“U.S. consumer prices increased by the most in nine
months in October amid gains in the cost of gasoline and rents, pointing to
steadily rising inflation that likely will keep the Federal Reserve on track to
raise interest rates again next month…In the 12 months through October, the CPI
increased 2.5 percent, picking up from September’s 2.3 percent rise.” Story at…
TECHNICAL SPEAKING: MARKET WARNING SIGNS (Real Investment
Advice)
“While much of the mainstream media continues to suggest
the “bull
market” is alive and well, there are a tremendous number of warning signs which
are suggesting that something has indeed “changed.”…The ongoing deterioration
in the markets continues to confirm, as I wrote back in April, the
bull market that started in 2009 has ended. However, we will likely not know
for certain until we get into 2019, but therein lies the biggest problem.
Waiting for verification requires a greater destruction of capital than we are
willing to endure.” – Lance Roberts. Commentary at…
MARKET REPORT / ANALYSIS
-Wednesday the S&P 500 slipped about 0.8% to 2702.
-VIX rose about 6% to 21.25.
-The yield on the 10-year Treasury dipped to 3.126% as of
4:33 pm.
The “Big One” (a major stock market crash) will happen
when we least expect it. Is this the start? Probably not, but we don’t really know.
The above Lance Roberts commentary concisely expresses my concerns and explains
why I am now very conservatively positioned. The pundits regularly repeat that there
has not been a stock market crash without a recession. If I remember correctly, that wasn’t true in the
2001 dot.com crash (and perhaps also in 1929). The stock market tanked first;
then the economy followed. Starting
dates for recessions are noted after-the-fact by the National Bureau of Economic
Research (NBER). Since the start date of
a recession is somewhat vague, a major stock crash seems like as good a point
as any to pick as the starting date. I think that happened in 2001. The talking
heads spout the bromide that a stock crash has never happened without a
recession – I don’t believe it. To be clear, this probably isn't the start of a major crash, but there is a chance that it is.
My daily sum of 17 Indicators slipped slightly from +1 to
-5 (a positive number is bullish; negatives are bearish) while the 10-day
smoothed version that negates the daily fluctuations slipped from +21 to +19.
Today is trading day 39 for this pullback (counting from
the top). The drop from the top is now 7.8% (9.9% max). These numbers are based
on closing data. Over the last 10-years, for drops less than 10%, the average
time from top to bottom has been 32-days to a final bottom, including a retest.
(The low is usually at the retest.) Except for major crashes, the average
correction was about 12% and lasted 53 trading-days including retests. We can’t
say for certain that this correction is over unto the market makes new highs.
It looks like there will probably be retest of the
correction low. The Index is now about 2% above its prior low. We’ll have to
see what happens if and when the S&P 500 tests that 2641 low.
MOMENTUM ANALYSIS:
(Momentum analysis is not useful in a selloff.)
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…
*Over the last 2-months the only ETF that is up is the
XLU (Utilities) and it is up about 3% over that time frame.
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…
WEDNESDAY MARKET INTERNALS (NYSE DATA)
Market Internals remained
to Neutral on the market, but they have deteriorated a lot recently.
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 am now 30% invested in stocks. For me, fully invested
is a balanced 50% stock portfolio. Given that the S&P 500 has dropped below its
trendline (going back 2-1/2 years) and closed below the 200-dMA on consecutive
days, I have a defensive stance now. If
we have a successful test of the prior low, and that could happen soon, I’ll be
right back in. On the other hand, since
we don’t really know where the bottom is, I am taking the conservative route.
This move may result in underperforming the S&P 500, but there is a risk
that declines may be more than we expect resulting in even bigger losses.
INTERMEDIATE / LONG-TERM INDICATOR - HOLD
Wednesday, the
Price indicator was positive; Volume and Sentiment were neutral; the VIX
indicator was negative. Overall this is a NEUTRAL indication. (The first sell
signal of this corrective cycle by this indicator was on 11 October.)
