"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
PPI (CNBC)
"U.S. producer prices fell more than expected in April,
leading to the largest annual decline since 2015, which could bolster some
economists’ predictions for a brief period of deflation…The Labor Department
said on Wednesday its producer price index for final demand tumbled 1.3% last
month after slipping 0.2% in March.” Story at…
EIA CRUDE INVENTORIES (OilPrice.com)
“Crude oil prices rose today after the Energy Information
Administration reported a crude oil inventory decline of 700,000 barrels
for the week to May 8.” Story at…
CORONAVIRUS (NTSM)
Here’s the latest from the COVID19 Johns Hopkins website
as of 5:45 PM. Nationwide, there were about 22,000 new-cases today, about the
same as yesterday. (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 1.0 today, indicating no-growth. The US 10-day growth
rate is about the same as the rest of the world, although the rest of the world
has about 4 times as many cases overall.
These numbers are based on U.S. totals; local data will
be different.
MARKET REPORT / ANALYSIS
-Wednesday the S&P 500 dropped about 1.8% to 2820.
-VIX rose about 7% to 35.35.
-The yield on the 10-year Treasury slipped to 0.649.
In addition to the bearish signs we’ve seen recently,
today the MACD of S&P 500 price had a bearish crossover. Its last signal
was “buy” 3 days after the recent bottom. Today we got the sell signal.
New-lows outpaced new-highs today and that’s a bearish, reversal sign too.
Bob Brinker, financial
advisor and writer of Bob
Brinker’s Marketimer newsletter, had an interesting comment in his newsletter
this month. He compared the current
sudden drop to the 1987 Crash. In that instance, the market fell 33% in 8
weeks. There was a retest of the low via a lower low about 6-weeks after the
major low.
If we look at other major drops, we note that during the
Dot.com crash in 2002 the retest and final low occurred about 10-weeks after
the major low. If we follow those scenarios, a final bottom, or retest, might
be in June or July. That’s possible, but we still have to worry about a return
of the virus in the fall, so we won’t really know until we get there. 6-10
weeks for a retest is probably the most optimistic scenario. Of course, there
is no guarantee that we’ll see a retest, or a lower-low.
Overall, the daily sum of 20 Indicators declined
from -3 to -5 (a positive number is bullish; negatives are bearish). The 10-day
smoothed sum that negates the daily fluctuations declined from +53 to +35.
(These numbers sometimes change after I post the blog based on data that comes
in late.) Most of these indicators are short-term.
I think it goes without saying that I am currently very
bearish. While many are looking at this pullback as a medical event that will
be “cured” as soon as we have some good reopening or treatment news, there could be
more to it. Valuations are extreme and a
reversion-to-mean could be much more painful and get to the 50% down level. That's not a prediction - it's just a possibility.
RECENT STOCK PURCHASES
I sold Biotech ETF (IBB) today (25% gain).
TOP / BOTTOM INDICATOR SCALE OF 1 TO 10 (Zero is a
neutral reading.)
Today’s Reading: +0**
(Non-Crash Sentiment is bullish; Breadth vs the S&P 500
is bearish (-1).
(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…
TUESDAY MARKET INTERNALS (NYSE DATA)
Market Internals remained
BEARISH 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.
