"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
Buffet
“The FDA has never approved a vaccine for humans that is
effective against any member of the coronavirus family, which includes SARS,
MERS, and several that cause the common cold.” – New York Magazine
TRUCKING CRASHES (ATA)
"American Trucking Associations’ advanced seasonally
adjusted (SA) For-Hire Truck Tonnage Index contracted 12.2% in April after
increasing 0.4% in March…“April’s monthly decline was the largest in 26 years
when there was a labor strike in April 1994,” said ATA Chief Economist Bob
Costello…“These historic declines show just how much trucking
was impacted by our national response to the COVID-19 pandemic” Costello said.
“As the nation starts taking small steps toward reopening, we should see some
modest improvements in the freight market, but the size of April’s decline
gives us an idea of how long the road back may be…” Press release at…
CASS FREIGHT INDEX (CASS Information Systems)
“Shipment volumes dropped 22.7% vs
April 2019 levels (Chart 1), and we believe this will mark the
bottom. May should be
better, as the U.S. economy slowly begins to re-open and some manufacturing
plants turn back on…”
Press release/charts at…
BANK OF AMERICA – UNLIKE ANYTHING WE HAVE SEEN IN HISTORY
(ZeroHedge)
“BofA's chief economist Michelle Meyer writes that
"words cannot describe" the loss in economic output, which
is "unlike anything we have seen in modern history. Back in
early April when we introduced our forecasts, we penciled in a stunning 10%
cumulative drop in output from the peak with the pain concentrated in 2Q with a
30% qoq saar decline."
But it seems that it was not extreme enough, and
according to data released since then, the drop will be more severe, with BofA
now looking for a 40% Q/Q saar decline in 2Q, translating to a cumulative
loss of 13%. To put this into perspective, in the Great Recession of '08-09,
the economy declined 4%. This recession would clearly be much deeper…We now
think it will take until the end of 2022, or later, to return to the pre-COVID
level of GDP.” Commentary at…
PAUL SCHATZ COMMENTARY EXCERPT (Heritage Capital)
“To me, stocks look a little tired. Options traders are a
little giddy. Participation in the rally has weakened in the very short-term.
If the bulls can hold on for another week or so without any damage, I will have
to reassess and look at an upside breakout sooner than I thought. However, if
the bears make some noise, we could very well see the first real pullback since
the March 23rd bottom. Regardless, I do believe that there will be a tradeable
decline before Q2 ends.” Commentary at…
LARRY ADAM COMMENTARY EXCERPT (Raymond James)
“With the S&P 500 rallying ~32% from its recent lows
and valuations the most expensive we have seen since 2001, equity markets are
likely to be volatile this summer…In fact, a temporary pull-back of ~5 to 7% at
some point during the summer is consistent with the average drawdown we have
seen over the last ten years. However, if this downside pressure were to occur,
we would tend to use it as a buying opportunity as the long-term prospects of
the equity market remain healthy assuming the economy starts to rebound by 4Q
and there are further medical enhancements to combat the COVID-19 virus.”
Commentary at…
CORONAVIRUS (NTSM)
Here’s the latest from the COVID19 Johns Hopkins website
as of 5PM. Nationwide, there were about 29,000 new-cases today, about 13,000 more
than yesterday. The 10-day growth factor climbed to 1.08 today, indicating
growth in new cases of about 8% 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
-Friday the S&P 500 rose about 0.2% to 2955.
-VIX dropped about 5% to 28.16.
-The yield on the 10-year Treasury dipped to 0.661%.
I think sentiment surveys are questionable. Everyone says they are bearish, but I want to
know how they are betting, not what they think. For that reason, I use Sentiment
measured as %-Bulls (Bulls/{bulls+bears}) based on the amounts invested in
Rydex/Guggenheim mutual funds. My measure of sentiment has been increasing
since it bottomed at 46% about a month ago. It is now 60%-bulls. This is bullish, but not overly bullish, i.e.
an outright sell; however, it is getting there. One wonders if high sentiment will
be enough to end the rally.
Time for Friday’s rundown of some important indicators:
BULL SIGNS
-MACD of stocks advancing on the NYSE (breadth) made a
bullish crossover 26 Mar.
-MACD of S&P 500 price made a bullish crossover 20
May.
-The Utilities ETF (XLU) is under-performing the S&P
500 index over the last 2 months and this is a bullish sign.
-The 5-10-20 Timer System is BULLISH, because the 5-dEMA
and the 10-dEMA are above the 20-dEMA.
-VIX jumped sharply higher when the correction started
and is falling.
-Long-term new-high/new-low data is bullish.
-My Money Trend indicator is moving
up.
-The 50-dMA of stocks
advancing on the NYSE (Breadth) is above 50%.
NEUTRAL
-Non-crash Sentiment is neutral. (If the downturn deepens
and becomes more extended, I’ll switch to crash sentiment; that would take a
much lower value to issue a buy-signal.)
-The size of up-moves has not been significantly more
that down-moves over the last month.
-The Fosback High-Low Logic Index is neutral.
-Overbought/Oversold Index, a measure of advance-decline
data, is neutral.
-The S&P 500 is neutral relative to its 200-dMA.
-Bollinger Bands and RSI are in neutral territory.
-Statistically, the S&P 500 has been bearish due to
several panic-signals, but it is now in the Neutral category.
-100-dMA of Breadth (advancing stocks on the NYSE) is
flat.
-Over the last 20-days, the number of up-days is neutral.
BEAR SIGNS
-Short-term new-high/new-low data is bearish.
-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.
-The last hour, Smart Money (late-day action) is headed
down – the Pros are selling based on the Smart Money Indicator (a variant of
the indicator developed by Don Hayes).
-Cyclical Industrials are underperforming relative to the
S&P 500, by a lot.
-Advancing volume has been falling over the past 10-days.
On Friday, 21 February, 2 days after the top of this
pullback. There were 10 bear-signs and 1 bull-sign. Now there are 8 bull-signs
and 5 bear-signs. Last week there were 6 bull-signs and 8 bear-signs. My “Sum-of-20”
indicator got more bearish.
The daily sum of 20 Indicators slipped from +8 to -1
(a positive number is bullish; negatives are bearish). The 10-day smoothed sum
that negates the daily fluctuations dropped from +30 to +20. (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 with the S&P 500 now about
1.6% below 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. Still, the
chart looks like a topping pattern to me…we’ll see.
TOP / BOTTOM INDICATOR SCALE OF 1 TO 10 (Zero is a
neutral reading.)
Today’s Reading: -1**
{Non-Crash Sentiment is bullish(+1); Breadth vs S&P 500
is bearish(-1); Money Trend/S&P 500 Spread 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.
RECENT POSITIONS
-SDS-ETF (2x short the S&P 500).
Opened Tuesday. The S&P 500 rose near the close Friday
so I didn’t manage to cover the short. I’ll close the short Tuesday if the
markets move appreciably higher. Looks like we’re in a holding pattern right now. We
probably saw some short covering late in the day in advance of the long
weekend.
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…
FRIDAY MARKET INTERNALS (NYSE DATA)
Market Internals reversed
to 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.
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.
