“Trade what you see; not what you think.” – The Old Fool,
Richard McCranie, trader extraordinaire.
NFIB SMALL BUSINESS OPTIMISM (Reuters)
“U.S. small business confidence fell to an 11-month low
in January amid persistent worker shortages and higher prices for materials, a
survey showed on Tuesday. The National Federation of Independent Business said
its Small Business Optimism Index dropped 1.8 points to 97.1 last month...”
Story at...
https://www.reuters.com/business/us-small-business-sentiment-drops-11-month-low-nfib-2022-02-08/
TOP SHIPPING EXEC SAYS WORST SUPPLY CHAIN SNARLS HAVE
PEAKED (ZeroHedge)
“AP Moller-Maersk suggests the climax of global
supply-chains snarls has passed, and bottlenecks will alleviate in the second
half of the year. There are emerging signs major transpacific shipping freight
rates are at a critical inflection point. "We are guiding in an
environment where we are coming out of a pandemic, and we don't have much
experience with that to be honest," Chief Executive Officer Soren Skou.
My cmt: This would
be good news. Any improvement in supply
chains will be incredibly helpful. If Covid declines in China and they go back
to full production, it would likely minimize the supply chain issue after backlogs
are worked off. I think this would do a lot to cut inflation since inflation
seems to be occurring due to supply shortage rather than demand excess. In that
regard, I don’t see how a tightening of interest rates will help inflation.
Normally inflation occurs due to an overheated economy. Not this time. I think the
Fed does not have the tools to fight this battle, but I’m not an economist so
what do I know?
A 50% DECLINE WOULD ONLY BE A CORRECTION (Real Investment
Advice)
A 61.8% retracement would make it a “bear
market” by breaking the bullish trend. When you realize that a 50-percent
decline in prices would still maintain the “bullish trend” of the
market, it just shows how exacerbated markets are due to a decade of monetary
interventions... it is hard to comprehend that a 50% decline in the market
wouldn’t technically qualify as a “bear market” as the bullish trend
would remain intact. However, please don’t misconstrue what I am saying.
A “mean reversion” will be devastating to the financial wealth of
invested households... “Don’t stress, none of
this will happen,” you say? Maybe? I certainly hope not. But are you
willing to bet your retirement on it?” Commentary at...
https://realinvestmentadvice.com/a-50-decline-will-only-be-a-correction/
My cmt: We really need to be watching this year. The odds of a down year are probably above
50%, because the last 3 years have been very strong and this is the second year
in the Presidential cycle. The odds of a crash are high, too, but I won’t make
a guess on that probability. Let’s just say the stars are aligned for a crash
(>50% drop): Inflation is high; PEs are at extreme highs; the Fed is raising
rates, ending QE and normalizing its balance sheet; and there are geopolitical
concerns with Russia and China threatening aggression. Jeepers, just writing all
that is scary! If the S&P 500 can get to new highs, I’ll be following the
markets and indicators more closely than usual.
MARKET REPORT / ANALYSIS
-Wednesday the S&P 500 rose about 1.5% to 4587.
-VIX declined about 6% to 20.10.
-The yield on the 10-year Treasury slipped to 1.947%.
Given that most corrections retest their prior lows, I’ll
keep the pullback stats for a while.
Pullback Data:
Days since top: 26 (Avg= 30 days for corrections <10%;
60 days for larger, non-crash pullbacks)
Drop from Top: Now 4.4%; Max closing: 9.8%; Max intraday:
12% (Avg.= 13% for non-crash pullbacks)
The S&P 500 is 3.1% above its 200-dMA & 0.5% below
its 50-dMA.
Max Retracement from bottom: 56% Wednesday.
The slope of the 200-dMA is up.
New-lows still outpaced new-highs today, but the spread between
the two got a lot better. There were 91 new-highs today vs 148 new-lows. That’s
encouraging and we can hope that the spread is positive Thursday. That would be
a very bullish sign.
The S&P 500 traded up to its recent 2 February high
of 4589 Wednesday, and closed a bit lower at 4587. 4589 is a resistance point,
but there were bullish signs here.
The Russell 2000 climbed above its recent high of 2051 on
1 Feb to close at 2080 thus breaking out of the range from its 27 Jan low and
the 1 Feb high. That’s good. I expect
that the S&P will follow thru too.
Technically, the markets seem to be breaking higher. FactSet earnings report from Friday showed
that earnings are in-line for this quarter and Walt Disney was up nearly 10%
after hours due to their strong earnings. With earnings and technicals both
positive I am hopeful that markets will continue higher.
We may see new highs on the S&P 500 sooner than
expected.
The daily sum of 20 Indicators improved from +4 to +6 (a
positive number is bullish; negatives are bearish); the 10-day smoothed sum
that smooths the daily fluctuations improved from +18 to +32 (The trend
direction is more important than the actual number for the 10-day value.) These
numbers sometimes change after I post the blog based on data that comes in
late. Most of these indicators are short-term so they tend to bounce around a
lot.
The Long Term NTSM indicator
ensemble remained to HOLD. Volume is bullish; VIX, Price & Sentiment are
Neutral.
I remain cautiously bullish.
POSITIONS ADDED:
Wednesday, 26 January: AAPL; XLE;
Monday, 31 January: QLD; SPY
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
WEDNESDAY MARKET INTERNALS
(NYSE DATA)
Market Internals improved to Buy. We haven’t seen a Buy-signal on this
indicator since 4 Jan.
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.
My stock-allocation in the
portfolio is about 65% invested in stocks. This is above my “normal” fully
invested stock-allocation of 50%. I will hold this trading-position for a
while, but it will not be a long-term hold.
I trade about 15-20% of the
total portfolio using the momentum-based analysis I provide here. If I can see
a definitive bottom, I’ll add a lot more stocks to the portfolio using an
S&P 500 ETF.
You may wish to have a higher
or lower % invested in stocks depending on your risk tolerance. 50% is a conservative
position that I consider fully invested for most retirees.
As a general rule, some
suggest that the % of portfolio invested in the stock market should be one’s
age subtracted from 100. So, a
30-year-old person would have 70% of the portfolio in stocks, stock mutual
funds and/or stock ETFs. That’s ok, but
for older investors, I usually don’t recommend keeping less than 50% invested
in stocks (as a fully invested position) since most people need some growth in
the portfolio to keep up with inflation.
