“Trade what you see; not what you think.” – The Old Fool,
Richard McCranie, trader extraordinaire.
PAYROLL REPORT (MarketWatch)
“The biggest payroll surprise in history, by a gigantic
margin, likely is due to a wave of hidden rehiring. Businesses which let people
go in large numbers in March didn’t need to post their intention to bring
people back on. Indeed, they just needed to call/text/email. Still, it’s a
mystery why ADP didn’t pick this up, and it contradicts the continuing claims numbers…Nonfarm
payrolls ROSE 2.509 million in May…the recovery has begun, and that it is ahead
of schedule.” Story at…
UNEMPLOYMENT RATE (FOX Business.com)
“The U.S. unemployment rate unexpectedly dropped to
13.3 percent in May, down from a record high in April, indicating the
nation's economy is recovering faster than expected from the coronavirus lockdown.”
Story at…
MARKET RALLY WILL END IN TEARS (MarketWatch)
“The choice you have to make is either believe in the
bull case or get on the sidelines because this party is just starting,” he
wrote. “Of course it will end it tears and there will be an ebb and flow, but
unless virus numbers start to spike, it’s not going to end soon.”
THE ERA OF RECRIMINATION (Guggenheim Investments)
“To think that the economy is going to reaccelerate in
the third quarter in a V-shaped recovery to the level where gross domestic
product (GDP) was prior to the pandemic is unrealistic. Four years from now the
economy will most likely recover to the same level of activity that it was in
January. As this realization becomes clearer, we will be nearing the era of
recrimination. Monetary and fiscal policymakers are pulling out all the stops
to keep the economy and citizenry afloat during this crisis. Now is too early
to determine the efficacy and durability of these crisis programs, but ultimately
we will likely discover that they are insufficient, misdirected, and full of
unintended consequences. Let the finger-pointing begin…The Fed and Treasury
have essentially created a new moral hazard by socializing credit risk. The
United States will never be able to return to free market capitalism as we knew
it before these policies were put in place.” – Scott Minerd, Global CIO,
Guggenheim. Full commentary at…
CORONAVIRUS (NTSM)
Here’s the latest from the COVID19 Johns Hopkins website
as of 8 PM. There were 22,000 new cases today, about the same as yesterday. 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.
-Friday the S&P 500 rose about 2.6% to 3194.
-VIX dipped about 5% to 24.52.
-The yield on the 10-year Treasury rose to 0.902%. (When
I was a kid a typical bank, savings account paid 5% interest. Now you can’t
even get 1% on a 10-year Treasury.
I increased stock holdings to about 35% of the portfolio today,
joining the stampede and wondering if I was buying the top. I will add more stocks
later. We are overdue for a retreat of some kind and a dip may provide us a
better buying opportunity soon. The markets have been so bullish over the last 1
to 2 weeks, it seems like they will go up forever, but Bollinger Bands and RSI
say otherwise. If my Breadth vs. the S&P 500 indicator (currently bearish)
turns out to be correct, the pullback may be good size, but probably not back
to the prior low.
I added Boeing (BA) and Dow (DOW) today. BA is a
long-term play. It is about half what it sold for a few years ago. If it takes 4 years to get back to its old
highs, that would mean that it would deliver 18% annual growth. Not bad. DOW is
paying a dividend over 6%. While I hope it will grow earnings, and its price,
to bring dividends down to earth, if it doesn’t, I’ll collect the dividend
waiting. (I am assuming they’ll keep the dividend in place.) This is a
Dogs-of-the-Dow play. That’s a strategy developed about 30-years ago that says,
buy the 10 highest dividend stocks in the Dow and (I think) hold them for a
year. The strategy offers potential for good increases in stock price plus
relatively high dividends. That is true for DOW assuming the recession doesn’t get
vicious.
Time for Friday’s rundown of some important indicators:
BULL SIGNS
-MACD of stocks advancing on the NYSE (breadth) made a
bullish crossover 26 Mar.
-MACD of S&P 500 price made a bullish crossover 20
May.
-The 5-10-20 Timer System is BULLISH, because the 5-dEMA
and the 10-dEMA are above the 20-dEMA.
-VIX jumped sharply higher when the correction started
and is falling.
-Long-term new-high/new-low data is bullish.
-Short-term new-high/new-low data is bullish.
-My Money Trend indicator is
moving up.
-The 50-dMA of stocks
advancing on the NYSE (Breadth) is above 50%.
-The Fosback High-Low Logic Index is bullish.
-Cyclical Industrials are out-performing relative to the
S&P 500.
-The Utilities ETF (XLU) is under-performing the S&P
500 index.
-Advancing volume has been increasing over the past
10-days.
-Five of the last 10-days have had up-volume greater than
80% and today was a 90% up volume day, although it didn’t meet all of the tests
for a Lowry Research extreme bullish indicator.
-The size of up-moves has been significantly more that
down-moves over the last month.
-100-dMA of Breadth (advancing stocks on the NYSE) is above
50% and moving upward.
NEUTRAL
-Non-crash Sentiment is neutral. (If the downturn deepens
and becomes more extended, I’ll switch to crash sentiment; that would take a
much lower value to issue a buy-signal.)
-The S&P 500 is neutral relative to its 200-dMA. It
is not too diverging too far above or below it.
-Statistically, the S&P 500 has been bearish due to
several panic-signals, but it is now in the Neutral category.
-The last hour, Smart Money (late-day action) had been up,
but now it turned lower today. I’ll leave this in the neutral category since
the trend isn’t clear. This indicator is based on the Smart Money Indicator (a
variant of the indicator developed by Don Hayes).
BEAR SIGNS
-Bollinger Bands and RSI are both overbought.
-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.
-Overbought/Oversold Index, a measure of advance-decline
data, is overbought.
-Over the last 10-days, the number of up-days is bearish,
but not overly so. It suggests Monday will be a down day. It would take 3 more consecutive
up-days (Mon-Wed) to make this a very bearish signal.
On Friday, 21 February, 2 days after the top of this
pullback. There were 10 bear-signs and 1 bull-sign. Now there are 15 bull-signs
and 4 bear-signs. Last week there were 10 bull-signs and 2 bear-signs.
The daily sum of 20 Indicators improved from +8 to
+10 (a positive number is bullish; negatives are bearish). The 10-day smoothed
sum that negates the daily fluctuations improved from +72 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.
MOMENTUM ANALYSIS:
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
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 35% invested in
stocks. You may wish to have a higher or lower % invested in stocks depending
on your risk tolerance.
