NEW HOME SALES (Reuters)
“Sales of new U.S. single-family homes rebounded sharply
in June, but sales for the prior three months were revised down, indicating
that the housing market continued to tread water despite lower mortgage rates
and a strong labor market.” Story at …
US MANUFACTURING (Morningstar)
“A reading of private-sector manufacturing and services
activity in the U.S. ticked up in July, driven by a modest expansion in
private-sector output, according to a report released Wednesday. A flash
reading of the IHS Markit Composite PMI Output Index, a measure of overall
business activity in the manufacturing and services sectors, rose to 51.6 in
July…” Story at…
My cmt: The German manufacturing recession got worse
based on the German Manufacturing PMI data.
CRUDE INVENTORIES (OIlPrice.com)
“A day after the American Petroleum Institute reported a
stunning crude oil inventory draw of over 10 million barrels continuing a
string of weekly declines, the Energy Information Administration released its
own weekly estimate, which confirmed the size of the draw, strengthening oil
prices further.” Story at…
My cmt: Rising oil prices are generally good the S&P
500, because there are a lot of oil services companies I the index.
EARNINGS FROM FACTSET – THEY LOOK PRETTY GOOD (FactSet)
“To date [as of Friday], 16% 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 (79%) is above the
five-year average. In aggregate, companies are reporting earnings that are 7.0%
above the estimates, which is also above the five-year average. In terms of
sales, the percentage of companies (62%) reporting actual sales above estimates
is above the five-year average. In aggregate, companies are reporting sales
that are 0.9% above estimates, which is also above the five-year average.” Full
report at…
MARKET REPORT / ANALYSIS
-Wednesday the S&P 500 rose about 0.5% to 3020.
-VIX dropped about 4% to 12.07.
-The yield on the 10-year Treasury dipped to 2.050%.
Yesterday, Tuesday, was a bullish “follow-though” day.
That’s a big move up in a correction that negates prior bearish “Distribution”
days. We can’t be sure it applies now since we’re not really in a correction,
but we’ll take the up-day just the same.
Sentiment keeps climbing at these new highs (Bearish)
while breadth (% of new-highs) is climbing too and that’s Bullish. At the three
most recent new highs for the S&P 500, the % of stocks making new-highs has
been 5.6%, 6.6% and now, 8%. That suggests a broadening of the rally. New-highs
keep rising and that’s a good sign. VIX is falling and the VIX indicator was
bullish today.
Unfortunately, we still see plenty of signs that a
correction is coming.
The calm-before-the-storm indicator is still flashing a
warning. Expect a one-day 2% or more, drop coming ahead, most likely within the
month. (This indicator is pretty good, but not perfect.)
In addition, we see other important indicators giving a
warning. Breadth is lagging the S&P
500 by an amount that frequently signals a top. It increased the margin to a
level rarely seen, further strengthening the likelihood of a correction. The last
time we had a sell signal (20 Sep 2018) with this indicator, it signaled “sell”
8 trading-sessions before the top. A similar indicator (Money Trend vs the
S&P 500) is also stretched and warning of a top.
We also note that the Index is stretched ahead of its
200-day moving average when sentiment is added to the equation.
My daily sum of 20 Indicators improved from -1 to +2 (a
positive number is bullish; negatives are bearish) while the 10-day smoothed
version that negates the daily fluctuations slipped from +14 to +8. (These
numbers sometimes change after I post the blog based on data that comes in
late.) Most of these indicators are short-term.
There are some bullish indicators, so all is not lost
yet:
Late Day Action, the so-called Smart Money, has turned
up. New-high/new-lows are looking good too, except that the Fosback Logic Index
is getting elevated. Utilities (XLU) are
under-performing while cyclical industrials (XLI) are out-performing. These are bullish signs.
It still looks like we are headed for a pullback, but I’m
guessing it won’t be too dramatic. I don’t like to guess, so we’ll just have to
keep watching. 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 24
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)
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…
Intel (INTC) and now Apple (AAPL) have been the best
performers in the Dow over the last 2 months. They may be stocks to consider
after we figure out where this correction is going.
WEDNESDAY 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
Wednesday, 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.
