CORONAVIRUS EXCERPT FROM PAUL SCHATZ COMMENTARY (Heritage
Capital)
“I found the chart below interesting from LPL’s Ryan
Detrick. As the experts have been telling us, the virus is most dangerous to
those with compromised immune systems, including older people, smokers,
diabetics, etc. If you believe the stats, while the virus has higher mortality
rates than influenza and SARS, it’s still in the low single digits and that may
be overstated” - Paul Schatz.
“…A few days ago, CLSA hosted a
conference call...with professor John Nicholls a clinical professor in
pathology at the University of Hong Kong and an expert on coronaviruses. He was
a key member of the research team at the University of Hong Kong which isolated
and characterized the novel SARS coronavirus in 2003...He has been studying
coronaviruses for 25 years and his bio can be found here…
…During the CLSA conference call,
this real expert opined that Coronavirus is not similar to SARS or MERS, but a
bad cold which mostly kills people who already have health issues. According to
this real expert, the virus will burn itself out in May when temperatures rise.
His advice - wash your hands often. His view is that China has much stricter
guidelines for a case to be considered positive so, many...weak cases or cases
without symptoms aren't being reported and this is artificially pushing up the
fatality rate! According to Prof. Nicholls, we are talking about a coronavirus
that has a mortality rate which is 8 to 10 times LESS deadly when compared to
SARS or MERS...So, according to him, the correct comparison is not SARS or MERS
but a severe cold. Basically, this is a very severe form of common cold. When
the virus will peak? Three things the virus does not like (1) sunlight (2) heat
(3) humidity...In his view, sunlight will cut the virus' ability to grow in
half and at 30 degrees Celsius you will get inactivation.” From Paul
Schatz Blog at…
PERSONAL SPENDING / PCE PRICES (Reuters)
“The Commerce Department said consumer spending, which
accounts for more than two-thirds of U.S. economic activity, increased 0.2%
last month as unseasonably mild weather reduced demand for heating and undercut
sales at clothing stores. Data for December was revised higher to show consumer
spending rising 0.4%...inflation remained benign. Consumer prices as measured
by the personal consumption expenditures (PCE) price index edged up 0.1% in
January.” Story at…
CHICAGO PMI (MarketWatch)
“A measure of business conditions in the Chicago region
improved in February but remained in contraction territory. The Chicago PMI
business barometer increased to 49.0 this month from 42.9 in January…” story
at…
UNIV OF MICHIGAN CONSUMER SENTIMENT (Sharecast)
“Consumer confidence in the States edged up in February
to within a whisker of its previous high for the current economic cycle,
despite signs that the coronavirus was beginning to register on Americans' list
of concerns.
The University of Michigan's headline consumer confidence
index rose from a reading of 99.8 for January to 101.0 in February…” Story at…
MARKET REPORT / ANALYSIS
-Friday the S&P 500 dropped about 0.8% to 2954.
-VIX rose about 2% to 40.11.
-The yield on the 10-year Treasury fell to 1.156.
The S&P 500 Index closed 3.1% below its 200-dMA.
The next support level is the 8 October low: 2893. The
Index dipped below 2893 today, but it closed well above it. As of Friday, the
Index is 12.8% off of its recent high. We note that 12.8% was the total drop in
2003 during the SARS crisis.
The “average” correction has been 12% since 2009. In the
past 15 years or so, corrections greater than 10% have lasted 68 days top to
bottom; those less than 10% have lasted 35 days. We’re at day 6.
Overall, the daily sum of 20 Indicators remained
-13 (a positive number is bullish; negatives are bearish). The 10-day smoothed
sum that negates the daily fluctuations declined from -64 to -79. (These
numbers sometimes change after I post the blog based on data that comes in
late.) Most of these indicators are short-term.
It’s Friday, so it’s time for a run-down of Bull/Bear
signs:
BEAR SIGNS
-Cyclical Industrials are underperforming the S&P 500
suggesting investors are worried.
-The 5-10-20 Timer is SELL, because the 5-dEMA and the
10-dEMA are below the 20-dEMA.
-Statistically, the S&P 500 is bearish due to several
panic-signals.
-VIX jumped sharply higher recently and is still giving a
bearish signal.
-MACD of stocks advancing on the NYSE (breadth) made a
bearish crossover 21 Feb.
-MACD of S&P 500 price made a bearish crossover 21
Feb.
-New-high/new-low data is falling.
-Money Trend is still headed down.
-The size of down-moves has been larger than the size of
up-moves over the last month.
NEUTRAL
-The S&P 500 is no longer too far above its 200-dMA.
It’s closer to a buy signal now; but it remains neutral.
-The Fosback High-Low Logic Index is neutral.
-Sentiment is elevated, but it is not giving a sell
signal.
-Friday, Breadth on the NYSE vs the S&P 500 index was
very close to the bull side as it indicated that this internal was well ahead
of most stocks, but it finished in neutral territory.
BULL SIGNS
-Overbought/Oversold Index, a measure of advance-decline
data, is oversold.
-RSI is solidly oversold.
-Bollinger Bands are oversold.
-The Smart Money (late-day-action) is oversold.
-The smart money has been selling based on late-day
action over the longer term; but Friday, we saw late-day buying. That’s a
change from recent trends and is a bullish sign that the Pros were buying into
the close.
-Utilities are still outperforming the Index, but that
trend has reversed. Also, Utilities are no longer outperforming the Technology
Sector (XLK) over the last 40-days, so that’s an improvement, too.
We went from 1 Bull sign a week ago to a reasonable
number today.
Volume picked again today, so we still haven’t run out of
sellers. We need to see volume fall before we can even think about a bottom.
Even then, we will have a difficult decision.
Normal corrections retest the first-low. During a retest, we have the
data to make an informed decision to stay out or buy. In a front-loaded
waterfall crash scenario, we may have a sharp “V” (straight-up) recovery. If
good news comes out about COVID19, that is a possibility. That sort of recovery
suggests that buying sooner may be a reasonable plan.
We also note that we have seen 8 down-days in the last 10
days. Another down-day Monday would give a buy signal for this %-up indicator.
It’s only 1 indicator though, and it wouldn’t be enough to give a buy signal
overall. (I was too early yesterday. It will take one more down-day to give us
a buy signal for this indicator.)
We need to remember the Lowry Research comment: “…our
69-year record shows that declines containing two or more 90% Downside Days
usually persist, on a trend basis, until investors eventually come rushing back
in to snap up what they perceive to be the bargains of the decade and, in the
process, produce a 90% Upside Day" - Lowry Research. The two 90% down-days suggest that we won’t
see a “V” bottom in this correction.
As noted by Jeffrey Saut: “Never on a Friday…once the
markets get into one of these weekly downside skeins, they rarely bottom on a
Friday. Nope, they typically give participants over the weekend to brood about
their losses and then they show up the next Monday in “sell mode” leading to
Turning Tuesday.”
So, we may suspect that the market is most likely to
bottom on Monday and turn up on Tuesday. We’ll see.
I am planning to add a stock or two if we get a solid low
on Monday and we can see that volumes are falling. I like Intel. It’s got a low
PE of 11.8; a decent Dividend of 2.36%; and is trading 18% below where it was 2
weeks ago. They warned that their earnings
will be hurt by poor PC sales due to Coronavirus. My take is that if work-and-school-from-home
becomes the norm, PC sales might take off, assuming the supply chain issues have
been resolved. Who knows?
It’s too early to jump back in; but I am not opposed to
dipping a toe in the water.
TOP / BOTTOM INDICATOR SCALE OF 1 TO 10 (Zero is a
neutral reading.)
Friday, we had dueling Top/Bottom Indicators
Today’s Reading: +3 AND -3
Most Recent Day with a value other than Zero: +3 on 28
February. (Bollinger Bands and RSI were bullish and late-day action is oversold.)
-3 because the MACD of Breadth is warning of a crash.
For now, let’s ignore the crash warning.
(1) +10 Max Bullish / -10 Max Bearish)
(2) -4 or below is a Sell sign. +4 or higher is a Buy
Sign.
MOMENTUM ANALYSIS:
CAUTION: Momentum is not a good tool during market
declines.
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.
For more details, see NTSM Page at…
FRIDAY MARKET INTERNALS (NYSE DATA)
Market Internals remained
NEGATIVE 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 45% invested in
stocks as of 27 January (down from 60%). This is a conservative position
appropriate for a retiree based on an overstretched S&P 500. You may wish
to have a higher or lower % invested in stocks depending on your risk
tolerance.
INTERMEDIATE / LONG-TERM INDICATOR
Friday, the VOLUME, VIX, PRICE and PANIC Indicators
gave bear signals; The SENTIMENT Indicator was neutral. The Long-Term Indicator remained SELL. If the
averages are to be believed, we may not be too far from a bottom. I could be
wrong, but I think it is too late to sell now.
