PAYROLL REPORT (CNBC)
“Nonfarm payrolls dropped by 701,000 in March, according
to Labor Department numbers released Friday that only begin to show the
economic damage wrought by the coronavirus crisis…“Today’s numbers are
shockingly bad and an understatement of the damage already done to the U.S.
economy,” said Nick Bunker, economic research director at job search site
Indeed. “If this is an indication of what was happening before the full force
of the crisis hit, then it will be hard to come up with the words to describe
the numbers in future months.” Story at…
My cmt: I heard a radio report that the data only covered
thru mid-March.
ISM NON-MANUFATURING (MarketWatch)
“U.S. services and other non-manufacturing companies
reported continued growth in March, but at the slowest pace since August 2016, the Institute for Supply Management said Friday. The
ISM services index was 52.5% in March…” Story at…
https://www.marketwatch.com/story/us-service-sector-continued-to-expand-in-march-ism-says-2020-04-03
BEARS IN CONTROL (Heritage Capital)
“After a day and a half run by the bulls, they quickly
gave up by lunch on Tuesday, allowing the bears to enjoy yet another 90% down
day on Wednesday where more than 90% of the volume traded was in stocks going
down on the day. As you know that is an extreme number showing widespread
selling. The bulls need at least one 90% up day or two 80% up days to stem the
tide.” Paul Schatz, President heritage Capital.
LOCKDOWN UNTIL NO NEW CASES (Summit News)
“Dr. Anthony S. Fauci says that the United States will not
come out of lockdown until there are no “new cases” of coronavirus, prompting
some to question precisely how long that will be.” Story at…
Ruh-Roh!
CORONAVIRUS ESTIMATES
I have been estimating future cases based on growth
rates. For example, a week ago I
mentioned in my Friday “Bear Signs” paragraph that my projection was 350,000
cases in a week. Fortunately, my
estimates have been too high. That’s because social distancing is causing the
growth rate to drop. Actual cases today were 266,671 at 4PM. Since my numbers
will consistently be too high, I will stop posting my estimates. My simplistic
analysis was based on a constant growth rate.
Today, the number of new coronavirus cases in the US was
up by about 20% at 4PM. (They were up 60% on Friday of last week.)
Bottom line: Growth rate is slowing, a good sign, but the
number of cases is still rising.
HAVE I BEEN USING AN INCORRECT BREADTH THRUST?
(SeeitMarket)
“When market breadth is weak, it goes below .4 using that
calculation (so less than 40%), remembering that the green line is the
exponential moving average. Once it goes back above that .4 level and gets
above the .61 level in 10 trading days or less (2 trading weeks), we get a
breadth thrust buy signal.” Discussion at…
My cmt: Am I wrong? Apparently, “Yes.” A Breadth Thrust
occurs when breadth climbs from below 40% to above 61.5% in 10-days or less. Breadth
for this indicator is measured as % of stocks advancing on the NYSE. While we
have seen a 21.5% increase in breadth – and that is what I was using – at no
time since the recent bottom has breadth climbed above 61.5%. The highest was
56% advancing, so my interpretation of the indicator was flawed. We have not
seen a Breadth Thrust yet! (The Zweig Breadth Thrust also uses an exponential
moving average while I use a simple moving average.) Tom McClellan points out
that the Zweig signal is often wrong. If you wish to read more on the subject,
see here:
MARKET REPORT / ANALYSIS
-Friday the S&P 500 dropped about 1.5% to 2489.
-VIX dropped about 8% to 46.8.
-The yield on the 10-year
Treasury was little changed at 0.596.
Time for Friday’s rundown of some important indicators:
BULL SIGNS
-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., although it is now very close to a bearish crossover.
I’ll leave it in the Bull category for now.
-The S&P 500 is too far below its 200-dMA giving an
oversold, bull-signal when sentiment is considered.
-Breadth on the NYSE vs the S&P 500 index remains in
bull territory. (There is a bullish divergence.)
-The Smart Money (late-day-action) is oversold.
-The Fosback High-Low Logic Index is Bullish. It called
the top of the 20% correction in Sep-Dec 2018 to the day.
-Money Trend is headed up.
NEUTRAL
-New-high/new-low data is neutral and leaning bearish.
-Overbought/Oversold Index, a measure of advance-decline
data, is neutral. (This indicator isn’t followed much anymore.)
-Statistically, the S&P 500 has been bearish due to
several panic-signals, but it is now in the Neutral category.
-Bollinger Bands and RSI are in neutral territory.
-Over the last 20-days, the number of up-days is neutral.
-The size of up-moves has been less that down-moves over
the last month, but not enough to signal either way.
BEAR SIGNS
-The Smart Money (late-day action) has rolled over and is
now bearish. (This is a variant of Don Hayes’, Smart Money indicator.)
-Cyclical Industrials are slipping relative to the
S&P 500, a bearish sign.
-We saw a 90% up-volume reversal followed by consecutive
80%+ up-volume days 24-26 March strongly suggesting an up-trend. Unfortunately,
we had a bearish 90% down-volume day reversal on 1 April. Even though it didn’t
meet all the Lowry Research tests for a 90% down-volume day, this still looks
bearish to me coming only 7 days after the bottom.
-The 5-10-20 Timer System is SELL, because the 5-dEMA and
the 10-dEMA are below the 20-dEMA.
-VIX jumped sharply higher when the correction started
and is still giving a bearish signal.
-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 7 bull-signs
and 6 bear-signs. We improved since the pullback started, however, we had better numbers last Friday.
The Index is currently down 26.5% from its all-time high.
Today is day 32 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 declined
from +2 to zero (a positive number is bullish; negatives are bearish). The
10-day smoothed sum that negates the daily fluctuations improved from +20
to +29. (These numbers sometimes change after I post the blog based on data
that comes in late.) Most of these indicators are short-term.
It is still possible that we have seen the low or close
to it. Now, I think we will have a retest of that low. I will wait for a successful
retest before adding further to stock holdings.
The worry is that this market could play out like 2009.
After the markets made a significant bottom, they rallied, but then fell around
30% more before bottoming 2-months later.
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. Wish I had sold
a few days earlier!
TOP / BOTTOM INDICATOR SCALE OF 1 TO 10 (Zero is a
neutral reading.)
Today’s Reading: +6**
Most Recent Day with a value other than Zero: +6 on 3
April. (The S&P 500 is too far below its 200-dMA when sentiment is
considered; Non-Crash Sentiment is bullish; Breadth has made a bullish
divergence from the S&P 500; Money Trend is bullish; the Fosback
New-hi/new-low Logic Indicator is bullish; and Smart Money {late-day-action} is
oversold.)
(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” 9% in the last 40-days;
XLE is down 50%.
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%, rather minus 100%
since the market has been 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…
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, 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.
