom
about 4% below the initial call. The failed signal occurred on day 29 of the
12%-pullback and the market went on to drop 16% from its top on day 55. The
“average” correction over the last 10 years, ignoring major crashes, has lasted
about 53 days (top to bottom) so that failed bottom call may have been too soon.
In addition, this time we saw a significant (5-std deviation!) new-high/new-low
improvement before Thanksgiving that we did not see back in 2010. That gives us
a little more confidence that a drop much below the recent low of 2633 is less
likely.
I think the current pullback ended on day 45 at the 2633
low. Recent market action raises some doubt on the call, but not enough to
change my investment position; I remain fully invested.
I wrote this morning that “It looks like Mr. Market wants
another retest of the 2633 low, and that may happen, but the odds remain that
the low is in place.” By this afternoon, it was very clear that a retest was
likely and we did see a retest at the close. Today’s retest of 2633 was also a “successful test”, but not quite as strong as
the previous one. We saw another significant swing in new-high/new-low data
today that again supports that we are at or near a bottom at 2633.
The caveat, as always, is that some piece of breaking
news could upset the apple cart. It is possible that the “yield inversion”
we’ve written about previously is that news.
We’ll have to wait and see. For the time being, I am sticking with the
technical analysis that strongly suggests “correction over”.
My daily sum of 17 Indicators improved from -4 to -1 (a
positive number is bullish; negatives are bearish) while the 10-day smoothed
version that negates the daily fluctuations rose from -17 to -9.
I remain cautiously bullish.
MOMENTUM ANALYSIS:
(Momentum analysis is suspect in a selloff, so I‘d be
careful using momentum data for the time being – the only reason utilities are
highly ranked among ETFs is as an alternative to stocks during the correction.) The same is true for individual stocks in the
Dow 30.
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…
FRIDAY MARKET INTERNALS (NYSE DATA)
Market Internals
remained 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).
I increased stock allocations to 60% invested in stocks
on 27 November. For me, fully invested is a balanced 50% stock portfolio so
this is slightly higher. I will cut back to 50% depending on indicators.
INTERMEDIATE / LONG-TERM INDICATOR
Friday, the VIX, Volume,
Price and Sentiment indicators were neutral. Overall this is a NEUTRAL
indication.
