“Financial-market volatility and global-growth concerns
have made the Federal Reserve's rate path less clear going forward, the central
bank revealed in meeting
minutes out Wednesday, adding that officials ‘could
afford to be patient about further policy firming.’ ‘These minutes are the
clearest signal we've received that the Fed will slow down the rate hike pace,
which is what the markets have seemed hungry for,’ said Mike Loewengart, head
of investment strategy at E-trade.” Story at…
https://www.businessinsider.com/federal-reserve-can-afford-patience-future-hikes-fomc-minutes-2019-1
CRUDE OIL INVENTORY (OilPrice.com)
“The Energy Information Administration reported a
crude oil inventory draw of 1.7 million barrels for the first week of 2019,
after a 6.9-million-barrel build
in the last week of 2018. Inventories remain over the five-year seasonal
average, the authority said.” Story at…
CORRECTION UPDATE
This is day 75 of this correction. As of today’s close, the S&P 500 Index is
down 11.8% (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%.
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%.
The 2011 correction took 108-days to complete, top to
bottom.
MARKET REPORT / ANALYSIS
-Wednesday the S&P 500 was up about 0.4% to 2585. (The
Index is now 2% below its 50-dMA.)
-VIX dropped about 3% to 19.86. (VIX has been stubbornly
high after the low.)
-The yield on the 10-year Treasury slipped to 2.720%.
My daily sum of 17 Indicators rose from +8 to +10 (a
positive number is bullish; negatives are bearish) while the 10-day smoothed
version that negates the daily fluctuations improved from +32 to +47.
We saw more good market internals today. Advancers
outpaced decliners 2 to 1 (it was 3 to 1 yesterday); 75% of the volume was
up-volume and new-highs again outpaced new-lows.
The Fosback New-High/New-Low Logic indicator remains
bullish. This is the indicator that turned bearish at the top of the current
correction.
Investors are now afraid of being left behind and we have
seen the S&P 500 up 8 out of the last 10-days. 70.3% of stocks on the NYSE
have been up over the last 10-days while the S&P 500 has climbed 9.9% from
the bottom. That’s not just bullish, it’s too bullish. Closing tick is now so
high that it is bearish. The overbought/oversold ratio is now overbought, but
this indicator is always early so there’s no point in paying attention to it. Still,
it is time for caution.
S&P 2630-2640 is major resistance based on the lows
of the consolidation zone back in November and December. The 50-dMA is now 2637.
2640 is also the 50% retracement zone.
Since a retest of the prior low at 2351 is likely, I cut
my stock holdings back to about 30% today, Wednesday. I am doing this to protect the
portfolio. There is a possibility that
this “correction” could be the bear market crash some have been anticipating
for several years. Surfing the web, one would find close to an equal split;
this is ether a great buying opportunity or the beginning of a crash that will
take the markets down another 50%! Nothing in my work predicts the future; I
try to manage risk by watching the markets, but…
…I lean toward the optimistic side. I think the market will retest the 24
December low of 2351 and (after a bit of more angst) bounce up. That’s what I
think will happen, but why guess. The
issue us simple: only a retest at the 2351 level, or a climb back above the old
highs (not likely), will tell us whether 2351 was THE bottom.
THE BOTTOM LINE: I’ve cut stock holdings to about 30% of
the overall portfolio. If one chooses not to sell, keep in mind that a
significant drop below 2350 (3% or more) could be the beginning of a further
drop that could take the markets down drastically.
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…
WEDNESDAY MARKET INTERNALS (NYSE DATA)
Market Internals
remained 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
Wednesday, the
Sentiment and Volume indicators were positive; VIX and Price indicators were
neutral. Overall this is a POSITIVE indication, BUT IT MAY BE TOO EARLY to Buy
now since we expect a retest of the low. It does indicate that conditions have greatly
improved. Another big caution: Bullish Sentiment is based on the short-term
version of this indicator. The longer
term version is neutral.
