“Analysts at ING noted that the US ISM manufacturing
index fell a little more than expected in April, coming in at 57.3… ‘This was
the weakest reading since July 2017.’” Story at…
https://www.fxstreet.com/news/april-ism-manufacturing-index-weakest-since-july-2017-ing-201805011535
CONSTRUCTION SPENDING (MarketWatch)
“Construction expenditures were 1.7% lower in March
compared with February, the Commerce
Department said Tuesday. But a hefty increase to earlier spending
estimates in prior months signals that outlays remain on a strong footing.”
Story at…
AUTO SALES (CNBC)
“Major automakers posted lower new vehicle sales in April
as consumer demand continued to weaken following a length boom for the
industry,…” Story at…
FED RATE HIKES
The market condition now is a lot like the year 2000. We
have an overvalued market whose median PE is actually higher than the median
values at the top of the dot.com Bubble, thus the bomb is primed and ready. The
spark will be the same as we saw in 2000 – the Fed is likely to light the fuse
with Rate Hikes to slow inflation. Here is a chart of the year 1999/2000 rate
hikes.
July 1999-July 2000
Beginning Fed funds rate: 4.76 percent
Peak Fed funds rate: 6.50 percent
Source: Deutsche Bank
For full details on historical Fed rates see…
Norman Fosback said in his book, “Stock Market Logic,” that
raising rates at 3 consecutive meetings results in a market stumble, and they
are generally significant moves of 30% or more. One caveat, the delay after a
signal can be long and the market sometimes has moved up significantly before
the decline. This rule is sometimes called the “three-steps-and-a-stumble” rule
and market reaction after the rate hikes have been coincident to as long as
14-months later. Given the market fear now, I’d expect the reaction to 3-consecutive
steps to be sudden. The current prediction is for 4 rate hikes this year. Will
they be consecutive? We’ll see.
“Market strategist Jim Paulsen thinks investors are
little too sanguine about the prospects for inflation and could get burned…They
[the FED] see the inflation evidence and are thinking it could get worse."
Story at…
MARKET REPORT / ANALYSIS
-Tuesday the S&P 500 rose about 0.3% to 2655.
-VIX dipped about 3% to 15.49.
-The yield on the 10-year Treasury climbed to 2.965%.
The Dow slipped 0.27%; Nasdaq was up 0.91%; and the
S&P 500 was up 0.25%. That’s a fair amount of divergence between the indices.
Usually, they will track together over the longer term so I’d expect the Dow to
improve Wednesday.
Indicators are diverging too. Unfortunately, I am seeing
a lot of negative signs from the indicators. My daily sum of 17 Indicators dropped
from -6 to -9; the 10-day smoothed version dropped from -14 to -24. That’s beginning to look scary.
The Industrial Cyclical ETF (XLI) is diverging from the
S&P 500 as it is now underperforming the S&P on all timeframes. This is
a very bearish sign. It doesn’t necessarily indicate a big decline, but it does
suggest a decline.
On the bullish side…The market action today was bullish;
we saw a strong recovery in the afternoon and there was a strong finish with a
+575 closing Tick (last trades of the day). This level of positive action is
usually followed by an up-day, so we’ll see what tomorrow (Wednesday) brings. If
it is positive enough, perhaps it will swing some indicators to the bull side.
My plan ahead remains: If the S&P 500 drops to its
prior low of 2581 and there is an unsuccessful retest, I will probably cut
stock holdings again. If we see a successful test I’ll be adding to stocks. I
am expecting a break to the upside, but indicators have gotten more negative so
it is harder to be optimistic.
MOMENTUM ANALYSIS IS STILL QUESTIONABLE. As one can see
below in both momentum charts, there are still a lot of issues in negative
territory, i.e., they have weak upward momentum. That’s just an indication that
the market is in correction mode and most stocks have been headed down.
Momentum has gotten worse in the last week or so.
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. (On 5 Apr 2018 I
corrected a coding/graphing error that has consistently shown Nike
incorrectly.)
*I rank the Dow 30 similarly to the ETF ranking system.
For more details, see NTSM Page at…
TUESDAY MARKET INTERNALS (NYSE DATA)
Market Internals remained
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).
Thursday, 18 Apr
2018 I increased stock investments from 35% to 50% based on the
Intermediate/Long-Term Indicator that turned positive on the 17th. For me,
fully invested is a balanced 50% stock portfolio. This is not the time to
take extra risk, so you may want to have less invested in stocks than normal.
50% is my minimum unless I am in full defense mode.
INTERMEDIATE / LONG-TERM INDICATOR
Intermediate/Long-Term
Indicator: Tuesday, VIX, Volume, Price and Sentiment indicators were
neutral. Overall this is a NEUTRAL indication.
