“Trade what you see; not what you think.” – The Old Fool,
Richard McCranie, trader extraordinaire.
DURABLE GOODS ORDERS (MarketWatch)
“Orders for durable goods sank 14.4% in March largely
because of a decline in demand for big-ticket items such as new cars and trucks
as the coronavirus swept across the U.S. The steep drop in bookings last month
was the second biggest ever since the government began keeping track in the
early 1990s.” Story at…
MICHIGAN SENTIMENT (CNBC)
“U.S. consumer sentiment fell for a third straight month
as people weigh the coronavirus pandemic and the possibility of an economic
re-opening, data released Friday by the University of Michigan showed. The consumer
sentiment index fell to 71.8 in April…” Story at…
CORONAVIRUS (NTSM)
Here’s the latest from the COVID19 Johns Hopkins website
as of 5 PM Friday. The U.S. numbers continue to bounce around. Today, there
were about 15,000 more cases than yesterday. Today’s 5-day growth
rate jumped up to 1.1, i.e., average new cases are rising at a rate of 10% per
day over the previous 5-days. If I smooth the data over 10-days, we see the
same growth factor, 1.1. The data shows that the peak for the U.S. may be
farther away than is currently appreciated.
These numbers are based on U.S. totals; local data will
be different.
MARKET REPORT / ANALYSIS
-Friday the S&P 500 rose about 1.4% to 2837.
-VIX dropped about 13% to 35.93.
-The yield on the 10-year Treasury slipped to 0.606.
Time for Friday’s rundown of some important indicators:
BULL SIGNS
-100-dMA of Breadth (advancing stocks on the NYSE) is
moving up.
-MACD of S&P 500 price made a bullish crossover 26 Mar.
-Breadth on the NYSE vs the S&P 500 index bullish.
(There is a bullish divergence.)
-Utilities ETF (XLU) is under-performing the S&P 500
index over the last 2 months and this is a bullish sign.
-Non-crash Sentiment is bullish. (If the downturn deepens
and becomes more extended, I’ll switch to crash sentiment; that would take a
much lower value to issue a buy-signal.)
-The size of up-moves has been more that down-moves over
the last month.
-The 5-10-20 Timer System is BULLISH, because the 5-dEMA
and the 10-dEMA are above the 20-dEMA.
NEUTRAL
-Overbought/Oversold Index, a measure of advance-decline
data, is neutral. (This indicator isn’t followed much anymore.)
-The Fosback High-Low Logic Index is neutral. It called
the top of the 20% correction in Sep-Dec 2018 to the day.
-VIX jumped sharply higher when the correction started
and is dropping. It may give a bull signal soon.
-The S&P 500 is neutral relative to its 200-dMA.
-Bollinger Bands and RSI are in neutral territory.
-Statistically, the S&P 500 has been bearish due to
several panic-signals, but it is now in the Neutral category.
-Over the last 20-days, the number of up-days is neutral.
BEAR SIGNS
-MACD of stocks advancing on the NYSE (breadth) made a
bullish crossover 26 Mar, but it is very close to a bearish crossover now. In
the current correction, MACD of Breadth made a bearish crossover 3 days after
the top and a bullish crossover 3 days after the bottom so it has been a
reasonably good indicator.
-My Money Trend indicator has
been headed down for the last 4 days.
This is a bearish sign suggesting more downside ahead.
-Short-term new-high/new-low data has turned bearish.
-The last hour, Smart Money (late-day action) is headed
down – the Pros are selling based on the Smart Money Indicator (a variant of
the indicator developed by Don Hayes).
-Cyclical Industrials are underperforming relative to the
S&P 500.
On Friday, 21 February, 2 days after the top of this
pullback. There were 10 bear-signs and 1 bull-sign. Now there are 7 bull-signs
and 5 bear-signs. Last week there were 10 bull-signs and 4 bear-signs.
The S&P 500 climbed above its 50-dMA, and closed 1% above
it. We need to see 2 successive closes above the 50-day to feel like we have
broken above this resistance. Today’s close above the 50-dMA may bring buyers
on Monday, but my indicators suggest down next week. The Index has not broken
above its prior rally high of 2875.
Last Friday’s (17 April) S&P 500 level of 2875 represented
a retracement of 55% from the prior low back toward the all-time high. 57% retracement
(2890) is the average for this type of rally; 52% is the median. The rally
lasted 18 days (as of 17 Apr) if it is over; the average length of a counter-trend
rally after a 15% waterfall decline is 21 days.
The median is 11 days. Time-wise, price-wise and given the bearish
signals we’ve mentioned recently, the rally looks like it is over for the time
being.
The Index is currently down 16.2% from its all-time high.
Today is day 46 of the correction. Corrections greater than 10% last (on
average) 68 days, top to bottom. Crashes are significantly longer; I am not
sure if this is a crash yet.
Overall, the daily sum of 20 Indicators improved
from 0 to +1 (a positive number is bullish; negatives are bearish). The 10-day
smoothed sum that negates the daily fluctuations declined from +48 to +42.
(These numbers sometimes change after I post the blog based on data that comes
in late.) Most of these indicators are short-term.
Short-term indicators are turning down and are suggesting
a drop next week. How much of a drop
remains to be seen. Longer-term indicators are leaning bullish – especially the
VIX indicator. Now, it looks less likely that we’ll see a re-test of the prior
lows. We may have to ignore the history that says we almost always retest big
drops like the one we experienced 23 trading-sessions ago.
We’ll see.
RECENT STOCK PURCHASES
Of purchases near the recent low, I still own:
-Biotech ETF (IBB). #1 in momentum. We’re in a health
crisis so perhaps this will be a good longer-term hold too. Gilead is the
largest holding in the IBB-ETF.
-XLK. Technology ETF spreads some risk and gives exposure
to Microsoft, Cisco, etc.; was #1 in momentum in the ETFs I track before the
crisis.
TOP / BOTTOM INDICATOR SCALE OF 1 TO 10 (Zero is a
neutral reading.)
Today’s Reading: +3**
Most Recent Day with a value other than Zero: +3 on 24
April. (Non-Crash Sentiment is bullish; Breadth is diverging from the
S&P 500 in a bullish direction; and Money Trend Spread vs. the S&P 500
is bullish even though the direction of Money Trend is down, a short-term
bearish indicator.)
(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
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:
IBB has the highest momentum; IBB (iSharesBiotech
ETF) is the best of the bad.
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. 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%. The rest are then
ranked based on their momentum relative to the leading stock.
For more details, see NTSM Page at…
FRIDAY MARKET INTERNALS (NYSE DATA)
Market Internals dropped
to NEGATIVE 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 35% invested in
stocks. You may wish to have a higher or lower % invested in stocks depending
on your risk tolerance.
INTERMEDIATE / LONG-TERM INDICATOR
Friday, the VOLUME, PRICE and NON-CRASH SENTIMENT indicators
are bullish; the VIX indicator is still giving a bear signal, but perhaps it
will reverse to the bull side soon.
The 5-10-20 Timer System remained bullish, because the
5-dEMA and the 10-dEMA climbed above the 20-dEMA. This is a good indicator on
its own.
The Long-Term Indicator remained HOLD. If we do
retrace down, I’ll try to find a good buy-point. At that time, I’ll increase stock holdings
significantly.
