"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
HOUSING STARTS AND PERMITS (MarketWatch)
“Housing starts occurred at an 891,000 seasonally
adjusted annual rate in April, the Commerce Department said Tuesday, representing a 30%
drop from March… Permitting activity for newly-built homes fell 20.8% between
March and April to a seasonally adjusted annual rate of 1.07 million.” Story at…
CORONAVIRUS (NTSM)
Here’s the latest from the COVID19 Johns Hopkins website
as of 5 PM. Nationwide, there were about 19,000 new-cases today, about 1000
more than yesterday. The 10-day growth factor was about 1.01 today, indicating growth
in new cases of about 1% per day. The
curve is flattening.
These numbers are based on U.S. totals; local data will
be different.
MARKET REPORT / ANALYSIS
-Tuesday the S&P 500 dropped about 1% to 2923.
-VIX rose about 4% to 30.53.
-The yield on the 10-year Treasury dipped to 0.696%.
I sold stocks on 11 May at about S&P 500 2930 that I had purchased near the bottom. That sale was slightly
less than 1% lower than yesterday’s high. I guess I can’t be too upset about
that, but here we are again issuing concerns that the market is very stretched
and seemingly making a top. We have seen
that both Financials and Industrials have significantly underperformed the
S&P 500 for most of this collapse.
Those two sectors were among the big winners yesterday, while some of
the leaders, Microsoft, Apple etc., under performed on the day. That’s sort of
bullish, but the bulls can’t like it that MSFT and APPL underperformed. We
almost saw a big bullish-sign yesterday, but it wasn’t to be.
Yesterday was a high, up-volume day (90% up volume), but
it didn’t meet the Lowry Research test for a strong bullish-day because the
S&P 500 faded at the close.
Today, the big, indicator-news is that my "Breadth vs. the
S&P 500" indicator showed the largest bearish divergence I have seen when I
looked at mid-day. My data only goes
back to 2010, but this was a strong indication for a top. Actually, it still is, because even at the
close, this bearish number hasn’t been exceeded in 10 years. The rally looks like it is
in jeopardy.
Overall, the daily sum of 20 Indicators declined
from +8 to +5 (a positive number is bullish; negatives are bearish). The 10-day
smoothed sum that negates the daily fluctuations declined from +24 to +23.
(These numbers sometimes change after I post the blog based on data that comes
in late.) Most of these indicators are short-term.
I am currently bearish, but I’ll reconsider that position
if the market makes new-highs above the prior rally high of 2954.
TOP / BOTTOM INDICATOR SCALE OF 1 TO 10 (Zero is a
neutral reading.)
Today’s Reading: -2** This
is the first negative reading we have seen since 21 February.
(Non-Crash Sentiment is bullish; Breadth vs S&P 500 is
bearish; Money Trend/S&P 500 Spread is bearish; Smart Money is overbought,
a bearish sign.)
(1) +10 Max Bullish / -10 Max Bearish)
(2) -4 or below is a Sell sign. +4 or higher is a Buy
Sign.
POSITIONS
I added a short position using the SDS-ETF (2x short the S&P
500) with about 5% of the portfolio now short based on $ invested. I don’t like
to get too aggressive on the short side – I am retired after all.
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.
We note that MSFT is no longer the leader in Dow 30
momentum – a hardware store is? Yup. Home Depot is in first-place today.
For more details, see NTSM Page at…
TUESDAY MARKET INTERNALS (NYSE DATA)
Market Internals declined
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 25% invested in
stocks + 5% 2xSHORT. You may wish to have a higher or lower % invested in
stocks depending on your risk tolerance.
