“Bottom fishing is still the most expensive sport in the
world.” Scott Minerd, Guggenheim Global Chief Investment Officer.
JOHN HUSSMAN MARKET COMMENTARY EXCERPT (Hussman Funds)
“I continue to expect the S&P 500 to lose about
two-thirds of its value over the coming years…What we’re seeing today in the
financial markets is just an initial episode of significant risk aversion…It’s
worth noting that the deepest economic decline since the Great Depression
involved a cumulative decline of 5.6% of annual real GDP. It’s difficult to
imagine that this downturn will be smaller…What’s likely to do harm to
investors over the completion of this market cycle isn’t the impact of a year
or two of lost cash flows. The likely source of actual damage is the roughly
65% loss in value (from the February high) that would be required simply to
bring the most reliable valuation measures to their run-of-the-mill historical
norms.” – John Hussman, PhD. Commentary at…
I’d quote more, but I’m getting depressed. (I am also
trying to comply with The Hussman Funds republishing policy.)
SOME GOOD ADVICE (Hussman Funds)
“One bit of advice that friends have often found helpful:
Anytime you make a portfolio change, start by accepting that you are guaranteed to
have regret. If you sell some of your holdings and the market goes up, you’ll
regret having sold anything. If you sell and the market goes down, you’ll
regret not having sold more. If you don’t sell and the market goes up, you’ll
regret not having bought. The key is to balance a careful consideration of
valuations, expected returns, potential risks, and prevailing market
conditions, along with all of those potential regrets. If you begin by accepting that there
will be regret of one form or another, you won’t feel
paralyzed, and you’ll consider more possibilities than you might otherwise.” –
John Hussman, PhD. Commentary at…
TRIPLE LEVERED SHORT OIL ETN CRASHES TO
“COMPLETE LOSS” (ZeroHedge)
“Unprecedented spikes in price along with a record
'super-contango' have left the VelocityShares Daily 3x Inverse Crude exchange-traded
notes, or DWTIF, worthless, according to
Credit Suisse. “Because the Closing Indicative Value of the ETNs will be $0
on April 2, 2020 and on all future days...
...investors who buy the ETNs at any time at any price
above $0 will likely suffer a complete loss of their investment,”
Credit Suisse said.
Just a caution to watch out for over-investing in these
leveraged ETFs and ETNs. I remember a similar leveraged VIX product that
crashed to zero a few years ago – XIV, I think.
EXPERTS SAY SPORTS WON’T BE BACK SOON (LA Times)
“As long as we’re still in a place where when a single
individual tests positive for the virus that you have to quarantine every
single person who was in contact with them in any shape, form or fashion, then
I don’t think you can begin to think about reopening a team sport,” Sills said.
“Because we’re going to have positive cases for a very long time.” - Dr. Allen
Sills, chief medical officer of the NFL.
CORONAVIRUS ISSUES ARE NOT OVER (NTSM)
The growth-rate of new virus cases is moderating in the
US and Worldwide and we saw positive moves in the markets today; however, it is
still hard to determine when we’ll see the end of economic impacts associated
with COVID19.
The very-first, confirmed-case of COVID19 in the US was on
1 March. The President declared a National emergency 11 days later. At the end
of March, there were more than 185,000 confirmed-cases. Sunday there were about
35,000 new confirmed-cases in the US. Some of these people probably had
contact with others before they had symptoms. It will be a month before those
new exposures are resolved. Additionally, as of Friday, 20-states still didn’t
have stay-at-home orders and we might guess that they are experiencing
exponential growth that is under-the-radar. If recent history is a guide, it may
not be under-the-radar for long.
The good news is that there were about 15,000 new-cases in
the US as of 4PM. That will change later today, but it looks like we may see
less cases than yesterday. Still, there’s plenty to worry about.
Dr. Fauci says that the United States will not come out of
lockdown until there are no “new cases.” I can’t hazard a guess as when that
might be. Even if we do try to get back to normal soon, as some are suggesting,
the virus is likely to re-emerge as it is now doing in China.
As a worst case, when might this crisis end? When a vaccine
is available. Could it be sooner? Probably, but I am not optimistic that we’ll
see an end before the stock market suffers more pain. Bill Gates has predicted
that it would be safe to return to work on 1 June and I am assuming he is
consulting with experts. The Governor of NJ said we can open-up “deep into May”
at the earliest.
Regardless of what I think, the trick is to follow the
indicators, not what anybody thinks. Given history, a retest of the low is still
the most likely course from here.
MARKET REPORT / ANALYSIS
-Monday the S&P 500 dropped about 7% to 2664.
-VIX dropped about 3% to 45.24.
-The yield on the 10-year
Treasury rose to 0.678.
Today’s bounce carried the S&P 500 above the prior double-top,
rally-high around 2630. The Index moved up the 38% retracement level (the first
Fibonacci level, 2674) and pulled back.
The Index is currently down 21.3% from its all-time high.
Today is day 33 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 improved
from zero to +7 (a positive number is bullish; negatives are bearish). The
10-day smoothed sum that negates the daily fluctuations improved from +29
to +39. (These numbers sometimes change after I post the blog based on data
that comes in late.) Most of these indicators are short-term.
90% of the volume was up today, however, it wasn’t the strong
bullish sign we’d hoped for, because the Index faded at the end of the day. Volume wise, the really bullish signs were on the 3 days
after the low. It would seem that the
final bottom is not likely to be very far below the bottom we have already seen,
if we do fade that far down again.
After a big bullish day like today there are more bulls
suggesting a “V” bottom. We still need
to worry about the economy and the stock market. One of the prerequisites for
an end to the current rally was an outsized up-day. We got that. Another would be a logical
stopping point (resistance) and we got that in the form of the first Fibonacci
level. Today we retraced 38%. The average retracement is 50% after waterfall
drops greater than 15% so the rally may continue. Let’s see what happens
tomorrow.
Based on history a retest of the low is the most likely
outcome. I will wait for a successful retest before adding further to
stock holdings.
RECENT STOCK PURCHASES
-SSO. SOLD
-Biotech ETF (IBB). #1 in momentum. We’re in a health crisis
so perhaps this will be a good longer-term hold too.
-Apple. SOLD
-XLK. Technology ETF spreads some risk and gives exposure
to Microsoft, Cisco, etc.; was #1 in momentum before the crisis.
-Starbucks. SOLD
I took small losses on the stock trades.
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 6
April. (Non-Crash Sentiment is bullish; Breadth has made a bullish
divergence from the S&P 500; Money Trend is bullish; and 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 negative momentum; IBB (iShares
Nasdaq Biotechnology ETF) is the best of the bad. IBB is down “only” 5% in the last 40-days.
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 improved
to BULLISH 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. We were fortunate to recognize dangers and take a defensive posture in late January.
INTERMEDIATE / LONG-TERM INDICATOR
Monday, the VOLUME, and NON-CRASH SENTIMENT indicators
are bullish; the VIX indicator is still giving a bear signal; the PRICE indicator
is neutral.
The Long-Term Indicator remained HOLD. I sold some stocks
1 April. If we do retrace down, I’ll try to find a good buy-point. At that time, I’ll increase stock holdings
significantly.
