“Apple lowered
its Q1 guidance in a letter
to investors from CEO Tim Cook Wednesday. Apple stock was halted
in after-hours trading just prior to the announcement, and shares were down
about 7 percent when trading resumed 20 minutes later.” Story at…
My cmt: Apple said that I-phone sales were less than expected
and China’s economy is slipping. The comments on China won’t help the US
markets, however, I can’t tell whether there is really any new information
here. Apple had previously announced
they would no longer report I-phone sales so it was widely suspected that sales
were in the tank. Still, the 7% drop indicates that investors were caught off
guard.
CORRECTION UPDATE
This is day 70 of this correction. As of today’s close, the Index is down 14.4%
(19.8% max) from its prior high and has included 21-new lows. In recent years, only the 2011 correction contained 21 new-lows.
That correction bottomed at 19.4%.
Over the last 20-years (excluding major crashes and the
current year) there have been 2 corrections that exceeded 19%, in 1998 and 2011.
In 2011, the waterfall phase (nearly straight down with little or no bounces)
took place over 3-weeks (about 15-trading sessions) and included a 17% drop
with almost no relief. In 2018, the waterfall phase that ended Christmas Eve
lasted 3-weeks over 15-trading sessions and included a drop of 16%.
The 2011 correction took 108-days to complete, top to
bottom.
MARKET REPORT / ANALYSIS
-Wednesday the S&P 500 rose about 0.1% to 2510.
-VIX fell about 9% to 23.22.
-The yield on the 10-year Treasury slipped to 2.648%.
My daily sum of 17 Indicators remained +3 (a positive
number is bullish; negatives are bearish) while the 10-day smoothed version
that negates the daily fluctuations improved from -25 to -16.
The Fosback High/Low Logic Indicator gave a short-term
Buy signal on Friday. Today, it is still issuing a short-term buy signal. This
indicator was one of the few that issued a sell signal for this correction at
the top.
While I worry, we may be in a bear market, I lean toward
the optimistic side. Until proven otherwise, I think we’re in a correction.
Further, I think the correction has made its low, or very close to it. The
waterfall phase of the correction ended 24 December and that is usually the low
or within a couple % of the low. Still, we must be concerned about the
possibility that this is a bear market with much more pain to come since
selling could resume if a retest of the prior low is not successful.
The S&P 500 is currently bouncing up from the bottom
on Christmas Eve. After the short-term top, a retest of the prior low is likely,
so selling the rally is probably a good strategy. The plan would be to buy back
near the low. I don’t think this strategy will make a lot of money, but it may
preserve the portfolio if the retest at the prior low, 2351, fails and the
market continues down.
A possible exhaustion of the current bounce lies in a
range between 2560-2655. That’s a big
range, but I tend to believe the higher levels are more likely; here’s the
background.
Based on the percentage gain in 2011 after the waterfall
bottom (also a 19% correction), this correction bounce would get to around 2560.
The 50% retracement level is 2640 and the 50-dMA is now 2655; that may be the
most optimistic guess. The best strategy may be to sell at a level under 2625. We
can expect the topping point to be on a statistically-significant day in the
market (high %-gain) so if the market is close to 2620, any big move up (1-2%)
becomes the sell signal. These numbers could change depending on the timing
since the 50-dMA is still falling.
Since we can’t say whether retest of the low will be a successful test or
not, it is best to play conservative and cut stock holdings on the rally.
Only a retest at the 2350 level will tell us whether 2350
was THE bottom.
THE BOTTOM LINE: For me, any significant drop below
2350 must be sold to a point with no more than 30% invested in stocks.
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%. (In this case -100%
since all are negative.) 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
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. I bumped up stock investments to 65% on 19 December. Both increases
were made at technical bottoms or shortly thereafter; unfortunately, those
bottoms didn’t hold. For me, fully invested is a balanced 50% stock portfolio
so this is higher.
INTERMEDIATE / LONG-TERM INDICATOR
Wednesday, the Sentiment
indicator was positive; VIX and Volume indicators were negative; Price was
neutral. Overall this is a NEUTRAL indication.
