“The U.S. Treasury yield curve just inverted for the
first time in more than a decade…I wrote around this time last year
that Wall Street had come down with a case of flattening fever, with
six of the 11 analysts I surveyed saying that the curve from two to 10
years would invert at least briefly by the end of 2019. That’s not exactly
what happened Monday, though that spread did reach the lowest since 2007.
Rather, the difference between three- and five-year Treasury yields dropped
below zero, marking the first portion of the curve to invert in this cycl…One
reason could be that the Fed’s balance-sheet reduction is putting more pressure
on 10-year notes than shorter-dated maturities, which wasn’t the case during
past periods of inversion. Indeed, policy makers have shown no signs of easing
up on this stealth tightening.”
My cmt: A Yield Curve Inversion is usually calculated as
the spread between long-term and short-term interest rates. The difference
between long-term and short-term rates is important, for example the 2-year and
10-year. If long-term rates are less
than short-term, it means that investors are less optimistic.
The difference between the 2-year and the 5-year isn’t as significant.
MARKET REPORT / ANALYSIS
-Tuesday the S&P 500 fell about 3.2% to 2700.
-VIX jumped about 9% to 16.44.
-The yield on the 10-year Treasury was little changed 2.912%
as of 7:28pm.
Today was a 90% down-volume day. Up-volume hasn’t been
this low since the end of the 10% correction that ended last April. On 6 April
at the first higher-low after the successful test, up-volume was as low as
today’s number and that day too was a 90% down-volume day. Looking at today’s
chart, the Index is now also at its first higher-low after the successful test.
It looks like we may be repeating the pattern from January - April. If so, this was the last gasp for the
correction. Fortunately, we still have some bullish hangover.
We saw three very bullish signs recently: (1) A 5
std-deviation, bullish shift in the spread between new-high and new-lows before
Thanksgiving; a successful retest of the prior low on Black Friday; and a 90%
up-volume day last Wednesday. Today we saw the 90% down-volume day cancel one
of the bullish signs. The others remain.
My daily sum of 17 Indicators dropped from +7 to zero (a
positive number is bullish; negatives are bearish) while the 10-day smoothed
version that negates the daily fluctuations rose from -29 to -22.
Some random thoughts:
The Money Trend indicator remains bullish.
Late Day action (the purview of the Pros) is flat so the
Pros aren’t sure what’s up either.
Today’s close is 2% BELOW the 200-dMA so that level of
support was broken. We’ll need to claw back thru it on the way up.
Between Tariffs and the so-called bond yield inversion,
there was plenty of bad news to go around today. In the end, little has
changed. Negotiations with China continue (I hope the Chinese realize that
Trump won’t back down.) and even if this were a true yield inversion, that
signal has a long lead time before it would be likely to bother the stock market.
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. This looked like a panic bottom.
This sort of day will shake out the weak hands. Given the
bullish signs we’ve seen recently there is no need to panic.
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 S&P 500 has been outperforming
Utilities recently and that’s bullish for other ETFs – not Utilities (XLU).
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…
TUESDAY 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).
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
Tuesday, the VIX indicator
was negative; Price, Volume and Sentiment indicators were neutral. Overall this
is a NEUTRAL indication.
