“Factory orders in the U.S. fell more sharply than
expected in November, adding to a litany of reports showing a slowdown in
growth in the industrial segment of the economy toward the end of 2018. A key
measure of business investment also declined.” Story at…
AUTO SALES (Forbes)
“As if the polar vortex didn’t already put a chill on a
good swath of the United States, the frigid air mass was one of several factors
freezing January vehicle sales. Most automakers reporting last month’s results
did not have positive news.” Story at…
JEFFREY SAUT COMMENTARY EXCERPT (Raymond James)
“Despite the overbought condition, my work suggests the
equity markets can trade higher into the mid-February energy peak often
referenced in these reports. Despite that outlook, I do not trust the
overbought condition the equity markets have currently worked themselves into
and continue to advise for caution on a short-term trading basis.” Commentary
at…
Mr. Saut does not believe there will be a retest of the
low.
JOHN HUSSMAN COMMENTARY EXCERPT (Hussman Funds)
“As I noted two weeks ago, the expected “clearing rally”
from the December lows has served its function, eliminating the oversold
condition of the market, and reviving bullish sentiment among investors. As of
Friday, February 1st, the “clearing rally” from the December lows has brought
the S&P 500 within 8% of the most extreme point of overvaluation in U.S.
history; with valuations that continue to rival the 2000 and 1929 peaks, on the
measures that we find best correlated with actual subsequent S&P 500 total
returns….As for recession risk, my impression is that risks are increasing more
than Wall Street generally concedes, but we still don’t observe enough
deterioration to conclude that a recession is imminent…For now, we’re seeing
certain inversions that tend to precede economic weakness, but don’t have
immediate timing associated with them. For example, as I noted last month, the
“future expectations” component of consumer confidence continues to deteriorate
relative to the “present situation” component. Other observers have also echoed
this concern.” – John Hussman, PhD. Commentary at…
CORRECTION UPDATE
This is day 92 of this correction (assuming we haven’t
made a bottom yet – I count top to bottom).
As of today’s close, the Index is down 7.0% (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
-Monday the S&P 500 rose about 0.7% to 2725.
-VIX fell about 3% to 15.73.
-The yield on the 10-year Treasury rose to 2.721%. (Front
page news in the WSJ on the bond market pointed out that the ongoing bond rally
historically does not bode well for the stock market.)
My daily sum of 17 Indicators slipped from +11 to +7 (a
positive number is bullish; negatives are bearish) while the 10-day smoothed version
that negates the daily fluctuations remained +63.
While it appears that the Index has broken its downtrend
line, there are still resistance points that may prove problematic for further
advance. We have managed to break above the 100-dMA so we’ll need to see if can
close above it on consecutive days. The Index is now only 0.6% below its
200-dMA and that is a point of major resistance. In spite of the strong rally,
we do observe signs of a slowdown.
BEAR SIGNS
-Money Trend is falling.
-Bollinger Bands are a whisker away from an oversold
reading. RSI is also very nearly oversold at 77. (It is bearish at 80.) These
are close enough to be bearish.
-Up volume has reversed downward.
-Breadth is overly bullish and the overbought/oversold
ratio is overbought. This indicator is
usually early, but we are starting to see some confirmation.
-In the last month there have been only 5 down-days and
in recent years that has been a bearish sign.
BULLISH SIGNS
-New-high/new-low data is headed higher.
-Size of the up-moves have been larger than the down moves
over the last month.
-VIX is falling and finally looking bullish.
-Late day action (the Smart Money) is headed up.
-The XLI-ETF (Cyclical Industrials) is outperforming the
S&P 500 index and the XLU-ETF (Utilities).
If investors were worried, they’d be selling cyclicals and buying
Utilities.
None of this is definitive, but the rally is looking shaky;
I expect a reversal soon, perhaps this week.
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…
MONDAY MARKET INTERNALS (NYSE DATA)
Market Internals slipped
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 Price and
VIX indicators were positive. The Volume and Sentiment indicators were neutral.
Overall this is a BULLISH indication.
