Non-Divergence Sends Bullish Signal … Coronavirus (Covid-19) … Stock Market Analysis … ETF Trading … Dow 30 Ranking

“Trade what you see; not what you think.” – The Old Fool, Richard McCranie, trader extraordinaire.

 

"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

 

NON-DIVERGENCES BETTER THAN DIVERGENCES (McClellan Financial Publications)

“The indicator in the bottom of the chart measures the number of component stocks in the Nasdaq 100 which are above their own 100-day moving averages…This indicator gives great divergences at price tops that matter.  So for that attribute, it is a wonderful indicator.  The duration of the divergences can vary, which is frustrating, but they all end up being proven to be “right” eventually.  An indicator which is right eventually is not necessarily what you want to follow for trading signals… In this case, though, the absence of a divergent top at an overbought condition for this indicator is a pretty reliable sign that there is an intact uptrend.” – Tm McClellan. Commentary at…

https://www.mcoscillator.com/learning_center/weekly_chart/non-divergences_are_better_than_divergences/ 

 

CORONAVIRUS (NTSM)

Here’s the latest from the COVID19 Johns Hopkins website as of 5 PM. While the curve has flattened, indicating slowed growth, we can see that the curve is not diverging from the dashed line, an indication that the growth rate is little changed over the last month.

 

MARKET REPORT / ANALYSIS         

-Monday the S&P 500 rose about 1.2% to 3232.

-VIX rose about 5% to 25.81.

-The yield on the 10-year Treasury slipped to 0.882%.

 

I increased stock holdings to about 50% of the portfolio today, continuing to join the stampede while wondering if I was buying the top. Bollinger Bands and RSI both remained overbought. I need to remember that overbought conditions can remain in place for a while, especially after an important bottom.  That bottom was long ago so we still have to wonder how much higher the markets will go. If the markets fail, this might turn out to be the shortest I've bought to "fully-invested" and then sold out.  

 

Today, the NYSE saw a 90% up-volume day that finished with strong momentum meeting the Lowry Research tests for a bullish up-volume signal. It just confirms bullishness, as if we hadn’t seen enough recently.

 

My guess is that the S&P 500 will take out its prior high of 3386, but if it does, it defies logic. In the meantime, I’ll look for more bearish signs from my indicators. I want to see signs that internals are failing; I’ll sell some stocks when they do.

 

The daily sum of 20 Indicators improved from +10 to +11 (a positive number is bullish; negatives are bearish). The 10-day smoothed sum that negates the daily fluctuations improved from +74 to +85. (These numbers sometimes change after I post the blog based on data that comes in late.) Most of these indicators are short-term.

 

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…

http://navigatethestockmarket.blogspot.com/p/exchange-traded-funds-etf-ranking.html

 

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…

https://navigatethestockmarket.blogspot.com/p/a-system-for-trading-dow-30-stocks-my_8.html

 

MONDAY MARKET INTERNALS (NYSE DATA)

Market Internals remained 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 50% invested in stocks. You may wish to have a higher or lower % invested in stocks depending on your risk tolerance. As a retiree, 50% in the stock market is about fully invested for me – it is a cautious and conservative number. If I feel very confident, I might go to 60%; had we seen a successful retest of the bottom, 80% would not have been out of the question.