“We’re only down 15% from the all-time high of February
19, and it seems to me that the world is more than 15% screwed up.” – Howard
Marks, April 20, 2020.
OIL GIANT FILES FOR BANKRUPTCY
“Diamond Offshore Drilling has filed for Chapter 11
bankruptcy protection, becoming the second major victim of the oil market crash
so far, after Whiting Petroleum filed earlier
this month…Earlier this month, Rystad Energy warned that
as many as 533 U.S. oil companies go bankrupt if oil stays at around $20 a
barrel.” Story at…
EARNINGS (FactSet)
“The
blended (combines actual results for companies that have reported and estimated
results for companies that have yet to report) earnings decline for the first
quarter is -15.8%, which is larger than the earnings decline of -14.8% last
week. Negative earnings surprises reported by companies in the Financials
sector were mainly responsible for the increase in the overall earnings decline
during the week. If -15.8% is the actual decline for the quarter, it will mark
the largest year-over-year decline in earnings for the index since Q2 2009
(-26.9%). It will also mark the fourth time in the past five quarters in which
the index has reported a year-over-year decline in earnings.” Analysis at…
PETER ZEIHAN ON ECONOMY ET AL. (Financial Sense)
“When we kind of peek out from under our rocks and stop
the stay at home orders, you'll have the virus start to pop up in additional
cities. Then you'll get outbreaks in Denver or in New York or in Boston—it
won't be nationwide. When that happens, those cities will have to lock back
down. That means we're looking at probably a third to half of the workforce at
any given time under some degree of restriction, and probably 10 to 20% of the
population and under some degree of lockdown. Under normal circumstances, that
would cause a recession. So, we're not going to get back to where we were in
February anytime soon, until we have a vaccine.” - Peter Zeihan,
geopolitical strategist, President, Zeihan on Geopolitics. Story at…
PAUL SCHATZ COMMENTARY EXCERPT (Heritage Capital)
“Over the coming days the bulls need to keep going and
close above last week’s high which is 24,300 in the Dow and 2880 in the S&P
500. Without doing that, there is downside risk to 22,500 and 2640
respectively.” – Paul Schatz, President Heritage Capital.
MILLIONS MAKING MORE ON UNEMPLOYMENT AND DON’T WANT TO
WORK (ZeroHedge)
“…for the next several months, unemployed workers all over
America will be bringing home at least the equivalent of $15 an hour based on a
40 hour work week…Some Republican lawmakers warned about this
unintended consequence of the relief bill when it was being drafted, noting
that $600 a week amounts to $15 an hour, more than twice the federal minimum
wage. That’s in addition to state unemployment benefits, which vary widely, from a
maximum of $235 per week in Mississippi to $795 per week in
Massachusetts…According to a report by the Leadership Conference Fund and the
Georgetown Center on Poverty and Inequality, 42.4% of people working in the
United States in 2015 earned less than $15 an hour. So how is the economy
supposed to “get back to normal” if more than 40 percent of our workers would
be better off unemployed?
“…the most shocking outcomes of the Coronavirus Pandemic
– and especially of the Coronavirus Aid, Relief, and Economic Security Act
(CARES) – is that the very people we hired have now asked us to be laid off.
Not because they did not like their jobs or because they did not want to work,
but because it would cost them literally hundreds of dollars per week to be
employed. It is the nail in the coffin of a Main Street business…” – Owner of
Sky Marietta Coffee Shop, Harlan, Kentucky. Commentary at…
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…
CORONAVIRUS (NTSM)
Here’s the latest from the COVID19 Johns Hopkins website
as of 5 PM Monday. The U.S. numbers continue to bounce around. Over the weekend
there were 79000 new cases (almost 40,000 per day) and the 5-day growth-rate
stayed stubbornly above 10% per day. Today,
there were about 12,000 fewer cases than yesterday, but including
numbers from the weekend, today’s 5-day growth-rate increased to 1.14. The average
new cases are rising at a rate of 14% per day over the previous 5-days.
What am I missing? The US numbers are going up, but this
isn’t being mentioned on news. As the curve below shows, there isn’t much
flattening either.
When I mentioned to my ER Nurse daughter that numbers
seemed to be going the wrong way (more cases), she said it’s because there are
now plenty of test kits. Hospitals are
testing more and finding more virus. This is also expanding the understanding
of Coronavirus symptoms. She said the
virus is causing seizures in people the medical establishment would not have
guessed had coronavirus.
These numbers are based on U.S. totals; local data will
be different.
MARKET REPORT / ANALYSIS
-Monday the S&P 500 rose about 1.5% to 2878.
-VIX dropped about 7% to 33.29.
-The yield on the 10-year Treasury rose to 0.664.
Today the my VIX indicator switched to Buy. It has been preventing me from buying, so
long-term indicators are now bullish. VIX is one of the better indicators and
it is over weighted in my analysis. Since we are close to the prior rally top,
I plan to wait and see if the Index can close above today’s high (2878) before
I move money back into the stock market.
The S&P 500 climbed above its 50-dMA, and closed 2.9%
above it. The Index has decisively broken above its 50-dMA and it closed
slightly above its prior rally high of 2875.
Today’s S&P 500 level of 2878 represented a retracement
of 56% 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 24
days; the average length of a counter-trend rally after a 15% waterfall decline
is 21 days. The median is 11 days. I
thought the rally was over, but today proved otherwise.
The Index is currently down 15% from its all-time high.
Today is day 47 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 improved
from +1 to +7 (a positive number is bullish; negatives are bearish). The 10-day
smoothed sum that negates the daily fluctuations improved from +42 to +44.
(These numbers sometimes change after I post the blog based on data that comes
in late.) Most of these indicators are short-term.
Long-term indicators are now bullish, since the VIX
indicator finally switched to buy.
Given that the long-term indicator is now bullish, I am
going to add to stock holdings IF it is apparent that the index will close
higher Tuesday. I am still not confident, but I will hold my nose and follow
the indicators as long as the market is agreeable. It will be necessary to remain nimble, since
I think the best we can expect, is a return to the old highs before we see
weakness that will take the markets down again. I think the problems the
economy faces are worse than investors realize.
I will move to 40%-50% invested in stocks tomorrow, IF
it is apparent that the S&P 500 will close higher. We have to consider that
this could still be the top, or near the top, of the rally. If we have a huge up-day tomorrow, it might indicate a top so I'll be leery of jumping back in.
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 27
April. (Non-Crash Sentiment is bullish; Breadth is diverging from the
S&P 500 in a bullish direction; and Smart Money is overbought so it is -1.)
(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:
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…
MONDAY MARKET INTERNALS (NYSE DATA)
Market Internals improved
to 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, VIX and NON-CRASH SENTIMENT
indicators are bullish.
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 improved to BUY.
Still, there is risk since we may be at, or near, the
rally top.
