YIELDS INVERT – MARKET PANICS (CNBC)
“The yield on the benchmark 10-year Treasury note
Wednesday broke below the 2-year rate, an odd bond market phenomenon that has
been a reliable indicator of economic recessions. Investors, worried about the
state of the economy, rushed to long-term safe haven assets, pushing the yield
on the benchmark 30-year Treasury bond to a new record low on Wednesday.” Story
at…
CRUDE INVENTORIES (OilPrice.com)
“Crude oil prices fell further down today after the
Energy Information Administration reported a
1.6-million-barrel build in crude oil inventories for the week to August 9.”
Story at…
RESPONSE TO TOM LEE COMMENTARY (Real Investment Advice)
On Monday, I posted a quick excerpt from Tom Lee’s
commentary here…
Here’s a link and excerpt of Lance Roberts’ response:
“What is important for investors is to understand each
argument and its relation to longer-term investment periods. In the short-term,
Tom’s [Lee’s bullish] view may well be validated as current momentum and bullish “biases”
persist in the markets.
However, for longer-term investors, it is worth
considering the historical outcomes of the dynamics behind the financial
markets currently. The is a huge difference between a short-term bullish
prediction and longer-term bearish dynamics.
As Howard Ruff once stated:
“It wasn’t raining when Noah built the ark.”
Commentary at…
MARKET REPORT / ANALYSIS
-Wednesday the S&P 500 fell about 2.9% to 2841.
-VIX jumped about 26% to 22.1.
-The yield on the 10-year Treasury dropped to 1.581%.
(9-months ago the 10-yr. rate was 3.25%. The bond market seems worried about
the economy.)
We’ve been waiting for the retest of the prior low at
2845. Today we got the test as the index dropped to 2841. Unfortunately, market
internals were not good so we have to conclude there is more pain to come.
This is the 6th Distribution Day in the last
5-weeks as if we needed another reminder that the market has been in pain
recently.
Today, was a Statistically Significant down-day and it is
the 7th statistically-significant (SS) day in the last 3-weeks. The
Index has been bouncing up and down. This sort of back and forth movement in
price-volume is typical at or near tops. The S&P 500 is only 6.1% below its
recent top, so we can still call this a top. Actually, the 5th SS
day was on 31 July, but we didn’t act on it, because it is a warning more than
an indicator.
Today was a 90% Down-day and it met the test for a 90%
down-day as presented by Lowry Research. In addition to down-volume exceeding
90% of the volume, there was momentum to the downside based on the close near
the low of the day. Another day like this within the month would suggest a
significant decline in the future. As it
is, we can’t be too encouraged – this is still a bearish sign. Also worrisome,
90% of the volume was down-volume just 2-weeks ago, but it didn’t meet all the
tests to qualify as a 90%-down day (if that makes sense).
We had another Hindenburg Omen today. As noted
previously, we had a Hindenburg Omen on 5 August. The last previous Omen was
December 2014. That one preceded a long
up and down period before a 12% correction bottom more than 6-months later. Basically,
this indicator is calling for a crash, or a big drop.
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.
MACD of Breadth reversed to the bearish side today. (So
far, I am impressed with this indicator.) MACD of S&P 500 price remains
negative.
There was late-day selling today, so the Pros don’t think
the bottom is in yet. The Smart Money is still selling based on late-day action
over the last 10-days suggesting a downtrend remains in place.
Overall, my daily sum of 20 Indicators slipped
from -10 to -15 (a positive number is bullish; negatives are bearish) while the
10-day smoothed version that negates the daily fluctuations declined
from -90 to -102. (These numbers sometimes change after I post the blog based
on data that comes in late.) Most of these indicators are short-term. 15
bearish indicators out of 20 is a lot!
We’ve now seen a pretty good cluster of -3 Top / Bottom
Indicator readings with one -4 reading, last week and another Tuesday. Today’s value was -3. In the past this has
occurred almost exclusively during corrections. This further suggests that this
pullback is not over.
My Top Indicator, Breadth vs the S&P 500, finally
cleared the warning that the Index was stretched too far ahead of advancing
stocks on the NYSE (breadth). Yesterday’s reading was the most bearish number
in my data-set that goes back to November 2010. This doesn’t mean we are due
for a major correction, but the indicator will need to improve quite a bit
before it gives a bottom signal.
Until we see further evidence, it still looks like we are
headed down. Today’s test of the recent low failed suggesting (but not
guaranteeing) we probably have more pain ahead.
TOP / BOTTOM INDICATOR SCALE OF 1 TO 10 (Zero is a
neutral reading.)
Today’s
Reading: -3
- Breadth vs the S&P 500 is extended for 5-days so it
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 14
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 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)
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…
WEDNESDAY MARKET INTERNALS (NYSE DATA)
Market Internals
remained 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
Wednesday,
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.
