“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
RETAIL SALES (NY Times)
“Americans kept shopping in July with retail sales rising
1.2 percent from June, reflecting a rare bright spot in the battered
economy….Sales are now back at the level they were in February.” Story at…
INDUSTRIAL PRODUCTION (MarketWatch)
“Industrial production rose 3% in July for the third
straight monthly gain after sharp declines in March and April, the Federal
Reserve reported Friday...Despite the strong gains over the past two
months, production is [8.4%] below pre-crisis levels, the Fed said.” Story at…
UNIV OF MICHIGAN SENTIMENT (Bisuiness Insider)
“Preliminary readings from the University of Michigan's
consumer-sentiment gauge shows the index erasing recent gains amid new
coronavirus outbreaks. The university's index of consumer sentiment fell
to 73.2 in July…” Story at…
$VIX 46 (Northman Trader)
“$SPX got to within a whisper of the February highs this
week and may still make new all-time highs as long as valuations and reality
don’t matter, I suppose. But from my perch $VIX is setting up for another spike…”
“…this compression pattern here is once again very clean
and it suggests another spike is coming. As with the January call it may take a
while and then happen suddenly, or it may not happen at all if the Fed
continues to remain in full control. I can’t be certain if and when it does
happen but I can be certain there won’t be any acknowledgements from the
mocking permabulls, but rather renewed cries for Fed help.” – Sven Henrich.
Commentary at…
My cmt: A spike in volatility to 46 would correspond to a
sharp drop in the S&P 500
FROM A TWEET RESPONSE TO THE ABOVE COMMENTARY (Heather
Long)
“The recession is largely over for the rich. The working
class remain (sic) in deep pain.”
From Heather Long, Economics correspondent, The Washington Post. (Wellesley College, BA in economics and English; Oxford
University, master's in financial economics and medieval literature.)
My cmt: While low interest rates do help the middle and poor classes and
businesses that employ them, many of the benefits of FED actions help the
rich more. When stocks began to fall at the beginning of this crisis, large
hedge funds and big-banks needed to raise money. But the holders of stocks
didn’t want to sell stocks (prices were falling) they wanted to sell bonds. But
guess what; no one wanted to buy corporate bonds in a recession since companies
may fail. As Cramer explained it: “The
Fed began buying corporate bonds earlier this year in order to directly support
the price of bonds by adding demand in the corporate bond market.” So, if you
or I own an item for which we can’t get a bid, we’re stuck. If you are a big
brokerage house/bank/hedge fund in NY, don’t worry the FED will bail you out.
CORONAVIRUS (NTSM)
Here’s the latest from the COVID19 Johns Hopkins website
at 5:50 Friday. Total US numbers are on the left axis. I’ve plotted the daily
numbers on the right side of the graph with a 10-dMA of daily numbers in Green.
MARKET REPORT / ANALYSIS
-Friday the S&P 500 little changed at 3373.
-VIX slipped about 0.1% to 22.05.
-The yield on the 10-year Treasury dipped to 0.709%.
The daily sum of 20 Indicators improved from +3 to +7 (a
positive number is bullish; negatives are bearish). The 10-day smoothed sum
that smooths the daily fluctuations improved from +48 to +60. (These numbers
sometimes change after I post the blog based on data that comes in late.) Most
of these indicators are short-term.
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 percentage of 15-ETFs that are above their
respective 120-dMA was 100% Friday, bullish. (Probably, too bullish. Sometimes
this is a bearish sign; sometimes bullish.)
-The 50-dMA of stocks
advancing on the NYSE (Breadth) is above 50%.
-100-dMA of Breadth (advancing stocks on the NYSE) is
above 50%.
-The 5-10-20 Timer System remained BUY, because the
5-dEMA and 10-dMA are above the 20-dEMA.
-My Money Trend indicator is headed
up.
-MACD of S&P 500 price made a bullish crossover
27July.
-The Fosback High-Low Logic Index remained to bullish.
-VIX is falling steeply.
-Cyclical Industrials (XLI-ETF) are outperforming the
S&P 500 – a bull sign.
-The size of up-moves has been larger than the size of
down-moves over the last month.
-61% of the 15-ETFs that I track have been up over the
last 10-days – bullish.
NEUTRAL
-The S&P 500 is outperforming the Utilities ETF (XLU),
but its outperformance is falling so let’s call this one 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.
-Short-term new-high/new-low data is close to bearish,
but is currently 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 negative category.
-Non-crash Sentiment is neutral.
-Bollinger Bands remain neutral, but are close an
overbought reading. RSI is neutral, but also close to overbought.
-The Smart Money (late-day action) has been fluctuating,
so I’ll put this one in the neutral camp. This indicator is based on the Smart
Money Indicator (a variant of the indicator developed by Don Hayes).
-There have been 7 up-days over the last 10 days and 13
up-days over the last 20-days. This is neutral.
BEAR SIGNS
-The S&P 500 is 10% above its 200-dMA. Values in the
10-15% range are sell-signal. While this could signal 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. The “%-above-the-200-day” is pretty strong signal and it suggests
that we will see at least some choppy trading and perhaps a more significant
pullback.
-Overbought/Oversold Index, a measure of advance-decline
data is bearish.
-MACD of stocks advancing on the NYSE (breadth) made a bearish
crossover 31 July.
-Long-term new-high/new-low data is bearish.
-The smoothed advancing volume on the NYSE remained
Bearish.
On Friday, 21 February, 2 days after the top of this
pullback, there were 10 bear-signs and 1 bull-sign. Now there are 11 bull-signs
and 5 bear-signs. 2 weeks ago, there were 4 bull-signs and 8 bear-signs.
The indicator totals would seem to be a perfect sign of
good things to come. I think not. The “%-above-the-200-day” indicator is a good
one that is rarely wrong. It may be
early, but I think we’ll see the Index continue to pull back, either next week
or the week after. A 5.4% pullback to the 50-dMA (3199) would be very logical.
The 200-dMA is 3069.
The one wild card is the Fed. Can they hold off normal market action? Have
they ended corrections? We’ll see.
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. Its PE is
36. MSFT has been higher, I just thought it was frothy along with the overall 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 a fan of
Apple stock. 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.) DOW is the one I own of that
group.
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 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.
