WEEKLY INVESTMENT STRATEGY EXCERPT (Raymond James)
“Our base case remains that the economy continues to be
healthy and until that view changes, we have a favorable outlook for the equity
market, including our favorite sectors (Technology, Consumer Discretionary,
Communication Services and Health Care)…The August through September period has
historically been the weakest rolling two-month time period for the S&P 500
(-0.6% on average) since 1980. However, that does not mean investors should
flee the market. Rather, we suggest investors remain engaged with the markets
as any potential pullbacks, like the one experienced over the last few days,
could provide opportunities to increase exposure to riskier assets such as
equities as we head into the fourth quarter, a historically strong period for
equities.” - Larry Adam ,Chief Investment Officer Raymond James. Commentary at…
TOM LEE COMMENTARY (MarketWatch)
“These signals are saying S&P 500 is set-up for a
monster 2H rally. We are not ignoring the negative signal of a plunge in
interest rates, nor saying that a full-blown trade war is negative for the
World. But, we believe the trifecta of strong US corporates, positive White
House (towards biz) and dovish Fed, are major supports for the US equity
market.” Tom Lee, head of Fundstrat Global Advisors. Commentary at…
My cmt: Tom Lee is a well-known Bull. Let’s hear from a Bear.
HUSSMAN MARKET COMMENTARY EXCERPT (Hussman Funds)
“For now, we observe not only unfavorable valuations and
still-divergent internals on our measures, but also the most extreme ‘overvalued,
overbought, overbullish’ syndrome we define. The only other times we’ve
observed this syndrome in the context of a relatively flat yield curve (a
spread of less than 1% between 10-year Treasury bond yields and 3-month
Treasury bill yields) were the precise peaks of 2000, 2007, and September 2018.”
John Hussman, PhD. Commentary at…
My cmt: Here’s another Technical Bear, or at least a
skeptic…
NORTHMAN TRADER, FRIDAY COMMENTARY (Northman Trader)
“For the immediate time horizon markets are at risk of
seeing a technical replay of 2018. Failure to recapture 2,950-3,000 is not an
option, otherwise we can see a retest of recent overnight lows around 2780 and
potentially move into 2700-2750. A break below risks the broadening wedge to
fully trigger and eventually target the 2100-2200 zone on $SPX which makes
sense in context of the historic market cap to GDP ratios.”
Commentary at…
MARKET REPORT / ANALYSIS
-Monday the S&P 500 dropped about 1.2% to 2883.
-VIX rose about 17% to 21.09.
-The yield on the 10-year Treasury fell to 1.645%.
(9-months ago the 10-yr. rate was 3.25%. The bond market seems worried about
the economy.)
As noted previously, we had a Hindenburg Omen on 5
August. I mis-stated my
methodology. I said, “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.” This was a typo.
Actually, new-lows must be twice new-highs. The other requirements are correct.
Previously, the last Omen was December 2014. That one preceded a long up and down period
before a 12% correction bottom more than 6-months later.
The McClellan Oscillator remained negative today so the
Hindenburg Omen we got last Monday remains in effect. 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.) ‘m repeating this warning
because it is a big deal, along with the negative Fosback indicators noted
below.
The long-term and Short-term Fosback indicators are still
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.
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 4.7% from its all-time high. This
indicator says we’re at a top now!
MACD of Breadth remained slightly bullish today. We’ll
watch this further. It does flip-flop
some during corrections during strong-advance, reflex rallies. If it stays
bullish, we’ll need to pay attention.
MACD of S&P 500 price remains negative.
The Smart Money is still selling based on late-day action
over the last 10-days suggesting a downtrend is in place.
Overall, my daily sum of 20 Indicators improved
from -10 to -9 (a positive number is bullish; negatives are bearish) while the
10-day smoothed version that negates the daily fluctuations declined
from -69 to -80. (These numbers sometimes change after I post the blog based on
data that comes in late.) Most of these indicators are short-term.
We’ve now seen a pretty good cluster of -3 Top / Bottom
Indicator readings with one -4 reading, last week. In the past this has occurred almost
exclusively during corrections. This further suggests that this pullback is not
over yet.
Until we see further evidence, it still looks like we are
headed down. The test coming at 2845 (the recent low) will be an important
point to watch. Perhaps the pullback will end there? My guess is, “Probably
not,” but we won’t know until we get there.
TOP / BOTTOM INDICATOR SCALE OF 1 TO 10 (Zero is a
neutral reading.)
Today’s
Reading: -3
- Breadth vs the S&P 500 was negative; both Long-term
and Short-term Fosback Logic Index indicators were bearish.
- Most Recent Day with a value other than Zero: -3 on 12
Augcent low)
(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. Momentum here is a sort-term call.
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…
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 30% invested in
stocks as of 5 August 2019.
INTERMEDIATE / LONG-TERM INDICATOR
Monday,
the Panic Indicator, VOLUME and VIX indicators were negative. The SENTIMENT and
PRICE indicators were neutral. Overall, the Long-Term Indicator remains SELL.
It was first “Sell” on 5 August.
