“Understanding…bullish arguments is important. But more
importantly is the understanding that many of these beliefs have already begun to
deteriorate and are substantially increasing the risk to investors and their
capital. The markets will not rise indefinitely, and the eventual mean
reversion will be more destructive than most realize. Unfortunately, since most
individuals only consider the “bull case,” as it creates confirmation
bias for their “greed” emotion, they never see the “train
coming.” Commentary at…
Here’s just one of the charts presented I the piece at
RIA.
CORRECTION UPDATE
This is day 86 of this correction (assuming we haven’t
made a bottom yet). As of today’s close,
the Index is down 9.1% (19.8% max) from its prior high and has included 21
new-lows. In recent years only the 2011 correction contained 21 new-lows. That
correction bottomed at 19.4%.
Over the last 20-years (excluding major crashes and the
current year) there have been 2 corrections that exceeded 19%, in 1998 and
2011. In 2011, the waterfall phase (nearly straight down with little or no
bounces) took place over 3-weeks (about 15-trading sessions) and included a 17%
drop with almost no relief. In 2018, the waterfall phase that ended Christmas
Eve lasted 3-weeks over 15-trading sessions and included a drop of 16%. Both corrections included a retest of the initial low.
The 2011 correction took 108-days to complete, top to
bottom.
MARKET REPORT / ANALYSIS
-Friday the S&P 500 was up about 0.9% to 2665.
-VIX dropped about 8% to 17.42.
-The yield on the 10-year Treasury rose to 2.759%.
I am surprised…Intel reported after hours yesterday and
gave weak revenue guidance and weak forward earnings guidance. Its stock was
down 7% after hours yesterday and they blamed weak China sales for their
troubles. Today the market was up from the open and made a 1% gain by 1100.
What am I missing? One would have expected a terrible day, based on the Intel
news; but perhaps there is more to the story…
This afternoon, Trump announced Government would reopen
for three weeks to allow for negotiations. That’s why the market was up this
morning! The Administration’s move to reopen Government was probably leaked and
the market rose at the open, hours before the official notice. Another case
where the sheep don’t have the inside advantage. Actually, the closure is the least of our
worries and the Pros seem to agree; there was a mild drop in the S&P 500
after the announcement along with bigger declines in the Nasdaq and the Dow.
Major issues remain: (1) China’s economy which is may
lead to Asian Contagion for the US economy. (2) FED tightening that includes Interest
rate hikes and Quantitative Tightening. (3) Tariffs (4) Oil Prices and more.
Whether those issues will cause the Markets to dip from here remains a point of
discussion.
On the day, we saw that the S&P 500 tried to break
above the recent rebound high of 2671; it failed and closed at 2665.
We said that the close at 2671 last week was probably a
Top. Based on the evidence so far, we haven’t seen anything to change that
view. Internals improved today, but there were still plenty of negatives.
The overbought/oversold ratio remains overbought.
My Money Trend indicator is still headed down and that’s
a bearish sign. (This indicator attempts to follow the general concept of Lowry
Research and their supply and demand methodology for stock market analysis.
Their concept is based on a detailed stock-by-stock analysis while mine is an
estimate based on readily available Macro data.
Theirs is much more accurate, but that doesn’t mean mine isn’t useful.)
My daily sum of 17 Indicators declined from +4 to +3 (a
positive number is bullish; negatives are bearish) while the 10-day smoothed
version that negates the daily fluctuations declined from +64 to +57. I tend to
watch the 10-day direction of this indicator and for now it is headed down, a
bearish sign.
Repeating what I’ve been saying for a while:
A “V”-bottom is very unusual and I don’t think it is
likely that this correction will race to a top without a retest of the prior
low at 2351. I sold the rally and cut my stock holdings back to about 30%, 9
January to reduce risk. Only a retest at the 2351 level, or a climb back above
the old highs (not likely without a retest), will tell us whether 2351 was THE
bottom.
MOMENTUM ANALYSIS:
(Momentum analysis is suspect in a selloff, so I‘d be
careful using momentum data for the time being – the only reason utilities are
highly ranked among ETFs is as an alternative to stocks during the correction.) The same is true for individual stocks in the
Dow 30.
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. While
momentum isn’t stock performance per se, momentum is closely related to stock
performance. For example, over the 4-months from Oct thru mid-February 2016,
the number 1 ranked Financials (XLF) outperformed the S&P 500 by nearly
20%. In 2017 Technology (XLK) was ranked in the top 3 Momentum Plays for 52% of
all trading days in 2017 (if I counted correctly.) XLK was up 35% on the year
while the S&P 500 was up 18%.
*For additional background on the ETF ranking system see
NTSM Page at…
TODAY’S RANKING OF THE DOW 30 STOCKS (Ranked Daily)
The top ranked stock receives 100%. The rest are then
ranked based on their momentum relative to the leading stock.
*I rank the Dow 30 similarly to the ETF ranking system.
For more details, see NTSM Page at…
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. In 2014, using these
internals alone would have made a 9% return vs. 13% for the S&P 500 (in on
Positive, out on Negative – no shorting).
My current stock allocation is about 30% invested in stocks
on as of 9 January 2019. For me, fully invested is a balanced 50% stock
portfolio so this is a very conservative position.
INTERMEDIATE / LONG-TERM INDICATOR
Friday, only the Sentiment
indicator was positive; The Volume, VIX and Price indicators were neutral.
Overall this is a NEUTRAL indication. The longer/intermediate-term version of
Sentiment is neutral.
