“…there's reason for optimism. The economy remains
strong, despite a Wall Street consensus that the pace of growth will slow.
Unemployment is holding around a 50-year low and job growth continues apace,
despite persistent conventional wisdom that there's not much more room to
expand…
“With the last Fed decision of the year behind us and the
market having gone through a dramatic pullback since, we believe that barring
an appearance of a 'black swan' event, or the shock of a bolt from the blue,
the worst of the declines experienced by stocks in 2018 are behind us,” John
Stoltzfus, chief market strategist at Oppenheimer, said in a note….
…Moreover, there's
not a single strategist of the major Wall Street firms who
thinks the market will finish 2019 lower than it started.” Story at…
HUSSMAN MARKET COMMENT EXCERPT (Hussman Funds)
“While we don’t presently observe conditions to indicate
a “buying opportunity” or a “bottom” from a full-cycle standpoint, we do observe
conditions that are permissive of a scorching market rebound, even if it only
turns out to be the “fast, furious, prone to failure” variety…we’ve prepared
for the possibility of unusual volatility here, most likely including one or
more daily moves
in the range of 4-6%, potentially to the upside. Yes, that means one or more
daily moves on the order of 100-150 points on the S&P 500 and 900-1300 points
on the Dow. You think I’m kidding.” – John Hussman, Phd. Full commentary at…
My cmt: From other reports, John Hussman sent a short
version of this note before the 26th so his comment was prescient.
10-1 UP-VOLUME DAY (McClellan Publications)
“I am defining these 10-1 days as being days on which
NYSE Up Volume was more than 10 times the amount of Down Volume, using numbers
as published by the Wall Street Journal……So this latest lone 10-1 signal [26 Dec]
is likely bullish news, appearing after an oversold bottom. It will
become even more bullish if we see additional 10-1 Up Volume Signals in the
weeks ahead.” – Tom McClellan.
Chart and commentary at…
My cmt: I commented about this when it occurred after
Christmas. Tom McClellan’s take is slightly different. I look at 90% up-volume. Using Tom’s numbers,
but calculated the way I look at it (as described in Paul Desmond’s, Lowry
Research paper), McClellan’s 10 to 1 day
would actually be a 91% up-volume day.
MARKET REPORT / ANALYSIS
-Monday the S&P 500 rose about 0.9% to 2507.
-VIX fell about 10% to 25.42.
-The yield on the 10-year Treasury slipped to 2.683%.
My daily sum of 17 Indicators improved from +1 to +3 (a
positive number is bullish; negatives are bearish) while the 10-day smoothed
version that negates the daily fluctuations improved from -36 to -25.
One of the more obscure indicators I look at I the
Fosback High/Low Logic Indicator. “The High Low Logic Index was developed by
Norman Fosback. It is calculated as the lesser of the number of new highs or
new lows divided by the total number of issues traded. Daily or weekly NYSE
data is typically used in the calculation. The concept behind the indicator is
that either a large number of stocks will establish new highs or a large number
of stocks will establish new lows, but normally not both at the same time.
Since the High Low Logic Index is the lesser of the two ration, high readings
are infrequent. When a high indicator reading does occur, it signifies that
market internals are inconsistent with many stocks establishing new highs at
the same time that many stocks establish new lows. When this happens, it is
considered bearish for stock prices.” From…
The Fosback High/Low Logic Indicator was one of the few
indicators that nailed this correction. In fact, it gave a bearish sign the day
the market topped out at 2131 on 20 September. (I ignored it because in the
past this indicator has been very early.) I mention this, because Friday the
Fosback indicator gave a short-term Buy signal. Let’s hope it’s right again.
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. The
waterfall phase of the correction ended 24 December and that is usually the
low. Still, we must be concerned about the possibility that this is a bear
market with much more pain to come since selling could resume if a retest of
the prior low is not successful.
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…
MONDAY 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
Monday, the Sentiment
indicator was positive; VIX and Volume indicators were negative; Price was
neutral. Overall this is a NEUTRAL indication.
