"This imaginary person out there - Mr. Market - he's
kind of a drunken psycho. Some days he gets very enthused, some days he gets
very depressed. And when he gets really enthused, you sell to him and if he
gets depressed you buy from him. There's no moral taint attached to that."
- Warren
Buffett
“The big money is not in the buying and selling. But in the
waiting.” - Charlie Munger, Vice Chairman, Berkshire Hathaway
ADP EMPLOYMENT CHANGE (CNBC)
“Companies trimmed another 2.76 million workers in May as
the coronavirus pandemic continued to slice through the U.S. economy, according
to a report Wednesday from ADP.” Story
at…
FACTORY ORDERS (Reuters)
“New orders for U.S.-made goods plunged in April and
business spending plans on equipment were much weaker than initially
thought…The Commerce Department said on Wednesday factory orders dropped 13.0%
after falling 11.0% in March.” Story at…
ISM MANUFACTURING INDEX (Institute for Supply Management)
“Economic activity in the manufacturing sector
contracted in May, and the overall economy returned to expansion
after one month of contraction, say the nation's supply executives in the
latest Manufacturing ISM® Report On Business®…“The coronavirus
pandemic impacted all manufacturing sectors for the third straight month. May
appears to be a transition month, as many panelists and their suppliers
returned to work late in the month. However, demand remains uncertain, likely
impacting inventories, customer inventories, employment, imports and backlog of
orders. Among the six biggest industry sectors, Food, Beverage & Tobacco
Products remains the only industry in expansion. Transportation Equipment;
Petroleum & Coal Products; and Fabricated Metal Products continue to
contract at strong levels," says Fiore.” Story at…
MARKIT SERVICES PMI (Advisor Perspectives)
“The May US Services Purchasing Managers' Index conducted
by Markit came in at 37.5 percent, up 10.8 from the final April estimate of
26.7…"A substantial part of the service sector nevertheless continued to
be devastated by social distancing measures, and looks set to remain so for
some months to come, limiting scope for a v-shaped recovery. The ongoing steep
fall in employment remains a particular concern, pointing to a weakened
consumer sector but also underscoring heightened risk aversion as companies
seek to cut costs in the face of collapsing sales and an uncertain
outlook." - Chris Williamson, Chief Business Economist at IHS Markit.
Story at… https://www.advisorperspectives.com/dshort/updates/2020/06/03/markit-services-pmi-business-activity-slumps-further-amid-covid-19-pandemic
CORONAVIRUS (NTSM)
Here’s the latest from the COVID19 Johns Hopkins website
as of 9:33PM. There were 23,000 new cases today, about 7,000 more than
yesterday. The 14-day growth factor was 1.06, indicating growth in new cases of
about 6% per day. The curve is
flattening rather fitfully and growth in new cases remains. We need to see a
growth-factor below 1.0 before we can be optimistic. While the curve has
flattened, we can see that the line is not diverging from the dashed line, an
indication that the growth rate is little changed over the last month.
These numbers are based on U.S. totals; local data will
be different.
-Wednesday the S&P 500 rose about 1.4% to 3123.
-VIX dipped about 4% to 26.66.
-The yield on the 10-year Treasury rose to 0.748%.
We have seen selling-stampedes that last from 17 to 25
sessions with only 1.5-to three-day pauses/throwback rallies, before they
exhaust themselves on the downside. This
looks like a buying-stampede. We’ve had about 14 sessions with only a couple of
down days – on that basis, this rally could continue. There are other worrying signs though:
-The S&P 500 chart is starting to go parabolic. 8 out
of the last 10-days have been up-days. That’s bearish for tomorrow. If it manages to climb to 9 out of 10-days
positive, it would be a clear bearish signal for a longer term. It would take
two consecutive positive closes (Thursday and Friday) to get that bear signal.
-Bollinger Bands (2 std deviations) are about as close to
overbought as it could get, while RSI did give an overbought signal today. In tandem,
these are decent top signals. I’d say we got that warning today. At 2 std
deviations, the Bollinger Band is telling us that this level of advance is only
exceeded 5% of the time.
- The S&P 500 chart is starting to go parabolic. 8
out of the last 10-days have been up-days. That’s bearish for tomorrow. If it manages to climb to 9 out of 10-days
positive, it would be a clear bearish signal for a longer term. It would take
two consecutive positive closes (Thursday and Friday) to get that bear signal.
- The S&P 500 closed above 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 – of course not all big up-days are
tops.
-Breadth on the NYSE vs the S&P 500 index has
drastically diverged from the S&P 500 index in a bearish manner. The Index remains way too far ahead of
breadth, at least using moving average comparisons that have usually proved to
be correct.
-The S&P 500 has been crawling along its Upper trend
line for the last 5 sessions. That may continue or not, but it does tend to
limit the possibility for big jumps higher. It also suggests the odds of a dip
are slightly more than the odds of going higher.
In general, though, the preponderance of indicators
remains bullish.
The daily sum of 20 Indicators remained from +8 (a
positive number is bullish; negatives are bearish). The 10-day smoothed sum
that negates the daily fluctuations improved from +71 to +74. (These
numbers sometimes change after I post the blog based on data that comes in
late.) Most of these indicators are short-term.
One bullish indicator is the Fosback High/Low Logic
Index. This Indicator is bullish when both new-highs and new-lows are small
numbers and it is very bullish now.
Looks like a toss up to me. My guess: We might see a down-day
or two followed by more buying.
I increased stock holdings to about 30% of the portfolio
total Tuesday, and will add more later.
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. The highest ranked are those closest to zero.
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.
For more details, see NTSM Page at…
WEDNESDAY MARKET INTERNALS (NYSE DATA)
Market Internals improved
to BULLISH 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 30% invested in
stocks. You may wish to have a higher or lower % invested in stocks depending
on your risk tolerance.
