“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.
I’m traveling so tomorrow’s Blog will also post late.
FOMC RATE DECISION (CNBC)
“The Federal Reserve held short-term borrowing rates near
zero in a decision Thursday that characterized the economy as growing but not
near where it was before the coronavirus pandemic hit.” Story at...
JOBLESS CLAIMS (Finance.yahoo)
“U.S. states saw another 751,000 Americans file first-time unemployment
benefits last week, as still-elevated coronavirus case counts
threaten to weigh on the pace of recovery in the labor market... “Overall, the
economy appears to be losing a bit of momentum,” Wells Fargo Securities
economists including Jay Bryson said in a recent note. “Jobless claims have
improved recently but remain elevated.” Story at...
PRODUCTIVITY (Journalnow/AP)
“U.S. productivity increased between July and September,
but at a slower pace than in the previous quarter. Productivity advanced 4.9%
in the third quarter...” Story at...
CORONAVIRUS (NTSM)
Here’s the latest from the COVID19 Johns Hopkins website
at 8:10 pm Thursday. 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.
The extreme high today is
probably caused by getting the data later than usual. Normally, I get the number
of new cases at about 6PM, before the west coast has fully reported. Today we
got them all. It will average out tomorrow when I’d expect a lower number. Still,
today, like yesterday, is likely to be a record high. (3 commas in the first 4
words? My English Teacher would be embarrassed.)
MARKET REPORT / ANALYSIS -Thursday the S&P 500 rose about 2% to 3510.
-VIX dropped about 7% to 27.58.
-The yield on the 10-year Treasury rose to 0.772%.
Wow...another 2% gain and I
expected some weakness. Let’s jump in and BUY! BUY! BUY! “Not so fast. Not
so fast!” (Wizard of Oz). Should we, “Sell, Mortimer! SELL! (Trading Places) Probably not, but it is not the time to be
too aggressive, either.
The problems are two that I have mentioned several times
recently. Once again, the S&P 500 is pushing out too far ahead of itself,
and also, its position relative to the other stocks on the NYSE. To be clear, the
Index is again stretched above its 200-dMA, now 12.1% above it. (12% is my Bear
sign.) When Sentiment is considered, it is also bearish. That’s one topping
indicator. Another is that the S&P 500 is too far ahead of Breadth (stocks
advancing on the NYSE).
These issues limit the possibility
for advance. Or perhaps, more accurately, the risk/reward is skewed down with
risk somewhat ahead of reward. At the 19 Feb COVID-top, the S&P 500 was
11.5% above its 200-dMA. At the recent 2 Sept-top, it was 15.9% above the 200-day,
about 4% higher than today’s value.
The Long Term NTSM indicator
ensemble remained HOLD. Sentiment, Volume, VIX and Price indicators are all
neutral.
I’d like to see a BUY from the
long-term ensemble and/or a buy from the 5-10-20 Indicator before moving back
in.
Today was another
statistically significant up-day. That just means that the price-volume move
exceeded my statistical parameters. Statistics show that a
statistically-significant, up-day is followed by a down-day about 60% of the
time. Statistically-significant, up-days
almost always coincide with tops, but obviously not all
statistically-significant, up-days occur at tops.
The daily sum of 20 Indicators
remained +10 (a positive number is bullish; negatives are bearish). The 10-day
smoothed sum that smooths the daily fluctuations improved from -34 to -20.
(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.
(Just for the record, unchanged-volume
was very low today, as one would normally expect for a big move higher.)
The correction is now 45 days
old and the Index is 2% 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% range so
far.
When I started working on
stock market indicators 20-years ago, it was much harder to call tops than it
was to see a bottom. I’ve called the last three tops reasonably well, but
failed on the bottoms. It looks like this might be the third decent sized
correction in row that didn’t retest the low. Dang! My system relies on retests
for determining lows with reasonable accuracy. But there is still a chance we
could retest the low. This one isn’t quite over yet, so “I’m not dead yet.” –
Monty Python.
I remain bearish, but the
positive market action may make me re-think my position. Watching the 5-10-20
Indicator.
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
THURSDAY MARKET INTERNALS
(NYSE DATA)
Market Internals remained BULLISH.
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.
