"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
MODERNA REPORTS POSITIVE VACCINE RESULT (CNBC)
“Moderna’s closely watched early-stage human trial for a
coronavirus vaccine produced Covid-19 antibodies in all 45 participants.” Story
at…
My cmt: This was a Phase one trial designed to test safety
of the drug. They still need to do the difficult double-blind trials to test
the effectiveness.
NAHB HOUSING INDEX (CNBC)
“After the sharpest one-month drop in the history of the
index in April, homebuilder sentiment bounced back slightly in May as builders
saw a quick rebound in interest from buyers. Confidence in the market for
single-family, newly built homes rose 7 points in May to 37… Story at…
PE ABOVE 20 (FactSet)
“The forward 12-month P/E ratio of 20.4 on May 7 was
above the four most recent historical averages for the S&P 500: five-year
(16.7), 10-year (15.1), 15-year (14.6), and 20-year (15.4). In fact, this past
week marked the first time the forward 12-month P/E ratio had been equal to (or
above) 20.0 since April 10, 2002 (20.0). However, it is important to note that
even at 20.4, the forward 12-month P/E ratio was still below the peak P/E ratio
of the past 20 years for the index of 23.4 recorded on September 1, 2000.”
Commentary at…
PUTTING A PRICE ON THE S&P 500 (Real Investment
Advice)
“…with corporate earnings falling ill to COVID 19, we
calculate a range of fair values for the S&P 500…
-The current fair value of the S&P 500 based on the [Most
Optimistic] assumptions…is an S&P 500 price of 2510. The current price of
the S&P 500 as of 5/11/2020 is 2911. Therefore, the S&P is overvalued
by about 15%...
…The fair value for the S&P 500 using the earnings
experience of the 2001 recession is 1980.
…The fair value for the S&P 500 using the earnings
experience of the 2008/09 recession is 1926.” Commentary and analysis at…
My cmt: I posted this before, but left out the optimistic
projection.
KNOW THE CORONAVIRUS RISKS (Erin Bromag.com)
“…the backside of the mortality curve declines slowly,
with deaths persisting for months. Assuming we have just crested in deaths at
70k, it is possible that we lose another 70,000 people over the next 6 weeks as
we come off that peak. That's what's going to happen with a lockdown. As states
reopen, and we give the virus more fuel, all bets are off.
…where are people contracting the infection in the
community? I regularly hear people worrying about grocery stores, bike rides,
inconsiderate runners who are not wearing masks.... are these places of
concern? Well, not really.” - Erin S. Bromage, Ph.D., is an Associate Professor
of Biology at the University of Massachusetts Dartmouth.
My cmt: READ THE ARTICLE ABOVE!
CORONAVIRUS (NTSM)
Here’s the latest from the COVID19 Johns Hopkins website
as of 6:10 PM. Nationwide, there were about 18,000 new-cases today. The good
news is that cases have been declining over the past 3 days. (I sometimes
up-date the data later in the evening and that may make some of today’s stats
seem odd compared to what I may have written yesterday.) Growth is slowing as
indicated by the curve diverging from the red line. The 10-day growth factor
was about 1.00 today, indicating no growth in new cases.
These numbers are based on U.S. totals; local data will
be different.
MARKET REPORT / ANALYSIS
-Monday the S&P 500 rose about 3.2% to 2954.
-VIX fell about 8% to 29.30.
-The yield on the 10-year Treasury rose to 0.728%.
Breadth vs the S&P 500 indicator again flashed sell
today. That’s because the S&P 500 is
too far ahead of breadth, as measured by the percentage of stocks advancing on
the NYSE.
We also note that today was a statistically significant
up-day. That just means that the price-volume move exceeded my statistical
parameters. Statistics show that a statistically-significant, up-day is followed
by a down-day about 60% of the time.
Statistically-significant, up-days almost always coincide with tops, but
not all Statistically-significant, up-days occur at tops.
Today’s high is in the range of 4 recent highs going back
to 29 April, so the chart looks like a quad top, even though we did make a new
rally-high. Today’s high is 0.4% higher than the previous rally high, but it is
not significantly higher than the others. The S&P 500 also finally made it
to its 62% Fibonacci retracement level. It is a little higher at 62.4%. Still,
given this evidence, today looked more like at top, or at least a short-term
top, than a continuation of the rally.
Overall, the daily sum of 20 Indicators improved
from +1 to +9 (a positive number is bullish; negatives are bearish). The 10-day
smoothed sum that negates the daily fluctuations improved from +16 to +25.
(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 continues higher.
TOP / BOTTOM INDICATOR SCALE OF 1 TO 10 (Zero is a
neutral reading.)
Today’s Reading: +0**
(Non-Crash Sentiment is bullish; Breadth vs S&P 500 is
bearish; New-High/New-low is bullish; 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.
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 BULLISH 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.
