“Last week, Jeffrey Gundlach of DoubleLine Funds did a
webcast where he noted, among other things, that investment grade corporate
bonds are terrible. There is no way to win with them, he said. As much as half the
investment grade universe could be downgraded to junk…Interestingly, it’s not
that investment grade companies are ready to default…It’s that the starting
yield on investment grade corporates is so low that there is a lot of duration
risk in them. That risk reflects how soon or long it takes for an investor to
receive their money back in interest and principal payments.” Commentary at…
JEFFREY SAUT EXCERPT (Raymond James)
“It is stunning to us at this stage of a secular bull
market, and a very bullish chart pattern, that so many pundits are scared to
death! We have long targeted mid-November as a turning point for the various
markets for a variety of reasons often mentioned in these missives.” Commentary
at…
My cmt: I was in St. Petersburg, Florida for a family
event over Thanksgiving. While waiting for a to-go order in the restaurant of
the hotel where we were staying, I struck up a conversation with a nice
gentleman. Turns out, it was Jeffrey Saut, Chief Investment Strategist of
Raymond James. As a stock market junkie, I am a big fan of his and regular
readers know that we quote from his Weekly Commentaries with some regularity. He
said there are a number of CNBC regulars who live in the St Petersburg area
including Liz Ann Sonders, Sam Stovall and Ned Beatty (Ned Beatty Research). My
wife was unimpressed that I had met a finance celebrity. She said, “If we were going to meet a celebrity,
I would have preferred George Clooney.” To each her own.
MARKET REPORT / ANALYSIS
-Monday the S&P 500 rose about 1.6% to 2673.
-VIX fell about 12% to 18.9.
-The yield on the 10-year Treasury was little changed at
3.057%.
TIME TO BUY
I went back over the weekend and examined Wednesday’s big
shift in new-high/new-low data. Over the last 10-years or so, there have only
been about 10 New-High/New-Low reversals (big positive changes in the spread
between new-highs and new-low that met my statistical test). Nearly every one was at a bottom, or near the
bottom of a pullback. The only ones that weren’t were associated with bullish
conditions after the 2009 major bottom.
Based on the new-high/new-low reversal that occurred Wednesday
and a comparison of Friday’s market data to the most recent low on Tuesday it
is time to take a more bullish stance on the market. Charts are improving too.
This all suggests that Friday was the bottom of this
correction. We’re not sure (we never are really) – but the market reaction Monday
supports that conclusion. The timing seems right too.
In 2012 there were corrections of 8% and 10% that lasted
42-days. The 9.9% correction this
January took 45-days top to bottom so for length of correction we are certainly
in the time-frame that would suggest we’re near the end (or at the end) of the
correction. Today was day 46 in this pullback.
I am moving back to a fully invested position.
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…
MONDAY MARKET INTERNALS (NYSE DATA)
Market Internals improved
to Neutral 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 increasing to 60% invested in stocks Tuesday. For
me, fully invested is a balanced 50% stock portfolio so this is slightly
higher. I will cut back to 50% if/when we reach the old highs.
INTERMEDIATE / LONG-TERM INDICATOR
Monday, the Price
indicator was positive; the Sentiment indicator was neutral; the Volume and VIX
indicators were negative. Overall this remains a NEGATIVE indication, but chart
and market analysis over rules this indicator.
It can be slow to turn.
