LEADING ECONOMIC INDICATORS (Conference Board)
“The Conference Board Leading Economic Index®
(LEI) for the U.S. declined 6.7 percent in March to 104.2 (2016 = 100),
following a 0.2 percent decrease in February, and a 0.4 percent increase in
January. “In March, the US LEI registered the largest decline in its 60-year
history,” said Ataman Ozyildirim, Senior Director of Economic Research at The
Conference Board. “The unprecedented and sudden deterioration was broad based,
with the largest negative contributions coming from initial claims for
unemployment insurance and stock prices. The sharp drop in the LEI reflects the
sudden halting in business activity as a result of the global pandemic and suggests
the US economy will be facing a very deep contraction…”
…About The Conference Board. The Conference Board is the
member-driven think tank that delivers trusted insights for what’s ahead.
Founded in 1916, we are a non-partisan, not-for-profit entity holding 501 (c)
(3) tax-exempt status in the United States.” Press release at…
THIS TIME MIGHT BE DIFFERENT-EXCERPT (Real Investment
Advice)
“While the markets have indeed managed a strong “bear
market rally” following the fastest decline in the entirety of financial
history, there are reasons to be cautious. We are just entering into what will
likely be a longer, deeper, and more damaging recession than what we saw in
2008. Credit conditions and yields spreads are still a long-way from
normalized, and defaults and bankruptcies are likely only in the very early stages.
Liquidity from the Fed has suspended bankruptcies for the time being, but the
longer this recession/depression drags on, the greater the risk is the Fed only
delayed the inevitable…What this all means is there will be no “V-shaped” recovery…It
also suggests there is a possibility that “buying the dip,” doesn’t
work this time.” – Lance Roberts, Chief Portfolio Strategist/Economist
for RIA Advisors.
Commentary at…
REST OF 2020 NOT A LAYUP (Heritage Capital)
“I am not nearly as bullish for the rest of 2020 as
others although I do see higher prices on balance by the time the year ends…As
much as I want to waive the flag and start chanting “USA, USA”, I don’t think
tomorrow [Friday] is the day. We will see how stocks trade, but my sense is
that Friday may be more of a short-term selling opportunity than reason to go
all in for a run to new highs.” – Paul Schatz, President, Heritage Capital.
CORONAVIRUS (NTSM)
Here’s the latest from the COVID19 Johns Hopkins website
as of 4PM Friday. The U.S. numbers continue to bounce around and, for the
second day in a row, today’s number of new-cases jumped up. There were 6000 more new cases than
yesterday. Rounded to the nearest thousand, there were 35,000 new cases today
vs. 29,000 new cases yesterday. The 5-day average growth rate climbed to 1.1, i.e.,
new case numbers are increasing on average 10% per day. The rate of increasing new
cases (slope of the curve) is now the same as it was 2-weeks ago. If this trend
continues, re-opening dates will be pushed out another 2-weeks. These numbers
are based on U.S. totals and local data will be different.
The coronavirus info is mildly bearish, but it is hard to
know if anyone is actually following it closely.
MARKET REPORT / ANALYSIS
-Friday the S&P 500 rose about 2.7% to 2875.
-VIX slipped about 5% to 38.15.
-The yield on the 10-year Treasury rose to 0.643.
Here we go again…
As I first mentioned Monday, the below chart shows a
clear, bearish, rising wedge-pattern since the recent bottom. (See Monday’s blog if you want more details
on the chart pattern.) We also note that today’s close was back to the upper
trend-line. I am getting tired of the
chart; the pattern is set to break soon.
If the chart guys are right, the break will be down. We’ll see.
The Index broke 0.4% above its 50-dMA and that is a level
of resistance.
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 has lasted 18 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 15.1% from its all-time high.
Today is day 41 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. It
certainly has the potential to be one. If the bottom is in, this correction
is over and it lasted 23-days. I don’t think
so, but I have been wrong before.
Time for Friday’s rundown of some important indicators:
BULL SIGNS
-100-dMA of Breadth is moving up.
-MACD of S&P 500 price made a bullish crossover 26 Mar.
-MACD of stocks advancing on the NYSE (breadth) made a
bullish crossover 26 Mar.
-The Fosback High-Low Logic Index is Bullish. It called
the top of the 20% correction in Sep-Dec 2018 to the day.
-Short-term new-high/new-low data is bullish.
-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.
-We saw a 90% up-volume day Friday, 17 April, that met
all criteria for a bullish signal. Sounds
good, but sometime we see this at a top.
Since the rally is long in the tooth, we wonder if this is really a
bullish sign. For now, I’ll say yes.
-Money Trend has turned up.
-The 5-10-20 Timer System is BULLISH, because the 5-dEMA
and the 10-dEMA are above the 20-dEMA.
NEUTRAL
-Breadth on the NYSE vs the S&P 500 index bullish.
(There is a bullish divergence.)
-The S&P 500 is neutral relative to its 200-dMA.
-Cyclical Industrials are neutral relative to the S&P
500.
-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
-Overbought/Oversold Index, a measure of advance-decline
data, is overbought. (This indicator isn’t followed much anymore.)
-The last hour, Smart Money (late-day action) is overbought.
-VIX jumped sharply higher when the correction started
and is still giving a bearish signal. (I have spent a lot of time trying to
look at VIX to develop a better crash indicator for VIX.)
-Utilities ETF (XLU) is out-performing the S&P 500
index over the last 2 months and this is a bearish sign.
On Friday, 21 February, 2 days after the top of this
pullback. There were 10 bear-signs and 1 bull-sign. Now there are 10 bull-signs
and 4 bear-signs.
Overall, the daily sum of 20 Indicators improved
from +6 to +7 (a positive number is bullish; negatives are bearish). The 10-day
smoothed sum that negates the daily fluctuations improved from +54 to +59.
(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.
It is hard not to jump back in, but in addition to
over-valued stocks (and most probably are overvalued based on loss of earnings
from the crisis), there are still some important technicals that look bad. The
40-dMA of new-highs is still falling; the S&P 500 chart is bearish; and the
50-dMA of Breadth is 46.3%. Rallies failed during the 2018 correction when the
50-dMA was 48% or below.
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: +1**
Most Recent Day with a value other than Zero: +1 on 17
April. (Non-Crash Sentiment is bullish; the Fosback New-hi/new-low Logic
Indicator 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…
FRIDAY 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
Friday, 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.
