EMPLOYMENT REPORT (Reuters)
“U.S. job growth slowed sharply in May and wages rose
less than expected, raising fears that a loss of momentum in economic activity
could be spreading to the labor market, which could put pressure on the Federal
Reserve to cut interest rates this year…Nonfarm payrolls increased by 75,000
jobs last month…” Story at…
MANUFACTURING: TOUGHEST MONTH IN 10 YEARS (Financial
Sense)
“Two of the main manufacturing gauges for the U.S. posted
a further decline for the month of May. The IHS Markit index is now at 50.5,
just barely above the 50 level for contraction. ‘May saw US manufacturers
endure the toughest month in nearly ten years, with the headline PMI down to
its lowest since the height of the global financial crisis. New orders are
falling at a rate not seen since 2009…’ Chris Williamson, Chief Business
Economist at IHS Market. Story at…
FED CUT? NOT IF, BUT WHEN (CNBC)
“Economists say it’s now likely the Fed will move to cut
rates this year, possibly as early as July.” Story at…
MARKET REPORT / ANALYSIS
-Friday the S&P 500 rose about 1.1% to 2873.
-VIX rose about 2% to 16.3.
-The yield on the 10-year Treasury slipped to 2.083%.
Bad news is good news? Bond futures show that the FED is
likely to cut interest rates relatively soon as employment slows. “FED likely
to cut” may be the reason for today’s dramatic rise in the markets. Another may be that investors on the
sidelines are agreeing with me that the pullback ended Monday and they don’t
want to be left behind (FOMO – fear of missing out). Now, we don’t know if the
FED will cut or not, but the market thinks they will and that’s all that
matters.
Of course, another possibility is that this week's jump higher is a temporary bounce in a longer down-trend. Right now, indicators say no, but we’ll be
watching closely just the same.
The FOSBACK Logic Index that I mentioned yesterday is
still leaning bearish, but the new-lows dropped from 102 yesterday to 46 today.
That is the type of action that will bring this indicator back from the brink. This
indicator looks at new-high and new-low data under the premise that new-highs
and new-lows should not both be high at the same time. The FOSBACK indicator called the top of the
20% correction that ended Christmas Eve to the day so we are paying close
attention this time.
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%.
My daily sum of 20 Indicators improved from +4 to +7 (a
positive number is bullish; negatives are bearish) while the 10-day smoothed
version that negates the daily fluctuations improved from -38 to -28. (These
numbers sometimes change after I post the blog based on data that comes in
late.) Most of these indicators are short-term.
I’m bullish now, given that indicators are bullish or
turning more bullish; price action looks strong; the Smart Money is buying; and
other signs are confirming my belief that the pullback ended this past Monday.
TOP / BOTTOM INDICATOR SCALE OF 1 TO 10
Today’s Reading: 0
Most Recent Day with a value other than Zero: +1 on 31
May (Bollinger Bands were bullish.)
(1) +10 Max Bullish / -10 Max Bearish)
(2) -4 or below is a Sell sign. +4 or better is a Buy
Sign.
MOMENTUM ANALYSIS:
I believe the correction/pullback has ended so momentum
analysis should get more valuable. Remember, XLU (utilities) is now #1, but
that is probably a holdover from the pullback when utilities almost always
outperform.
TODAY’S RANKING OF
15 ETFs (Ranked Daily)
*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 improved
to 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).
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 55% invested in
stocks as of 4 June 2019. This is based on the improved indicators 3 June and
my recommendation to increase stock holdings if we saw strong buying on 4 June.
As a retiree, I am conservatively positioned with a balanced portfolio. You may be comfortable with a higher %
invested in stocks – that’s OK.
INTERMEDIATE / LONG-TERM INDICATOR
Friday, the VIX, VOLUME, PRICE and SENTIMENT indicators
were neutral. Overall the Long-Term Indicator remained NEUTRAL.
