CORRECTION UPDATE
This is day 68 of this correction. As of today’s close, the Index is down 15.2%
(19.8% max) from its prior high. There have been 21 new-lows so far. Over the
last 10-years, and Outside of the Financial Crisis, that has only been matched
once. That was in the Oct 2011 correction that bottomed at 19.4%.
The average correction over the last 10-years (excluding
major crashes) lasted 52-days. The average drop over that period was 12%. The
longest correction in the last 10-years was the 19% drop in 2011. It took
108-days to complete, top to bottom.
CRUDE OIL INVENTORIES (OilPrice.com)
“A day after the American Petroleum Institute pressured
already stressed oil prices further with an unexpected inventory build, the Energy
Information Administration reported instead that crude oil inventories were
virtually unchanged for the week. At 441.4 million barrels, the inventories are
within seasonal limits, the EIA said in its last weekly inventory report for
the year.” Story at…
My cmt: Crude prices are playing a part in this
correction.
MARKET REPORT / ANALYSIS
-Friday the S&P 500 slipped about 0.1% to 2486.
-VIX fell about 5% to 28.34.
-The yield on the 10-year Treasury slipped to 2.719%.
My daily sum of 17 Indicators improved from 0 to +1 (a
positive number is bullish; negatives are bearish) while the 10-day smoothed
version that negates the daily fluctuations improved from -45 to -36.
Yesterday, Sentiment switched to a bullish indication. I
measure Sentiment as %-Bulls (5-dMA of Bulls/{bulls+bears}) based on the
amounts invested in Rydex/Guggenheim mutual funds. This is a tricky indicator
because it is on a sliding scale – that is Sentiment climbs as a bull market
ages. For example, Sentiment at the bottom of the 10% correction in 2012 was
50%. At the bottom of the 10% correction
in 2018 Sentiment was 84% at the bottom.
Yesterday it was 77%. Sentiment is not a good timing indicator, but it
does set the table for other indicators and perhaps we’ll see a bullish confirmation
later.
I have suggested that the waterfall phase of the current
correction has ended. We also compared
the current correction to the 19% correction of 2012 and noted that the
waterfall phases were nearly the same length with stats at the bottom very
similar. I’ve read comments that the failed consolidation-zone in the current
correction is evidence that we’re in a Bear market. Here is a plot of the 1998,
19%-correction. It shares similarities with the current correction, especially
the failed consolidation zone about half way down.
I read a comment recently that said the biggest up-moves
happen in bear markets and the nearly 5% up-day after Christmas is just more
evidence that we’re now in a bear market. I wouldn’t be so quick to jump to
that conclusion. In the Aug 2011, 19%-correction, the S&P 500 bounced up
from the 20th new low (about where we are in this correction) with an up day of
4.25%. The next day it gave it all back
and retested the low. That was followed by another up day of 4.6% and several
up-days and then a lot of choppiness for another two months. The final 21st
new-low was 2% lower than its prior low 2 months earlier. My point? Big up-moves
happen in big corrections too, not just bear markets.
While I worry, we may be in a bear market, I lean toward
the optimistic side. Until proven otherwise, I think we’re in a correction.
Further, I think the correction has made its low, or very close to it. Still,
we must be concerned about the possibility that this is a bear market with much
more pain to come.
THE BOTTOM LINE: For me, any significant drop below
2350 must be sold to a point with no more than 30% invested in stocks.
Only a retest at the 2350 level will tell us whether this
was THE bottom.
MOMENTUM ANALYSIS:
(Momentum analysis is suspect in a selloff, so I‘d be
careful using momentum data for the time being – the only reason utilities are
highly ranked among ETFs is as an alternative to stocks during the correction.) The same is true for individual stocks in the
Dow 30.
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 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 increased stock allocations to 60% invested in stocks
on 27 November. I bumped up stock investments to 65% on 19 December. Both
increases were made at technical bottoms or shortly thereafter; unfortunately,
those bottoms didn’t hold. For me, fully invested is a balanced 50% stock
portfolio so this is higher.
A successful test at the bottom (2350, S&P 500)
should be bought with a very high level of stock allocation. Conversely, a
failure at 2350 or somewhat below, should be sold.
INTERMEDIATE / LONG-TERM INDICATOR
Friday, the Sentiment
indicator was positive; VIX and Volume indicators were negative; Price was
neutral. Overall this is a NEUTRAL indication.
