“The big money is not in the buying and selling. But in the
waiting.” - Charlie Munger, Vice Chairman, Berkshire Hathaway
SELL THE RIPS; DON’T BUY THE DIPS (SeekingAlpha)
“After an 11-year bull market run, it is difficult to
change one's perspective to understand that what has worked in the past will
not necessarily continue to work in the future… How anyone can subscribe to the
notion that after such a huge and largely unexpected shock to the global
economy, we can somehow recapture the economic luster of days gone by in a
matter of months remains inexplicable to us… To those who are squarely in the
perma-bull camp we suggest that you step back, take a deep breath and remove
those rose-colored glasses that you are wearing. The bull market is dead.” Commentary at…
My cmt: I am not convinced, yet, that the bull is over. We’ll
see what indicators do next week.
CORONAVIRUS (NTSM)
Here’s the latest from the COVID19 Johns Hopkins website
as of 7:05 PM. While the curve has flattened, indicating slowed growth in April
thru the first week in May, we can see that the curve is not diverging from the
dashed line since 9 May, an indication that the growth rate is little changed
over the last month. There have been 36,000 new cases (so far) today.
MARKET REPORT / ANALYSIS
-Friday the S&P 500 dipped about 0.6% to 3098.
-VIX rose about 7% to 35.12.
-The yield on the 10-year Treasury dipped to 0.700%.
Options expire tomorrow, so today was a high-volume day, 40%
above the monthly average. We didn’t get new information in our recent review
of falling volume on the NYSE. Today was the third day in a row where unchanged
volume was very high. Some think this signals investor confusion and a possible
reversal point. That seems logical – sometimes it does, but I haven’t found
this to be a reliable indicator.
Here’s a light volume interpretation:
“There are two kinds of light volume, the anticipated
kind and the kind that indicates a possible change of direction in the market.
Anticipated light volume happens around holidays. However, if it occurs away
from a holiday, it is a sign that participants are staying out of the market
for a reason. In a bull market, low volume can indicate traders are concerned
about a top in the market, to be followed by a correction.”
The daily sum of 20 Indicators declined from -3 to
-8 (a positive number is bullish; negatives are bearish). The 10-day smoothed
sum that negates the daily fluctuations declined from +30 to +11 (These
numbers sometimes change after I post the blog based on data that comes in
late.) Most of these indicators are short-term.
Time for Friday’s rundown of some important indicators:
BULL SIGNS
-The 5-10-20 Timer System is BULLISH, because the 5-dEMA
and the 10-dEMA are above the 20-dEMA.
-Long-term new-high/new-low data is bullish.
-The 50-dMA of stocks
advancing on the NYSE (Breadth) is above 50%.
-The Fosback High-Low Logic Index is bullish and is
giving BUY signal. This indicator also gave a BUY
signal 2 days after the 23 March bottom.
-The VIX has been falling recently.
-The S&P 500 remained above its 200-dMA support
level, a bullish sign.
-The Utilities ETF (XLU) is under-performing the S&P
500 index.
-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.)
-Bollinger Bands and RSI are neutral.
-Over the last 20-days, the number of up-days is neutral.
-The S&P 500 is neutral relative to its 200-dMA. It
is not too diverging too far above or below it.
-100-dMA of Breadth (advancing stocks on the NYSE) remained
above 50% today, but it is falling, at least for the day.
-The size of up-moves has been smaller than the size of
down-moves over the last month, but not drastically so.
-Overbought/Oversold Index, a measure of advance-decline
data, is neutral.
-The last hour, Smart Money (late-day action) is mixed.
This indicator is based on the Smart Money Indicator (a variant of the
indicator developed by Don Hayes).
-The percentage of 15-ETFs that are above their
respective 120-dMA was 60% Friday. That’s a mid-level number so we’ll just call
it neutral. (This is a new indicator and I don’t have much experience with it.
-Short-term new-high/new-low data is bearish.
-MACD of stocks advancing on the NYSE (breadth) made a bearish
crossover 11 June.
-MACD of S&P 500 price made a bearish crossover 10
June.
-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.
-Statistically, the S&P 500 gave a panic-signal, 11
June. A panic signal usually suggests more to come. Had it occurred at the bottom of a decline;
this same signal would have suggested a bottom. This signal can be hard to
decipher sometimes. Now, I think it is bearish.
-Cyclical Industrials are under-performing relative to
the S&P 500.
-My Money Trend indicator is
falling.
-On 11 June, only 2% of the volume was up and the S&P
500 closed near its low for the day – a mildly bearish sign. Another 90%+
down-volume day would be very bearish if we don’t have a 90% up-volume day in
the interim. We need a 90% up-volume day to cancel the mildly negative signal.
-The smoothed advancing volume on the NYSE has been
falling over the past 10-days.
On Friday, 21 February, 2 days after the top of this
pullback, there were 10 bear-signs and 1 bull-sign. Now there are 7 bull-signs
and 9 bear-signs. Last week there were 9 bull-signs and 11 bear-signs.
My Long-term indicator remained HOLD today; the
Short-Term Indicator slipped to Bearish. Since Indicators are not yet giving a
short-term Buy-signal, I am still under-invested. I’ll increase stock holdings if we see some
additional improvement in signals, especially the MACD & Money Trend
indicators. They are still bearish.
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.
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 switched
to BEARISH 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 40% invested in
stocks. You may wish to have a higher or lower % invested in stocks depending
on your risk tolerance. 40% is a conservative position that I re-evaluate
daily.
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.
