“Trade what you see; not what you think.” – The Old Fool,
Richard McCranie, trader extraordinaire.
“I couldn’t believe it, on what planet am I competing
with unemployment?” - Jamie Black-Lewis, owner of Oasis Medspa and Salon and
Amai Day Spa, Washington State.
JOBLESS CLAIMS (MarketWatch)
“The record surge of Americans applying for unemployment
benefits is starting to recede, but another 4.4 million people filed new
jobless claims last week to push the total above 26 million since the
coronavirus pandemic laid siege to the U.S. economy a month and a half ago. The
spike in unemployment has likely pushed the jobless rate to between 15% and
20%, economists estimate.” Story at…
NEW HOME SALES (Reuters)
“Sales of new U.S. single-family homes dropped by the
most in more than 6-1/2 years in March and further declines are likely as the
novel coronavirus outbreak batters the economy and throws millions of Americans
out of work.
The Commerce Department said on Thursday new home sales
fell 15.4%...” Story at…
BETTER OFF NOT WORKING (CNBC)
“Jamie Black-Lewis felt like she won the lottery after
getting two forgivable loans through the Paycheck Protection Program…The law,
the CARES Act, offered $349
billion in loans for small businesses struggling as a result of
Covid-19. Banks, backstopped by the federal government, can fully forgive
the loans under certain conditions…[but] employees…determined they’d make more
money by collecting unemployment benefits than their normal
paychecks…“I couldn’t believe it,” she [owner of Oasis Medspa and Salon and
Amai Day Spa] added. “On what planet am I competing with unemployment?” Story
at…
My cmt: We saw the same thing yesterday in the restaurant
business. (See yesterday’s blog.) We might think this business-destructive
imbalance was an honest mistake that occurred as a result of the rush to get
relief thru congress. But no, this is the same crap we got from congress during
the 2008-2009 Financial crisis. Then, unemployment numbers didn’t drop until
the Federal money was reduced. One wonders, “Was this really an “unintended
consequence” or are there government forces at work whose goal is to undermine
capitalism?” I’m not normally a conspiracy theorist, but really, members of
congress who crafted the CARES Act were around in 2008 and must have known
better.
CORONAVIRUS (NTSM)
Here’s the latest from the COVID19 Johns Hopkins website
as of 5 PM Thursday. The U.S. numbers continue to bounce around. Today, there
were about 2,500 fewer cases than yesterday. Today’s 5-day growth
rate is at a new low of 0.86, i.e., average new cases are falling at a rate of 14%
per day over the previous 5-days.
I added red trend-lines that are parallel at the steepest
part of the curve. As the chart shows, the curve did flatten in mid-April, but
steepened a few days ago. It flattened a lot over the last two days. These
numbers are based on U.S. totals; local data will be different, but the recent
trend is encouraging…
…However, I thought John Hussman made a good point
regarding re-opening. Two days ago, we saw a peak in new cases at nearly 37,000
new cases. Reopening at the peak means we are at the peak of infected people.
This is not a good time, although, I think limited reopening of businesses that
can maintain social distance makes sense.
MARKET REPORT / ANALYSIS
-Thursday the S&P 500 slipped about a point to 2798. (The
Index was up in the morning, but dropped more than 1% after a Remdesivir trial in China “flopped” around 12:30.
It continued to fall all afternoon in choppy trading.)
-VIX dropped about 1% to 41.38.
-The yield on the 10-year Treasury slipped to 0.609.
My Money Trend indicator attempts to follow the general
concept of Lowry Research and their supply and demand methodology for stock market
analysis. Their concept is based on a detailed stock-by-stock analysis while
mine is an estimate based on readily available Macro data. Theirs is much more accurate, but that
doesn’t mean mine isn’t useful. My Money Trend indicator has been headed down
for the last 3 days. This is a bearish
sign suggesting more downside ahead.
MACD of Breadth is also looking
like it will have a bearish crossover soon. MADC stands for Moving Average
Convergence Divergence and it uses different moving averages, in this case, to
measure stocks advancing on the NYSE.
(MACD is normally used for Price analysis of an index.) 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. A bearish cross would signal
divergence with the S&P 500 assuming the Index remains bullish. From a
trend point-of-view, there is some bearish divergence now.
In addition, we see that the Smart Money (late-day-action)
is rolling over; the Pros are selling. (This indicator is a variant of the Don Hayes
Smart Money Indicator.)
The long-term New-hi/New-low data is just beginning to
turn bullish. If it continues, I may have to reconsider my current defensive
stance.
The S&P 500 climbed above its 50-dMA early intra-day,
but closed 0.7% below it. The 50-day continues to look like a strong resistance
point. The S&P 500 sold off about 0.75
percent in the last 30 minutes of trading.
That’s a bearish sign and we’ll watch tomorrow (again) to see if there
is a bearish follow-thru.
Friday’s 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 17.4% from its all-time high.
Today is day 45 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 declined
from +4 to zero (a positive number is bullish; negatives are bearish). The
10-day smoothed sum that negates the daily fluctuations declined from +56
to +48. (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 were to make new highs (above the
recent bounce), I would need to re-evaluate and increase stock holdings.
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: +2**
Most Recent Day with a value other than Zero: +2 on 23
April. (Non-Crash Sentiment is bullish; Breadth is diverging from the
S&P 500 in a bullish direction; Money Trend Spread vs the S&P 500 is
bullish; and Smart Money is minus 1 (bearish) since it is now “overbought”.)
(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…
THURSDAY 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
Thursday, 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 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.
