“Trade what you see; not what you think.” – The Old Fool,
Richard McCranie, trader extraordinaire.
3 SCENARIOS FOR THE MARKET IN Q2 (Heritage Capital)
“1 – March 23rd was THE low and stocks are not going back
down near there again. It’s another rare “V” bottom like December 2018.
2 – This is a bear market rally that will suck people in
over a few days before rolling over and through the March 23rd low on the way
to sub-2000 on the S&P 500.
3 – This is a relief rally that will end sooner than
later and rollover to revisit the March 23rd bottom, plus or minus a few
percent over the coming weeks.” - Paul Schatz, President Heritage Capital.
Commentary at…
My cmt: The key point on the 2 bearish scenarios are that
the rally needs to roll over and turn down soon. Thursday, I made a very
rational argument why the rally is likely to end soon; but as we know, markets
aren’t always rational.
LARRY ADAM COMMENTARY EXCERPT (Raymond James)
“Due to the prolonged necessity of social distancing, the
likelihood of a quick V-shape recovery for the economy has been ‘swept away’ as
the realization sets in that it will take time for citizens to return to work,
consumers to feel at ease in public areas again, and businesses to resume
normal operations.” - Larry Adam, CIO, Raymond James.
NO LIGHT AT THE END OF THE TUNNEL (Real Investment
Advice)
“The markets have been clinging on to “hope” that
as soon as the virus passes, there will be a sharp “V”-shaped
recovery in the economy and markets. While we strongly believe this will not be the
case, we do acknowledge there will likely be a short-term market surge as the
economy does initially come back “online.” (That
surge could be very strong and will once again have the media crowing the “bear
market” is over.) …the majority of businesses will run out of money long
before SBA loans, or financial assistance can be provided.” Commentary at…
my cmt: I don’t know. When everyone thinks one thing will
happen; it doesn’t. Here’s the other side of the argument:
DON’T TUG ON SUPERMAN’S CAPE (McClellan Financial
Publications)
“You can put aside your fancy chart patterns, and your
in-depth fundamental analyses. The Fed is now in charge of everything,
and the Fed is buying. As the late Martin Zweig advised, “Don’t fight the
Fed.” …The Fed got back to doing QE again starting in Oct. 2019, and now thanks
to Covid-19 it has sped up those purchases. As with QE1, 2, and 3, it is
working to lift stock prices. It should continue working to lift stock
prices for however long the Fed keeps doing it.” Commentary at…
CORONAVIRUS
The COVID19 Johns Hopkins website has been reporting lower
cases. There were 23,000 new cases today and 25,000 new cases yesterday. The 5-day
average growth rate dropped below 1. All this is good news, although we still
are seeing a lot of fluctuation in the numbers. The curve is flattening, but
not by much, yet.
MARKET REPORT / ANALYSIS
-Monday the S&P 500 dropped about 1% to 2762.
-VIX dropped about 1% to 41.17.
-The yield on the 10-year Treasury rose to 0.772.
I don’t do much charting but it would be difficult to
miss this one. The below chart shows a clear, bearish, rising wedge-pattern since
the recent bottom. Stockcharts.com says,
“The Rising Wedge is a bearish pattern that begins wide at the bottom and contracts
as prices move higher and the trading range narrows. In contrast to symmetrical triangles, which have no
definitive slope and no bullish or bearish bias,
rising wedges definitely slope up and have a bearish bias.” From…
Last week’s S&P 500 level of 2757 represented a
retracement of 48% from the prior low back toward the all-time high. 57%
retracement (2810) is the average for this type of rally; 52% is the median.
(I’ve been reporting 50% average…close enough.) The rally has lasted 14 days;
the average length of a counter-trend rally after a 15% waterfall decline is 21
days. The median is 11 days.
The Index is currently down 18.4% from its all-time high.
Today is day 37 of the correction. Corrections greater than 10% last (on
average) 68 days. Crashes are significantly longer; I am not sure if this is a
crash yet. It certainly has the
potential to be one.
Overall, the daily sum of 20 Indicators slipped
from +7 to +5 (a positive number is bullish; negatives are bearish). The 10-day
smoothed sum that negates the daily fluctuations remained +54. (These
numbers sometimes change after I post the blog based on data that comes in
late.) Most of these indicators are short-term.
Based on history, a retest of the low is still the most
likely outcome. Still, if the market continues much higher, I’ll
need to re-evaluate and increase stock holdings.
RECENT STOCK PURCHASES
Of recent purchases 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.
-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: +4**
Most Recent Day with a value other than Zero: +4 on 13
April. (Non-Crash Sentiment is bullish; Breadth has made a bullish
divergence from the S&P 500; Long term Money Trend vs. the S&P 500 is
bullish; the Fosback New-hi/new-low Logic Indicator is bullish.)
(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:
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%; 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%%; in this case, -100%
because the market has been so bad. The rest are then ranked based on their
momentum relative to the leading stock. The highest ranked are those closest to
zero.
United Technologies is now Raytheon Technologies, ticker
symbol RTX. I’ll need to do some work to
bring this up to date. For now, ignore
RTX in the momentum analysis.
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 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
Monday, the VOLUME, PRICE and NON-CRASH SENTIMENT
indicators are bullish; the VIX indicator is still giving a bear signal.
The 5-10-20 Timer System turned bullish today because the
5-dEMA and the 10-dEMA climbed above the 20-dEMA. This is a good indicator n
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.
