"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
CPI (Reuters)
“U.S. consumer prices rose more than expected in July,
with a measure of underlying inflation increasing by the most in 29-1/2 years amid
broad gains in the costs of goods and services…The consumer price index rose
0.6% last month, with gasoline accounting for a quarter of the gain.” Story at…
EIA CRUDE INVENTORIES (Energy Information Administration)
“U.S. commercial crude oil inventories (excluding those
in the Strategic Petroleum Reserve) decreased by 4.5 million barrels from the
previous week. At 514.1 million barrels, U.S. crude oil inventories are about
15% above the five-year average for this time of year.” Press release at…
CORONAVIRUS WINTER REPEAT? (LA Times)
“The cold-causing viruses [also coronaviruses] are in
fact pretty seasonal — the number of people they sicken spikes in the winter
and spring, then transmission declines during the summer, said Dr. Amesh Adalja, an infectious disease specialist at Johns
Hopkins University. There’s no reason, at least biologically, to think that
SARS-CoV-2 would buck that seasonal pattern. “I suspect this will come back
[and] if we do get any kind of lull in the summer that this will likely pick up
in the fall, just like other coronaviruses do,” Adalja said.” Story at…
https://www.latimes.com/science/story/2020-04-23/will-there-be-a-coronavirus-second-wave-this-winter
My cmt: We are getting the lull. I think it’s reasonable
to assume it will return this fall/winter. Vaccine?
CORONAVIRUS (NTSM)
Here’s the latest from the COVID19 Johns Hopkins website
at 8:15 Wednesday. I’ve plotted the daily numbers on the right side of the
graph with a 10-dMA of daily numbers in Green.
-Wednesday the S&P 500 rose about 1.4% to 3380.
-VIX dropped about 7% to 22.28.
-The yield on the 10-year Treasury was 0.668%.
We saw some bear signs Wednesday, but not as many as I
expected. Bollinger Bands came very close to oversold, but didn’t quite make
it. RSI was not oversold, either.
Another sign I mentioned yesterday is not as bearish as I
thought. I looked at the output wrong. We’ve still only seen 2 down-days in the
last 2 weeks of trading. That’s a bearish sign. An up-day Thursday
would make 9 up-days on the last 10 days.
If Thursday is an up-day, it would send a stronger bear-signal. The last
time we had 9 out of 10 trading days up was in April of 2019. That was about a
week before a 7% drop in the S&P 500.
The S&P 500 is 10.4% above its 200-dMA. Values in the
10-15% range are sell-signal. While this could be a major top, it could presage
just a 3-5% pullback. The Index was 11.5% above its 200-day when the
Coronavirus crash began. It was 8.6% above its 200-day before the 6% retreat in
July of 2019. We also note that the Overbought/Oversold Index is overbought,
although this indicator is not used all that much these days.
Today was a statistically significant up-day. 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.
Statistically-significant, up-days almost always coincide with tops, but
not all Statistically-significant, up-days occur at tops.
Oddly, given that today was a very strong up-day, we saw
the lowest number of 52-week, new-highs in a week and a half. That’s a concern
for the bulls, too.
The daily sum of 20 Indicators slipped from +11 to
+6 (a positive number is bullish; negatives are bearish). The 10-day smoothed
sum that smooths the daily fluctuations improved from +30 to +40. (These
numbers sometimes change after I post the blog based on data that comes in
late.) Most of these indicators are short-term.
The S&P 500 is now within spitting distance of its
prior all-time high 3386. I should probably drop any defense and return to a fully
invested position. Given that we are at
a short-term top, or close to it, I’ll wait a bit longer.
If we do get a correction, a drop to the 50-dMA (3189) would
be a 6% pullback. That would be very logical. The 200-dMA is 3062.
Looks like some sort of pullback is getting closer (and it's possible that today was a short-term top). Big
or small? I don’t know, but long-term indicators still look good so we might
guess “small”.
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.
*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…
I sold Microsoft, perhaps too early. We’ll see. Its PE is
36. MSFT has been higher, I just thought it was frothy as is the entire market.
Checking some of the momentum leaders in the DOW 30 we
see:
Apple has a PE of 34; that’s higher than its been in the
last 3 years and it only has a Dividend of 0.75%. I am not currently an Apple fan.
Home Depot has a PE of 28. That seems high for a hardware store, but at least
it has a dividend of 2.18%. DOW is losing money, but it has a dividend of
6.25%. (All data from Yahoo finance.)
WEDNESDAY MARKET INTERNALS (NYSE DATA)
Market Internals dropped
to NEUTRAL 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.
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. It is not far below my fully invested position which would be between
50-60%.
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.
