FED BEIGE BOOK (MarketWatch)
“Business contacts were generally positive through early
July about the economic outlook for the coming months despite “widespread
concerns about the possible negative impact of trade-related
uncertainty,” according to the “Beige Book” survey released by the Federal Reserve on
Wednesday. The survey found that the economy expanded at modest pace
from mid-May through early July, little changed from the spring.” Story at…
HOUSING STARTS (Reuters)
“U.S. homebuilding fell for a second straight month in
June and permits dropped to a two-year low, suggesting the housing market
continued to struggle despite declining mortgage rates…Housing starts decreased
0.9%...” Story at…
CRUDE OIL INVENTORY (OilPrice.com)
“The Energy Information Administration reported a
modest oil inventory draw of 3.1 million barrels for the week to July 12,
confirming and even exceeding the American Petroleum Institute’s Tuesday
estimate of a small 1.401-million-barrel draw.”
Story at…
EARNINGS AND INTERNALS (Heritage Capital)
“The NYSE A/D Line continues to make new high after new
high, behavior not typically seen at the end of bull markets. High yields bonds
have pulled back very nicely and constructively although sentiment has
certainly soured this month. I don’t think they have seen any kind of peak of
significance just yet. Rather, this pullback should end sooner than later and
lead to another leg higher in junk bonds.” - PAUL SCHATZ, PRESIDENT, HERITAGE
CAPITAL. Commentary at…
My cmt: Junk Bonds act like stocks so this commentary is
bullish on the stock market, too.
CALM BEFORE THE STORM (NTSM)
My “calm-before-the-storm” indicator flashed a warning
today. This happens when the daily market moves in price-volume become very
consistent. The analysis (and history) shows
that the narrow moves often result in a 2% or more drop sometime in the next
month. In that regard, it is not good for timing, but taken with other
indicators, it is a reasonable warning that volatility is going to pick up a
lot more in the near term.
MARKET REPORT / ANALYSIS
-Wednesday the S&P 500 slipped about 0.7% to 2984.
-VIX rose about 7% to 13.97.
-The yield on the 10-year Treasury dipped to 2.050%.
Tuesday was another Distribution Day. The count is now 3
in the last 3-weeks. 6 is an indication
of trouble coming – at least that’s the wisdom on the internet.
My daily sum of 20 Indicators remained -2 (a positive
number is bullish; negatives are bearish) while the 10-day smoothed version that
negates the daily fluctuations slipped from +37 to +33. (These numbers
sometimes change after I post the blog based on data that comes in late.) Most
of these indicators are short-term.
I am seeing more negative signs now:
-As noted above, the calm-before-the-storm indicator is
suggesting a big drop (>2%) coming in the S&P 500 within the month.
-Moving Average Convergence Divergence (MACD) analysis of
the S&P 500 switched to SELL today.
-Bollinger Bands are nearly overbought as is RSI.
-Breadth vs the S&P 500 is stretched, but not yet
bearish.
-MACD analysis of breadth is nearly bearish. For now, it
remains neutral.
As I’ve said before, I don’t see a big drop coming. By
that I mean I don’t see a bear market. A smaller correction is always possible.
There are bullish signs:
-The S&P 500 is outperforming the XLU-ETF (Utilities).
-The long-term average of new-highs is rising too,
another bullish indicator.
-Cyclical industrials (XLI-ETF) switched near-term and are
under-performing the S&P 500 over the near term, but the trend appears to
be up, so this one is probably leaning bullish.
We’re headed for a pullback, but I’m guessing it won’t be
too dramatic. I don’t like to guess, so we’ll jus have to watch the
indicators. If we keep heading down, I’ll
be cutting stock holdings.
TOP / BOTTOM INDICATOR SCALE OF 1 TO 10 (Zero is a
neutral reading.)
Today’s Reading: 0
Most Recent Day with a value other than Zero: -1 on 15
July (The S&P 500 was too far ahead of its 200-day average w/sentiment,
top-indicator.)
(1) +10 Max Bullish / -10 Max Bearish)
(2) -4 or below is a Sell sign. +4 or better is a Buy
Sign.
We haven’t got top indicators calling sell now, but we
must remember that these indicators don’t always signal a top. We often have a top without the indicators
signaling one.
MOMENTUM ANALYSIS:
TODAY’S RANKING OF
15 ETFs (Ranked Daily)
*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…
I continue to hold MSFT and XLK as trading positions
while collecting dividends.
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).
Using the Short-term indicator in 2018 in SPY would have
made a 5% gain instead of a 6% loss for buy-and-hold. The methodology was Buy
on a POSITIVE indication and Sell on a NEGATIVE indication and stay out until
the next POSITIVE indication. The back-test included 13-buys and 13-sells, or a
trade every 2-weeks on average.
My current stock allocation is about 55% invested in
stocks as of 4 June 2019. This is based on the improved indicators 3 June and
my recommendation to increase stock holdings if we saw strong buying on 4 June.
As a retiree, I am conservatively positioned with a balanced portfolio. You may be comfortable with a higher % invested
in stocks – that’s OK.
INTERMEDIATE / LONG-TERM INDICATOR
Wednesday, the PRICE indicator was positive; the
SENTIMENT, VIX and VOLUME indicators were neutral. Overall the Long-Term
Indicator remained Neutral/HOLD.
