"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
FOMC RATE DECISION (Yahoo Finance)
“The Federal Reserve decided on Wednesday to hold
interest rates steady at near-zero, signaling its intention to support a
post-COVID economic recovery by keeping rates at the lower bound through at
least 2022…The central bank has discussed a form of yield
curve control in which the Fed purchases medium-term government
debt (such as 3-year or 5-year Treasuries) until yields fall below a stated
target.” Story at…
CPI (MarketWatch)
“The cost of some U.S. consumer goods such as groceries
have spiked for households, but inflation more broadly fell again in May owing
to a slump in demand triggered by the coronavirus pandemic. The consumer price
index slipped 0.1% last month after a much larger drop in April, the
government said Wednesday.” Story at…
EIA CRUDE INVENTORIES (OilPrice.com)
“Crude oil prices accelerated their fall today after the
Energy Information Administration reported a rise in U.S. crude oil inventories
of 5.7 million
barrels for the week to June 5 and an increase in fuel
inventories.” Story at…
CORONAVIRUS (NTSM)
Here’s the latest from the COVID19 Johns Hopkins website
as of 5:45 PM. There were 23,000 new cases about 5,000 more than yesterday.
While the curve has flattened, indicating slowed growth, we can see that the
curve is not diverging from the dashed line, an indication that the growth rate
is little changed over the last month.
MARKET REPORT / ANALYSIS
-Wednesday the S&P 500 dropped about 0.5% to 3190.
-VIX rose about 0.2% to 27.63.
(The Options Boys don’t seem worried about a pullback.)
-The yield on the 10-year Treasury slipped to 0.725%.
In Monday’s blog, I included a piece by Tom McClellan
where he discussed an indicator that “…measures the number of component stocks
in the Nasdaq 100 which are above their own 100-day moving averages…This
indicator gives great divergences at price tops that matter.” I thought I would
take data that I have, and see what falls out.
The data that I track, that seemed similar, is for the 15 ETFs that
represent the broad stock market. These are the ETFs in my daily momentum
calculations. The curve below plots the percentage of those 15 ETFs that are
above their own 120-dMA. Hmmm…Perhaps we are on to something. Buy-signals look
a little late – Sell-signals seem pretty good. Still. It would take some work
to make an indicator from the data. From the chart below, one counter-intuitive
signal is that when the % above the 120-dMA reaches 100%, it is usually
preceding a top, although that top is frequently a month or more in the future.
Still, perhaps I should have taken my own advice (“We’ll have a better buying
opportunity later”) and not gotten caught up on the FOMO (Fear-of-Missing-Out) rush
last week. Significant declines in the “% Above” data would be a clear sell
signal.
The daily sum of 20 Indicators declined from +9 to
+7 (a positive number is bullish; negatives are bearish). The 10-day smoothed
sum that negates the daily fluctuations declined from +98 to +95. (These
numbers sometimes change after I post the blog based on data that comes in
late.) Most of these indicators are short-term.
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…
WEDNESDAY 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 50% invested in
stocks. You may wish to have a higher or lower % invested in stocks depending
on your risk tolerance. 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.
