-First, let’s consider the FED action. In 2008-2009 the
crisis was centered on the banks. In 2008, the Fed changed the rules for valuing
bank assets, effectively and instantly increasing Bank reserves. That signaled a
stock-market bottom and markets moved higher, because it was a banking crisis. In
2000, the crash was caused by valuation and the overheating economy. FED
actions didn’t save the stock market or the economy. Thus, the fed can’t always
save the day. Now, FED actions will prop up businesses, but can’t stop a
recession and can’t fix supply and demand disruptions caused by COVID19. The
good news is these disruptions will probably be mostly temporary, but I think
economic activity will be somewhat slowed until we see a vaccine. If we have to
categorize FED actions as Bull, Bear or Neutral, we have to go with BULL.
-Sentiment (measured as %-Bulls [Bulls/{bulls+bears}]
based on the amounts invested in Rydex/Guggenheim mutual funds) is giving a buy
signal for a non-crash scenario. If the correction continues for a longer time,
I’ll need to revise my thinking on this indicator. In an extended decline, we’d
expect Sentiment to fall below 33%-bulls. It has been falling sharply recently,
and is now 49% bulls on a 5-day basis. I’d call this bullish.
-The S&P 500 is too far below its 200-dMA giving an
oversold, bull-signal when sentiment is considered.
-Breadth on the NYSE vs the S&P 500 index remains in
bull territory.
-The Smart Money (late-day-action) is oversold.
-Overbought/Oversold Index, a measure of advance-decline
data, is oversold. (This indicator isn’t followed much anymore.)
-Over the last 20 days, there have only been 7
up-days. That’s a bullish, oversold
sign.
-The size of up-moves has been larger than the size of
down-moves over the last month.
-The Fosback High-Low Logic Index is Bullish. It called the
top of the 20% correction in Sep-Dec 2018 to the day.
-XLU is now under-performing the S&P 500 index.
-Cyclical Industrials are turning up and gaining on the
S&P 500 a bullish sign.
-MACD of stocks advancing on the NYSE (breadth) made a
bearish crossover 21 Feb., but it is very close to a bullish crossover now.
-Money Trend is headed down.
-New-high/new-low data is bullish.
-The smart money is headed up and is definitely bullish.
- Even though we now have 3 times as many cases as we had
a week ago, the growth rate is not as high.
There is a lot of daily variability in the data, but I heard this
mentioned on the news yesterday, so it seems to corroborate my call. We’re not
out of the woods yet by any means.
NEUTRAL
-Statistically, the S&P 500 has been bearish due to
several panic-signals, but it is now in the Neutral category.
-Bollinger Bands and RSI are in neutral territory.
-MACD of S&P 500 price made a bearish crossover 21
Feb. It will make a bullish crossover soon if trends continue.
-We’ve seen multiple 90% down-volume days during this
selloff. According to Lowry Research:
“…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…” The rush back is signaled by a 90% up-volume day. We’ve seen one 90%
up-volume day Tuesday in this major event. IF today holds and we see a
strong close, we’ll have another 90% up-volume-day; that would be VERY bullish.
-The NYSE is close to a Breadth Thrust signal and that’s
very bullish IF it occurs.
BEAR SIGNS
-The 5-10-20 Timer is SELL, because the 5-dEMA and the
10-dEMA are below the 20-dEMA.
-VIX jumped sharply higher when the correction started
and is still giving a bearish signal.
RISKS
-Many of the indicators are shorter-term, but the 90%
up-volume indicator is a solid long-term indicator as is Breadth Thrust. As
noted, a second 90% up-volume day would be very bullish if confirmed by
late-day strength.
-Regression to Trend suggests we could have a lot further
to fall. As of today, it appears that the market is not worried about that.
-There are no guarantees. This could be just a strong
Bear-Market rally, but Monday’s low has a reasonably good chance of being the
bottom or close to it.
I will increase stock holdings toward 45-50% now.
If the data supports it, I’ll add more on weakness in the
vicinity of the prior low when the markets retrace down.
