“Trade what you see; not what you think.” – The Old Fool,
Richard McCranie, trader extraordinaire.
JOBLESS CLAIMS (CNBC)
“The number of Americans filing applications for
unemployment benefits fell sharply last week…Initial claims for state
unemployment benefits dropped to 209,000 for the week ended August 17, the
Labor Department said.” Story at…
LEI (Conference Board)
“The Conference Board Leading Economic Index®(LEI) for
the U.S. increased 0.5 percent in July to 112.2 (2016 = 100), following a
0.1 percent decline in June, and a 0.1 percent decline in May.
"The US LEI increased in July, following
back-to-back modest declines. Housing permits, unemployment insurance claims,
stock prices and the Leading Credit Index were the major drivers of the
improvement," said Ataman Ozyildirim, Senior Director of Economic Research
at The Conference Board. "However, the manufacturing sector continues
exhibiting signs of weakness and the yield spread was negative for a second
consecutive month. While the LEI suggests the US economy will continue to
expand in the second half of 2019, it is likely to do so at a moderate
pace." Press release at…
KANSAS CITY MANUFACTURING (Kansas City FED)
“Tenth District manufacturing activity declined in
August, while expectations for future activity edged higher…The
month-over-month price indexes for raw materials and finished products
decreased, turning negative for the first time since 2016. Firms continued to
expect prices to rise over the next 6 months, however. Factory Activity
Declined in August. The month-over-month composite index was -6 in August, down
from -1 in July and 0 in June, and the lowest reading since March 2016…” Press
release at…
5 BROKEN THINGS IN THIS MARKET
“FAANGs…have been underperforming…
The U.S. dollar…is losing its status as a safe haven currency…
Volatility…not enough fear in the market to suggest that
Wednesday was the sentiment washout…
Outflows…have caused large loan ETFs to trade at
discounts…
Gold prices…are finally pricing a prolonged period of
financial repression” Story At…
MARKET REPORT / ANALYSIS
-Thursday the S&P 500 about a point to 2923.
-VIX rose about 6% to 16.68.
-The yield on the 10-year Treasury rose to 1.616%.
YIELD SPREAD
Interest rates should be higher for long-term bonds
because the risk of unknowns is higher in the long run. When short-term
interest rates exceed the long-term rates, it’s because future economic
conditions are suspect. That’s called a yield inversion. Every recession has
been preceded by a yield inversion (10-yr interest rates minus 1-yr interest
rates were negative) since 1955 with only one false positive. For more see…
There are many long-short, yield-spreads that can be used
for recession prediction. Some use the 10-year Treasury vs the Fed Funds rate for
measuring inversion. I’ve plotted the
30-year minus the 5-yr (red line), because I could easily get the data. What we
see is that when the red-curve (yield spread) has fallen below zero, it has
preceded a significant drop in the S&P 500, shown in black.
The recent 2yr-10yr yield-curve panic was completely
overblown. First, it didn’t even invert on a closing basis. Second, academic
research suggests that a yield-inversion should be negative for 3 months to
confirm the signal. Here’s my current Yield Spread that shows no inversion.
Some indicators are drifting down. My daily sum of 20
Indicators dipped from +8 to +2
(a positive number is bullish; negatives are bearish) while the 10-day smoothed
version that negates the daily fluctuations improved from -42 to -37.
(These numbers sometimes change after I post the blog based on data that comes
in late.) Most of these indicators are short-term.
BULLISH SIGNS
-MACD of S&P 500 price had a bullish crossover yesterday
and it remains bullish today.
-Money Trend is headed up.
NEUTRAL
-RSI
-Bollinger Bands
-The S&P 500 is stretched when compared to its
internals, but not to extreme levels.
-Sentiment is elevated, but not in the red zone.
-Smart Money (late day action) was flat on a 10-day basis.
BEAR SIGNS
-Utilities are outperforming the S&P 500
-MACD analysis of breadth is still bearish.
-The Index may have some trouble breaking above its
current levels.
-The 5-10-20 Timer system is still bearish. (The 5-dEMA
and the 10-dEMA are below the 20-dEMA.)
Not much jumps out.
The chart suggests we may see some more consolidation. A dip to the 2875
area? I don’t know.
I am bullish for the near term.
TOP / BOTTOM INDICATOR SCALE OF 1 TO 10 (Zero is a
neutral reading.)
Today’s Reading: -1
-The Long-term Fosback Logic Index indicators was
bearish, but this is actually not a negative since the McClellan Oscillator is
positive and that cancels the Fosback indicators.
- Most Recent Day with a value other than Zero: -1 on 22
August.
(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
generally not giving a very accurate picture – it will reverse when the
correction ends. During the correction, Utilities will generally outperform as
will similar Dow stocks, like Verizon. Momentum here is a short-term
call.
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 slipped
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 55% invested in
stocks as of 20 August 2019. This is a conservative balanced position
appropriate for a retiree.
INTERMEDIATE / LONG-TERM INDICATOR
Thursday,
the VOLUME, VIX, SENTIMENT and PRICE Indicators were neutral. Overall, the
Long-Term Indicator remained HOLD.
