CHINA TRADE FIGHT DEEPENS (Marketwatch)
“Stocks fell sharply Monday, with Wall Street joining a
global equity selloff after China allowed its currency to fall to a more-than-10-year
low versus the dollar after President Donald Trump rattled markets by
announcing additional tariffs on Chinese goods late last week.” Story at…
ISM NON-MANUFACTURING (PRNewsWire)
“Economic activity in the non-manufacturing
sector grew in July for the 114th consecutive month, say the nation's
purchasing and supply executives in the latest Non-Manufacturing
ISM® Report On Business®…The NMI® registered 53.7 percent, which is
1.4 percentage points lower than the June reading of 55.1 percent.” Press
release at…
WEEKLY INVESTMENT STRATEGY EXCERPT (Raymond James, Friday)
“The S&P 500 is currently up 19.2% year-to-date
(YTD), which is the second best start to a year in over 20 years. Recent
catalysts for the S&P 500 have been a better than expected 2Q19 earnings
season and the dovish shift in global central bank policy. However, given the
recent rally, valuations have moved higher and the S&P 500 is trading at
its highest P/E since March 2018... The continued move lower in forward
earnings expectations, in conjunction with negative seasonality (August and
September are historically two of the weakest months for equities) could lead
to near-term weakness for the equity market. With the equity market flashing
yellow, precaution is warranted in deploying new capital…The rally in equity
markets have led to the market being priced to perfection and investors
becoming complacent around many upcoming risks.” Larry Adam ,Chief Investment
Officer, Raymond James.
ECONOMIC REPORTS OVERSHADOWED (Heritage Capital, Friday)
“Between the Fed and Trump’s new tariffs, the bulls are
definitely on the heels to begin the month. The first stop should be Dow 26,400
and then below 25,000 if the bears gain total control. For now, you have to
expect the bulls to mount a rally next week [this week].” - PAUL SCHATZ,
PRESIDENT, HERITAGE CAPITAL
My cmt: …and they will, eventually – just not today.
MARKET REPORT / ANALYSIS
-Monday the S&P 500 dropped about 3% to 2845.
-VIX jumped about 40% (!) to 24.59.
-The yield on the 10-year Treasury slipped to 1.713%.
I cut back stock holdings from 55% invested in stocks all
the way back to 30% or so (I’ll do some detailed calculations later). As I
noted in my post earlier today, I don’t like to sell on a big down day, because
it may signal a bounce the next day or even a bottom. This time though, my indicators really went
south. The indicators suggest further downside ahead and we could even see more
panic selling, so I decided not to wait. So much for patience!
The four scariest indicators?
-Hindenburg Omen. Today, we saw a Hindenburg Omen when
using my methodology. This occurs when
new-lows exceed new-highs; the short-term 10-dEMA of the Fosback High/Low Logic
Index is > 30; and the McClellan Oscillator is below zero (The last one was
December 2014. That one preceded a long
up and down period before a 12% correction bottom more than 6-months later.)
-Fosback Hi-Low Logic Index. The long-term Fosback indicator is now giving
a sell-signal, “sharp-drop” warning. We’ve seen this one flash “bear” in the
last two corrections. (Today was probably not the “sharp drop.”)
-90% Down Day. Today, we didn’t meet all the tests for a
90% down-day because we didn’t have selling momentum at the close. Still, 91%
of the volume was down volume and that’s not encouraging.
-MACD of Breadth. This one continues down along with the
MACD analysis of S&P 500 price.
The Index is only 2% above its 200-dMA (2790) and that is
a point that might provide a stopping point for this pullback, but we don’t
really know.
The 5-10-20 Timer system remained sell (no surprise
there). This is a simple timing model: When the 5-dEMA and the 10-dEMA are both
below the 20-dEMA, “SELL”.
Overall, my daily sum of 20 Indicators slipped
from -10 to -13 (a positive number is bullish; negatives are bearish) while the
10-day smoothed version that negates the daily fluctuations declined
from -11 to -23. (These numbers sometimes change after I post the blog based on
data that comes in late.) Most of these indicators are short-term.
There were a couple of Bullish signs. Bollinger Bands and
RSI (24) are now both “oversold.” Unfortunately, oversold conditions can remain
for some time, so the news is not all that encouraging.
I may be wrong about getting out today. The big down-day may give us a rally or
perhaps dead-cat bounce might be a better term. Overall though, indicators
suggest we are headed lower from here, though it may not be straight down. I
can’t say how far down we may go. If I
had to guess, and it’s only a guess, maybe another 5-10% (?) in round numbers. It's always possible that it could be much worse - that's why I'm cautious in my stock allocation.
TOP / BOTTOM INDICATOR SCALE OF 1 TO 10 (Zero is a
neutral reading.)
Today’s Reading: 0
- Bollinger Bands were positive; Breadth vs the S&P
500 was negative.
- Most Recent Day with a value other than Zero: -2 on 31
July (The S&P 500 was too far ahead of its 200-day average w/sentiment,
top-indicator; the S&P 500 was stretched relative to breadth.)
(1) +10 Max Bullish / -10 Max Bearish)
(2) -4 or below is a Sell sign. +4 or better is a Buy
Sign.
MOMENTUM ANALYSIS:
Just a reminder…During corrections momentum is not giving
a very accurate picture. Utilities will generally outperform as will similar
Dow stocks, like Verizon.
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 declined
to NEGATIVE 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 30% invested in
stocks as of 5 August 2019.
INTERMEDIATE / LONG-TERM INDICATOR
Monday,
the PRICE, VIX and VOLUME indicators were negative. The SENTIMENT indicator was
elevated, but neutral. Overall, the Long-Term Indicator is SELL as of 5 August.
