“Easing fears of a recession, the labor market bounced
back resoundingly in December as employers added 312,000 jobs amid
stock market turmoil and increasing worker shortages. The unemployment rate
rose from a 50-year low of 3.7 percent to 3.9 percent as an additional 419,000
Americans began working or looking for jobs, many of them drawn in to the labor
force by a strong job market…” Story at…
HOURLY EARNINGS (Bloomberg)
“Average hourly earnings rose 3.2 percent from a year
earlier, more than projected and matching the fastest pace since 2009.” Story
at…
FED PLEDGES PATIENCE (msn.com)
“Federal Reserve Chairman Jerome Powell on Friday moved
to ease concerns in financial markets, saying that while U.S. economic momentum
is solid, the central bank is sensitive to the risks highlighted by investors
and will be patient with its monetary policy in 2019…"Particularly with
the muted inflation readings that we've seen coming in, we will be patient as
we watch to see how the economy evolves," he told the American Economic
Association, adding that the Fed is not on a preset path of tightening policy
and suggesting it could pause rate hikes as it did in 2016.” Story at…
MARKET REPORT / ANALYSIS
-Friday the S&P 500 jumped up about 3.4% to 2532.
-VIX fell about 16% to 21.38.
-The yield on the 10-year Treasury rose to 2.575%.
FED governors are now suggesting a pause in FED interest
rate hikes. Here comes the Bull!
…at least for the day.
Today was a high, up-volume day confirming the bullish trend
reversal we identified after Christmas. The Market internals also turned
bullish on the market. Indicators are also now bullish.
My daily sum of 17 Indicators improved from +3 to +9 (a
positive number is bullish; negatives are bearish) while the 10-day smoothed
version that negates the daily fluctuations improved from -6 to +8.
While we now have a lot more bullish indications, a
retest of the prior low at 2351 is still likely.
As we have noted before:
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
or within a couple % of 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.
Since we can’t say whether a retest of the low will be a
successful test or not, it is best to play conservative and sell the ongoing
rally. Selling should be in the range of
2560 – 2650. For further discussion on this subject see the Market Analysis in
my blog post…
Only a retest at the 2350 level will tell us whether 2350
was THE bottom. A retest is likely due to the low volume we saw at the low
before Christmas. One might think the
low volume was due to the Holiday, but we have seen low-volume days like this
during corrections that weren’t around a holiday.
THE BOTTOM LINE: For me, any significant drop below
2350 must be sold to a point with no more than 30% invested in stocks.
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…
FRIDAY MARKET INTERNALS (NYSE DATA)
Market Internals turned
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).
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.
INTERMEDIATE / LONG-TERM INDICATOR
Friday, the Sentiment
indicator was positive; VIX, Volume and Price indicators were neutral. Overall
this is a NEUTRAL indication.
