“The 35-day partial government shutdown helped triggered
a sharp drop in consumer confidence in January and signaled growing worries
about the future, a fresh survey shows, though optimism has typically rebounded
after similar episodes in the past. The consumer confidence index fell to 120.2
in this month from 126.6 in December, the privately run Conference Board said Tuesday.”
Story at…
My cmt: Consumer confidence tends to follow the stock
market, but not this time. The market
made a strong rebound – not so for the Consumer Confidence reading.
FED REGIONAL MANUFACTURING (Advisor Perspectives)
“Regional manufacturing surveys are a measure of local
economic health and are used as a representative for the larger national
manufacturing health. They have been used as a signal for business uncertainty
and economic activity as a whole. Manufacturing makes up 12% of the country's
GDP.” – Jill Mislinsky.
Chart and commentary at…
My cmt: The article points out that the ISM Manufacturing
surveys are also falling sharply. None are screaming “recession,” but it is
disconcerting to note that important measures of economic activity are falling
sharply. As we noted previously, Leading economic Indicators are falling too. See
“LEI” at…
This is the kind of news that tends to support my belief
that a retest of the Christmas Eve lows (S&P 500 - 2351) are more likely
than not. If that weren’t enough…
MUELLER PROBE NEARLY DONE (ZeroHedge)
“A visibly sweating acting Attorney General Matthew
Whitaker said late on Monday that he was briefed on special counsel Robert
Mueller’s Russia investigation and that it is "close to being
completed", the first public indication by the government that the probe
is drawing to a close.” Story at…
My cmt: I think that it is clear that President Trump
paid off Stormy Daniels (the porn star) to keep her quiet during his
Presidential campaign. While paying off one’s mistress doesn’t seem to be
grounds for impeachment, it apparently is a violation of campaign finance
rules/laws. The problem is that President Trump has repeatedly denied being aware
of the payoff and I suspect he has answered written questions to that effect
under oath. With witnesses likely to testify otherwise, it seems likely that
Trump has committed perjury in his written answers to Mueller. The case is much like the perjury committed
by President Clinton during the Monica Lewinsky affair. Ken Starr was initially appointed to
investigate Clinton real estate deals (Whitewater) and the suicide of Vince
Foster. The wide-ranging investigation uncovered other more sordid dealings. Trump
has similar problems. He may be impeached – whether he’ll be removed remains to
be seen. More to the point for this blog, the stock market won’t like it.
The current odds for impeachment are even money at PredictIt.org
at…
TECHNICALLY SPEAKING EXCERPT – RETEST IS LIKELY (Real
Investment Advice)
“…this rally has already retraced 65% of the waterfall
decline (greater than average and median) and has lasted about three weeks
(less than average but greater than median). This suggests upside from
here may be limited in both magnitude and duration. Furthermore, these data
strongly suggest the major index will retest the Christmas Eve low at the very
least and most likely will make a new lower low in the weeks and months
ahead…this could certainly work out much like 2015-2016 if the Fed throws in
the towel to appease the markets. If they don’t, there are plenty of
indications which suggest a more important mean reversion process has already
begun.” Commentary at…
My cmt: This article included a chart that showed 19
corrections/crashes were the waterfall phase of the correction included a drop
of 15% or greater. The waterfall-low was tested in every one of those
instances.
CORRECTION UPDATE
This is day 88 of this correction (assuming we haven’t
made a bottom yet). As of today’s close,
the Index is down 9.9% (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
-Tuesday the S&P 500 dropped about 0.2% to 2640.
-VIX rose about 1% to 19.13.
-The yield on the 10-year Treasury slipped to 2.712%.
Forecast Bias takes several forms. If your investment
group is bullish, you are likely to be bullish. (Read the book “Blink.” It has
a very good discussion of research that proves this type of bias.) You are likely to be bullish if you have a
lot of money invested in stocks, even as the evidence begins to turn against
you. I try to remain neutral in my assessments, but it isn’t easy to keep an
even keel when divining the tea leaves.
Just look at the data now. There are 3 camps.
(1) Bullish analysts cite the Breadth Thrust I mentioned
yesterday as the reason we won’t see a retest of the prior low. They are
bullish.
(2) Neutral. Those like me are waiting for more evidence
and cite the long correction-history where almost all corrections greater than
10% include a retest of the low made at the end of the waterfall phase of the
correction – in this case, Christmas eve. We can also mention the poor recovery
of new-high data and weak advancing-volume over.
(3) Super bears are calling for a 50%+ crash. A super
bear can point to new-lows greater than 1000 for three days running (21-24
December). The only time we’ve seen even 2 consecutive days with new-lows this
high in the last 10 years was during the Financial Crisis and crash in
2008-2009. This time we had 3! There’s also plenty of worry and bad news to
feed the Bears.
Which will it be? I am in the Middle of the Road Camp,
expecting a retrace to the prior low, but I’m afraid we’ll have to wait and
see.
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, but its rate of decline slowed considerably recently.
My daily sum of 17 Indicators improved from +4 to +8 (a
positive number is bullish; negatives are bearish) while the 10-day smoothed
version that negates the daily fluctuations improved from +49 to +50. This is
looking much more bullish today. We’ll
have to see if the trend continues.
Today was an odd day. We saw advancers outpace decliners
(56% of NYSE stocks advanced); up volume exceeded down volume with 58%
up-volume; and new-highs exceeded new-lows. In spite of those impressive numbers,
except for the Dow, the major indexes were down. I won’t even try to explain
that.
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%. 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…
TUESDAY MARKET INTERNALS (NYSE DATA)
Market Internals switched
to POSITIVE 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
Tuesday, The VIX, Volume,
Sentiment and Price indicators were neutral. Overall this is a NEUTRAL
indication.
