“This morning's release of the publicly available data from ECRI puts its Weekly Leading Index (WLI) at 143.4, up 2.1 from the previous week. Year-over-year the four-week moving average of the indicator is now at -2.86%, down from last week. The WLI Growth indicator is now at -6.51, also down from the previous week.”
Chart and commentary at…https://www.advisorperspectives.com/dshort/updates/2019/01/11/ecri-weekly-leading-index-update-colliding-with-the-economic-cycle-again
My cmt: Monthly data for the Conference Board’s LEI is
still bullish – evidence for a recession remains weak, but I don't claim to be an economist.
SLOWING GROWTH (WSJ)
“The U.S.’s biggest public companies are warning that
their earnings may not be as strong as they hoped this year, intensifying pressure
on a bull market that has struggled to regain its footing. Firms in the S&P
500 were projected back in September to report fourth-quarter earnings growth
of 17% from the year earlier.
But dimmer expectations for global growth and
disappointing holiday sales have forced many companies to slash their
forecasts, pushing the estimated earnings-growth rate for the quarter closer to
11%...” Story for subscribers only at…
IS THE CORRECTION OVER? (The Fat Pitch)
“…sharp falls of at least 15% have a strong tendency to
have their original low retested in the weeks/months ahead. But what is notable
this time is the exceptional breadth that has driven the indices higher: in the
past 70 years, this has never taken place within the context of a bear
market. The Christmas low may still get retested, but it seems likely to
hold and new highs are probably ahead. Nothing in the stock market is ever
guaranteed, but this has been the consistent, historical pattern.” – Urban
Carmel. Commentary at…
CMT: The piece points out that the strong increase in breadth
(# of stocks participating in the rally) is a measure of thrust and the strong
thrust makes it much less certain that the prior low will be retested. It is
hard to find a correction that doesn’t have a retest, but it’s a possibility
worth considering. One point; computerized trading has increased the suddenness
of stock market moves. Breadth-thrust
now could be caused by algorithmic trading.
We do know that high volume up-days are much more frequent now that they
used to be and that is a measure of a rush to buy stocks. I suspect the same is
true for “breadth-thrust.”
I still think it is likely we’ll see a test of the prior
lows; I agree that the odds are this isn’t the start of a bear market, but we
don’t really know.
JEFFREY SAUT COMMENTARY EXCERPT (Raymond James)
“Recently, much has been written, and said, about a
retest. The reference is about the major indices pulling back to their recent
December closing lows, creating a double-bottom in the charts. In the case of
the S&P 500…that would mean a pullback and retest of the December 24, 2018
closing low of 2351.10. As often written,
our sense is that is not going to happen given the sequence of events the
equity markets have been through over the past three months [italics my
emphasis]…
… ‘When it's all said and done, it's not clear how fast
the current pace of buying can continue, but earnings season brings a new focus
for investors as it starts in earnest next week. [- Bespoke Investment Group]’”
Commentary at…
My cmt: Ouch! Another Pro suggesting there will not be a
retest of the prior lows? Hmmm. It’s possible that the Fed driven drop will be
saved by the Fed driven dovish comments, thus avoiding a retest, but that would
be very unusual. I am positioned for a retest and given the risks, it seems
like the place to be.
MARKET REPORT / ANALYSIS
-Monday the S&P 500 was down about 0.5% to 2583.
-VIX rose about 5% to 19.07.
-The yield on the 10-year Treasury dipped to 2.33%.
Regarding a retest of the prior low, it is probably a
good sign that some are suggesting we won’t have a retest. If everyone
agrees on where the market is going, it usually goes somewhere else.
My daily sum of 17 Indicators dropped from +12 to +7 (a
positive number is bullish; negatives are bearish) while the 10-day smoothed
version that negates the daily fluctuations improved from +69 to +75.
Market Internals dipped today. New-lows exceeded
new-highs today and that’s a bearish sign.
Since a retest of the prior low at 2351 is likely, I sold
the rally and cut my stock holdings back to about 30%, 9 January. I did 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.
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 dropped
to 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, the
Sentiment and Volume indicators were positive; The Price and VIX 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. Bullish
Sentiment is based on the short-term version of this indicator. The longer-term version is neutral for
Sentiment.
