“Bottom fishing is still the most expensive sport in the
world.” Scott Minerd, Guggenheim Global Chief Investment Officer.
"This imaginary person out there - Mr. Market - he's
kind of a drunken psycho. Some days he gets very enthused, some days he gets
very depressed. And when he gets really enthused, you sell to him and if he
gets depressed you buy from him. There's no moral taint attached to that."
- Warren
Buffett
GDP-THIRD EST (MarketWatch)
The pace of growth in the economy was left at 2.1% in the
fourth quarter in the final estimate from the Commerce Department released on
Thursday.” Story at…
“Gross Domestic Product (GDP). GDP is
simply the total amount of spending in an economy. GDP, as currently measured,
does not distinguish between “good” spending and “bad” spending. GDP does not
distinguish between consumption spending and investment spending. GDP also does
not distinguish whether spending is generated by existing wealth, by going into
debt temporarily, or by going into debt permanently. In this world, every dollar
spent on education or new means of production, is counted the same as every
dollar spent on epic bachelor parties and video games.” – Michael Lebowitz,
Real Investment Advice.
JOBLESS CLAIMS (Reuters)
“The number of Americans filing claims for unemployment
benefits surged to a record of more than 3 million last week as strict measures
to contain the coronavirus pandemic brought the country to a sudden halt,
unleashing a wave of layoffs that likely ended the longest employment boom in
U.S. history…Economists say the economy is already in recession…Initial claims
for unemployment benefits rose 3.00 million to a seasonally adjusted 3.28
million in the week ending March 21…” Story at…
CORONAVIRUS (COVID19)
I project future virus totals based on a 5-day average of
the growth factor of the number of new cases. Growth factor is simply the
number of new cases today compared to the number of new cases the day before - nothing
medical; it's just math. There were roughly 80,021 cases in the US at about 6
PM this afternoon. At current growth rates, we should hit about 200-thousand
cases in one week. That’s higher that yesterday, but still lower than
recent projections. There’s a lot of variability in the data, so the
projections bounce a lot; projections are for exponential growth and small
changes are amplified.
Still, it is starting to look like social distancing is
working. Today, the number of new cases was about 15% higher than
yesterday. A week ago, the number of new
cases was nearly double the previous day.
Worldwide, the growth factor was very close to 1, i.e.,
exponential growth may be nearly over and total cases would be expected to max
out at about double current values.
MARKET REPORT / ANALYSIS
-Thursday the S&P 500 rose about 6.2% to 2630.
-VIX slipped about 5% to 61.
-The yield on the 10-year
Treasury slipped to 0.849.
I have the same problem as anyone who is attempting to
time this market – I lack experience, because what we’re witnessing has not
happened in our lifetime. This is not a valuation crash (2000) or a financial
crash (2008). Those major crashes were more predictable in one sense; we could
see a huge disruption with no end in sight. The appropriate action was to get
out and then wait for a retest of the lows. This time, the end may be a few
months away (at least for the stock market) and there may be a retest…or not.
We don’t know. Therefore, rather than
wait and try to identify the exact bottom, I am scaling in part-way. Later, we’ll see if we can identify the
bottom.
I mentioned Tuesday, that a rip-your-face-off rally may
be getting started. We’re here. The S&P 500 has retraced 34% of its decline
in 3-days. 57% is the average retracement after a 15% waterfall decline; the median
is 52% (since the post WWII era). Thus, we might see the rally die at about
2800 on the S&P 500, roughly 7% higher than today’s close.
The Index is currently down 22.3% from its all-time high.
We saw some new bull signs today to go along with the long
list I wrote yesterday. Today there was a bullish Breadth-Thrust signal,
because of the extreme improvement in the percentage of stocks advancing on the
NYSE over a short amount of time. This signal
has only been seen 25 times since 1945, most recently on 7 Jan 2018, just 8
sessions after the bottom of the 20% correction.
In addition, in the three days after the bottom, we’ve
seen a 90% up-volume day on Tuesday followed by back to back 80%+, up-volume
days on Wednesday and Thursday. That’s another extreme bullish sign. As stated
by Lowry Research: “In approximately half the cases in the past 69 years, the
90% Upside Day, or the back-to-back 80% Upside Days, which signaled a major
market reversal, occurred within five trading days or less of the market low.”
Last, MACD (Moving Average Convergence Divergence) of Breadth
and MACD of the S&P 500 price both registered bullish crossovers. Moooo. We
have some serious bull action!
Overall, the daily sum of 20 Indicators improved
from zero to +9 (a positive number is bullish; negatives are bearish). The
10-day smoothed sum that negates the daily fluctuations improved from -66
to -46. (These numbers sometimes change after I post the blog based on data
that comes in late.) Most of these indicators are short-term.
The S&P 500 rose about 2% in the last 15 minutes of
trading. It is possible that the Breadth-Thrust
and volume signals triggered the big, late-day surge. Traders would have waited
till the end of the day to be sure the signals would hold.
I suspect we have seen the low, but that doesn’t mean we
won’t have a retest of that low. I think I will wait a bit before adding further
to stock holdings.
RECENT STOCK PURCHASES
-SSO. (2x S&P 500 ETF) I will sell my SSO position
when I think the rally is over. This is a true trading position. Other recent
purchases may or may not be long-term holds – just depends on market action and
indicators.
-Biotech ETF (IBB). #1 in momentum. We’re in a health
crisis so perhaps this will be a good longer-term hold too.
-Apple. China is returning. #1 in momentum before the crisis.
-Intel. Low PE; good story (laptops are in demand for
working at home); good momentum before the crisis.
-XLK. Technology ETF; spreads some risk and gives exposure
to Microsoft, Cisco, etc.
-Starbucks. China is returning and they should do better
than most in earnings here in the US.
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 26
March. (Non-Crash Sentiment is bullish; Breadth has made a bullish
divergence from the S&P 500; Money Trend has turned bullish; the Fosback
New-hi/new-low Logic Indicator is bullish; 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. The
highest ranked are those closest to zero. 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%, rather minus 100%
since the market has been bad. The rest are then ranked based on their momentum
relative to the leading stock. The highest ranked are those closest to zero.
For more details, see NTSM Page at…
THURSDAY MARKET INTERNALS (NYSE DATA)
Market Internals improved
to 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 50% invested in
stocks. (I previously dropped stock allocations to 45% on 27 January and lower
a few days after the decline started.) You may wish to have a higher or lower %
invested in stocks depending on your risk tolerance.
INTERMEDIATE / LONG-TERM INDICATOR
Thursday, the BREADTH-THRUST, VOLUME & NON-CRASH
SENTIMENT indicators are bullish; the VIX indicator gave a bear signal. The PRICE
indicator is Neutral. The Long-Term Indicator IMPROVED to BUY.
I’ve been increasing stock holdings so I
am not planning to act on the BUY signal. I am already at 50%-stocks. If we do
retrace down, I’ll try to find a good buy-point. At that time, I’ll increase stock holdings significantly.
