“Trade what you see; not what you think.” – The Old Fool,
Richard McCranie, trader extraordinaire.
“The big money is not in the buying and selling. But in the
waiting.” - Charlie Munger, Vice Chairman, Berkshire Hathaway
“Bubbles tend to topple under their own weight. Everybody
is in. The last short has covered. The last buyer has bought (or bought massive
amounts of weekly calls). The decline starts and the psychology shifts from
greed to complacency to worry to panic. Our working hypothesis, which might be
disproven, is that September 2, 2020 was the top and the bubble has
already popped.” - David Einhorn, Greenlight hedge fund.
EIA CRUDE INVENTORIES (Energy Information Administration)
“U.S. commercial crude oil inventories (excluding those
in the Strategic Petroleum Reserve) increased by 4.3 million barrels from the
previous week. At 492.4 million barrels, U.S. crude oil inventories are about
9% above the five year average for this time of year.” Press release at...
http://ir.eia.gov/wpsr/wpsrsummary.pdf
CORONAVIRUS (NTSM)
Here’s the latest from the COVID19 Johns Hopkins website
at 7:45pm Wednesday. US total case 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
-Wednesday the S&P 500 fell about 3.5% to 3271.
-VIX rose about 21% to 40.28.
-The yield on the 10-year Treasury rose to 0.778%.
The S&P 500 was obviously having a bad day, today. It
tried to gain back some of the losses late, but the Index fell about 1% in the
last half hour. As noted yesterday, it’s not a very encouraging sign for the
bulls to see this kind of late-day-action.
The Index fell below its 50-dMA yesterday; today, it took
out the 100-dMA. Both are bearish signs.
To call a bottom with any level of confidence takes several
things to occur. Most importantly, we need a lower-low (in S&P 500 price) at
the bottom. We can then review closing data to see if selling pressure is
falling and look for hint of a turn-around. Absent that data, if the market
bounces higher, we are faced with watching for bullish signs as the market improves.
These might be: Breadth Thrust, 90% up-volume days, bullish 5-10-20 timer
system or other signs of divergence. I point this out as a reminder that the
tea leaves don’t always align to signal a buying opportunity, or if they do, they
might signal, “The Grim.”
Today’s down-move was statistically significant. That
just means that the price-volume move down exceeded my statistical parameters.
Statistics show that a statistically-significant, down-day, is followed by an up-day
about 60% of the time.
Sometimes big down-days (like today) signal bottoms and
we did see wo bottom indicators: Bollinger Bands were oversold and RSI was very
close, but not quite oversold. The big move caused my statistical analysis-based
Panic-Indicator to flash a warning. The extreme
size of today’s move is either signaling a bottom or more trouble to come. So,
which is it? We need to look elsewhere for an answer.
CNBC’s Mike Santoli said that today was a quasi-test of
the 23 September low. If it is, it
failed the test. There were no signs of improvement when compared to the prior
low. Bottom line: Doesn’t look like a bottom to me. We might be close...or not.
The daily sum of 20 Indicators declined from -7 to -8 (a
positive number is bullish; negatives are bearish). The 10-day smoothed sum
that smooths the daily fluctuations slipped from -37 to -46. (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.
The correction is now 39 days old and the Index is 8.7%
below its prior high. Top to Bottom, the avg correction under 10% lasts about
35 days; the avg correction greater than 10% lasts 68 days, excluding major
50%-crashes. Top to bottom, we have seen a 9.6% drop so far.
The Long Term NTSM indicator ensemble switched from HOLD
to SELL, 26 Oct. It remains Sell. The previous Sell signal was on 24 September.
We may have a bounce higher for a few days (signaled by
Bollinger Bands and RSI), but my opinion hasn’t changed: I remain bearish. I
think markets need to reset lower before they can make significant new-highs.
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…
http://navigatethestockmarket.blogspot.com/p/exchange-traded-funds-etf-ranking.html
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.
For more details, see NTSM Page at…
https://navigatethestockmarket.blogspot.com/p/a-system-for-trading-dow-30-stocks-my_8.html
WEDNESDAY MARKET INTERNALS (NYSE DATA)
Market Internals
remained BEARISH.
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, but it is appropriate for the correction.
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%; if this correction is deep enough, 80% would not
be out of the question.
