"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
FED WILL BUY CORPORATE BONDS (CNBC)
“The Federal Reserve is expanding its foray into
corporate credit to now buy individual corporate bonds, on top of the
exchange-traded funds it already is buying, the central bank announced Monday.”
Story at…
“The Fed and Treasury have essentially created a new
moral hazard by socializing credit risk. The United States will never be able
to return to free market capitalism as we knew it before these policies were
put in place.” – Scott Minerd, Global Chief Investment Officer at Guggenheim
Partners.
My cmt: As this downturn got under way, commercial
investors needed to sell bonds to cover margin calls (they didn’t want to sell
stocks at a loss), but there were no buyers. This caused the freeze-up (lack of
liquidity) that we heard so much about. This is why the FED stepped in to buy
Bond ETFs and now bonds outright. As Scott Minerd points out, this is not the
way Capitalism is supposed to work. Just
because bad, risky investments were made, is it right that holders of the risk
should be bailed out? I don’t like where this will lead. Sooner or later the Fed
will start buying stocks. Wonderful!
Until they start selling them. More to the point, in a capitalistic society, is
it right for Government to own companies as shareholders?
EMPIRE STATE MANUFACTURING (MarketWatch)
“The Empire State business conditions index rose 48
points to negative 0.2 in June…Economists emphasized that the ground lost in
the past couple of months hasn’t been recovered only that manufacturing has
stabilized.” Story at…
CORONAVIRUS (NTSM)
Here’s the latest from the COVID19 Johns Hopkins website
as of 5:20 PM. While the curve has flattened, indicating slowed growth in April
thru the first week in May, we can see that the curve is only slightly
diverging from the dashed line since 9 May, an indication that the growth rate
is little changed over the last month.
-Monday the S&P 500 rose about 0.8% to 3067.
-VIX fell about 5% to 34.40.
-The yield on the 10-year Treasury rose to 0.730%.
MACD of Breadth and MACD of S&P 500 price are both
bearish. My Breadth vs the S&P 500 divergence indicator is bearish and RSI
and Bollinger bands were both bearish for a few days last week. It looks like the rally is under pressure and
I expect some sort of retracement down, but probably not to the old lows.
Monday, we saw high unchanged-volume on the NYSE. Some
think this signals investor confusion and a possible reversal point. I don’t know
– sometimes it does, but I haven’t found this to be a reliable indicator.
The daily sum of 20 Indicators improved from -6 to
-2 (a positive number is bullish; negatives are bearish). The 10-day smoothed
sum that negates the daily fluctuations declined from +64 to +54. (These
numbers sometimes change after I post the blog based on data that comes in
late.) Most of these indicators are short-term..
My Long-term indicator remains HOLD.
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.
*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 remained
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 40% invested in
stocks. You may wish to have a higher or lower % invested in stocks depending
on your risk tolerance. 40% is a conservative position that I’ll re-evaluate
daily.
As a retiree, 50% in the stock market is about fully
invested for me – it is a cautious and conservative number. If I feel very
confident, I might go to 60%; had we seen a successful retest of the bottom,
80% would not have been out of the question.
