“U.S. wholesale inflation in October posted the biggest
increase in six years, driven by higher gas prices and rising costs for some
goods such as machinery and equipment critical for businesses. The producer
price index jumped 0.6% last month after barely any change since July…” Story
at…
MICHIGAN SENTIMENT (Bloomberg)
“U.S. consumer sentiment remained elevated before
this week’s midterm elections amid improved finances, though higher interest
rates are dimming views of car and home purchases, according to a University of
Michigan survey Friday. The university’s sentiment index fell to 98.3 in a
preliminary reading…” Story at…
WALL ST. SAYS FED IS IN DENIAL (Bloomberg)
“Since October of
last year, the central bank has been steadily reducing its holdings of
Treasuries and mortgage-backed bonds. But as the unwind has picked up,
unexpected knock-on effects are emerging in overnight lending markets…“At some
point, all of the reserves outstanding will be locked up by all the people who
need it” to meet all the regulatory mandates, which may lead to a “scramble”
for short-term cash, he said. “If the Fed keeps shrinking its balance sheet until
it sees signs of stress, the question will be, ‘How ugly is that stress?’ I
think it will be quite ugly.” - Michael Cloherty, the head of U.S. interest
rate strategy at RBC Capital Markets. Story at…
MARKET REPORT / ANALYSIS
-Friday the S&P 500 slipped about 0.9% to 2781.
-VIX rose about 4% to 17.36.
-The yield on the 10-year Treasury slipped to 3.182% as
of 4:59 pm.
The Index broke back below the long-term trend line from
Feb 2016 on Friday. Further, the Index is now 0.6% above its 200-dMA.
As we review the chart, the bounce made a double top and failed to get above
the 100-dMA. At this point it looks like
the bounce may be over and a retest of the prior low of 2641 is more likely.
My daily sum of 17 Indicators slipped slightly from +5 to
+4 (a positive number is bullish; negatives are bearish) while the 10-day
smoothed version that negates the daily fluctuations improved from +1 to +9.
Today is trading day 36 for this pullback counting from
the top. The drop from the top is now 5.1% (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.
Given that the S&P 500 has dropped below its
trendline again, I think it may be time to cut risk by reducing stock holdings.
This is not due to any indicators; it is just an expectation that a retest
looks more likely and we don’t know whether that retest will be
successful. My guess is that we have
seen the bottom (or close to it) and further declines probably won’t go much
lower than the prior low of 2641, but we don’t know. Given the uncertainties, I’ll cut back some
on Monday depending on the market action Monday. I’m already at 50% stocks; I
may drop to 30% invested. This is a very conservative position. It may result
in underperforming the S&P 500 but there is a risk that declines may be
more than we expect.
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…
FRIDAY MARKET INTERNALS (NYSE DATA)
Market Internals
remained Positive 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 50% invested in stocks. For me, fully invested
is a balanced 50% stock portfolio. As noted above, I plan to reduce risk soon.
INTERMEDIATE / LONG-TERM INDICATOR - HOLD
Friday, the Price &
Volume indicators were positive; Sentiment was neutral; the VIX indicator was
negative. Overall this is a NEUTRAL indication.
