"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
PERSONAL SPENDING / INCOME / PCE PRICES (MarketWatch)
“Americans increased spending in July for the third month
in a row, but at a much slower pace in a sign that an economic rebound from the
coronavirus pandemic lost some steam. Personal spending rose 1.9% last
month…Incomes rose 0.4% largely because of government payments to businesses to
keep employees on payrolls…A closely watched measure of inflation, meanwhile,
posted the second big increase in a row. The PCE index, the Federal Reserve’s
preferred inflation barometer, rose 0.3% after a 0.5% gain in the prior month.”
Story at…
CHICAGO PMI (FxStreet)
“The Chicago Purchasing Managers Index released by
ISM-Chicago edged lower to 51.2 in August from 51.9 in July. This reading
missed the market expectation of 52 and showed an expansion in the private
sector's economic activity at a softer pace…” Story at…
MICHIGAN SENTIMENT (Advisor Perspectives)
“Consumer sentiment has remained trendless in the same
depressed range it has traveled during the past five months. The August figure
posted an insignificant gain of just +0.4 Index points above the April to July
average.” Commentary at…
OPTIONS AT DOT.COM LEVELS (Marketwatch)
“Bespoke [Investment Group] writes that it is difficult
to predict when a market slide might occur but notes that the degree to which
leveraged bets have been made on further upside might magnify the downturn
should a bearish catalyst arise. ‘In any event, the prevalence of call buying
is in our view a clear-cut signal that sentiment is extended after a blistering
equity market rally since March,’ the analysts wrote.” Story at…
INSANITY (Real Investment Advice)
“Notably, each time of the 5-times previously, going back
to 1999, where the market traded at 2-standard deviations or higher from the
4-year moving average, a reversion occurred. Those periods
were 2000, 2007, 2014, 2018, February 2020, and now.” - Lance Roberts.
Commentary, “A Tale of Two Bull Markets,” at …
CORONAVIRUS (NTSM)
Here’s the latest from the COVID19 Johns Hopkins website
at 5:50 Friday. Total US numbers are on the left axis; daily numbers are on the
right side of the graph with the 10-dMA of daily numbers in Green.
MARKET REPORT / ANALYSIS
-Friday the S&P 500 rose about 0.7% to 3508, another
all-time high.
-VIX dropped about 6% to 22.96.
-The yield on the 10-year Treasury slipped to 0.720%.
Looks like the FED may hold this market up forever, even while
there are significant bear signs.
Here’s the Friday run-down of some important indicators.
These tend to be both long-term and short-term so they are somewhat different
than the 20 that I report on daily.
BULL SIGNS
-The 50-dMA and the
100-dMA of stocks advancing on the NYSE (Breadth) are above 50%.
-The size of up-moves has been larger than the size of
down-moves over the last month.
-VIX is falling steeply.
-The 5-10-20 Timer System remained BUY, because the
5-dEMA and 10-dMA are above the 20-dEMA.
-MACD of S&P 500 price made a bullish crossover 24
August.
-The Smart Money (late-day action) is mildly bullish.
This indicator is based on the Smart Money Indicator (a variant of the
indicator developed by Don Hayes).
-The smoothed advancing volume on the NYSE turned bullish.
-The S&P 500 is outperforming the Utilities ETF (XLU).
Seems like no one wants to own utilities now.
NEUTRAL
-Overbought/Oversold Index, a measure of advance-decline
data is neutral. It was overbought Monday, but I’ll call it neutral since it has
dropped.
-Non-crash Sentiment is neutral.
-Breadth on the NYSE vs the S&P 500 index diverged
from the S&P 500 index and has been giving a sell signal since 11 May. 31
July it finally turned neutral.
-Statistically, the S&P 500 gave a panic-signal, 11
June. A panic signal usually suggests more to come. We did not see big negative follow-thru so
I’ll put this one in the neutral category.
-The Fosback High-Low Logic Index is neutral.
-Cyclical Industrials (XLI-ETF) are outperforming the
S&P 500 – but not by enough to send a signal.
-Only 50% of the 15-ETFs that I track have been up over
the last 10-days – neutral.
-The percentage of 15-ETFs that are above their
respective 120-dMA was 93% Friday. I put it in neutral because I don’t have the
background on this indicator.
BEAR SIGNS
-The S&P 500 is 13.8% above its 200-dMA. Values in
the 10-15% range are sell-signal.
-Only 2.3% of all issues traded on the NYSE made new,
52-week highs when the S&P 500 made a new all-time-high, Friday. All of the
recent new-highs have shown an extremely narrow advance with minimal participation
by issues other than a few big tech names. Very bearish.
-There have been 16 up-days over the last 20 days…
-We’ve seen 9 up-days over the last 10-days. These are
separate indicators.
-Bollinger Bands finally gave an overbought reading.
-RSI overbought signal as of Friday. Together with
Bollinger Bands this is a strong indication of the start of a pullback.
-MACD of stocks advancing on the NYSE (breadth) made a bearish
crossover 31 July.
-Long-term new-high/new-low data is bearish.
-Short-term new-high/new-low data is bearish.
-The 10-dMA of stocks
advancing on the NYSE (Breadth) is below 50%.
-My Money Trend indicator is mildly
bearish.
On Friday, 21 February, 2 days after the top of the
Coronavirus pullback, there were 10 bear-signs and 1 bull-sign. Now there are 11
bear-signs and 5 bull-signs. Last week, there were 12 bear-signs and 8 bull-signs.
Some of the new Bear signs are important ones, such as
Bollinger Bands and RSI.
The daily sum of 20 Indicators declined from +6 to +4 (a
positive number is bullish; negatives are bearish). The 10-day smoothed sum
that smooths the daily fluctuations declined from +5 to +2. (These numbers
sometimes change after I post the blog based on data that comes in late.) Most
of these indicators are short-term and many are trend following, i.e., they are
not top-indicators, so they are reflecting the overly bullish market.
I remain bearish in the short and intermediate term. I
have a very small Short-position.
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. (I’ll revamp
the DOW 30 ranking to match the new stocks added when I get a chance. It’s a big effort. With the Apple 4 for 1
split, several stocks in the DOW 30 have been dropped with new ones added to
keep the index representative with the overall market.)
For more details, see NTSM Page at…
FRIDAY MARKET INTERNALS (NYSE DATA)
Market Internals remained
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 30% invested in
stocks. You may wish to have a higher or lower % invested in stocks depending
on your risk tolerance. 30% is a very conservative position that I
re-evaluate daily. The XLE has been a loser for me since I was too early. It is
still yielding over 10%, so I have to remind myself to be patient.
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.
