JOBLESS CLAIMS (MarketWatch)
“More workers applied for unemployment benefits at the
end of July, but the rate of layoffs in the U.S. clung near the lowest level in
decades and showed no sign of rising. Initial jobless claims rose by 8,000 to
215,000 in the seven days ended July 27…” Story at…
HOLD ON TO YOUR HATS (Heritage Capital Excerpt)
“Stocks bounced back decently on Turnaround Tuesday to
stem the tide. I still think, as I wrote last week, that Dow 25,000 or so is
the downside risk. When this pullback is cleaned up, my forecast remains for
another run to all-time highs. Perhaps that run will yield cracks in the
pavement and a crumbling foundation to lead to more significant downside, but
it’s not worth anticipating.” - PAUL SCHATZ, PRESIDENT, HERITAGE CAPITAL.
Commentary at…
MARKET REPORT / ANALYSIS
-Thursday the S&P 500 rose about 1.9% to 2938.
-VIX dropped about 13% to 16.91.
-The yield on the 10-year Treasury rose to 1.720%.
Did we just have a 6-day correction?
We always have to consider whether we are getting good
signals from the indicators. Some indicators are trend following and can be
prone to getting whipsawed if the market has a small downturn followed by a
quick reversal upward.
One issue is that investors are now pricing in additional
rate cuts and that encourages more speculation, over exuberance and higher
stock prices. When the FED speaks, the indicators are often overruled.
Some were suggesting that the bottom was this past Monday
and we had a classic turn-around Tuesday.
At the time, I didn’t think so. Monday’s low was a panic low, but that
sort of action is also prevalent near tops when panic sets in. The price-volume
after the low (on Tuesday) was not as high as the 3 June low so we were left
skeptical. Now we can’t be sure. Today
is either the Top of a bounce, as would be the norm for a correction, or it will
lead to more upside.
Assuming tomorrow is an up-day; and if we see the MACD of
Breadth turn positive, it is likely that I will get back in the market at my
fully invested level. I am currently under invested by 25% since I reduced my
stock allocation from 55% to 30% due to the long-term indicator’s change to
Sell.
I still remain skeptical that we’ll see an end to the
downturn – but we’ll see.
There was no Hindenburg Omen today. (We got a Hindenburg
Omen Monday.) It didn’t really matter, because once triggered, a Hindenburg
Omen remains in effect for 30-days or until the McClellan Oscillator goes
positive. Basically, this indicator is still calling for a crash, or a big
drop. (It’s called the Hindenburg Omen for a reason.)
The long-term and short-term Fosback indicators are giving a
sell-signal, “sharp-drop” warning. Both, 52-week, new-highs and new-lows are
too high and have been for an extended period. This indicator peaked yesterday,
but it is only slightly lower today.
Breadth vs the S&P 500 is still giving a warning that
the Index is stretched too far ahead of advancing stocks on the NYSE (breadth). This is a good Top Indicator and concerning
since the Index is down nearly 3%. This indicator says we’re at a top now!
MACD of Breadth is still negative, but just barely. If
this turns positive and the Market Internals that comprise my short-term
indicator turn positive, we may need to consider moving back into stocks.
MACD of S&P 500 price remains negative too.
The Smart Money is selling based on late-day action over
the last 10-days suggesting the downtrend hasn’t changed.
Overall, my daily sum of 20 Indicators improved
from -13 to -3 (a positive number is bullish; negatives are bearish) while the
10-day smoothed version that negates the daily fluctuations declined
from -52 to -57. (These numbers sometimes change after I post the blog based on
data that comes in late.) Most of these indicators are short-term.
Until we see further evidence, it still looks like we are
headed down.
TOP / BOTTOM INDICATOR SCALE OF 1 TO 10 (Zero is a
neutral reading.)
Today’s
Reading: -4
- Breadth vs the S&P 500 was negative; both Long-term
and Short-term Fosback Logic Index indicators were bearish; Money Trend is
stretched far to the downside when compared to the S&P 500.
- Most Recent Day with a value other than Zero: -4 on 8
Aug.
(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…
THURSDAY MARKET INTERNALS (NYSE DATA)
Market Internals improved
to 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 30% invested in
stocks as of 5 August 2019.
INTERMEDIATE / LONG-TERM INDICATOR
Thursday,
the Panic Indicator and VOLUME indicators were negative. The VIX, SENTIMENT and
PRICE indicators were neutral. Overall, the Long-Term Indicator remains SELL.
It was first sell on 5 August.
