“The essence of portfolio management
is the management of risks, not the management of returns. All good portfolio
management begins and ends with this premise.” - Ben Graham, The
Intelligent Investor.
JOBLESS CLAIMS (Reuters)
"The number of Americans filing applications for jobless
benefits fell more than expected last week, pointing to sustained labor market
strength that could further assuage concerns about the economy’s health…Initial
claims for state unemployment benefits fell 17,000 to a seasonally adjusted
216,000 for the week ended Jan. 5." Story at...
FIRST QUARTER MARKET LOW (Financial Sense)
“With stocks having sold off roughly 20% from their
October peak, the market has already priced in some global weakness as well as
slower earnings and GDP growth in the US. While uncertainty remains, we
continue to forecast a 1st quarter of 2019 low and new leg higher by the
summer in stocks.” – Kurt Kallaus. Commentary at…
My cmt: We’ve been reporting that the 2011 19% correction
(the longest in 20-years, excluding crashes) lasted 108-days. Since we are now at day 76, a prediction that
this correction will end this quarter seems reasonably safe. It might be over
in a month. At least, assuming my guess that this is only a correction and not
a bear market is correct.
DEAD CAT BOUNCE (Real Investment Advice)
“No animals were harmed during the writing of this
article…there is a reasonably high possibility, the bull market that started in
2009 has ended. If that is indeed the case, the current bounce, which we have
been anticipating, will likely not last for long. In other words, it currently
looks, and feels, like a “dead cat bounce,” in technical terms. With
the market still oversold in the short-term BUT with a confirmed “weekly
sell signal” in place, I want to reiterate that portfolio management
processes have now been switched from “buying dips” to “selling
rallies” until the technical backdrop changes.” – Lance Roberts.
Commentary at…
My cmt: This article is about risk managment.
MARKET REPORT / ANALYSIS
-Thursday the S&P 500 was up about 0.5% to 2597. (The
Index is now 1.5% below the 50-dMA.)
-VIX dropped about 2% to 19.50.
-The yield on the 10-year Treasury slipped to 2.720%.
My daily sum of 17 Indicators remained +10 (a positive
number is bullish; negatives are bearish) while the 10-day smoothed version
that negates the daily fluctuations improved from +47 to +57.
Market internals were good today, just not as good as
they’ve been over the past 3-weeks or so. Advancers outpaced decliners 1.6 to 1
(it was 2 to 1 yesterday and 3 to 1, 2-days ago); 56% of the volume was
up-volume (it was 75% yesterday) and new-highs again barely outpaced new-lows.
After 3-weeks buying (and some panic buying) it looks
like the rally off the lows may be slowing and setting up for a reversal down,
if not this week, probably next week. I
suspect the short-term top will be signaled by a big move up in the S&P 500.
The market tends to bounce up and down during the consolidation phase of a
correction (where we are now), so prepare for some reasonably directionless
moves once we see the short-term top. After that, it could be a month or more
before we see some light at the end of the tunnel. Let’s just hope it’s not a train about to run
us over!
Since a retest of the prior low at 2351 is likely, I sold
the rally and cut my stock holdings back to about 30% today, Wednesday, 9
January. I am doing this to reduce risk. There is a possibility that this “correction”
could be the bear market crash some have been anticipating for several years. The
issue us simple: 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.
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…
THURSDAY 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
Thursday, 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 for
Sentiment and that drives the overall Long-Term indicator to NEUTRAL.
