“U.S. hiring picked up in January and wages rose at the
fastest annual pace since the recession ended, as the economy’s steady move
toward full employment extended into 2018. Nonfarm payrolls rose 200,000 …
average hourly earnings rose a more-than-expected 2.9 percent from a year
earlier…” Story at…
FACTORY ORDERS (Investing.com)
“U.S. factory orders rose higher than expected in
December, official data showed on Friday. In a report, the U.S. Census Bureau
said factory
orders rose by a seasonally adjusted 1.7% in December…” Story
at…
MICHIGAN SENTIMENT (Bloomberg)
“U.S. consumer sentiment exceeded analyst estimates in
January as the outlook for jobs and household income improved, University of
Michigan survey data showed Friday…Sentiment index inched down to 95.7 (est.
95) from 95.9 in December…” Story at…
MARKET REPORT / ANALYSIS
-Friday the S&P 500 dropped about 2.1% to 2822.
-VIX jumped about 29% to 17.31.
-The yield on the 10-year Treasury rose to 2.843%. (This is
freaky – both bonds and stocks are selling off.)
SENTIMENT. Sentiment reached extreme levels Thursday. I
measure Sentiment as %-Bulls (Bulls/{bulls+bears}) based on the amounts
invested in Rydex/Guggenheim mutual funds. It is currently at 90%-bulls (as of
Thursday’s close on a 5-day average). On a standard deviation basis this again equals levels seen
during the dot.com crash. This isn’t by itself a great indicator since
sentiment can remain elevated for some time, but it is a level that has
preceded pullbacks of varying degrees – from small pullbacks of a few percent
to major crashes. When combined with the
negative indicators recently, Sentiment suggests that the drop may not be over.
Volume was higher than normal today, about 15% above the
monthly average; but it has not picked up drastically so there is still not
much fear in investor land. It will be interesting tonight to see of traders
buy the dip and drive my sentiment value higher. (Data is not available till
late tonight.) A higher sentiment (if it happens) would suggest more selling
ahead.
We saw a new bearish warning today because 90% of the
volume was down-volume and if we see another high down-volume day soon, we’d
have to be worried about an end to this cyclical bull market.
On a more positive note, these extreme negative days can
often signal an end to selling. Breadth was poor today too with only 11% of
stocks advancing. Low values can be a
sign of a reversal. Today was
statistically significant. That just means that the price-volume move down
exceeded statistical parameters that I track. The stats show that about 60% of
the time a statistically significant move down will be followed by an up-day
the next day. Almost every bottom is statistically-significant. Still, Monday could
see some follow-thru selling. Tuesday can
be a reversal day and there is even a name for this; it is “Turn-around Tuesday”
because traders have had the weekend to settle down. Watch Tuesday action to
see if up-volume picks up vs down-volume.
If it does, maybe we’ll see an end to this drop next week, but I won’t
believe it if Monday jumps higher from the start of the day.
My guess is that the Index needs to test the 50-dMA. It
is now 1.7% above the 50d-MA at 2715. A drop to the 50-dMA would give us a 5% correction.
So far the Index is only down 3.9%. We’ll see.
Just a reminder: Calling bottoms for small drops is
impossible and I am guessing on what may happen next week. If we get into a real correction (10% or more)
the chances of calling a bottom improve.
My sum of 17 Indicators slipped from -5 to -11 today. (A
“-” number means that most indicators are bearish.) On a Longer term, smoothed
basis to avoid the daily fluctuations, the indicators remain bearish.
I am bearish short-term. Longer term I remain a bull.
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. Avoid GE, Procter
& Gamble and Merck. Their 120-day moving averages are falling.
*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 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).
LONG TERM INDICATOR
Friday, Sentiment and VIX Indicators were negative; Volume was
neutral. The Long-Term Indicator remained Hold. (VIX is out of the system for a
while.)
MY INVESTED STOCK POSITION:
TSP (RETIREMENT ACCOUNT – GOV EMPLOYEES) ALLOCATION
I shifted to 40% stocks. For the TSP, that would be 40% in
the S&P 500 Index fund (C-Fund) with the remainder 60% G-Fund (Government
securities) on 31 Jan.
