“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.
PAYROLL REPORT (CNBC)
“Private job creation showed a sharp deceleration in
October as the U.S. economy struggled against a resurgent coronavirus pandemic,
according to a report Wednesday by ADP. Companies added 365,000 positions for
the month, well below the 600,000 estimate from a Dow Jones economist survey.”
Story at...
CORONAVIRUS (NTSM)
Here’s the latest from the COVID19 Johns Hopkins website
at 10:30 pm Friday. 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
-Friday the S&P 500 slipped about 1pt to 3509.
-VIX dropped about 10% to 24.86.
-The yield on the 10-year
Treasury rose to 0.815%.
A FEW RANDOM THOUGHTS:
-7 days ago, the VIX was 40;
now it’s 25. The long-term NTSM ensemble will be a buy soon if this continues.
-S&P 500 PE (trailing 12
months) was 40 as of 6 Nov. A year ago, it was 24. Scary.
-Year to date, the S&P 500
has gained 8.6%. In the last 5 days it gained 7.3%. It’s shocking that without
the last 5 days the Index had gained 1.3% for the year. This is a symptom of
high PEs and an over-stretched market that I have been commenting about
frequently.
Here’s the Friday run-down of some important indicators.
These tend to be both long-term and short-term so they are somewhat different
than the 20 that I report on daily.
BULL SIGNS
-The size of up-moves has been larger than the size of
down-moves over the last month.
-The 50-dMA % of stocks advancing on the NYSE (Breadth) is
below 50%.
-The 100-dMA of the %
of stocks advancing on the NYSE (Breadth) is below 50%.
-The 5-10-20 Timer System is BUY; the 5-dEMA and the
10-dEMA are above the 20-dEMA.
-MACD of the percentage of stocks advancing on the NYSE
(breadth) made a bullish crossover 4 Nov.
-MACD of S&P 500 price made a bullish crossover 5
November.
-My Money Trend indicator; the signal is bearish.
-Long-term new-high/new-low data.
-Short-term new-high/new-low data.
-McClellan Oscillator is above zero.
NEUTRAL
-Bollinger Bands.
-RSI.
-The S&P 500 is under-performing the Utilities ETF
(XLU), but it is improving so let’s call this one neutral.
-Overbought/Oversold Index, a measure of advance-decline data.
-VIX is falling, but has not signaled a buy yet.
-Non-crash Sentiment indicator remains neutral.
-The Fosback High-Low Logic Index is neutral.
-Statistically, the S&P 500 gave a panic-signal, 28
October. This usually means more downside to come, but the bear signal has
expired.
-The smoothed advancing volume on the NYSE is rising.
-The Smart Money (late-day action) is neutral. This
indicator is based on the Smart Money Indicator (a variant of the indicator
developed by Don Hayes).
-There have been 10 up-days over the last 20 days.
Neutral
-We’ve seen 5 up-days over the last 10-days. Neutral
-Cyclical Industrials (XLI-ETF) are neutral compared the
S&P 500. (Shorter term it is neutral to down.)
-51% of the 15-ETFs that I track have been up over the
last 10-days – neutral.
BEAR SIGNS
-The S&P 500 is 12% above its 200-dMA. (Sell point
is 12%.) When Sentiment is considered, the signal is also bearish.
-Breadth on the NYSE vs the S&P 500 index is neutral,
but it was bearish Thursday and this gets carried over for 5-days.
-The 10-dMA of stocks
advancing on the NYSE (Breadth) is below 50% Friday (48.6%).
-Only 2.3% of all issues traded on the NYSE made new,
52-week highs when the S&P 500 made new all-time-highs. (This stays in the
negative column until we make a new high.)
On Friday, 21 February, 2 days after the top of the
Coronavirus pullback, there were 10 bear-signs and 1 bull-sign. Now there are 4
bear-signs and 10 bull-signs. Last week, there were 16 bear-signs and 5
bull-signs.
That’s a big improvement in indicators. Still, the
S&P 500 is already stretched to 12% above its 200-dMA. The % above the
200-dMA tends to be a ceiling for the markets until it resets at a lower level.
Here are some stats from recent corrections, dated from
the tops:
2 Sept 2020: 15.9% above its 200-day; 10% correction, so
far.
19 Feb 2020: 11.5% above its 200-day; 34% correction.
26 July 2020: 8.6% above its 200-day; 7% correction.
It’s hard to find corrections that started with a number
above 15%. Here are 2:
18 Feb 2011: 15.2% above its 200-day; 9% correction.
14 Jan 2010: 15% above its
200-day; 11% correction
The highest number I have for
this stat in the last 11 years is 20.1% on 15 October 2009 (153 trading days
after the March 2009 Housing-Crash, bear-market). 2 months later the Index was
at the same level. An 11% correction started on 14 Jan 2010.
My point of all this is to
indicate that significant gains from Friday’s level may be hard to achieve
since the market is already stretched.
MORE ON THE INDICATORS
The Long Term NTSM indicator
ensemble improved, but remained HOLD. Price is bullish; Sentiment, Volume, VIX
and Price indicators are all neutral.
We got a BUY signal from the
5-10-20 Indicator.
The daily sum of 20 Indicators
slipped from +10 to +9 (a positive number is bullish; negatives are bearish).
The 10-day smoothed sum that smooths the daily fluctuations improved from -20
to -6. (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 46 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.
IN CONCLUSION
With so many bullish
indicators it is hard to remain bearish, but I guessI’m in danger of becoming a
“perma-Bear.” We aren’t far from another top/drawdown. I’ll continue to sit out a bit longer.
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
FRIDAY MARKET INTERNALS (NYSE
DATA)
Market Internals slipped to NEUTRAL.
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.
