BOTTOM GETTING CLOSER (Heritage Capital)
“After Tuesday’s drubbing, the market is much closer [to
ending this downturn] and I am watching to see the major indices break to new
lows, not close in the bottom 25% of their daily range and then stabilize. Risk
on indices are leading on the downside so that will need to change as well.” –
PAUL SCHATZ,
PRESIDENT, HERITAGE CAPITAL. Commentary at…
MARKET AT RISK - STOCK MARKET OVER A TRAPDOOR
(MarketWatch)
“…the market has developed a 1-2, [i][ii] downside
structure in Elliott Wave terms, which means that if the S&P 500 remains
below 2,855/60 in the coming week, and then drops to 2,800, it will likely fall
through that trapdoor. The alternative at this time is that the market may still
attempt to push up as high as 2,900 to complete a larger wave 2 flat (presented
in yellow) before it falls through that trapdoor.” – Avi Gilbert, founder
of ElliottWaveTrader.net Commentary at…
-Wednesday the S&P 500 fell about 0.7% to 2783.
-VIX rose about 2% to 17.9.
-The yield on the 10-year Treasury was unchanged at 2.264%.
I measure Sentiment as %-Bulls (Bulls/{bulls+bears})
based on the amounts invested in Rydex/Guggenheim mutual funds. Currently, sentiment
is a bearish level of 87%-bulls, however, my current “sell” signal for sentiment
is even higher at 91% so the current level is a high neutral. At the top of
this pullback, a month ago, sentiment was also 87%-bulls. The point here is that I don’t think the pullback can end until
investors become more bearish and begin to take more short positions.
My daily sum of 20 Indicators dropped from -1 to -11 (a
positive number is bullish; negatives are bearish) while the 10-day smoothed
version that negates the daily fluctuations improved from -37 to -41. (These
numbers sometimes change after I post the blog based on data that comes in
late.) Most of these indicators are short-term. Today’s indicator total showed
a big bearish shift.
Probably the most significant was Breadth, where the
10-dMA of stocks advancing on the NYSE dropped down to 46%.
There weren’t many bullish signs today. Volume did fall
some, but behind the scenes, internals data dropped and that suggests that the pullback
is not over.
I still have a very low % invested in stocks and I’m
looking for a buying point.
TOP / BOTTOM INDICATOR SCALE OF 1 TO 10
Today’s Reading: 0
Most Recent Day with a value other than Zero: +2 on 13
May (RSI & Bollinger Bands were bullish, but this signal has expired.)
(1) +10 Max Bullish / -10 Max Bearish)
(2) -4 or below is a Sell sign. +4 or better is a Buy
Sign.
NOTE: Topping indicators
are good at identifying a blow-off top with buyers in a frenzy. These indicators are not so good at
identifying a slow, rollover-top that can happen when buyers simply go on
strike.
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…
WEDNESDAY MARKET INTERNALS (NYSE DATA)
Market Internals declined
to NEGATIVE on the market at the close.
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).
Using the Short-term indicator in 2018 in SPY would have
made a 5% gain instead of a 6% loss for buy-and-hold. The methodology was Buy
on a POSITIVE indication and Sell on a NEGATIVE indication and stay out until
the next POSITIVE indication. The back-test included 13-buys and 13-sells, or a
trade every 2-weeks on average.
My current stock allocation is about 30% invested in
stocks as of 9 January 2019. I sold the rally about half way up expecting a
retest of the lows Dec 2018.
INTERMEDIATE / LONG-TERM INDICATOR
Wednesday, the VIX indicator was Bearish; Volume, PRICE
and SENTIMENT indicators were neutral. Overall this is a NEUTRAL indication.
Just a reminder: This indicator is my
primary long-term indicator and it gave SELL signals 13 thru 20 May.
