"This imaginary person out there - Mr. Market - he's
kind of a drunken psycho. Some days he gets very enthused, some days he gets
very depressed. And when he gets really enthused, you sell to him and if he
gets depressed you buy from him. There's no moral taint attached to that."
- Warren
Buffett
FED BEIGE BOOK MAY 27 (Federal Reserve)
“Economic activity declined in all Districts – falling
sharply in most – reflecting disruptions associated with the COVID-19 pandemic…Although
many contacts expressed hope that overall activity would pick-up as businesses
reopened, the outlook remained highly uncertain and most contacts were
pessimistic about the potential pace of recovery.” Story at…
EIA CRUDE INVENTORIES (Energy Information Administration)
“U.S. commercial crude oil inventories (excluding those
in the Strategic Petroleum Reserve) decreased by 5.0 million barrels from the
previous week. At 526.5 million barrels, U.S. crude oil inventories are about
10% above the five year average for this time of year.” Report available at…
TRADING RANGE BREAKS HIGHER (Heritage Capital)
“Given that stocks closed the week well and the positive
news over the weekend about another clinical trial beginning for Novavax’
Corona vaccine, I would expect the Dow and the other major indices to poke
above the trading range as the new week begins on Tuesday. I do not expect this
move to be the beginning of a new leg higher in the Dow towards 29,000.” Paul
Schatz, President, Heritage Capital. Commentary at…
CORONAVIRUS (NTSM)
Here’s the latest from the COVID19 Johns Hopkins website
as of 8PM. Nationwide, there were about 22,000 new-cases today, about 8,000 more
than yesterday. The 14-day growth factor rose to 1.07 today, indicating growth
in new cases of about 7% per day. The
curve is flattening rather fitfully and growth in new cases remains.
These numbers are based on U.S. totals; local data will
be different.
MARKET REPORT / ANALYSIS
-Wednesday the S&P 500 rose about 1.5% to 3036.
-VIX dropped about 1% to 27.62.
-The yield on the 10-year Treasury rose to 0.697%.
The S&P 500 closed 1.2% above its 200-dMA. As I’ve
said recently, I’m looking for successive closes above the 200-day before I add
to stock holdings.
Perhaps we can forget any bear signs; the markets keep
powering higher. Remember the chart I showed yesterday that indicated the
S&P was likely to trend lower? It turned bullish.
Actually, the markets may be getting too bullish. We still
have a big nagging bearish sign:
Breadth on the NYSE vs the S&P 500 index has
drastically diverged from the S&P 500 index in a bearish manner. The Index remains way too far ahead of
breadth, at least using moving average comparisons that have usually proved to
be correct. It made an all-time high divergence today. The Bearish divergence
today exceeded the Bullish divergence at the correction bottom. That’s why I sold the rally and haven’t been
in a hurry to get back in.
Today, we added the Bollinger Bands that are giving an
overbought indication.
Overall, we see mostly bullish signs. The daily sum of 20
Indicators improved from +5 to +9 (a positive number is bullish;
negatives are bearish). The 10-day smoothed sum that negates the daily fluctuations
improved from +22 to +34. (These numbers sometimes change after I post
the blog based on data that comes in late.) Most of these indicators are
short-term.
I remain skeptical of this rally, but with the S&P
500 now about 1.2% above its 200-dMA, I need to be flexible. I’ll turn into a
Bull and BUY if the S&P 500 can close above its 200-dMA on consecutive days;
so, we are looking at a buy Friday or possibly Thursday.
TOP / BOTTOM INDICATOR SCALE OF 1 TO 10 (Zero is a
neutral reading.)
Today’s Reading: -3**
{Non-Crash Sentiment is bullish (+1); Breadth vs S&P 500
is bearish (-1); Money Trend/S&P 500 Spread is bearish (-1); Bollinger
Bands are Overbought; Smart Money S&P 500 spread is overbought.}
(1) +10 Max Bullish / -10 Max Bearish)
(2) -4 or below is a Sell sign. +4 or higher is a Buy
Sign.
RECENT POSITIONS
-SDS-ETF (2x short the S&P 500). - SOLD
I covered the short position in the morning. Internals
were crazy positive while the S&P 500 was slipping; it made no sense.
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…
WEDNESDAY 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 25% invested in
stocks. You may wish to have a higher or lower % invested in stocks
depending on your risk tolerance.
