The Case for a Stock Rebound … Hussman Market Commentary Excerpt … 10-1 Up Volume Day … Stock Market Analysis… ETF Trading … Dow 30 Ranking

THE BULL CASE (WHY THIS YEAR FELL ON WALL ST) (CNBC)

“…there's reason for optimism. The economy remains strong, despite a Wall Street consensus that the pace of growth will slow. Unemployment is holding around a 50-year low and job growth continues apace, despite persistent conventional wisdom that there's not much more room to expand…

“With the last Fed decision of the year behind us and the market having gone through a dramatic pullback since, we believe that barring an appearance of a 'black swan' event, or the shock of a bolt from the blue, the worst of the declines experienced by stocks in 2018 are behind us,” John Stoltzfus, chief market strategist at Oppenheimer, said in a note….

…Moreover, there's not a single strategist of the major Wall Street firms who thinks the market will finish 2019 lower than it started.” Story at…

https://www.cnbc.com/2018/12/31/why-this-year-suddenly-fell-apart-on-wall-street-and-whats-ahead.html

 

HUSSMAN MARKET COMMENT EXCERPT (Hussman Funds)

“While we don’t presently observe conditions to indicate a “buying opportunity” or a “bottom” from a full-cycle standpoint, we do observe conditions that are permissive of a scorching market rebound, even if it only turns out to be the “fast, furious, prone to failure” variety…we’ve prepared for the possibility of unusual volatility here, most likely including one or more daily moves in the range of 4-6%, potentially to the upside. Yes, that means one or more daily moves on the order of 100-150 points on the S&P 500 and 900-1300 points on the Dow. You think I’m kidding.” – John Hussman, Phd. Full commentary at…

https://www.hussmanfunds.com/comment/observations/obs181226/

My cmt: From other reports, John Hussman sent a short version of this note before the 26^th so his comment was prescient.

 

10-1 UP-VOLUME DAY (McClellan Publications)

“I am defining these 10-1 days as being days on which NYSE Up Volume was more than 10 times the amount of Down Volume, using numbers as published by the Wall Street Journal……So this latest lone 10-1 signal [26 Dec] is likely bullish news, appearing after an oversold bottom.  It will become even more bullish if we see additional 10-1 Up Volume Signals in the weeks ahead.” – Tom McClellan.

Chart and commentary at…

https://www.mcoscillator.com/learning_center/weekly_chart/finally_a_10-1_up-volume_day/

My cmt: I commented about this when it occurred after Christmas. Tom McClellan’s take is slightly different.  I look at 90% up-volume. Using Tom’s numbers, but calculated the way I look at it (as described in Paul Desmond’s, Lowry Research  paper), McClellan’s 10 to 1 day would actually be a 91% up-volume day.

 

MARKET REPORT / ANALYSIS         

-Monday the S&P 500 rose about 0.9% to 2507.

-VIX fell about 10% to 25.42.

-The yield on the 10-year Treasury slipped to 2.683%.

 

My daily sum of 17 Indicators improved from +1 to +3 (a positive number is bullish; negatives are bearish) while the 10-day smoothed version that negates the daily fluctuations improved from -36 to -25.

 

One of the more obscure indicators I look at I the Fosback High/Low Logic Indicator. “The High Low Logic Index was developed by Norman Fosback. It is calculated as the lesser of the number of new highs or new lows divided by the total number of issues traded. Daily or weekly NYSE data is typically used in the calculation. The concept behind the indicator is that either a large number of stocks will establish new highs or a large number of stocks will establish new lows, but normally not both at the same time. Since the High Low Logic Index is the lesser of the two ration, high readings are infrequent. When a high indicator reading does occur, it signifies that market internals are inconsistent with many stocks establishing new highs at the same time that many stocks establish new lows. When this happens, it is considered bearish for stock prices.” From…

http://help.tc2000.com/m/69404/l/750503-t2105-high-low-logic-index

 

The Fosback High/Low Logic Indicator was one of the few indicators that nailed this correction. In fact, it gave a bearish sign the day the market topped out at 2131 on 20 September. (I ignored it because in the past this indicator has been very early.) I mention this, because Friday the Fosback indicator gave a short-term Buy signal. Let’s hope it’s right again.

 

While I worry, we may be in a bear market, I lean toward the optimistic side. Until proven otherwise, I think we’re in a correction. Further, I think the correction has made its low, or very close to it. The waterfall phase of the correction ended 24 December and that is usually the low. Still, we must be concerned about the possibility that this is a bear market with much more pain to come since selling could resume if a retest of the prior low is not successful.

 

THE BOTTOM LINE: For me, any significant drop below 2350 must be sold to a point with no more than 30% invested in stocks.

 

Only a retest at the 2350 level will tell us whether this 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…

http://navigatethestockmarket.blogspot.com/p/exchange-traded-funds-etf-ranking.html

 

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…

https://navigatethestockmarket.blogspot.com/p/a-system-for-trading-dow-30-stocks-my_8.html

 

MONDAY 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). 

 

I increased stock allocations to 60% invested in stocks on 27 November. I bumped up stock investments to 65% on 19 December. Both increases were made at technical bottoms or shortly thereafter; unfortunately, those bottoms didn’t hold. For me, fully invested is a balanced 50% stock portfolio so this is higher.

 

A successful test at the bottom (2350, S&P 500) should be bought with a very high level of stock allocation. Conversely, a failure at 2350 or somewhat below, should be sold.

 

INTERMEDIATE / LONG-TERM INDICATOR

Monday, the Sentiment indicator was positive; VIX and Volume indicators were negative; Price was neutral. Overall this is a NEUTRAL indication.

Crude Oil Inventories … Stock Market Analysis… ETF Trading … Dow 30 Ranking

“U.S. stock markets continued their sharp decline Tuesday amid growing concerns over Asian economic pressures and political uncertainty…” – CNN Money, 1998, during the 19% correction. Sounds familiar right? World wide slow downs are not new.  For the here and now, we still don’t know if this is a correction or a Bear market.

 

CORRECTION UPDATE

This is day 68 of this correction.  As of today’s close, the Index is down 15.2% (19.8% max) from its prior high. There have been 21 new-lows so far. Over the last 10-years, and Outside of the Financial Crisis, that has only been matched once. That was in the Oct 2011 correction that bottomed at 19.4%.

 

The average correction over the last 10-years (excluding major crashes) lasted 52-days. The average drop over that period was 12%. The longest correction in the last 10-years was the 19% drop in 2011. It took 108-days to complete, top to bottom.

 

CRUDE OIL INVENTORIES (OilPrice.com)

“A day after the American Petroleum Institute pressured already stressed oil prices further with an unexpected inventory build, the Energy Information Administration reported instead that crude oil inventories were virtually unchanged for the week. At 441.4 million barrels, the inventories are within seasonal limits, the EIA said in its last weekly inventory report for the year.” Story at…

https://oilprice.com/Energy/Crude-Oil/EIA-Inventory-Report-Stops-Price-Slide.html

My cmt: Crude prices are playing a part in this correction.

 

MARKET REPORT / ANALYSIS         

-Friday the S&P 500 slipped about 0.1% to 2486.

-VIX fell about 5% to 28.34.

-The yield on the 10-year Treasury slipped to 2.719%.

 

My daily sum of 17 Indicators improved from 0 to +1 (a positive number is bullish; negatives are bearish) while the 10-day smoothed version that negates the daily fluctuations improved from -45 to -36.

 

Yesterday, Sentiment switched to a bullish indication. I measure Sentiment as %-Bulls (5-dMA of Bulls/{bulls+bears}) based on the amounts invested in Rydex/Guggenheim mutual funds. This is a tricky indicator because it is on a sliding scale – that is Sentiment climbs as a bull market ages. For example, Sentiment at the bottom of the 10% correction in 2012 was 50%.  At the bottom of the 10% correction in 2018 Sentiment was 84% at the bottom.  Yesterday it was 77%. Sentiment is not a good timing indicator, but it does set the table for other indicators and perhaps we’ll see a bullish confirmation later.

 

I have suggested that the waterfall phase of the current correction has ended.  We also compared the current correction to the 19% correction of 2012 and noted that the waterfall phases were nearly the same length with stats at the bottom very similar. I’ve read comments that the failed consolidation-zone in the current correction is evidence that we’re in a Bear market. Here is a plot of the 1998, 19%-correction. It shares similarities with the current correction, especially the failed consolidation zone about half way down.

Chart from Yahoo! Finance adjusted for 1998 data.

 

I read a comment recently that said the biggest up-moves happen in bear markets and the nearly 5% up-day after Christmas is just more evidence that we’re now in a bear market. I wouldn’t be so quick to jump to that conclusion. In the Aug 2011, 19%-correction, the S&P 500 bounced up from the 20th new low (about where we are in this correction) with an up day of 4.25%.  The next day it gave it all back and retested the low. That was followed by another up day of 4.6% and several up-days and then a lot of choppiness for another two months. The final 21^st new-low was 2% lower than its prior low 2 months earlier. My point? Big up-moves happen in big corrections too, not just bear markets.

 

While I worry, we may be in a bear market, I lean toward the optimistic side. Until proven otherwise, I think we’re in a correction. Further, I think the correction has made its low, or very close to it. Still, we must be concerned about the possibility that this is a bear market with much more pain to come.

 

THE BOTTOM LINE: For me, any significant drop below 2350 must be sold to a point with no more than 30% invested in stocks.

 

Only a retest at the 2350 level will tell us whether this 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…

http://navigatethestockmarket.blogspot.com/p/exchange-traded-funds-etf-ranking.html

 

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…

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.  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). 

 

I increased stock allocations to 60% invested in stocks on 27 November. I bumped up stock investments to 65% on 19 December. Both increases were made at technical bottoms or shortly thereafter; unfortunately, those bottoms didn’t hold. For me, fully invested is a balanced 50% stock portfolio so this is higher.

 

A successful test at the bottom (2350, S&P 500) should be bought with a very high level of stock allocation. Conversely, a failure at 2350 or somewhat below, should be sold.

 

INTERMEDIATE / LONG-TERM INDICATOR

Friday, the Sentiment indicator was positive; VIX and Volume indicators were negative; Price was neutral. Overall this is a NEUTRAL indication.

Jobless Claims … Consumer Confidence … Margin Debt Predicting Crash? … Stock Market Analysis… ETF Trading … Dow 30 Ranking

Christmas trivia quiz:

What do Hans Gruber and Franz Gruber have to do with Christmas?

Ans. Hans Gruber was the criminal played by Alan Rickman in the Christmas Eve attack on the Nakatomi Tower in the movie, “Die Hard.” Franz Gruber wrote Silent Night.

 

JOBLESS CLAIMS (MarketWatch)

“The number of Americans applying for unemployment benefits fell slightly in the week before Christmas, reflecting a vibrant U.S. labor market and the very low number of layoffs taking place during the holiday season. Initial jobless claims…slipped to 216,000 in the seven days ended Dec. 22…” Story at…

https://www.marketwatch.com/story/jobless-claims-fall-slightly-to-216000-in-week-before-christmas-layoffs-still-very-low-2018-12-27

 

CONSUMER CONFIDENCE (Reuters)

“A measure of U.S. consumer confidence posted its sharpest decline in more than three years in December, rattling investors already nervous about the prospect that a global economic slowdown was spilling over into the United States… the Conference Board on Thursday said its consumer confidence index fell this month by 8.3 points to a reading of 136.4…” Story at…

https://www.reuters.com/article/us-usa-economy/us-jobless-claims-dip-in-sign-of-labor-market-strength-idUSKCN1OQ113

My cmt: Consumer Confidence generally mirrors the stock market so lowered confidence should be no surprise.  How to interpret it is a different matter. Record holiday sales seem to indicate the consumer is in good shape.

 

MARGIN DEBT PREDICTES CRASH? (Advisor Perspectives)

Chart from…

https://www.advisorperspectives.com/dshort/updates/2018/12/26/margin-debt-and-the-market-down-2-48-mom

My cmt: I don’t know. Therer have been many dips in margin debt that coincided with corrections rather than crashes.

 

CORRECTION UPDATE

This is day 67 of this correction.  As of today’s close, the Index is down 15.1% (19.8% max) from its prior high. There have been 21 new-lows so far. Over the last 10-years, and Outside of the Financial Crisis, that has only been matched once. That was in the Oct 2011 correction that bottomed at 19.4%.

 

The average correction over the last 10-years (excluding major crashes) lasted 52-days. The average drop over that period was 12%. The longest correction in the last 10-years was the 19% drop in 2011. It took 108-days to complete, top to bottom.

 

MARKET REPORT / ANALYSIS         

-Thursday the S&P 500 was up about 0.9% to 2489.

-VIX fell about 1% to 29.96.

-The yield on the 10-year Treasury slipped to 2.776%.

 

Today’s market action was bullish. After a weak morning, the Index climbed more than 3% after 2pm to finish up almost 1%. Market internals went from freakishly bad to respectably good in a little more than an hour.

 

My daily sum of 17 Indicators declined from 0 to -1 (a positive number is bullish; negatives are bearish) while the 10-day smoothed version that negates the daily fluctuations declined from -43 to -46. These are small moves that can be ignored on a day like today.

 

Yesterday we saw a day with 96% up volume. Lowry Research said the following about 90% up-volume days:

“In approximately half the cases in the past 69 years, the 90% Upside Day…which signaled a major market reversal, occurred within five trading days or less of the market low.”

Yesterday’s 90% upside-day was 1-day after the market low.

 

The low at the bottom of the waterfall phase of a correction is usually at or near the final correction bottom, so I am I’m cautiously optimistic. My guess is that this is like the 1998 19%-correction. PEs were high and the economy was doing well. Like now, there were fears the Bull market was coming to an end.  The Bull lasted a few more years. Here’s a quote from 1998:

“U.S. stock markets continued their sharp decline Tuesday amid growing concerns over Asian economic pressures and political uncertainty…” – CNN Money. Sounds familiar.

 

Still, we must be concerned about the possibility that this is a bear market with more pain to come.

 

THE BOTTOM LINE: For me, any significant drop below 2350 must be sold with to a point with no more than 30% invested in stocks.

 

Only a retest at the 2350 level will tell us whether this was THE bottom, but the bottom of the waterfall phase of a correction is usually very close to the final 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…

http://navigatethestockmarket.blogspot.com/p/exchange-traded-funds-etf-ranking.html

 

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…

https://navigatethestockmarket.blogspot.com/p/a-system-for-trading-dow-30-stocks-my_8.html

 

THURSDAY 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). 

 

I increased stock allocations to 60% invested in stocks on 27 November. I bumped up stock investments to 65% on 19 December. Both increases were made at technical bottoms or shortly thereafter. For me, fully invested is a balanced 50% stock portfolio so this is higher. A successful test at the bottom (2350, S&P 500) should be bought with a very high level of stock allocation.

 

INTERMEDIATE / LONG-TERM INDICATOR

Thursday, the VIX and Volume indicators were negative; Price and Sentiment were neutral. Overall this is a NEGATIVE / SELL indication. The concern is that the important sell-signal was last October. The NTSM long-term system can give sell signals near a bottom too. I am ignoring this indication for the time being.

Case Shiller Home Prices … Correction Update ... Stock Market Analysis… ETF Trading … Dow 30 Ranking

I hope you had a good Christmas.  Here’s a Christmas trivia quiz: What do Hans Gruber and Franz Gruber have to do with Christmas? Answer tomorrow.

 

CASE SHILLER HOME PRICES (MarketWatch)

“The S&P/Case-Shiller 20-city index rose a seasonally adjusted 0.4% in October but in a clear sign of the housing market’s recent struggles the increase in prices over the past 12 months slipped to the lowest level in two years.” Story at…

https://www.marketwatch.com/story/us-home-prices-keep-slowing-as-higher-rates-scare-off-buyers-case-shiller-shows-2018-12-26

 

CORRECTION UPDATE

This is day 66 of this correction.  As of today’s close, the Index is down 15.8% (19.8% max) from its prior high. There have been 21 new-lows so far. Outside of the Financial Crisis, that has only been matched once in the Oct 2011 correction that bottomed at 19.4% over the last 10-years.

 

The average correction over the last 10-years (excluding major crashes) lasted 52-days. The average drop over that period was 12%. The longest correction in the last 10-years was the 19% drop in 2011. It took 108-days to complete, top to bottom.

 

MARKET REPORT / ANALYSIS         

-Wednesday the S&P 500 jumped up about 5% to 2468.

-VIX fell about 16% to 30.41.

-The yield on the 10-year Treasury rose to 2.807%.

 

My daily sum of 17 Indicators improved from -5 to 0 (a positive number is bullish; negatives are bearish) while the 10-day smoothed version that negates the daily fluctuations improved from -44 to -43.

 

I made some “line-in-the-sand” comments Monday, i.e. we see a bottom Monday or it is time to panic. We hoped to see a bottom Monday confirmed by a bounce up Wednesday. If you didn’t read Monday’s blog, it may be worth reading the Market Analysis section.

 

On Monday, I said:

“For now, let’s take the optimistic side.  That is, we have at least made a short-term bottom and possibly a final bottom is not far off…by historic measures, we should be nearing an end…With the extreme new-low data, it appears that the selling should be over today [Monday]… If we don’t see a bounce Wednesday, we need to consider that this may be a major bear market with potential for a 50% loss, top to bottom.”

 

The analysis/discussion for this stance was included in Monday’s blog.  Let me just add that in addition to reasons noted Monday, a bottom Monday would be expected, when combined with the other data, based on the Wall St adage, “never on Friday”.  That means downturns rarely end on Friday.  Investors will stew over the weekend and sell on Monday; the bottom is, more often than not, on Monday.  That sets up turn-around Tuesday, or Wednesday this time since Tuesday was Christmas. Today’s move up [on Wednesday] looks like the end of the waterfall phase of the correction and the start of a bounce.

 

Let’s look that the bounce in the 2011 selloff.  After the bottom of the waterfall phase there was a bounce of about 8% {(1210/1119)-1 = 8.1%}. That is a bit less than a 50% retracement and that’s about what we’d expect this time. So, from yesterday’s close of 2351 let’s add 8% and we expect a bounce to top out at around 2540 - 2560. From there, there will be considerable choppiness before we retest the low, possibly a couple % lower/or higher than Monday’s low.

 

I may sell the bounce at about 2560 level. The point would be to preserve capital if today was not the final bottom. A retest of the low is a very high probability. This strategy is not without risk though since identifying the bottom can sometimes be difficult, as we have seen.

 

We must be also prepared for a failed test at the 2350 level in a month or two – there are no guarantees this correction has made a final bottom.  Additionally, we must also be prepared for a sudden reversal that would indicate we haven’t made a low and the waterfall phase is not over. That could happen when the Pros come back from their vacation on 2 January or sooner.

 

BOTTOM LINE: For me, any significant drop below 2350 must be sold with to a point with no more than 30% invested in stocks.

 

Overall though, there were many clues that all suggest today was an important bottom. Some were:

(1) Data extremes on Monday that suggested capitulation;

(2) a strong close today including a 5% gain with the highs for the day at the close;

(3) a high-volume up-day today (96% up-volume - that is a very rare, bullish event);

(4) and a turn to the bullish side on some of my key indicators.

 

Only a retest at the 2350 level will tell us whether this was THE bottom, but the bottom of the waterfall phase of a correction is usually very close to the final bottom. It looks like the waterfall phase ended today.

 

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…

http://navigatethestockmarket.blogspot.com/p/exchange-traded-funds-etf-ranking.html

 

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…

https://navigatethestockmarket.blogspot.com/p/a-system-for-trading-dow-30-stocks-my_8.html

 

WEDNESDAY MARKET INTERNALS (NYSE DATA)

Market Internals improved to 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). 

 

I increased stock allocations to 60% invested in stocks on 27 November. I bumped up stock investments to 65% on 19 December. Both increases were made at technical bottoms or shortly thereafter. For me, fully invested is a balanced 50% stock portfolio so this is higher. A successful test at the bottom (2350, S&P 500) should be bought with a very high level of stock allocation.

 

INTERMEDIATE / LONG-TERM INDICATOR

Wednesday, the VIX and Volume indicators were negative; Price and Sentiment were neutral. Overall this is a NEGATIVE / SELL indication. The concern is that the important sell-signal was last October. The NTSM long-term system can give sell signals near a bottom too. I am ignoring this indication for the time being.

Jeffrey Saut Commentary Excerpt … Stock Market Analysis… ETF Trading … Dow 30 Ranking

JEFFREY SAUT COMMENTARY EXCERPT (Raymond James)

“Speaking to last week’s Dow Theory sell signal, we really cannot decide to ignore it, as we did with two previous false sell signals, or honor it because we continue to believe this is a secular bull market. That said, I raised more cash following last Wednesday’s Dow Theory sell signal because of the discipline of managing risk. My left brain response to the sell-signal was to raise some more cash even though we think the Dow Theory sell signal was a false signal. Quite frankly, we and our models are currently confused, a state of mind we rarely find ourselves in! Fortunately, we are old enough to be able to admit that, unlike many pundits on the Street of Dreams.” – Jeffrey Saut, Raymond James Chief Investment Strategist

My cmt: RE: “…we and our models are currently confused…” Aren’t we all.

 

CORRECTION UPDATE

This is day 65 of this correction.  The Index is down 19.8% from its prior high. There have been 21 new-lows so far. Outside of the Financial Crisis, that has only been matched once in the Oct 2011 correction that bottomed at 19.4% over the last 10-years.

 

The average correction over the last 10-years (excluding major crashes) lasted 52-days. The average drop over that period was 12%. The longest correction in the last 10-years was the 19% drop in 2011. It took 108-days to complete, top to bottom.

 

MARKET REPORT / ANALYSIS         

-Monday the S&P 500 dropped about 2.7% to 2351.

-VIX jumped 20% to 36.07.

-The yield on the 10-year Treasury slipped to 2.740%.

 

My daily sum of 17 Indicators declined from -2 to -5 (a positive number is bullish; negatives are bearish) while the 10-day smoothed version that negates the daily fluctuations slipped from -41 to -44.

 

RSI* is the lower than any reading in the last 9 years. (I don’t have the number going back into the Financial Crisis.  I suspect that was the last time the value was 4 or below as it was today.)

 

*RSI, (SMA-14) Relative Strength, measures the size of up-moves vs. all-moves on a 14-day moving average basis and presents the result as a percentile. For example; if the RSI is 85, it means that the size of up-moves are in the 85th percentile when compared to all moves over the 14-day period.  If ALL moves had been up, RSI would be 100 – a definite short term sell indicator. For my purposes, 30 is oversold (suggesting a turn-around to the upside) and 80 is overbought. If the up-moves and down-moves are equal in size over the 14-day period, RSI would be 50.

 

My comment from last week is worth revisiting, especially after today. We just saw back-to-back-to-back days with new-lows over 1,000 (Thursday, Friday and Monday). In the past 10-years, that has only happened during the Financial Crisis and it didn’t happen near the bottom.  Let’s hope the options expiration Friday played a part in this rare event and that Monday was the bottom.

 

For now, let’s take the optimistic side.  That is, we have at least made a short-term bottom and possibly a final bottom is not far off. In 2016 when new lows were 1395 the final bottom was three weeks later (after a bounce) and about 2% lower. In Aug 2015 when there were 1258 new-lows, the market bottomed the next day. The key point here is that in both cases, the markets bounced the next day. We need to see a bounce Wednesday.

 

Chart wise, the correction is in the waterfall phase.  The point at which the Index drops straight down and usually makes the low or very near to it.

 

If there isn’t at least a bounce in the next day or two it is time to be afraid…be very afraid. It has bothered me that normal correction technical analysis has not worked.  We saw 2 successful tests (buy signals) at the 2633 level and one more at 2546 on the S&P 500.  None of them stuck. Perhaps we should consider that this is not a normal correction. The drop from the top is now 19.8%. 19% drops do happen outside of crushing bear markets like the Dot.com or Financial Crashes, but not frequently.

 

There was a 19% correction that bottomed in Oct 2011. Additionally, there was a 19.4% correction in 1998.  That one is worth mentioning, because it was in the context of an overpriced stock market in a strong economy like we see now based on median PEs and GDP. The chart of the 2011 correction is more similar to the current drop in the waterfall phase, so let’s look at the 2011 correction.

Chart from Yahoo (but you’d need to adjust the dates)...

https://finance.yahoo.com/quote/%5EGSPC?p=^GSPC

 

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. We are about 3-weeks into the current waterfall phase that began about 3 Dec. and has dropped 16%. So by historic measures, we should be nearing an end…or not. With the extreme new-low data, it appears that the selling should be over today.  That too is based on prior correction data, but there were only 2 corrections in the last 10-years that included new-lows greater than 1000 so the sample is too small.

 

If we don’t see a bounce Wednesday, we need to consider that this may be a major bear market with potential for a 50% loss, top to 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…

http://navigatethestockmarket.blogspot.com/p/exchange-traded-funds-etf-ranking.html

 

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…

https://navigatethestockmarket.blogspot.com/p/a-system-for-trading-dow-30-stocks-my_8.html

 

MONDAY MARKET INTERNALS (NYSE DATA)

Market Internals switched to Negative 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). 

 

I increased stock allocations to 60% invested in stocks on 27 November. I bumped up stock investments to 65% on 19 December. Both increases were made at technical bottoms or shortly thereafter. For me, fully invested is a balanced 50% stock portfolio so this is higher. The failure of technical bottoms has been disappointing, to say the least.

 

INTERMEDIATE / LONG-TERM INDICATOR

Monday, the VIX and Volume indicators were negative; Price and Sentiment were neutral. Overall this is a NEGATIVE / SELL indication. The concern is that the important sell-signal was last October. The NTSM long-term system can give sell signals near a bottom too. Until Thursday, I am ignoring this indication.