“Housing starts ticked up 1.5% to a seasonally adjusted
annual rate of 1.228 million in October, the Commerce Department said Tuesday.
That was 2.9% lower than a year ago, however. Permits ran at a seasonally
adjusted annual 1.263 million pace during the month, 0.6% lower than in
September and 6% lower than year-ago levels.” Story at…
MARKET INCURRING A “REVISION OF BELIEF” - EXCERPT (Real
Investment Advice)
“The recent sell-off has really been nothing more than
a “correction in a bull market”…so far. But the possibility of
a “revision in belief” has clearly risen… Importantly, this doesn’t
mean you should “sell everything” and hide in cash. But it does mean
that being aggressively exposed to the financial markets is no longer
opportune.” Commentary at…
MARKET REPORT / ANALYSIS
-Tuesday the S&P 500 dropped about 1.8% to 2642.
-VIX jumped about 12% to 22.48.
-The yield on the 10-year Treasury was up slightly to 3.070%.
Correction Update:
When we compare today’s data with the prior low of 2641
on 20 October, we note that volume is somewhat lower today indicating lower selling
pressure. That’s a good sign, but other indicators are not buying that this is
the bottom.
The only positive I could find is that cyclical industrial
stocks (XLI-ETF) are starting to outperform the S&P 500 in the near
term. That’s good because if investors
were worried about recession cyclicals would be sold hard. Other market
internals all suggest more selling, although a short-term bounce from here is
likely, especially since futures are up about 0.3% as I write this note.
We could see another retest tomorrow (Wednesday)…or not. The
most likely scenario is that the markets will make a bottom within the next
week or so. We’ll have to wait for more testing in the 2641 area. We can hope
the next re-test will be successful and we can buy some stocks/ETFs/indexes on
the cheap.
My daily sum of 17 Indicators slipped from -7 to -9 (a positive
number is bullish; negatives are bearish) while the 10-day smoothed version
that negates the daily fluctuations slipped from -2 to -14.
I track the number of new-highs on a long-term,
moving-average basis. That number is now
very low (understandably). It has not been this low since Feb 2016 about a week
before the end of the 2016 correction. That pullback included a 14% drop from
top to bottom.
Over the last 2-months the only ETF that is up is the XLU
(Utilities) and it is up about 5% over that time frame. The current 40-day
divergence of the S&P 500 Index and XLU has only been exceeded once in the last five
years, again, during the Feb 2016 correction of 14%.
Today is trading day 43 for this pullback (counting from
the top). The drop from the top is now 9.9% equaling the prior low from 29 Oct
(or close enough). 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 usually occurs at the
retest.) Except for major crashes, the average correction was about 12% and
lasted 53 trading-days including retests.
On a positive note, today was a
statistically-significant, down-day.
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.
The most likely course remains that there will be another
retest of the correction low, possibly after a short bounce up. We’ll have to
see what happens if and when the S&P 500 tests this 2641 low again.
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…
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…
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).
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
Tuesday, the Price and
Sentiment indicators were neutral; the Volume and VIX indicators were negative.
Overall this is a NEGATIVE indication. This would be a Sell indication, but
it’s probably too late to sell now. The first (and important) sell signal of
this corrective cycle by this indicator was on 11 October.)
