SMALL BUSINESS OPTIMISM (24/7Wall Street)
“The National Federation of Independent Business (NFIB)
Tuesday morning reported that its small business optimism index for February
inched up from 101.2 in January to come in at 101.7. Last August the index
reading of 108.8 was the highest in the 45-year history of the index…(22%) of
business owners said finding qualified workers remains their single most
important business problem.” Story at…
CPI (MarketWatch)
“Americans paid more for rent, food, gas and clothes in
February, triggering the biggest increase in inflation in four months. But the
cost of living more generally is still rising very slowly. The consumer price
index climbed 0.2% in February…” Story at…
CHINA CAR SALES SLIDE (WSJ/Morningstar)
“Auto sales in China continued their downhill run into
February, declining for the eighth consecutive month.
Vehicle sales in January and February -- a period that
includes China's movable Lunar New Year holiday -- totaled 3.85 million, down
15% from a year earlier…” Story at…
My cmt: The 15% drop is year-over-year, but the “movable”
holiday may be affecting this number too, as was suggested for the awful export
numbers last week. It is a worry since car sales are watched carefully here as
a recession indicator. If China is
sliding into recession (as many of the stats suggest) it is unlikely that the
US will be immune to the Asian Flu.
VALUATIONS CONTINUE TO WARN (Financial Sense)
“… as is tradition, we offer SP500 forecasts to end 2019
as follows, taken from your dashboard, with the understanding that despite
relatively surprising accuracy the last 4 times we did this, one-year ahead
forecasts can vary significantly from actual outcomes:”
Commentary at…
My cmt: Valuations are the worst timing indicator. We
have heard from many investors who have been bearish for years due to high
valuation.
MARKET REPORT / ANALYSIS
-Tuesday the S&P 500 rose about 0.3% to 2792.
-VIX fell about 4% to 13.77.
-The yield on the 10-year Treasury dipped to 2.602%
Today we saw high unchanged-volume. Some analysts believe
this indicates a top since it suggests investor confusion. That sounds logical, but I never found a very
strong correlation. Sometimes it’s right and sometimes it’s wrong.
As shown in the chart below, the XLI-ETF (Cyclical
Industrial stocks) is under-performing the S&P 500 based on their spread (Red/Green
lines). This indicator can give us clues about the direction of the S&P 500
especially when the spread is below zero and falling. Boeing makes up about 10%
of the XLI, so this is somewhat suspect now; but the spread was falling before
Boeing’s recent troubles. (2 Boeing 737 Max aircraft have crashed recently.)
This is a simple indicator made up of the sum of daily-spread of XLI minus the S&P
500, moving-averages from 10-dMA out to 100-dMA calculated as percentages.
Conversely, the XLU-ETF (Utilities) is outperforming the
S&P 500 and that’s not good for the bulls either. Further, Utilities
shouldn’t be the top momentum stock as they are now. We have other indicators
that are swinging positive so XLU and XLI vs the S&P 500 may be early or
skewed by the recent 5-day downturn. We’ll watch it.
My daily sum of 20 Indicators improved from +1 to +5 (a
positive number is bullish; negatives are bearish) while the 10-day smoothed
version that negates the daily fluctuations dropped from +4 to +2. This is a bullish
indication. Breadth is catching up to the S&P 500 so that bear sign that we
had mentioned earlier is no longer valid.
It looks like the rally is trying to stay alive. Today
the S&P 500 is 1.5% above the 200-dMA. Maybe the rally still has legs?
Here’s what I think:
For the time being, we know that the economy is slowing
and possibly quite rapidly. A slowing
economy probably doesn’t support prices that we saw at the September highs
given that earnings are expected to fall next quarter. That’s what I
think.
Unfortunately, I have been trading what I have been
thinking for too long. My long-term indicator turned bullish what seems like
ages ago. With no retest of the December
low; it is just another reminder to trust the indicators and trade what I see.
It is difficult to jump in now because it feels like I’m chasing the rally. Can’t
stay out forever, if the markets keep going up. We’ll see.
Only a retest at or near the 2351 level, or a climb back
above the old highs (4.8% below today’s close), will tell us whether 2351 was
THE bottom.
MOMENTUM ANALYSIS:
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 remained
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).
My current stock allocation is about 30% invested in
stocks on as of 9 January 2019. For me, fully invested is a balanced 50% stock
portfolio so this is a very conservative position.
INTERMEDIATE / LONG-TERM INDICATOR
Tuesday, the PRICE
and VIX indicators were positive. The VOLUME and SENTIMENT indicators were neutral.
Overall this is a BULLISH indication. (Sorry I had a typo here – this is
Bullish and should have been noted that way earlier.) I remain defensive,
expecting some sort of pullback.
