“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.
PPI / UNIV MICHIGAN SENTIMENT (Reuters)
“The producer price index for final demand edged up 0.1%
last month after increasing 0.3% in October, the Labor Department said. That
was the smallest gain since April... Core goods prices rose 0.2% after being
unchanged in October... In a separate report on Friday, the University of
Michigan said its consumer sentiment index increased to 81.4 early this month
from a final reading of 76.9 in November...” Story at...
CORONAVIRUS (NTSM)
Here’s the latest from the COVID19 Johns Hopkins website thru
Thursday. 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.
MARKET REPORT / ANALYSIS
-Friday the S&P 500
dropped about 0.1% to 3663.
-VIX rose about 4% to 23.31.
-The yield on the 10-year
Treasury slipped to 0.897%.
There was an unusual indicator that flashed Friday – a Bollinger
Squeeze. Here’s what stockcharts.com has to say about the Bollinger Squeeze:
“The Bollinger Band Squeeze occurs when volatility falls
to low levels and the Bollinger Bands narrow. According to John Bollinger,
periods of low volatility are often followed by periods of high volatility.
Therefore, a volatility contraction or narrowing of the bands can foreshadow a
significant advance or decline.”
We see a few other important indicators giving a top-warning,
so the breakout is likely to be down.
Breadth is lagging the S&P 500 by an amount that frequently signals
a top and the Index is stretched ahead of its 200-day moving average when
sentiment is added to the equation.
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
-Long-term new-high/new-low data. (Headed higher, but
just barely.)
-The 10-dMA of stocks advancing on the NYSE
(Breadth) is above 50%
-The 50-dMA % of stocks advancing on the NYSE (Breadth)
is above 50%.
-The 100-dMA of the % of stocks advancing on the
NYSE (Breadth) is above 50%. However, it is falling and that’s not a good sign.
-The size of up-moves has been larger than the size of
down-moves over the last month.
-The 5-10-20 Timer System is BUY; the 5-dEMA and the
10-dEMA are above the 20-dEMA.
-MACD of the percentage of stocks advancing on the NYSE
(breadth) made a bullish crossover 4 Nov. (It is, however, turning down in a
bearish direction.)
-McClellan Oscillator is above zero.
-The Fosback High-Low Logic Index is very bullish. (We’ve
seen high new-highs and low new-lows.)
-The S&P 500 is outperforming Utilities ETF (XLU).
NEUTRAL
-11 Nov., we got a “Breadth Thrust” indication. That’s a
rare, very bullish sign. – Signal expired.
-9 Nov. (Vaccine Announcement Day), the 52-week, New-high/new-low
ratio improved by 5.8 standard deviations – very bullish and also rare. –
Signal expired.
-The Smart Money (late-day action) is mixed. This
indicator is based on the Smart Money Indicator (a variant of the indicator
developed by Don Hayes).
-VIX is falling but not fast enough to give a signal.
-Non-crash Sentiment indicator remains neutral, but it is
too bullish and that means it is leaning bearish.
-Statistically, the S&P 500 gave a panic-signal, 28
October. This usually means more downside to come, but the bear signal has
expired.
-There have been 10 up-days over the last 20 days.
Neutral
-We’ve seen 6 up-days over the last 10-days. Neutral
-The market has broadened out; 7.7% of all issues traded
on the NYSE made new, 52-week highs when the S&P 500 made a new
all-time-high on 8 December.
-Short-term new-high/new-low data is rolling over; let’s
say neutral.)
-Bollinger Bands.
-RSI.
-55% of the 15-ETFs that I track have been up over the
last 10-days.
BEAR SIGNS
-The smoothed advancing volume on the NYSE is falling.
-MACD of S&P 500 price made a bearish crossover 10 December.
-We now have a Bollinger Squeeze, a bearish sign
discussed above. (A different signal from Bollinger Bands.)
-Slope of the 40-dMA of New-highs is falling.
-Breadth on the NYSE compared to the S&P 500 index is
warning of a correction at any time. I’ve been following this for 9 years. It
has only been as stretched as it was on 8 Dec once - 4 days before an 8%
correction in Feb 2011.
-My Money Trend indicator is trending down.
-The S&P 500 is 15.4% above its 200-dMA. (Sell point
is 12%.) When Sentiment is considered, the signal is also bearish.
-Overbought/Oversold Index (Advance/Decline Ratio) is
overbought.
-Cyclical Industrials (XLI-ETF) are underperforming the
S&P 500.
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 9
bear-signs and 10 bull-signs. Last week, there were 6 bear-signs and 16
bull-signs.
Indicators are turning down some, but not enough to
suggest anything big coming, at least at this time. Overall, Market Internals
don’t look that bad.
The daily sum of 20 Indicators declined from +2 to +1 (a
positive number is bullish; negatives are bearish). The 10-day smoothed sum
that smooths the daily fluctuations declined from +68 to 56. (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 Long Term NTSM indicator
ensemble switched back to HOLD, 12 Dec. Now, Price is bullish; Sentiment, VIX
& Volume are neutral. I think we are near a top so I am waiting. There is
nothing at this point that indicates the top will be significant – we may see a
5-7% drop if that much.
Even while the market
indicators are very bullish, the market remains extremely overbought with the
S&P 500 15.4% above its 200-dMA. If past history follows, that tends to cap
the gains going forward. The downside risk is greater than the upside risk.
I’ll continue to keep a low %
of funds in the stock market until I see a better buying point.
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 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 markets have not
retested the lows on recent corrections and that has left me under-invested on
the bounces. I will need to put less reliance on retests in the future.
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 a correction is deep
enough, 80% would not be out of the question.
