"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
“The big money is not in the buying and selling. But in the
waiting.” - Charlie Munger, Vice Chairman, Berkshire Hathaway
PRESIDENT TAKING ACTION TO ELIMINATE SPECIAL TREATMENT
FOR HONG KONG (CNBC)
“President Donald Trump on Friday announced he would
begin taking steps to revoke Hong Kong’s favored trade status with the United
States, in response to a controversial new security law that would effectively
bar political protest in Hong Kong.” Story at…
PERSONAL SPENDING (Marketwatch)
“Consumer spending in the U.S. fell 13.6% in April, the
government reported Friday…Meanwhile, personal income rose 10.5% in April,
boosted by government payments.” Story
at…
PCE PRICES (Shine)
“Prices also dropped by 0.5 percent, the biggest drop in
more than five years, according to the PCE price index, as slowing consumption
was worsened by mass layoffs…” Story at…
CHICAGO PMI (Advisor Perspectives)
“The Chicago Business Barometer produced with MNI, fell
to 32.3 in May, hitting the lowest level since March 1982, as business
confidence cooled further amid the Covid-19 crisis.” Commentary at…
UNIV OF MICHIGAN SENTIMENT (MarketWatch)
“Consumer sentiment rose to a final May reading of 72.3
from a final April level of 71.8, according to reports on the University of
Michigan gauge released Friday.” Story at…
CORONAVIRUS (NTSM)
Here’s the latest from the COVID19 Johns Hopkins website
as of 5:15PM. Nationwide, there were about 23,000 new-cases today, about 4,000 more
than yesterday. The 14-day growth factor was 1.06, indicating growth in new
cases of about 6% per day. The curve is flattening
rather fitfully and growth in new cases remains. We need to see a growth-factor
below 1.0 before we can be optimistic.
These numbers are based on U.S. totals; local data will
be different.
MARKET REPORT / ANALYSIS
-Friday the S&P 500 rose about 0.5% to 3044.
-VIX dropped about 4% to 27.51.
-The yield on the 10-year Treasury slipped to 0.659%.
I noticed that yesterday there was a Breadth-Thrust on
the NYSE, but I didn’t mention it. A Breadth Thrust occurs when breadth climbs
from below 40% to above 61.5% in 10-days or less using exponential moving
averages for the breadth calculation. Breadth for this indicator is measured as
a 10-day moving average of % of stocks advancing on the NYSE. A Breadth Thrust indicates a broader market
move and is considered to be a bullish sign.
Tom McClellan analyzed the effectiveness of the indicator and found that
it was wrong enough to question its effectiveness; regardless, it does indicate
strong bullish move.
My thinking was more a reminder that indicators don’t
predict the future. Or stated another way, the market is bullish until it
isn’t. If there was going to be a China
blowup, we might have seen an end-of-rally pullback that my “Breadth vs the S&P
500” indicator has been predicting for 2 weeks. Well, that didn’t happen. The
US reaction to China human rights abuse seem oddly muted – but what do I know?
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 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%.
-The Fosback High-Low Logic Index is bullish.
-Cyclical Industrials are starting to out-perform
relative to the S&P 500.
-Advancing volume has been increasing over the past
10-days.
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 S&P 500 is neutral relative to its 200-dMA. It is
not too diverging too far above of below its 200-dMA.
-Bollinger Bands and RSI are in neutral territory,
although Bollinger bands were recently bearish.
-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 below
50%, but moving upward.
-Over the last 20-days, the number of up-days is neutral,
but leaning bearish.
-Short-term new-high/new-low data is neutral.
-The last hour, Smart Money (late-day action) is generally
flat. This indicator is based on the Smart Money Indicator (a variant of the
indicator developed by Don Hayes).
-The Utilities ETF (XLU) is under-performing the S&P
500 index over the last 2 months. This is a bullish sign, but Utilities are
gaining so I am putting this one in the neutral category.
BEAR SIGNS
-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 was way too far ahead of
breadth.
-Overbought/Oversold Index, a measure of advance-decline
data, is overbought.
On Friday, 21 February, 2 days after the top of this
pullback. There were 10 bear-signs and 1 bull-sign. Now there are 10 bull-signs
and 2 bear-signs. Last week there were 8 bull-signs and 5 bear-signs. My
“Sum-of-20” indicator got more bearish.
Overall, we see more bullish signs. The daily sum of 20
Indicators slipped from +11 to +8 (a positive number is bullish;
negatives are bearish). The 10-day smoothed sum that negates the daily
fluctuations improved from +50 to +65. (These numbers sometimes change after
I post the blog based on data that comes in late.) Most of these indicators are
short-term.
The S&P 500 closed at 3044, above the recent 3036
high, and with a lot of bullish signs around, it is time to put some cash to
work.
There are caveats:
-Markets are due for some consolidation.
-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.
-The S&P 500 has been crawling along its Upper trend
line for the last three sessions. That may continue or not, but it does tend to
limit the possibility for big jumps higher. It also suggests the odds of a dip are
slightly more than the odds of going higher.
-Friday’s Market Internals were negative, so Monday is
likely to be a down-day. (10-day Internals remain bullish.)
I plan to increase stock holdings to 40-50% of the
portfolio total now, and add more later.
Whether I buy on Monday probably depends on market action. I would be more inclined to wait if the
S&P 500 is down, since it would suggest a pullback is underway. If I decide
to buy, I’ll try and post before 11:30 AM.
RECENT POSITIONS
-SDS-ETF (2x short the S&P 500). – SOLD. Loss 15%.
That’s why I limit exposure on 2x positions, especially
when shorting.
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
remained 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. I will add to stock positions Monday, depending on
market action.
