“U.S. consumer spending gathered momentum in November as
households bought furniture, electronics and a range of other goods, which
could further allay fears of a significant slowdown in the American economy
even as the outlook overseas continued to darken.” Story at…
INDUSTRIAL PRODUCTION (Marketwatch)
“Industrial production rose 0.6% in November, the
strongest gain in three months, the
Federal Reserve reported Friday, on the back of strong mining
and utility output.” Story at…
MARKET REPORT / ANALYSIS
-Friday the S&P 500 dropped about 1.9% to 2600. (We
don’t want a drop much below 2600 since that is the lower trend-line going back
to 2016. Below there, 2582 is the closing low for the Jan-Apr correction
earlier in 2018 and we might test that level.)
-VIX rose about 5% to 21.63. (Gee, the Options Boys
didn’t have their heart in this drop in stocks.
5% on the VIX is very small for a 2% down day on the S&P 500.)
-The yield on the 10-year Treasury slipped to 2.895% as
of 4:58pm.
So, my bottom call of 2633 has proven to be too
optimistic. The technical-bottom did not hold as it was overcome by news. The
news that tripped the markets was most likely that global growth is
slowing. The selling started in Asia and
engulfed the world. Looking at world
markets, only India and a couple of Scandinavian exchanges were in the Green. (The
real possibility that Trump may be impeached didn’t help the markets although
it is doubtful that he will be removed from office for paying hush money to mistresses,
even if he did lie about it; but that’s another story for another time.)
Troubles overseas are often the cause for stock market
trouble in the U.S. One would think that the US is doing so well now, a
slowdown elsewhere shouldn’t affect us; but based on past history, it probably
will continue to be a drag on U.S. stocks until investors decide the U.S.
economy is not at risk.
Regarding the markets:
There isn’t much to be optimistic about today; there were
only a few bullish signals. Here are three:
(1) Breadth vs. the S&P 500 is still very extended
and has reached a level that
matched the level
of the of the April 18 bottom this year although it is not exceeded levels from
all other corrections.
(2) Breadth (percent of stocks advancing over the last 10
and 20-days) is below the bottom of the 2011, 19% correction; breadth is very
oversold (the overbought/oversold index).
(3) The 20-day moving average (20-dMA) of volume on the
S&P 500 peaked on 20 November and was about 10% lower today. Peak volumes
are falling too. Today’s volume was more than 15% less than the volume at the
panic low on 24 October. The point here is that volumes have not been
increasing as the market has made new lows. That suggests we are closer to a
bottom.
Unfortunately, today was not a bottom and it will need to
be retested before we can say we’ve made a bottom...again.
My daily sum of 17 Indicators remained -8 (a positive
number is bullish; negatives are bearish) while the 10-day smoothed version
that negates the daily fluctuations dropped from +1 to -10. Again, these are not good numbers.
I wrote yesterday, “Technically, I think we ended the
correction 7 Dec; but will most investors agree? We’ll have to wait and see.”
Obviously, investors did not agree.
We saw a Sell signal on the long-term NTSM system today. Unfortunately, this doesn’t make a decision
any easier now, because the long-term signal can flash sell at a bottom. It first gave us the sell signal on 11
October and that was the important signal.
This is day 59 of this correction. The average correction over the last 10-years
(excluding major crashes) lasted 52-days. The longest correction in the last
10-years was the 19% drop in 2011. It took 108-days to complete, top to bottom –
averages sometimes lie.
In 2011 we saw a false bottom call based on technicals. The market dropped another 4% before
bottoming. If that were to repeat this
time, the S&P 500 would drop another 3% from here. That seems as reasonable
a guess as any, but I suspect we will need to see some additional panic selling
before we can put this behind us. Since we have failed a technical bottom and
will need to establish another, a prudent course of action may be to reduce
stock exposure (again – darn it) to limit possible losses. Given that we’re at the lower trend-line, we should
wait for confirmation of a trendline break - 2 closes below the 2600 level or a
close 3% below 2600 (2525). One caveat, if the Index drops below the February lows (2582), I will be out.
I’ll consider this further and try to post Monday before 1100
if I decide to cut stock exposure again Monday.
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
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 increased stock allocations to 60% invested in stocks
on 27 November. For me, fully invested is a balanced 50% stock portfolio so
this is slightly higher. I am considering reducing stock holding significantly,
based on the recent market action.
INTERMEDIATE / LONG-TERM INDICATOR
Friday, the VIX and
Volume were negative; Price and Sentiment indicators were neutral. Overall this
is a NEGATIVE / SELL indication.
