EARNINGS (Factset)
“To date, 44% of the companies in the S&P 500 have
reported actual results for Q2 2019. In terms of earnings, the percentage of
companies reporting actual EPS above estimates (77%) is above the five-year
average. In aggregate, companies are reporting earnings that are 5.4% above the
estimates, which is also above the five-year average. In terms of sales, the
percentage of companies (61%) reporting actual sales above estimates is above
the five-year average. In aggregate, companies are reporting sales that are
1.2% above estimates, which is also above the five-year average.” Report
available from…
THE SOFT GDP REPORT IS A HEAD FAKE (MarketWatch)
“Contrary to what you may
read elsewhere, the U.S. economy did not slump in the second quarter
of the year. True, real gross
domestic product slowed to a 2.1% annual pace from 3.1% in the
first quarter, but as I’ve
reported before, GDP is a poor measure of the economy’s health over
the short or medium term. It’s distorted by accounting entries that can
sometimes make good news seem bad…Final sales to domestic purchasers — the best
measure of demand within the United States — rose at a 3.5% annual pace in the
spring, the best growth in a year.” Commentary at…
LITTLE SIGN OF RECESSION (Washington Post)
“The U.S. economy slowed in the spring but continues to
grow at a healthy pace that shows little sign of a recession.” Story at…
OFF TOPIC BORDER WALL
I was surprised that the Supreme Court allowed the trump
administration to reprogram funds from the military budget to border wall
construction. It seems Constitutionally improper. As I wrote previously:
“Funds are appropriated by Congress not by the President
and they must be spent in a manner for which they were appropriated. It’s true
by the law; it’s true by past practice and its true per the Constitution. It
takes two acts of Congress to spend money: (1) an authorization bill (2) an
appropriations bill, both signed into law by the President. The sad thing is,
all Politicians swore an oath to uphold the Constitution.”
Apparently, the Court ruled on a technicality. It decided
that the environmental groups that brought those challenges were inappropriate
parties to bring a lawsuit about transferring federal funds, an argument put
forth by U.S. Solicitor General Noel Francisco. Again, as I wrote before:
“If the Democrats want to impeach, they should impeach on
Trump’s unconstitutional usurpation of powers granted to the Congress under the
Constitution. They won’t though. The current impeach-Trump movement is nothing
more than Political grandstanding designed to weaken Trump and win elections.”
I actually agree with the U.S. Solicitor General Noel
Francisco who said, “Interests in hiking, birdwatching, and fishing in
designated drug-smuggling corridors do not outweigh the harm to the public from
halting the government’s efforts to construct barriers to stanch the flow of
illegal narcotics across the southern border.”
Even so, this doesn’t change the requirement to follow
the Constitution. Ultimately, this goes
back to the Congress’ failure. They
would rather blame Trump than solve the problem.
MARKET REPORT / ANALYSIS
-Monday the S&P 500 dipped about 0.2% to 3021.
-VIX rose about 6% to 12.83.
-The yield on the 10-year Treasury slipped to 2.066%.
Today, there were few changes in the indicators, so here’s
a run down of most of them.
BEAR SIGNS
-The Bollinger Squeeze remains in effect. This narrowing
of the bands can foreshadow a significant advance or decline. Since other
indicators are mostly bearish, we must conclude the direction of the move is
likely to be down.
-Breadth vs the S&P 500 index indicates that the
Index is too far ahead of most stocks on the NYSE.
-The Index is 8.4% above its 200-dMA. That’s a mildly
bearish sign. When sentiment is added to the equation, this one is solidly
bearish. (I am not as concerned about this indicator as I might normally be.
The 200-dMA is still nearly flat since it hasn’t recovered from the prior
correction. That means that this
indicator may go higher – say in the 10-15% range above the 200-day – before we
get a solid negative sign. It can get as high as 20% above the 200-dMA.)
-The Index is 3.5% above its 50-dMA. That’s bearish.
-Money Trend is falling, but not drastically.
-The Money Trend Indicator spread vs S&P 500 is too
high.
-Statistically, the S&P 500 is too calm (measured by
daily moves) suggesting some down moves ahead, often kicked off by a 2% (or
more drop.).
-MACD is bearish, but it looks like it is now making a
bullish crossover.
-Cyclical Industrials are under-performing the S&P 500.
NEUTRAL
-RSI remains neutral.
-Bollinger Bands are elevated but neutral.
-Sentiment is elevated but not in the red zone.
-The short-term Fosback High-Low Logic Index is neutral. That is the only indicator that called the exact
top of the 2018 19% correction.
-MACD analysis of Breadth is neutral, but it appears to
be rolling over – a bearish sign if it does.
BULL SIGNS
-New-high/new-low data is bullish.
-Up moves have been bigger than down moves over the last
month.
-VIX is falling nicely.
-The S&P 500 is outperforming the XLU-ETF (Utilities).
Overall, my daily sum of 20 Indicators remained +2 (a positive
number is bullish; negatives are bearish) while the 10-day smoothed version
that negates the daily fluctuations remained -6. (These numbers sometimes
change after I post the blog based on data that comes in late.) Most of these
indicators are short-term.
How long do I hang on before cutting some stock holdings?
Bollinger bands and RSI will probably signal the top if other indicators remain
negative.
TOP / BOTTOM INDICATOR SCALE OF 1 TO 10 (Zero is a
neutral reading.)
Today’s Reading: -3
Most Recent Day with a value other than Zero: -3 on 29
July (The S&P 500 was too far ahead of its 200-day average w/sentiment,
top-indicator; the S&P 500 is stretched relative to breadth; the Money
Trend Indicator is stretched relative to the S&P 500.)
(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)
*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).
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
Monday, the PRICE and VIX indicators were positive; the
SENTIMENT and VOLUME indicators were neutral. Overall, the Long-Term Indicator
is BUY. The indicator is designed to signal Buy after a bottom. At this point, it just means that conditions
have been bullish; I think they may be too bullish and a decline is likely to
be coming.
