“Trade what you see; not what you think.” – The Old Fool,
Richard McCranie, trader extraordinaire.
“Faced with a combination of record speculative extremes
and deteriorating speculative conditions, investors may want to remember that
the best time to panic is before everyone else does.” – John Hussman, Phd.
Here’s analysis and commentary on the stock market for Friday,
25 March 2022.
MARKET REPORT / ANALYSIS
-Friday the S&P 500 rose about 0.5% to 4543.
-VIX fell about 4% to 20.81.
-The yield on the 10-year Treasury rose to 2.502%.
I think the correction is over, but not everyone agrees
so I’ll keep the pullback data for a while longer.
PULLBACK DATA:
If the correction has ended:
-Drop from Top: 13% (Avg.= 13% for non-crash pullbacks)
-Days from Top to Bottom: 48-days. (Avg= 30 days top to
bottom for corrections <10%; 60 days top to bottom for larger, non-crash
pullbacks)
Currently:
Days since top: 57 (Avg= 30 days top to bottom for
corrections <10%; 60 days top to bottom for larger, non-crash pullbacks)
Drop from Top: Now 5.3%. Max at close: 13%
The S&P 500 is 1.5% ABOVE its 200-dMA & 2.9%
ABOVE its 50-dMA.
TODAY’S COMMENT:
On Friday’s I summarize a number of indicators to get a
weekly feel for trend.
The biggest worry for now is that Friday’s
new-high/new-lows are both high. This trend had been improving, but now has
reversed. This is forcing the Fosback high/low Logic Index toward Bear territory.
As Norman Fosback wrote when he developed the indicator,
if both new-highs and new-lows are high, then “the market is undergoing a
period of extreme divergence...Such divergence is not usually conducive to
future rising stock prices, [since] a healthy market requires some semblance of
internal uniformity.” That is what we are now seeing in the NYSE data. As a result, the Fosback High/Low Logic Index
is very close to issuing a Bear signal. If it does, Fosback said that a “crash”
was coming.
Regarding the indicator, Mark Hulbert wrote in 2011: Would
you be interested in a market indicator that has correctly called every major
market top and bottom in recent decades—with few false signals? Of course you
would...The indicator I’m referring to is the High Low Logic Index, which was
devised in the 1970s by Norman Fosback, then the President of the Institute for
Econometric Research...” Hulbert commentary at...
https://www.marketwatch.com/story/indicator-with-great-record-turns-bullish-2011-10-18
I think highly of this indicator too, but it is not
always correct as is the case for most indicators. That said, I have respect for its successful
track record and I will strongly consider reducing stock holdings (again) if it
turns bearish. Here’s the Friday run down of indicators.
The Friday run-down of some important indicators was even
more bullish than last week (now 5-bear and 17-bull). These indicators tend to
be both long-term and short-term, so they are different than the 20 that I
report on daily. Details follow:
BULL SIGNS
-There was a Follow-thru day 16 March and no Distribution
Days since.
-The size of up-moves has been larger than the size of
down-moves over the last month.
-The 10-dMA of issues advancing on the NYSE
(Breadth) is above 50%.
-The smoothed advancing volume on the NYSE is rising.
-Smoothed Buying Pressure minus Selling Pressure is headed
up
-MACD of S&P 500 price made a bullish crossover, 16
March.
-MACD of the percentage of issues advancing on the NYSE (breadth)
made a bullish crossover 21 March.
-Short-term new-high/new-low data is rising.
-Long-term new-high/new-low data is rising.
-Slope of the 40-dMA of New-highs is rising and
threatening to breakout above its upper trend line. This is one of my favorite
trend indicators.
-VIX is falling relatively rapidly.
-Cyclical Industrials (XLI-ETF) are outperforming the
S&P 500.
-My Money Trend indicator is moving up.
-The 5-10-20 Timer System is BUY; the 5-dEMA and 10-dEMA
are both ABOVE the 20-dEMA.
-The Smart Money (late-day action) is rising. (This
indicator is based on the Smart Money Indicator developed by Don Hayes).
-McClellan Oscillator.
-69% of the 15-ETFs that I track have been up over the
last 10-days.
NEUTRAL
-The Fosback High-Low Logic Index is neutral, but has
moved very close to bear territory.
-Non-crash Sentiment indicator is neutral.
-Issues advancing on the NYSE (Breadth) are diverging
with the S&P 500 Index in the bearish direction, but the indicator is currently
solidly neutral.
-There have been 9 up-days over the last 20 sessions –
neutral.
-There have been 7 up-days over the last 10 sessions -
leaning bearish, but neutral.
-Bollinger Bands are very close to overbought now, but
still neutral.
-RSI
-There have been 3 Statistically-Significant days (big
moves in price-volume) in the last 15-days.
-The S&P 500 is 1.5% above its 200-dMA (Bear
indicator is 12% above the 200-day.). This value was 15.9% above the
200-dMA when the 10% correction occurred in Sep 2020. (Bigger bottoms are
formed when the Index is at, or below, the 200-dMA.)
-There was a Hindenburg Omen signal on 10 January. It has been cancelled because the McClellan
Oscillator subsequently turned positive.
-There have been no 90% up or down days recently. I’ve
seen a comment from a Pro that the correction won’t end until the S&P 500
has a 90% down-volume day.
-The Calm-before-the-Storm/Panic Indicator.
-2.8% of all issues traded on the NYSE made new, 52-week
highs when the S&P 500 made a new all-time-high, 3 January. (There is no
bullish signal for this indicator.) This indicated that the advance was too
narrow and a correction was likely to be >10%. – It proved correct, but is
now Expired
-15 February, the 52-week, New-high/new-low ratio
improved by 4.2 standard deviations – Bullish, but the signal has expired.
BEAR SIGNS
-Overbought/Oversold Index (Advance/Decline Ratio) is
overbought.
-The 50-dMA % of issues advancing on the NYSE (Breadth)
is below 50%.
-The 100-dMA % of issues advancing on the NYSE
(Breadth) is below 50%
-The 50-dMA % of issues advancing on the NYSE (Breadth)
has been below 50% for 67 consecutive days. (3 days in a row is my bear signal)
-The S&P 500 is under-performing the Utilities
ETF (XLU) over the last 40 sessions.
On Friday, 21 February, 2 days after the top before the
Coronavirus pullback, there were 10 bear-signs and 1 bull-sign. Now there
are 4 bear-signs and 12 bull-signs. Last week, there were 19 bear-signs and
3 bull-signs.
The daily sum of 20 Indicators improved from +11 to +13
(a positive number is bullish; negatives are bearish); the 10-day smoothed sum
that smooths the daily fluctuations improved from +74 to +90 (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 BUY: PRICE, VOLUME, VIX & are Bullish; SENTIMENT was
hold.
I remain a Bull.
While the correction seems to be over, the question is,
what will happen when the markets get back to the old highs? I am not
optimistic for this year as a whole...and I’ll also be watching Mr. Fosback’s
indicator in the near term.
BEST ETFs - 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
BEST DOW STOCKS - TODAY’S MOMENTUM
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 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 now about 60% invested in stocks. This is above my “normal” fully
invested stock-allocation of 50%.
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.
