“Trade what you see; not what you think.” – The Old Fool,
Richard McCranie, trader extraordinaire.
EXISTING HOME SALES (Reuters)
U.S. home sales fell more than expected in September as
the market continues to struggle with a dearth of properties for sale,
especially for cheaper homes. The National Association of Realtors said on
Tuesday that existing home sales fell 2.2%...” Story at…
DECLINES IN PROFIT MARGINS (FACTSET)
“For the third quarter, the S&P 500 is reporting a
year-over-year decline in earnings of -4.7%, but year-over-year growth in
revenues of 2.6%. Given the dichotomy in growth between earnings and revenues,
there are concerns in the market about net profit margins for S&P 500
companies in the third quarter…The blended net profit margin [includes reported
profit margins for those who have reported and estimated data for those that
haven’t] for the S&P 500 for Q3 2019 is 11.3%. If 11.3% is the actual net
profit margin for the quarter, it will mark the first time the index has
reported three straight quarters of year-over-year declines in net profit
margin since Q1 2009 through Q3 2009.” Commentary at
SEASONAL INFLECTION (McClellan Publications)
Chart from…
MARKET REPORT / ANALYSIS
-Tuesday the S&P 500 slipped about 0.4% to 2996.
-VIX rose about 3% to 14.46.
-The yield on the 10-year Treasury slipped to 1.767.
Today was one of those inexplicable days. 59% of stocks
on the NYSE were up today. 59% of the volume was up-volume. 175 issues made new
52-week highs today. It’s been 2 months
since we saw that many new-highs. Yet the major indices were down!? Don’t ask
me to explain it. Tomorrow should be an up-day to correct today’s odd result…at
least that’s what usually happens.
My daily sum of 20 Indicators improved from +4 to
+7 (a positive number is bullish; negatives are bearish) while the 10-day
smoothed sum that negates the daily fluctuations rose from +9 to +26
(These numbers sometimes change after I post the blog based on data that comes
in late.) A reminder: Most of these indicators are short-term.
Late-day is in a bit of confusion. I usually just look at whether late day
action was up or down. On that basis,
late-day-action is bearish. If we examine
what late-day-action is doing on a percentage basis, we see that it is bullish.
So, I guess I should report that late-day-action is neutral. This is important
as an indicator because the Pros trade late-day. This is the basis for the
Smart Money indicator popularized by Don Hays.
The overbought / oversold index is overbought today. It is based on advance-decline numbers, but
as I have noted several times, this indicator is an old one and it tends to be
very early. We’ll ignore it.
It is hard to find any significant bear signs today. The
Overbought-oversold index is overbought, but this older indicator is very early
so I will ignore it for now.
“Bull markets are born on pessimism, grown on skepticism, mature on
optimism, and die on euphoria.” – John Templeton, founder Templeton Growth
Fund. Currently, we don’t have euphoria. We’ve got a way to go before we
see a top that might be a Major Top that would precede a bear market.
I remain bullish.
TOP / BOTTOM INDICATOR SCALE OF 1 TO 10 (Zero is a
neutral reading.)
Today’s Reading: 0
Most Recent Day with a value other than Zero: +2 on 3
October.
(1) +10 Max Bullish / -10 Max Bearish)
(2) -4 or below is a Sell sign. +4 or better is a Buy
Sign.
MOMENTUM ANALYSIS:
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…
TUESDAY MARKET INTERNALS (NYSE DATA)
Market Internals
remained POSITIVE 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 60% invested in
stocks as of 7 Oct 2019 (up from 50%). This is a conservative balanced position
appropriate for a retiree. You may wish to have a higher or lower % invested in
stocks depending on your risk tolerance.
INTERMEDIATE / LONG-TERM INDICATOR
Tuesday, the VIX, PRICE and VOLUME
indicators were positive; the SENTIMENT Indicator was neutral. Overall, the
Long-Term Indicator improved to BUY. The important BUY was the one we issued
29 August; we reinforced that bullish view again on 3 October. Today’s BUY
signal just means that conditions are good. Sometimes the NTSM will issue a buy-signal
at a top. I don’t think that is the case this time – I remain bullish.
