“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
“Bubbles tend to topple under their own weight. Everybody
is in. The last short has covered. The last buyer has bought (or bought massive
amounts of weekly calls). The decline starts and the psychology shifts from
greed to complacency to worry to panic. Our working hypothesis, which might be disproven,
is that September 2, 2020 was the top and the bubble has already popped.”
- David Einhorn, Greenlight hedge fund.
“Stock prices have reached what looks like a permanently
high plateau,” Irving Fisher, Yale economist, October 1929.
PERSONAL INCOME / PERSONAL SPENDING (Bloomberg)
“Personal incomes rose 0.9% from the prior month
following a 2.5% decline in August, a Commerce Department report showed Friday...
Household outlays advanced 1.4%, also exceeding forecasts.” Story at...
PCE PRICES (Bloomberg)
“...inflation remaining muted last month, which could
allow the Federal Reserve to keep interest rates near zero for a while to aid
the recovery from the COVID-19 recession as fiscal stimulus runs out... The
personal consumption expenditures (PCE) price index excluding the volatile food
and energy components rose 0.2% after climbing 0.3% in August.” Story at...
CHICAGO PMI (Advisor Perspectives)
“The latest Chicago Purchasing Manager's Index, or the
Chicago Business Barometer, fell to 61.1 in October from 62.4 in September,
which is in expansion territory. Values above 50.0 indicate expanding
manufacturing activity.” Commentary at...
UNIV OF MICHIGAN SENTIMENT (UMich.edu)
“The Consumer Sentiment Index was 81.8 in October, just
above the 80.4 in September, but still below the February peak of 101.0 and
last October’s reading of 95.5.” Press release at...
https://news.umich.edu/consumer-sentiment-fear-and-loathing-in-america/
CORONAVIRUS (NTSM)
Here’s the latest from the COVID19 Johns Hopkins website
at 6:00 pm Friday. 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.
New case numbers are horrible. We’ve hit new records for
daily number of new cases and the numbers are accelerating as fast as they were
in late June and early July. New cases are climbing in Virginia, too, but not
as fast as the country as a whole.
While the Democrats have pounded on Trump for mistakes in
the COVID-crisis, they did not step-up with solutions of their own; all
we hear now are observations in hindsight. So whatever complaints one may have
with the Administration on the COVID fight, one must include the failure of
leadership on the Democrats, too. Recall that Chris Rock criticized House
Speaker Nancy Pelosi (D-Calif.)
and Democrats for letting "the pandemic come in" by being spending
all of their time on impeachment hearings of President Trump.
Did I ever say why I hate all Politicians? Don’t get me started...
MARKET REPORT / ANALYSIS
-Friday the S&P 500 fell about 1.2% to 3270.
-VIX rose about 1% to 38.02.
-The yield on the 10-year Treasury rose to 0.879%.
When we treat today (Friday) as a test of the prior low
of 3237 on 23 September, we find that internals are worse. Selling pressure did not decline, but is
higher now than 5 weeks ago. Indications are that today was NOT a bottom. We
might be close to a bottom, but selling could also pick up. It’s a case of “we’ll see.”
There’s an old adage on Wall Street – “Never on Friday.” I am reminded of a comment by Jeffrey Saut, former
Raymond James Chief Strategist. He talked about a “selling stampede” that tends
to last 17 – 25 sessions, with only 1.5- to three-day pauses/throwback rallies,
before they exhaust themselves on the downside. He also noted, “Never on a
Friday.” The reference was that once the markets get into one of these weekly
downside skeins, they rarely bottom on a Friday. No, they typically give
participants over the weekend to brood about their losses and then they show up
the next Monday in “sell mode” leading to Turning Tuesday.
I am not sure if we are in a selling stampede, but we can
suspect that the selling won’t end on Friday or Monday. The most likely end to
selling would be Tuesday. I’ve checked this in my stats and I see the same tendency.
Selling does end on other days, just less frequently...
...This will be an interesting election day.
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
-Bollinger Bands oversold – bullish.
-RSI oversold - bullish.
-Overbought/Oversold Index, a measure of advance-decline
data is oversold.
-The Smart Money (late-day action) is now headed up. This
is a good sign; the Pros generally don’t try to time the exact bottom, but
begin buying near lows. This indicator is based on the Smart Money Indicator (a
variant of the indicator developed by Don Hayes).
-Cyclical Industrials (XLI-ETF) are outperforming the
S&P 500. (This one makes no sense to me, but that’s why it’s best to
aggregate a lot of indicators.
NEUTRAL
-The size of up-moves has been larger than the size of
down-moves over the last month, but not enough to give a signal.
-The S&P 500 is 4.5 above its 200-dMA. (Sell point is
12%.) When Sentiment is considered, the signal is neutral.
-Non-crash Sentiment indicator remains neutral.
-The Fosback High-Low Logic Index is neutral.
-There have been 10 up-days over the last 20 days.
Neutral
-We’ve seen 4 up-days over the last 10-days. Neutral
-Breadth on the NYSE vs the S&P 500 index is neutral.
The S&P 500 is no longer outpacing stocks advancing on the NYSE.
BEAR SIGNS
-Statistically, the S&P 500 gave a panic-signal, 28
October. This usually means moredownside to come.
-VIX is climbing steeply.
-The 10-dMA of stocks
advancing on the NYSE (Breadth) is below 50% Friday.
-The 50-dMA % of stocks advancing on the NYSE (Breadth) is
below 50%.
-The 100-dMA of the %
of stocks advancing on the NYSE (Breadth) is below 50%.
-McClellan Oscillator is way below zero.
-The 5-10-20 Timer System is SELL; the 5-dEMA and the
10-dEMA are below the 20-dEMA.
-The smoothed advancing volume on the NYSE is falling.
-MACD of the percentage of stocks advancing on the NYSE
(breadth) made a bearish crossover 19 Oct.
-MACD of S&P 500 price made a bearish crossover 22
October.
-My Money Trend indicator; the signal is bearish.
-Long-term new-high/new-low data.
-Short-term new-high/new-low data.
-Only 2.3% of all issues traded on the NYSE made new,
52-week highs when the S&P 500 made new all-time-highs. (This stays in the
negative column until we make a new high.)
-The S&P 500 is under-performing the Utilities ETF
(XLU).
-40% of the 15-ETFs that I track have been up over the
last 10-days – 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 16
bear-signs and 5 bull-signs. Last week, there were 12 bear-signs and 5
bull-signs.
So, this basket of indicators is somewhat more bearish since last week,
but that doesn’t mean we can’t turn up next week. I’ll check market conditions as we go; we’ll
see.
The daily sum of 20 Indicators remained -6 (a positive
number is bullish; negatives are bearish). The 10-day smoothed sum that smooths
the daily fluctuations slipped from -52 to -62. (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 41 days old and the Index is 8.7%
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% range so far.
The Long Term NTSM indicator ensemble switched from HOLD
to SELL, 26 Oct. It remains Sell. (Volume, VIX and the Panic Indicator are
bearish.) The previous Sell signal was on 24 September.
I remain bearish. It’s possible that we are nearing a
bottom, but Mr. Market doesn’t tell us what he is planning so we’ll just have
to see what comes.
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…
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.
For more details, see NTSM Page at…
https://navigatethestockmarket.blogspot.com/p/a-system-for-trading-dow-30-stocks-my_8.html
FRIDAY MARKET INTERNALS (NYSE DATA)
Market Internals
declined 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.
