"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
PERSONAL INCOME / SPENDING (Reuters)
“U.S. consumer spending rebounded by the most on record
in May, but the gains are not likely to be sustainable, with income dropping
and expected to decline further as millions lose their unemployment checks
starting next month…The Commerce Department said consumer spending, which
accounts for more than two-thirds of U.S. economic activity, jumped 8.2% last
month. That was largest increase since the government started tracking the
series in 1959. Consumer spending tumbled by a historic 12.6% in April.” Story
at…
UNIV MICHIGAN SENTIMENT / PCE PRICES (WHBL Radio)
“…the University of Michigan said its consumer sentiment
index dipped to a reading of 78.1 from 78.9 in the middle of June…In the 12
months through May, the so-called core PCE price index rose 1.0%, matching
April's gain. The core PCE index is the Fed's preferred inflation measure for
its 2% target.” Story at…
My cmt: Inflation remains a non-issue.
JESSE FELDER COMMENTARY EXCERPT (Felder Report)
“Everyone is talking about the massive disparity between
stock prices and fundamentals right now. To paraphrase Jeremy
Grantham, we now find ourselves in the top 1% of stock market
valuations and the bottom 1% of economic outcomes (based on the annualized rate
of decline in second
quarter GDP). A popular way to demonstrate this gap is seen in the
chart below which plots total equity values along with total corporate
profits.”
Commentary and charts at…
CORONAVIRUS (NTSM)
Here’s the latest from the COVID19 Johns Hopkins website
as of 9:40 PM Friday. Over the last week, new cases have been growing faster
than they were in April. There were about 49,000 new cases today, slightly more
than yesterday. (There was a mistake in
the Johns Hopkins site yesterday that was corrected last night. I’ve updated
the curve. It is correct, even though the steepening curve is a surprise. Thursday
and Friday each set new records for the highest number of new cases in the US.)
The growth surge in new cases is a shocking development, and while we may not completely
shut-down again, it is likely to suppress the economic recovery.
MARKET REPORT / ANALYSIS
-Friday the S&P 500 fell about 2.4% to 3009.
-VIX rose about 8% to 34.73.
-The yield on the 10-year Treasury slipped to 0.647%.
The S&P 500 tested its 200-day moving average
(200-dMA) and slipped 0.4% below it, a clear one-day break. That will worry a lot of investors. A second
close below the 200-dMA on Monday would give a strong indication of a trend
change. On the other hand, we could also
see a break above the 200-day and be off to the races again. I won’t guess…we’ll see. Volume was extremely
high today due to a rebalancing of the Russell 2000 and possibly repositioning
by pension funds. That can skew indicators, so I am not convinced we are headed
down even though most of my indicators suggest it.
Time for Friday’s rundown of some important indicators:
BULL SIGNS
-The 50-dMA of stocks
advancing on the NYSE (Breadth) is above 50%.
-The Fosback High-Low Logic Index is bullish and is
giving BUY signal. This indicator also gave a BUY signal 2 days after the 23
March bottom.
-The Utilities ETF (XLU) is under-performing the S&P
500. It is deteriorating relative to the Index, but I’ll still call this a Bull
sign for the time being.
-My Money Trend indicator turned
up recently.
NEUTRAL
-The S&P 500 dipped above its 200-dMA support level.
It remains a neutral signal until there are consecutive closes below the 200-dMA
or the Index close 3% below it.
-The VIX has been rising recently, but not enough to
trigger a sell signal.
-Statistically, the S&P 500 gave a panic-signal, 11
June. A panic signal usually suggests more to come. We did not see big negative follow-thru so
I’ll put this one in the neutral category.
-The 5-10-20 Timer System switched to NEUTRAL, because
the 5-dEMA is below the 20-dEMA.
-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.)
-Bollinger Bands and RSI are close to bull signals, but
remain neutral.
-Over the last 20-days, the number of up-days is neutral.
-The S&P 500 is neutral relative to its 200-dMA. It
is not too diverging too far above or below it.
-The size of up-moves has been smaller than the size of
down-moves over the last month, but not drastically so.
-Overbought/Oversold Index, a measure of advance-decline
data, is neutral.
-The percentage of 15-ETFs that are above their
respective 120-dMA was 60% Friday (same as last week). That’s a mid-level number
so we’ll just call it neutral. (This is a new indicator and I don’t have much
experience with it.
BEAR SIGNS
-The last hour, Smart Money (late-day action) is trending
down. This indicator is based on the Smart Money Indicator and is a variant of the
indicator developed by Don Hayes.
-100-dMA of Breadth (advancing stocks on the NYSE) closed
at 50% today, but it is falling.
-Long-term new-high/new-low data is bearish.
-Short-term new-high/new-low data is bearish.
-MACD of stocks advancing on the NYSE (breadth) made a bearish
crossover 11 June.
-MACD of S&P 500 price made a bearish crossover 10
June.
-Breadth on the NYSE vs the S&P 500 index has
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.
-Cyclical Industrials are under-performing relative to
the S&P 500.
-On 11 June, only 2% of the volume was up and the S&P
500 closed near its low for the day a mildly bearish sign. I would have taken
this off the list this week, but on Wednesday, only 9% of the volume was
up-volume. Wednesday didn’t meet all of the
tests for a bearish 90% down-volume day (a very bearish sign), but it’s still
mildly bearish.
-The smoothed advancing volume on the NYSE 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 10 bear-signs
and 4 bull-signs. Last week there were 9 bear-signs and 7 bull-signs.
The daily sum of 20 Indicators (somewhat different than
the above indicators) declined from -3 to -9 (a positive number is
bullish; negatives are bearish). The 10-day smoothed sum that negates the daily
fluctuations declined from -36 to -39 (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 remained HOLD today; the
Short-Term Indicator remained Neutral. Since Indicators are not yet giving a
short-term Buy-signal, I am still under-invested. I’ll increase stock holdings if we see some
additional improvement in signals, especially the MACD & Money Trend
indicators.
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.
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…
THURSDAY 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 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.
