“Service-oriented U.S. firms such as retailers, banks and
software-developers grew in December at the slowest pace since midsummer, but
business was still quite brisk, according to a survey of top executives. The
non-manufacturing index compiled by the Institute for Supply Management fell to 57.6 last month
from 60.7 in the prior month.” Story at…
CORRECTION UPDATE
This is day 73 of this correction. As of today’s close, the Index is down 13%
(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
-Monday the S&P 500 jumped up about 0.7% to 2550.
-VIX rose about 0.1% to 21.40.
-The yield on the 10-year Treasury rose to 2.698%.
My daily sum of 17 Indicators improved from +9 to +10 (a
positive number is bullish; negatives are bearish) while the 10-day smoothed
version that negates the daily fluctuations improved from +8 to +22.
Wow! Today, up-volume was 81% of the volume on the
day. After yesterday’s 95% up-volume day
(by itself a bullish indication), another day above 80% up-volume is even more
bullish. I think this is good news for the bulls, but that still doesn’t take
away the strong expectation of a retest of the prior low. With more bullish numbers recently, we have
to feel more confident that the retest will be successful. Even with more
bullish indications, a retest of the prior low at 2351 is still likely. These extreme
up-volume numbers and big moves in the Index are not out of the ordinary for a
large correction, though our sample size is small.
Only a retest at the 2350 level will tell us whether 2350
was THE bottom. A retest is likely due to the low volume we saw at the low
before Christmas. One might think the
low volume was due to the Holiday, but we have seen low-volume days like this
during corrections that weren’t around a holiday.
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…
MONDAY MARKET INTERNALS (NYSE DATA)
Market Internals remained
Positive 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
Monday, the Sentiment
and Volume indicators were positive; VIX and Price indicators were neutral.
Overall this is a POSITIVE indication, BUT IT MAY BE TOO EARLY to Buy now since
we expect a retest of the low. It does
indicate that conditions have greatly improved.
