“The big money is not in the buying and selling. But in the
waiting.” - Charlie Munger, Vice Chairman, Berkshire Hathaway
JOBLESS CLAIMS (MarketWatch)
“New applications for unemployment benefits fell sharply
last week to a fresh pandemic low, but the entire decline stemmed from a major
change in how the data is reported instead of more people finding jobs. The
labor market showed no progress absent the change.” Story at…
ISM MANUFACTURING (Institute for Supply Management /
prNewswire
“Economic activity in the manufacturing sector grew
in August, with the overall economy notching a fourth
consecutive month of growth, say the nation's supply executives in the
latest Manufacturing ISM® Report On Business®…"The
August PMI® registered 56 percent, up 1.8 percentage points from the
July reading of 54.2 percent. This figure indicates expansion in the overall
economy for the fourth month in a row after a contraction in April, which
ended a period of 131 consecutive months of growth…
…"Impacted by the current economic environment, many
panelists' companies are holding off on capital investments for the rest of
2020. In addition, (1) commercial aerospace equipment companies, (2) office
furniture and commercial office building subsuppliers and (3) companies
operating in the oil and gas markets — as well as their supporting supply bases
— are and will continue to be impacted due to low demand. These companies
represent approximately 20 percent of manufacturing output. This situation will
likely continue at least through the end of the year," says Fiore.” Press
release at…
YIKES (Hussman Funds)
“… It should not be a surprise that I expect the S&P
500 to lose about two-thirds of its value over the completion of the current
market cycle. Such a decline would simply bring valuations to run-of-the-mill
historical norms…
…Presently, one of the striking aspects of market
behavior is the lack of confirmation that has accompanied recent market highs.
While the S&P 500 and the Nasdaq Composite have pushed to record highs,
neither the broad NYSE Composite, small-cap Russell 2000, Dow Industrials, Dow
Utilities, or Value Line indices have breached their February peaks. Likewise,
daily market action has increasingly featured divergences, with more declining
stocks than advancing stocks even on days when the S&P 500 moves higher,
with increasing implied volatility in stock index options even on market
advances. Likewise, nearly half of all U.S. stocks remain below their
respective 200-day moving averages…
…In the options market, the 5-day equity put/call ratio
on the Chicago Board Options Exchange has dropped to just 0.406, the lowest
level in nearly 20 years, last seen briefly in January 2001, during the first
bear market rally of the 2000-2002 market collapse….” – John Hussman, PhD. (Economics,
Stanford) Commentary with many more examples and charts at…
CORONAVIRUS (NTSM)
Here’s the latest from the COVID19 Johns Hopkins website
at 8:10 Thursday. Total US numbers are on the left axis; daily numbers are on
the right side of the graph with the 10-dMA of daily numbers in Green.
MARKET REPORT / ANALYSIS
-Thursday the S&P 500 dropped about 3.5% to 3455.
-VIX jumped about 26% to 33.6.
-The yield on the 10-year Treasury slipped to 0.634%.
Apple fell 8% today; Microsoft was down more than 6%;
Salesforce fell more than 4%; Facebook was down a bit less than 4%. Blood-bath.
Today’s drop in the S&P 500 took us to the lower
trend line so perhaps the dip-buyers will save the day Friday? It’s possible,
but I suspect not.
The S&P 500 fell 3.5% today while we noticed that
yesterday’s high was 15.9% above its 200-dMA. You may remember the last big
drop in the S&P 500 when it fell 5.9% on 11 June. The Index was 5.9% above
its 200-dMA, the day before that big drop in June, not even stretched. The
markets bounced up from there. Not this time.
I suspect we’ll see a bigger drop. We could see a fall at
least to the 50-dMA (now 3292) or possibly the 200-dMA (now 3091).
I’ve also been writing about divergences in breadth with
a very narrow advance carried by a small number of stocks. That’s a recipe for
a bear market, but I am not smart enough to predict one. We can simply note
that if the markets were to overshoot the 200-day, it would be easy to get to
that 20%-down, bear-market definition.
It’s worth reviewing Lance Robert’s commentary I summarized
a few days ago:
“Notably, each time of the 5-times previously, going back
to 1999, where the market traded at 2-standard deviations or higher from the
4-year moving average, a reversion occurred. Those periods
were 2000, 2007, 2014, 2018, February 2020, and now.” - Lance Roberts.
Commentary, “A Tale of Two Bull Markets,” at …
At today’s close, the S&P 500 was still
11.8% above its 200-dMA. Values in the 10-15% range are sell-signal. As I noted
at Wednesday’s high: I had to go back to Jan of 2010 to find a time when the
market was stretched to 15.9%. It preceded a quick, 3-week, 8%-correction, but
only after a month where the Index was essentially stalled. This was followed
by a more protracted 16%-correction lasting from mid-April to early July 2010.
Bottom line: Today could be the start of something more than just a small bump
in the road.
Today was a statistically-significant day. This time it
was a down-day. That just means that the price-volume move exceeded my
statistical parameters. Analysis shows that a statistically-significant, down-day
is followed by an up-day about 60% of the time. So tomorrow might be an up-day,
but there are troubling signs even in this stat.
This is the 5th statistically-significant day
in the past 3-weeks. That usually
happens at tops and bottoms. There is no
reason to believe that today was a bottom. As I write this, the futures are
down 0.5%, so the Options Crowd agrees – at least for the time being.
The daily sum of 20 Indicators declined from +7 to -3 (a
positive number is bullish; negatives are bearish). The 10-day smoothed sum
that smooths the daily fluctuations declined from +16 to +14. (These numbers
sometimes change after I post the blog based on data that comes in late.) Most
of these indicators are short-term and many are trend following, i.e., they are
not top-indicators, so they are not as bearish as one might expect. In fact,
they look bullish now!
VIX rose more than 26% and that flipped my VIX-indicator
to sell. This is one of my best
indicators since we are essentially polling the Options Community for their opinion.
They are very worried. This one indicator is not, by itself, a sell signal. My
Long-Term NTSM indicator suite is NEUTRAL, but it wouldn’t take much more down-side to generate a
sell-signal.
I remain bearish in the short and intermediate term. I
had planned to short the Russell today, but given the early market action, I
shorted the Nasdaq instead, still with a small position - more for fun than
profit. I may increase the position to something more meaningful, but I’d like
to see more bearish confirmation.
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)
Here’s the revised DOW 30 and its momentum analysis. The
top ranked stock receives 100%. The rest are then ranked based on their
momentum relative to the leading stock.
THURSDAY MARKET INTERNALS (NYSE DATA)
Market Internals slipped
to 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.
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 30% invested in
stocks. You may wish to have a higher or lower % invested in stocks depending
on your risk tolerance. 30% is a very conservative position that I
re-evaluate daily. The XLE has been a loser for me since I was too early. It is
still yielding over 10%, so I have to remind myself to be patient.
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.
