RECESSION IS MORE LIKELY THAN YOU THINK (Real Investment
Advice)
“Good economic news over the last couple months belies
the fact that a recession could strike as soon as March 2020… [many economic
indicators] are suggesting a deteriorating economy. The Citigroup U.S. Surprise
index (which measures how far the aggregate of economic releases are above or
below where economists estimate them to be) has fallen in recent months…ISM
Manufacturing, Durable Goods, Retail Sales, Leading Economic Indicators, and
Existing Home Sales have all been lower than expectations in December and early
January.” - Eric Hickman, President of Kessler
Investment Advisors, Inc. Commentary at…
MARKET REPORT / ANALYSIS
-Tuesday the S&P 500 slipped about 0.3% to 3330.
-VIX rose about 6% to 12.85.
-The yield on the 10-year Treasury slipped to 1.771.
I feel that way sometimes when trying to make market
calls. The market is up a little more than 3% since my top indicators reached
+4, suggesting that the S&P 500 had topped on 20 December. That’s the
nature of indicators; based on the past, we may try to infer the future, but
there obviously are no guarantees. With the S&P 500 10.8% above its 200-dMA,
we are close to a top; but all indicators don’t agree. VIX is a good indicator,
but now it is neutral to slightly bullish. The Fosback New-high/New-low logic
indicator called the top of the 20% correction in 2018 to the day. Now, it is very
bullish. Bollinger Bands have been calling for a top at various times since
mid-December. My point is that I’ve never found a magic indicator that worked
in all markets. The best prediction I’ve
found is when indicators are grouped.
The groups I am watching are: (1) the daily sum of indicators
below zero and the 10-day sum of indicators falling sharply; (2) the top
indicators +4 or above; (3) if both Bollinger Bands and RSI are overbought at
the same time. We’ll see.
We still see a good number of positive indicators. The
daily sum of 20 Indicators improved from +8 to +6 (a positive number is
bullish; negatives are bearish). The 10-day smoothed sum that negates the daily
fluctuations improved from +30 to +37 (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.
I remain bullish in the
long-term; short-term, I‘ve been expecting a pullback, but it has been slow to
develop. One wonders if perhaps we’ll get to February before we see a dip.
February is when the FED will begin reducing its “repo” operations. Today Larry
Kudlow, Director of the National Economic Council, admitted that the FED’s repo
activity is the same as QE.
Any pullback should be small (about 3-5%): the number of
new, 52-week highs has been increasing when the S&P 500 has been making
each new high, especially last Friday. Also, the Fosback New-High/New-Low Logic
Index remains much closer to a buy than a sell.
TOP / BOTTOM INDICATOR SCALE OF 1 TO 10 (Zero is a
neutral reading.)
Today’s Reading: -1
Most Recent Day with a value other than Zero: -1 on 21
January (The S&P 500 is too far above its 200-dMA when sentiment is
considered and Bollinger Bands are overbought.)
(1) +10 Max Bullish / -10 Max Bearish)
(2) -4 or below is a Sell sign. +4 or higher 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.
TUESDAY 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 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 PRICE indicator was Bullish; VIX,
VOLUME and SENTIMENT Indicators were neutral. Overall, the Long-Term Indicator slipped
to HOLD.
