Monday, April 20, 2020

Stock Market Earnings … Now is Time to Sell, So They Say … CDC Stunning COVID-19 Results … Coronavirus … Stock Market Analysis… ETF Trading … Dow 30 Ranking

“Trade what you see; not what you think.” – The Old Fool, Richard McCranie, trader extraordinaire.
 
FACTSET EARNINGS UPDATE-EXCERPT (FactSet)
“To date, 9% of the companies in the S&P 500 have reported actual results for Q1 2020…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 -14.5%...If -14.5% is the actual decline for the quarter, it will mark the largest year-over-year decline in earnings for the index since Q3 2009 (-15.7%). 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 and commentary at…
 
NOW IT’S TIME TO SELL (Seeking Alpha)
“The S&P 500 has rallied nearly 30% in just three weeks since the March lows despite the ongoing global pandemic. The environment and economic outlook remain deeply bearish for stocks which are now once again expensive and face significant downside. The market is too complacent over the risks that the recovery process will be weaker than expected. Now is the time reduce equity exposure.” Commentary and analysis at…
 
CDC REVIEWS STUNNING TEST RESULTS (Boston25news)
“The Centers for Disease Control and Prevention is now “actively looking into” results from universal COVID-19 testing at Pine Street Inn homeless shelter. The broad-scale testing took place at the shelter in Boston’s South End a week and a half ago because of a small cluster of cases there. Of the 397 people tested, 146 people tested positive. Not a single one had any symptoms.” Story at…
 
CORONAVIRUS (NTSM)
Here’s the latest from the COVID19 Johns Hopkins website as of 8 PM Monday. The U.S. numbers continue to bounce around. In the last 3-days, the average of new cases was 36,000 new case per day. This blew the “flattening-the-curve” treatise; the curve was steepening. Today, the new cases were only 24,000 vs. 33,000 yesterday.  That’s why I use a 5-day average of the data to find the growth rate – it can be erratic.  Today’s growth rate is 1.01 so the new cases are growing at a rate of 1% per day. I don’t know what to make of this since new cases were growing 10% based on yesterday’s 5-day calculation.  We’ll just have to wait to see.
 
The guidance is generally not to reopen until one sees 2-weeks of falling numbers of new-cases. We’d have to start recounting today and see how it goes for the next 2-weeks for the U.S. as a whole.
 
These numbers are based on U.S. totals and local data will be different.
 
REOPENING TOO SOON COULD CAUSE AN EXPLOSION OF CORONAVIRUS (Futurism)
“Researchers at MIT trained a neural network model on data that predicted the spread of the coronavirus from late January to early March, including information on how countries implemented quarantine measures.
The researchers have a dire warning, as detailed in a preprint uploaded to medRxiv earlier this month: reopening the US too early would lead to a catastrophe. “We further demonstrate that relaxing or reversing quarantine measures right now will lead to an exponential explosion in the infected case count, thus nullifying the role played by all measures implemented in the US since mid March 2020,” reads the paper.” Story at…
My cmt: Or as my ER nurse daughter wrote, “The curve is flattening, we can lift restrictions = The parachute has slowed our rate of descent, we can take it off now.
 
MARKET REPORT / ANALYSIS         
-Monday the S&P 500 dropped about 1.8% to 2875.
-VIX jumped about 15% to 43.83.
-The yield on the 10-year Treasury was 0.619.
 
All last week we were watching an ascending triangle pattern on the S&P 500 chart.  Today, it finally made the predicted bearish turn down and broke through the bottom trend line. To be more convincing, we need to see the Index close below the trend line for 2-days in a row or see a close 3% below the trend.  We also note that the S&P 500 got rejected at the 50-dMA. As of today, the Index is 1% below the 50-dMA. Check out yesterday’s blog if you want to see the bearish ascending triangle chart.
 
There was another important bear sign, too: The VIX 7-day rate of change (ROC) indicator crossed from -17 to +1. It may need to move higher to be more convincing, but when discussing how to interpret this indicator, Tom McClellan said, “An upward crossing through zero often (but not always) marks an important top for stock prices.” This is logical since it looks like VIX bottomed today and has turned up. The chart and VIX ROC suggest the rally is over, at least for a while. We’ll see.
 
Both the Overbought/Oversold Index and the Smart Money Indicator are oversold and they contribute to a bearish lean.
 
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 19 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 16.6% from its all-time high. Today is day 42 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.
 
Overall, the daily sum of 20 Indicators improved from +7 to +9 (a positive number is bullish; negatives are bearish). The 10-day smoothed sum that negates the daily fluctuations improved from +59 to +68. (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.
 
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 20 April. (Non-Crash Sentiment is bullish; Money Trend 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…
 
MONDAY MARKET INTERNALS (NYSE DATA)
Market Internals improved to POSITIVE 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 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.