EMPIRE STATE MANUFACTURING (MarketWatch)
“Factory production
in New York state picked up somewhat in April but remained “fairly subdued,”
the New York Fed said Monday. The New York Fed’s Empire State business
conditions index rebounded to a reading of 10.1 from a nearly two-year low of
3.7 in March.”
My cmt: A reading higher than zero suggests expansion.
JEFFREY SAUT COMMENTARY EXCERPT (Raymond James)
“My work suggests a touch of caution here on a trading
basis. My short-term internal energy indicator is out of gas. The intermediate
energy indicator is neutral, but the long-term energy indicator remains highly
bullish.” – Jeffrey Saut, Chief Investment Strategist at Raymond James
& Associates, Inc. Full commentary at…
YIELD SPREAD INVERSION? NOT YET
Interest rates should be higher for long-term bonds
because the risk of unknowns is higher in the long run. When short-term
interest rates exceed the long-term rates, it’s because the near-term economic
conditions are suspect. That’s called a yield inversion. Every recession has
been preceded by a yield inversion (long-term interest rates minus short-term
interest rates were negative); but not every yield inversion has been followed
by a recession.
There are many long-short, yield-spreads that can be used
for recession prediction. I’ve plotted the 30-year minus the 5-yr (red line),
because I could get the data. What we see is that when the red-curve (yield
spread) has fallen below zero, it has preceded a huge drop in the S&P 500,
shown in black. One wonders whether the value of 0.195 in July 2018 is close
enough.
Some use the 10-year Treasury vs the Fed Funds rate for
measuring inversion. The value of that
spread is now zero, so it wouldn’t take much to precipitate an important yield-inversion,
although the academic research suggests that a yield-inversion should be
negative for 3 months to confirm the signal.
The San Francisco Federal Reserve has a detailed
discussion of yield inversion. They
stated:
“The yield curve has been a reliable predictor of recessions,
and the best summary measure is the spread between the ten-year and three-month
yields. Although this particular spread has narrowed recently like most other
measures, it is still a comfortable distance from a yield curve inversion.” - Michael D.
Bauer, research advisor in the Economic Research Department of the
Federal Reserve Bank of San Francisco. Commentary at…
MARKET REPORT / ANALYSIS
-Monday the S&P 500 was down about 0.1% to 2906.
-VIX rose about 3% to 12.32.
-The yield on the 10-year Treasury slipped to 2.553%.
I commented Friday that rallies usually end on high
volume. After checking the data, it looks like the opposite is true. Falling
volume in a rally is a reasonably good sign that a correction of some kind is
brewing, even if it’s only a 3-5% pullback. The correction at the end of
January in 2018 started with the 20-dMA of volume only slightly below today’s
20-day volume. Volume was low for a month before the January 2018 peak and the
Index rose about 6% with very low volume. Thus, low volume is a worry, but may
not be a valuable timing indicator. So far, we have a few days of the 20-dMA at
low values.
Volume slipped again and was about 10% below the monthly
average.
RSI flipped back to neutral today. Bollinger Bands are very close to being over
bought. If Bollinger Bands go negative
along with RSI, we will see a better buying opportunity.
My daily sum of 20 Indicators declined from -2 to -3 (a
positive number is bullish; negatives are bearish) while the 10-day smoothed
version that negates the daily fluctuations dropped from +47 to +40. Most of
these indicators are short-term.
I am bullish now, but still looking for a better entry
point. I expect a few more down days at this point.
TOP / BOTTOM INDICATOR SCALE OF 1 TO 10
Today’s Reading: 0
Most Recent Day with a value other than Zero: -1 on 12
April (RSI was negative.)
(1) +10 Max Bullish / -10 Max Bearish)
(2) -4 or below is a Sell sign. +4 or better is a Buy
Sign.
MOMENTUM ANALYSIS:
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
remained 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 as of 9 January 2019.
INTERMEDIATE / LONG-TERM INDICATOR
Monday, the VIX, VOLUME, PRICE and SENTIMENT indicators
were neutral. Overall this is a NEUTRAL indication.
