“Trade what you see; not what you think.” – The Old Fool,
Richard McCranie, trader extraordinaire.
“The big money is not in the buying and selling. But in the
waiting.” - Charlie Munger, Vice Chairman, Berkshire Hathaway
EARNINGS UPDATE: OCT 23
- Excerpt (FactSet)
“At this point in time, the percentage of S&P 500
companies beating EPS estimates for the third quarter and the magnitude of the
earnings beats are at or near record levels. As a result, the index is
reporting higher earnings for the third quarter today relative to the end of
last week and relative to the end of the quarter. Despite the increase in
earnings, the index is still reporting the second largest year-over-year
decline in earnings since Q2 2009, mainly due to the negative impact of
COVID-19 on numerous industries within the index. However, the S&P 500 is
projected to report year-over-year earnings growth starting in Q1 2021.”
https://insight.factset.com/sp-500-earnings-season-update-october-23-2020
NEW HOME SALES (FoxBusiness.com)
“Sales of new homes fell
by 3.5% in September to a seasonally-adjusted annual rate of 959,000 million
units, the Commerce Department said Monday, as the housing market's summer
buying season came to a close.” Stotry at...
https://www.foxbusiness.com/economy/sept-new-home-sales-fall-3-5-after-strong-summer-season
BUBBLE BURSTING IN WEEKS OR MONTHS – NOT YEARS (Zerohedge)
“Doubling down on his apocalyptic message, the one-time
value investing guru told CNBC at the time that the US stock market is in a
unprecedented bubble and investing in it is "simply playing with
fire." "I have been completely amazed," the veteran bearish
investor said in an interview Wednesday on CNBC. "It is a rally without
precedent - the fastest in this time ever and the only one in the history
books that takes place against a background of undeniable economic problems...this
is becoming the fourth real McCoy bubble of my career." Story at...
CNBC Pro Members can see the entire article here...
CORONAVIRUS (NTSM)
Here’s the latest from the COVID19 Johns Hopkins website at
6:00pm Monday. US total case 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. Just
looking at the chart, it appears this wave of COVID19 will be worse than the
previous peak.
Here’s the chart for Virginia from the VDH. We don’t see a clear third-wave here, but there hasn’t been a big decline in new cases either.
https://www.vdh.virginia.gov/coronavirus/coronavirus/covid-19-in-virginia-cases/
EPIDEMIOLOGISTS STRAY FROM THE COVID HERD – EXCERPT (WSJ)
“Dr. Bhattacharya, a physician and economist, and Mr.
Kulldorf, a biostatistician—who study epidemiology at the medical schools at
Stanford and Harvard, respectively—are, in the eyes of their critics, dangerous
contrarians for opposing Covid-19 lockdowns. Some of the criticism borders on
hysteria: A colleague accused Mr. Kulldorff of practicing “Trumpian
epidemiology”...
...The two men are the authors—with Sunetra Gupta, a
professor of epidemiology at Oxford—of the Great Barrington Declaration.
Published on Oct. 4, the declaration is a cri de coeur against lockdowns and
other economic restrictions that have hobbled swaths of the world. It asked
instead for “focused protection”—a policy of allowing “those at minimal risk of
death” to resume their lives while societies concentrate on “better protecting
those who are at highest risk.” Interview at...
https://www.wsj.com/articles/epidemiologists-stray-from-the-covid-herd-11603477330?mod=hp_opin_pos_2
The above is an interesting article that discusses some
of the rationale behind avoiding lockdowns.
Find the short “Great Barrington Declaration” at...
MARKET REPORT / ANALYSIS
-Monday the S&P 500 dropped about 1.9% to 3401.
-VIX jumped about 18% to 32.46.
-The yield on the 10-year Treasury dropped to 0.804%.
I’ve read that 92% of time after a waterfall decline
there is a re-test of the prior low. (I’ve not done the math, but my data is
probably similar.) That is true for corrections in the vicinity of 10% and
greater. Smaller corrections (3-5%) are ordinary declines to the lower trend
line and tend not to retest. I note this because the big recent corrections
have not retested their prior lows. They are:
20% (Dec 2018); 34% (Mar 2020); 10% (Sep 2020?).
I added the “?” for the on-going correction, because we
don’t yet know if we’ll see a retest. I’m guessing yes, but it is certainly not
clear. Recent Market Internals suggest
“yes,” while the chart had been moving higher, suggesting “no.” After Monday’s
drop, it would seem that a retest is somewhat more likely.
Today was a rough day with new bear signs:
-90% of the volume today was down, however, the close was
not weak enough for the day to close with a “90% down-volume-day” signal under
Lowry Research rules. If it had, it would have been a bearish sign. Still, it
is still somewhat bearish and concerning.
-S&P 500 dropped about 0.2% below its 50-dMA and that
is a bad sign for the bulls.
-In addition, the % of stocks advancing has dropped below
50%, indicating that less than half of the stocks on the NYSE have advanced
over the last 2.5-months. That has been evident on 3 out of the last 4 trading
days – that’s pretty much the definition of a correction. It suggests continued
trouble ahead.
Today’s down-move was statistically significant. That
just means that the price-volume move down exceeded my statistical parameters.
Statistics show that a statistically-significant, down-day, is followed by an up-day
about 60% of the time.
Sometimes big down-days (like today) signal bottoms, but
we don’t see any bottom indicators now so that doesn’t seem likely. In fact, we
still have 2 Top-Indicators flashing warnings of a top:
(1)The S&P 500 is 8.7% above its 200-dMA. (Sell point
is 12%.) When Sentiment is considered, the signal is bearish.
(2)Breadth on the NYSE vs the S&P 500 index is bearish
because the S&P 500 is still too far ahead of the % of stocks advancing on
the NYSE.
The daily sum of 20 Indicators declined from -5 to -9 (a
positive number is bullish; negatives are bearish). The 10-day smoothed sum
that smooths the daily fluctuations slipped from -5 to -24. (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.
The correction is now 37 days old and the Index is 5%
below its prior high. Top to Bottom, the avg correction under 10% lasts about
35 days; the avg correction greater than 10% lasts 68 days, excluding major
50%-crashes. Top to bottom, we have seen a 9.6% drop so far. It seems odd to
talk about correction, but this one is not officially over until we make a new
high.
The Long Term NTSM indicator ensemble switched from HOLD
to SELL today, 26 Oct. The previous sell was on 24 September.
My opinion hasn’t changed: I remain bearish. I think
markets need to reset lower before they can make significant new-highs.
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.
http://navigatethestockmarket.blogspot.com/p/exchange-traded-funds-etf-ranking.html
TODAY’S RANKING OF THE DOW 30 STOCKS (Ranked Daily)
Here’s the revised DOW 30 and its momentum analysis. The
top ranked stock receives 100%. The rest are then ranked based on their
momentum relative to the leading stock.
https://navigatethestockmarket.blogspot.com/p/a-system-for-trading-dow-30-stocks-my_8.html
MONDAY MARKET INTERNALS (NYSE DATA)
Market Internals
dropped to BEARISH.
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, but it is appropriate for the correction.
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%; if this correction is deep enough, 80% would not
be out of the question.
