CORONAVIRUS (USA Today)
“A ‘boom’ of confirmed cases of the coronavirus that has
killed almost 3,000 people around the world could already be racing across the
U.S. despite ramped-up efforts to contain the deadly outbreak, experts
say…a researcher [in Washington State] estimates that " a few
hundred" people in the state could actually be infected
already…Bedford studied two cases that were confirmed weeks apart and
determined they were linked through community transmission – from a source
not directly linked to another known case. Bedford tweeted his belief that the
virus has been spreading undetected, at least in Washington state, for six
weeks.” Story at…
CONSTRUCTION SPENDING (KCTV News)
“Spending on U.S. construction projects rose to an
all-time high in January, helped by strong gains for home construction and
government building projects. The Commerce Department said Monday that
construction spending increased 1.8% in January…” Story at…
ISM MANUFACTURING (CNBC)
“The ISM manufacturing Purchasing Manager’s Index fell to
50.1 in February from 50.9 in January. That’s the PMI’s lowest level since late
2019, when it fell below 50.” Story at…
MARKET REPORT / ANALYSIS
-Monday the S&P 500 jumped about 4.6% to 3090.
-VIX fell about 17% to 33.42.
-The yield on the 10-year Treasury rose to 1.167.
I looked back through some of my records for about 9 years
or so to see if I could find a day that was up more than today, on a percentage
basis. Back on 26 Aug 2015 there was a 3.9% up-day after the S&P 500
bottomed during a 66-day, 12% correction.
That day was a 90% up-volume reversal-day that gave a buy signal.
We also saw a 4.6% up day on 11 August 2011 during a 19%
decline that lasted 108 days. That big
move was 6-weeks before the final bottom.
I point this out to show that a big move higher doesn’t
give us much information about whether we have seen the bottom, and/or whether
there will be a retest.
To retest, or not to retest, that is the question. Some moves
after a correction bounce-up without retesting the low – most do not. The
markets dropped nearly 13% in 7 days.
Would we expect them to repair the damage in 7 days? Not likely, or
perhaps more emphatically, no chance.
While it is possible a slow, straight-up recovery is
possible, given the amount of damage, my current expectation is that the
markets will retest the lows. At that
time, we’ll have a lot more information about the market and should be able to
make an informed decision whether to get back in or stay out. Unfortunately, I
don’t have a crystal ball, so we don’t really know which way it will go – test
or no re-test.
The “average” correction has been 12% since 2009. In the
past 15 years or so, corrections greater than 10% have lasted 68 days top to
bottom; those less than 10% have lasted 35 days. We’re at day 8.
What might indicate there will not be a retest of the
recent low? Here are 3 indicators to watch: (1) A 90% up-volume day would be a
good start. Remember the Lowry Research comment: “…our 69-year record shows
that declines containing two or more 90% Downside Days usually persist, on a
trend basis, until investors eventually come rushing back in to snap up what
they perceive to be the bargains of the decade and, in the process, produce a
90% Upside Day." (2) Another indicator for suggesting the correction has
ended would be a Breadth Thrust showing a strong improvement in advance-decline
data. (3) Last, crossover chart analysis, such as the 5-10-20 Timer, could give
a BUY signal without a retest of the correction low. Indicators improved, but I certainly didn’t
get a buy-signal today.
Overall, the daily sum of 20 Indicators improved from
-14 to -10 (a positive number is bullish; negatives are bearish). The 10-day
smoothed sum that negates the daily fluctuations declined from -83 to -96.
(These numbers sometimes change after I post the blog based on data that comes
in late.) Most of these indicators are short-term.
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 2 March.
(RSI was bullish.)
(1) +10 Max Bullish / -10 Max Bearish)
(2) -4 or below is a Sell sign. +4 or higher is a Buy
Sign.
MOMENTUM ANALYSIS:
CAUTION: Momentum is not a good tool during market
declines.
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.
For more details, see NTSM Page at…
MONDAY MARKET INTERNALS (NYSE DATA)
Market Internals improved
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 45% invested in
stocks as of 27 January (down from 60%). This is a conservative position appropriate
for a retiree based on an overstretched S&P 500. You may wish to have a
higher or lower % invested in stocks depending on your risk tolerance.
INTERMEDIATE / LONG-TERM INDICATOR
Monday, the VOLUME and VIX gave bear signals; The
SENTIMENT and PRICE Indicators were neutral. The Long-Term Indicator remained SELL.
