SHILLER VALUATIONS – DO THEY MEAN ANYTHING?
“We should keep an open mind regarding what valuations
may look like 10 to 20 years down the road.” – Chris Ciovacco, Ciovacco Capital
Management. From a YouTube presentation by Ciovacco Capital Management at…
In the video, Chris notes that if you were trading stocks
based on Shiller PEs in the 60’s thru 80’s, one might have waited for a better
buying opportunity after 1988; but there wasn’t one and you would have missed an
historic bull run. The point is that we really don’t know what the Shiller PE
should be in the future. As I have noted
previously, we have more investors chasing fewer stocks; supply and demand suggests
that one should expect higher PEs in the future.
IMPEACHMENT (CNBC)
“President Trump claimed that the Democrats’ impeachment
efforts are hurting the stock market, but strategists say that’s not so.” Story
at…
My cmt: The chances that Trump will be removed are miniscule;
proving quid-pro-quo won’t do it. Governments apply pressure on other
Governments all the time. The problem for the Democrats is that they must prove
to Republican Senators that President Trump’s actions were not for legal
investigative purposes but instead, were solely Political. Biden’s son received
millions to sit on a Ukrainian oil firm’s board of Directors for which he has
no qualifications. When investigations began on the oil company, Biden’s son went
to the State department. Questions remain: To what extent did he intervene? Is
Biden’s son a registered Lobbyist? What duties did he perform entitling him to a
$600,000 per year salary? It would seem that the President has the authority
pressure Ukraine to investigate, including refusing aid if they refused. The
following letter provides a more concise comment:
WSJ- LETTER TO THE EDITOR (WSJ)
“Let’s see: A president suspects corruption involving an
elected politician and a foreign country. Key witnesses and records are located
in the foreign country and outside the legal jurisdiction of the FBI and
Justice Department. He asks the foreign country to help investigate. This is
wrong and impeachable because (a) the target is a Democrat; (b) our elected
officials are allowed to use their position to enrich their families; or (c)
the president is Donald Trump? You decide.” - Geoff Smith. From…
MARKET REPORT / ANALYSIS
-Monday the S&P 500 rose about 0.8% to 3134 (another
new-high).
-VIX dipped about 4% to 11.87.
-The yield on the 10-year Treasury dipped to 1.753.
I’ve been warning of a drop/top in the S&P 500 based
on statistical analysis of price-volume since early November. While we still
see the warning, it is important to note that this indicator is very
short-term, so it isn’t calling for a crash or severe drop. A move in the 3-5%
range would clear this indicator, assuming we see the >1% 1-day move during
the pullback. The other possibility is that we’ll see more variation in the
data that would clear the indicator without a big drop; however, that is not
the most likely outcome.
My daily sum of 20 Indicators improved from -3 to
+10 (a positive number is bullish; negatives are bearish) while the 10-day
smoothed sum that negates the daily fluctuations rose from -19 to -10
(These numbers sometimes change after I post the blog based on data that comes
in late.) A reminder: Most of these indicators are short-term. These are
bullish improvements.
The S&P 500 closed at the upper trend-line on a
statistically significant up-day today. That just means that the price-volume
move exceeded my statistical parameters. Statistics show that a statistically
significant up-day is followed by a down-day about 60% of the time. It also sometimes
indicates a top. This may be signaling the start of a minor dip of some kind.
However, I am not too worried; both Short-term and Long-term indicators are
currently Bullish.
While a pullback or pause is suggested by a few
indicators, Seasonality is bullish for the next month and Sentiment is not
overly high. Overall, indicators are quite bullish. The markets may keep moving
up for a while longer.
I remain bullish.
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: +2 on 3
October.
(1) +10 Max Bullish / -10 Max Bearish)
(2) -4 or below is a Sell sign. +4 or better is a Buy
Sign.
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)
Apple is up 18% over the last 2-months. It remains #1 in
the momentum ranking.
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 improved
to 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).
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 60% invested in
stocks as of 7 Oct 2019 (up from 50%). This is a conservative balanced position
appropriate for a retiree. You may wish to have a higher or lower % invested in
stocks depending on your risk tolerance.
INTERMEDIATE / LONG-TERM INDICATOR
Monday, the VIX and PRICE indicators were
positive; the SENTIMENT and VOLUME Indicators were neutral. Overall, the
Long-Term Indicator remained BUY. The important BUY was the one we
issued 29 August; we reinforced that bullish view again on 3 October. Today’s
BUY signal just means that conditions are good. Sometimes the NTSM will issue a
buy-signal at a top. I don’t think that is the case this time – I remain
bullish.
