“The big money is not in the buying and selling. But in the
waiting.” - Charlie Munger, Vice Chairman, Berkshire Hathaway
NFIB SMALL BUSINESS OPTIMISM (Advisor Perspectives)
“The NFIB Optimism Index increased 1.4 points in August
to 100.2, a reading slightly above the historical 46-year average.”
Charts and Details at…
GOLDMAN WARNS OF NEAR-TERM SET-BACK (ZeroHedge)
“…despite conceding that the risk of corrections remains
elevated, and warning that "a near-term setback" is likely, Goldman
expects the current bull market to continue "as the improved growth
outlook coupled with supportive monetary policies should maintain the search
for yield elevated and foster a compression of the ERPs." Specifically,
Goldman lists the following ten reasons why despite one of the biggest 2-day
crashes in the Nasdaq on record, the levitation will continue:
1.We are in the first phase of a new investment cycle,
following a deep recession. The 'Hope' phase – the first part of a new cycle,
which usually begins in a recession as investors start to anticipate a
recovery, is typically the strongest part of the cycle. That is what we have
been seeing this year.
2.The economic recovery looks more durable as vaccines
become more likely…” Commentary (and 8 more reasons) at…
My cmt: I am highly skeptical that “levitation will
continue.” I’d need to see more bear-market action before I am convinced of a
continuing bull-market.
NEW LOWS FOR THE DOW? (Real Investment Advice)
“According to the SCPA (Statistical Crash Probability Analyses) algorithm,
the probability is 90% for the Dow to reach new lows before the current US
recession ends. The algorithm’s forecast assumes that the 2020 recession will
last until at least March of 2021... the probability is 99% for the current
recession to last at least one year. The findings were comprised of Deloitte’s
forecasts for the US economy from 2020 through 2025. The empirical data for the
US economy dates back to 1929.” – Michael Markowski. Commentary at…
CORONAVIRUS (NTSM)
Here’s the latest from the COVID19 Johns Hopkins website at
6:00 Tuesday. 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.
-Tuesday the S&P 500 dropped about 2.8% to 3332.
-VIX rose about 2% to 31.46.
-The yield on the 10-year Treasury slipped to 0.678%.
In a WSJ front page article today, “Sharp Tech Pullback
Un-nerves Investors in Highflying Stocks,” we find the following: “Few
investors believe the late-week rout signals the end of a rally that has taken
the Nasdaq to 43 record closes and pushed the S&P 500 up more than 6% for the
year.” In my experience, it is exactly that type of belief that will fuel more
correction. Markets tend to do what is
least expected.
When I mentioned the Panic Indicator last week, I
mis-stated its signal. The Panic Indicator is always triggered by a big
move DOWN. It’s the interpretation of other signals that indicate
whether there is a buy or sell signal.
Friday’s signal was SELL. As often is the case, I don’t generally act on
one signal. We needed more be bear signals to give a true sell signal. We got
them today.
The Long Term NTSM indicator ensemble switched to Sell.
Volume and the Panic Indicator were both bearish. VIX and Price were close to a
sell signal. I would like to have seen
some additional signals, but we didn’t quite get them today. Still, I think there
was enough. I took a bigger short
position today, though it may take some patience to make it pay off.
Today was a statistically-significant day. This time it
was another 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 the down-trend may continue longer even it tomorrow is up.
This is the 6th 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.
The daily sum of 20 Indicators fell from -3 to -10 (a
positive number is bullish; negatives are bearish). The 10-day smoothed sum
that smooths the daily fluctuations dropped from +14 to +5. (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’ll be watching the internals and looking for a bottom. No
bottom yet. I remain bearish in the short
and intermediate term. I have a small short position in the Nasdaq 100 and,
today, I added a significant short position on the S&P 500.
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.
Apple is down 17% over the last 4 days! Who expected
that? Well, we did warn on the subject. I noted on 14 August: “Apple has a PE
of 34; that’s higher than its been in the last 3 years and it only has a
Dividend of 0.75%. I am not currently a fan of Apple stock.” Apple is now about
2% below its 14 August level, but it may have a lot further to fall. Even so,
it remains near the top of the Dow 30 in momentum and it is a good core holding.
TUESDAY MARKET INTERNALS (NYSE DATA)
Market Internals switched
to BEARISH 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.
