I sold my 2x S&P 500 trading position today. Today’s
big move-up is likely to be followed by a down-move tomorrow. Although the
bounce higher may continue, there is no guarantee and I decided to take the 10%
gain. I am not really a trader at heart.
NFIB BUSINESS OPTIMISM (Advisor Perspectives)
“The latest issue of the NFIB Small Business Economic Trends came out this
morning. The headline number for February came in at 104.5, up 0.2 from the
previous month. The index is at the 92nd percentile in this series…“The small
business economic expansion continued its historic run in February, as owners
remained focused on growing their businesses in this supportive tax and
regulatory environment,” said NFIB Chief Economist William Dunkelberg.”
Commentary and charts at…
CORONAVIRUS FACTS (The Guardian)
“The virus also appears to have a higher mortality rate
than common illnesses such as seasonal flu. The combination of coronavirus’s
ability to spread and cause serious illness has prompted many countries, including the
UK, to introduce or plan extensive public health measures aimed at
containing and limiting the impact of the epidemic…Wash your
hands with soap and water for at least 20 seconds and do this
often, including when you get home or into work. Use hand
sanitiser gel if soap and water are not available. Avoid
touching your face. Cough or sneeze into a tissue or the crook of your elbow
(not your hand) and put used tissues straight in the bin. Avoid close contact
with people who are showing possible symptoms. Follow NHS guidance on self-isolation and travel.”
Story at…
MARKET REPORT / ANALYSIS
-Tuesday the S&P 500 rose about 4.9% to 2882.
-VIX dropped about 13% to 47.3.
-The yield on the 10-year Treasury jumped to 0.809.
Sentiment remains at a very high level. I measure
Sentiment as %-Bulls (Bulls/{bulls+bears}) based on the amounts invested in selected
Rydex/Guggenheim mutual funds. It’s now 87% bulls. This indicator is a
worry. Although we have seen a number of
indicators suggesting a bottom, sentiment is not. It is surprising that
sentient is so high. I don’t think we’ll see an end to the correction until
sentiment drops significanty.
Overall, the daily sum of 20 Indicators remained
-10 (a positive number is bullish; negatives are bearish). The 10-day smoothed
sum that negates the daily fluctuations improved from -110 to -107.
(These numbers sometimes change after I post the blog based on data that comes
in late.) Most of these indicators are short-term. We saw some improvement;
but not much!
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. We’re at day 14 and the S&P
500 is now 14.9% below its all-time top, on 19 Feb. It is 5.5% below its
200-dMA. The long-term, bottom trend-line that includes the low of Feb 2016 and
Dec 2018 suggests that a bottom below around 2550 to 2600 is not likely.
If the economy does get pushed into recession, we could
see much lower prices in equities. For that reason, I am going to watch the
markets and the indicators and look for a confirmed buying opportunity.
It’s possible that Monday, 9 March, was the final low –
we won’t know until we see a retest or other buy signals.
TOP / BOTTOM INDICATOR SCALE OF 1 TO 10 (Zero is a
neutral reading.)
Today’s Reading: +2**
Most Recent Day with a value other than Zero: +2 on 10 March.
(Breadth has made a bullish divergence from the S&P 500 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 gave a BUY signal Monday,
but this indicator only goes back to 2011. Monday was a strong BUY signal that has
only been equaled once in the last 9 years.
That was at the low of the 2018, 20% correction. So, we have probably seen the bottom yesterday;
however, with this health crisis driving the train, I will continue to look for
a confirmation signal. We expect to get
that at a retest.
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…
TUESDAY 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 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
Tuesday, the VOLUME and VIX gave bear signals; The
SENTIMENT and PRICE Indicators were neutral. The Long-Term Indicator remained SELL. The important
sell signal was 24 February and I sold before that due to other signals. It is too late to sell.
