“…global bellwether Caterpillar (CAT) reported
disappointing results for the final quarter of 2018 and
provided a weak earnings outlook for 2019. The heavy-equipment giant cited
lower demand in China as a factor impacting performance, providing the latest
sign of the corporate impact of the country’s slowing economy.” Story at…
My cmt: Intel was punished and now Caterpillar. Both
blamed the Chinese economy. The U.S. markets will worry about “Asian Contagion.” A
U.S. GDP slowdown is already predicted. Ataman Ozyildirim, Director of Economic
Research at The Conference Board said last week, "While the effects of the
government shutdown are not yet reflected here, the LEI suggests that the
economy could decelerate towards 2 percent growth by the end of 2019." The
key-word here is “decelerate”.
EARNINGS (FactSet)
“To
date, 22% of the companies in the S&P 500 have reported actual results for
Q4 2018. In terms of earnings, the percentage of companies reporting actual EPS
above estimates (71%) is equal to the five-year average. In aggregate,
companies are reporting earnings that are 3.0% above the estimates, which is
below the five-year average. In terms of revenues, the percentage of companies
reporting actual revenues above estimates (59%) is below the five-year average.
In aggregate, companies are reporting revenues that are 0.2% above the
estimates, which is also below the five-year average.” From FactSet at…
My cmt: Both earnings and revenues are reporting below
the 5-year averages.
CORRECTION UPDATE
This is day 87 of this correction (assuming we haven’t
made a bottom yet). As of today’s close,
the Index is down 9.8% (19.8% max) from its prior high and has included 21
new-lows. In recent years only the 2011 correction contained 21 new-lows. That
correction bottomed at 19.4% and took 108-days to complete, top to bottom.
Over the last 20-years (excluding major crashes and the
current year) there have been 2 corrections that exceeded 19%, in 1998 and
2011. In 2011, the waterfall phase (nearly straight down with little or no
bounces) took place over 3-weeks (about 15-trading sessions) and included a 17%
drop with almost no relief. In 2018, the waterfall phase that ended Christmas
Eve lasted 3-weeks over 15-trading sessions and included a drop of 16%.
MARKET REPORT / ANALYSIS
-Monday the S&P 500 dropped about 0.8% to 2644.
-VIX rose about 8% to 18.87.
-The yield on the 10-year Treasury slipped to 2.749%.
Some have suggested that the Markets will not retest the
prior lows. Among the most compelling
argument is the advance-decline line went from oversold to overbought in record
time. My numbers show it took 4-trading
sessions. (That’s so fast I want to check the numbers again!) That is referred
to as a Breadth-Thrust and it shows a fairly broad rebound since the numbers of
stocks on the NYSE that advanced over the period is reasonably high; over the
last month more than 60% of stocks on the NYSE have advanced. All is not rosy
though.
There don’t seem to be enough new-highs to confirm the
end of a correction. A month after the
low on 28 December, we still haven’t managed to print more than 50-new-highs
even on the most bullish day. During the 2011, 19%-correction, we saw new-highs
hit 171 in the same amount of time. That correction included a retest of the
low. This time, new-highs have been slower to develop.
If we look at the Jan 2018, 10%-correction, new-highs
recovered at a very fast pace and there was no retest of the low. The slope of the curve was steep. This time,
the slope of the new-high curve is much flatter.
I’ve looked at the data going back 4 years. “Correction
over” signals developed when new-highs were rising at a much faster pace than
we see now. This data seems to suggest that we will see a retest of the prior
lows, but we can’t infer anything more than that. We still don’t know if this
is “The Big One”. I don’t think it is, but that is just a guess based mostly on
the hope that economists are right when they say we aren’t going into recession
anytime soon.
We said that the close at 2671 was probably a short-term
top. Based on the evidence so far, we haven’t seen anything to change that view.
My Money Trend indicator is still headed down and that’s
a bearish sign. (This indicator attempts to follow the general concept of Lowry
Research and their supply and demand methodology for stock market analysis.
Their concept is based on a detailed stock-by-stock analysis while mine is an
estimate based on readily available Macro data.
Theirs is much more accurate, but that doesn’t mean mine isn’t useful.)
My daily sum of 17 Indicators improved from +3 to +5 (a
positive number is bullish; negatives are bearish) while the 10-day smoothed
version that negates the daily fluctuations declined from +57 to +50. I tend to
watch the 10-day direction of this indicator and for now it is headed down, a
bearish sign.
Repeating what I’ve been saying for a while:
A “V”-bottom is very unusual and I don’t think it is
likely that this correction will race to a top without a retest of the prior
low at 2351. I sold the rally and cut my stock holdings back to about 30%, 9
January to reduce risk. Only a retest at the 2351 level, or a climb back above
the old highs (not likely without a retest), will tell us whether 2351 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%. (In this case -100%
since all are negative.) 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).
My current stock allocation is about 30% invested in
stocks on as of 9 January 2019. For me, fully invested is a balanced 50% stock
portfolio so this is a very conservative position.
INTERMEDIATE / LONG-TERM INDICATOR
Monday, only the
Sentiment indicator was positive; The Volume, VIX and Price indicators were
neutral. Overall this is a NEUTRAL indication. The longer/intermediate-term
version of Sentiment is neutral.
