FED CUTS TO ZERO – MASSIVE QE (CNBC)
“The Federal Reserve, saying “the coronavirus outbreak
has harmed communities and disrupted economic activity in many countries,
including the United States,” cut interest rates to essentially zero on Sunday
and launched a massive $700 billion quantitative easing program to shelter the
economy from the effects of the virus.” Story at..
EMPIRE STATE MANUFACTURING (MarketWatch)
“The New York
Fed’s Empire State business conditions index plunged a record
34.4 points to -21.5 in March, the regional Fed bank said Monday.” Story at…
CORONAVIRUS
CASS TRANSPORTATION INDEX (CASS Information Systems)
“Even though winter temperatures in the U.S. have been
mild this year, the Cass Indexes say the U.S. freight market remained cold in
February. But there is some hope, as the y/y change in both shipments and
expenditures improved from January. Unlike a month ago when the stock market
brushed off coronavirus (SARS-CoV-2/COVID-19) concerns, there has now been a
significant sell-off, as investors confront the uncertainty around containment
and eventual impact on consumer demand and global supply chains. While China
looks to be on its way out of the worst of it, the large economies of the U.S.
and Europe are still on the front end of dealing with the coronavirus.
This certainly puts some doubt around our view that 2Q20
could see actual y/y growth in domestic U.S. shipments and freight costs, as
traditional seasonal freight patterns may not hold.” Report at…
GENERATIONAL EVENT (Heritage Capital)
“When the bottoming process does begin, the odds heavily
favor it being very complex and volatile. There should be multiple 10% rallies
and declines to create a range. The big question will be the length of the
process. In 2008, it began in October and ended in early March. In 1987, it
began in October and ended in early December. Adding in 2018, there was no
bottoming process at all. Stocks just soared in rare “V” fashion. In 2011, the [event]
began in August and ended in October. After the Dotcom burst, the bottoming
process went from July 2002 to October. In 1998, it was August to October, the
same as 1990. Because of the compressed moves we have seen since 2009, I won’t
be surprised if the bottoming process is quicker, but we will have to see how
it unfolds… I am sure many people will claim the 2020 decline was so easy to
forecast with the benefit of hindsight. I know that’s not something I will ever
say.” – Paul Schatz, President, Heritage Capital.
GOLMAN’S GLOOMIER OUTLOOK (MarketWatch)
“Clearly, Friday’s huge rally didn’t mark the bottom of
this tumbling stock market. One look at the red splashed across stock futures
on Sunday night would tell you that. But is the end of the selling in sight?
Not according to David Kostin. The Goldman Sachs GS, +17.58% chief equity strategist, in a note to
clients cited by
Bloomberg News on Sunday, says the S&P 500 SPX, +9.28% will likely drop another 10% from
Friday’s close.
Furthermore, if the economic impact of the coronavirus
crisis worsens, “the combination of thin liquidity, high uncertainty, and
positioning” could push the S&P down 26% to 2,000, which is 20% lower than
his previous bottom call, according to Bloomberg News.” Story at…
MARKET REPORT / ANALYSIS
-Monday the S&P 500 jumped about 12% to 2711.
-VIX jumped about 43% to 82.69.
-The yield on the 10-year
Treasury dropped to 0.734.
In the past 15 years or so, corrections greater than 10%
have lasted 68 days top to bottom.
We’re at day 18 in the correction and the S&P 500 is
now 29.5% below its all-time top, on 19 Feb. It is 22% below its 200-dMA.
A simple reversion to the mean would cut the S&P 500
roughly in half from its all-time high. Markets
often overshoot. Some are suggesting this crisis could take the markets down as
much as 60 to 70% from their highs. Given the level of fear now, I suppose that
is possible.
Repeating: I am reminded of a comment by Jeffrey Saut,
Raymond James for Chief Strategist. He talked about a stock-market, “selling
stampede” that tends to last 17 – 25 sessions, with only 1.5-to three-day
pauses/throwback rallies, before they exhaust themselves on the downside.
Today is day 18 of the current selling-stampede so the
timing is right for an end soon. Will tomorrow be Turning Tuesday? We’ll see.
Overall, the daily sum of 20 Indicators declined
from -6 to -11 (a positive number is bullish; negatives are bearish). The
10-day smoothed sum that negates the daily fluctuations improved from -93
to -94. (These numbers sometimes change after I post the blog based on data
that comes in late.) Most of these indicators are short-term.
No bottom is indicated, but perhaps it won’t be much
longer until we see a preliminary bottom.
TOP / BOTTOM INDICATOR SCALE OF 1 TO 10 (Zero is a
neutral reading.)
Today’s Reading: +5**
Most Recent Day with a value other than Zero: +5 on 16 March.
(The S&P 500 Index is too far below the 200-dMA when sentiment is included;
Bollinger Bands are oversold; Breadth has made a bullish divergence from the
S&P 500; Money Trend has made a bullish divergence from the Index; and
Smart Money {late-day-action} is oversold.)
(1) +10 Max Bullish / -10 Max Bearish)
(2) -4 or below is a Sell sign. +4 or higher is a Buy
Sign.
**The Top/Bottom indicator continues to give
extreme oversold readings, but as I have been saying, we won’t know when we
have a bottom until we have a successful retest, or a reversal buy-signal from
Breadth or Volume.
MOMENTUM ANALYSIS:
CAUTION: Momentum is not a good tool during market
declines.
TODAY’S RANKING OF
15 ETFs (Ranked Daily)
The top ranked ETF receives 100% - in this case -100%
because the market has been so bad. 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.
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 40% invested in
stocks as of 3 March. (I previously dropped stock allocations to 45% on 27 January).
You may wish to have a higher or lower % invested in stocks depending on your
risk tolerance.
INTERMEDIATE / LONG-TERM INDICATOR
Monday, the PRICE indicator is bullish; the VOLUME and
VIX indicators gave bear signals. The SENTIMENT Indicator was neutral. The Long-Term Indicator remained SELL.
The important sell signal was 24 February and I sold before that due to other
signals.
