“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.
My cmt: The 2 Sept high was 3581, so it looks like David
einhorn was too early.
LEADING ECONOMIC INDICATORS (Conference Board)
“The Conference Board Leading Economic Index® (LEI)
for the U.S. increased 0.6 percent in November to 109.1 (2016 = 100), following
a 0.8 percent increase in October and a 0.7 percent increase in September.
‘The US LEI continued rising in November, but its pace of
improvement has been decelerating in recent months, suggesting a significant
moderation in growth as the US economy heads into 2021,’ said Ataman
Ozyildirim, Senior Director of Economic Research at The Conference Board. ‘Initial
claims for unemployment insurance, new orders for manufacturing, residential
construction permits, and stock prices made the largest positive contributions
to the LEI. However, falling average working hours in manufacturing and
consumers’ worsening outlook underscore the downside risks to growth from a
second wave of COVID-19 and high unemployment.’” Press release at...
https://www.conference-board.org/press/us-lei-december-2020
NEWS QUIETING – VOLATILITY TO FOLLOW [excerpt] (Heritage
Capital)
“...epic greed and euphoria remain firmly entrenched in
the markets. That is not something to celebrate. Sooner or later, rally late
comers will be punished by a short, sharp plunge. Before you ask about timing
this, I will answer that sentiment is not a great timing tool. It puts us on
guard and in the range, but the majority of the time, stocks power even higher
before correcting. And remember, the foundation for the stock market remains
very solid. That’s why I keep saying that a short, sharp plunge is coming, but
to buy any and all weakness until proven otherwise.” Paul Schatz, President,
Heritage Capital. Full Commentary at...
https://investfortomorrow.com/blog/news-quieting-volatility-to-follow/
CORONAVIRUS (NTSM)
Here’s the latest from the COVID19 Johns Hopkins website
as of 6:15pm 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 0.4% to 3709.
-VIX dropped about 2% to 21.57.
-The yield on the 10-year Treasury
rose to 0.946%.
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
-Long-term new-high/new-low data. (Headed higher, but
just barely.)
-The 10-dMA of stocks advancing on the NYSE
(Breadth) is above 50%
-The 50-dMA % of stocks advancing on the NYSE (Breadth)
is above 50%.
-The 100-dMA of the % of stocks advancing on the
NYSE (Breadth) is above 50%. However, it is
falling and that’s not a good sign.
-The size of up-moves has been larger than the size of
down-moves over the last month.
-The 5-10-20 Timer System is BUY; the 5-dEMA and the
10-dEMA are above the 20-dEMA.
-The Fosback High-Low Logic Index is very bullish. (We’ve
seen high new-highs and low new-lows.)
-VIX is falling.
-Slope of the 40-dMA of New-highs is rising.
-The S&P 500 is outperforming Utilities ETF (XLU).
NEUTRAL
-Short-term new-high/new-low data is rolling over; let’s
say neutral.)
-11 Nov., we got a “Breadth Thrust” indication. That’s a
rare, very bullish sign. – Signal expired.
-9 Nov. (Vaccine Announcement Day), the 52-week,
New-high/new-low ratio improved by 5.8 standard deviations – very bullish and
also rare. – Signal expired.
-The Smart Money (late-day action) is mixed. This
indicator is based on the Smart Money Indicator (a variant of the indicator
developed by Don Hayes).
-Non-crash Sentiment indicator remains neutral, but it is
too bullish and that means it is leaning bearish.
-Statistically, the S&P 500 gave a panic-signal, 28
October. This usually means more downside to come, but the bear-signal has
expired.
-There have been 10 up-days over the last 20 days.
Neutral
-We’ve seen 4 up-days over the last 10-days. Neutral
-The market has broadened out; 7.8% of all issues traded
on the NYSE made new, 52-week highs when the S&P 500 made a new
all-time-high on 17 December. (there is no bullish signal for this indicator.)
-Bollinger Bands.
-RSI.
-Overbought/Oversold Index (Advance/Decline Ratio) is neutral.
-50% of the 15-ETFs that I track have been up over the
last 10-days.
BEAR SIGNS
-MACD of the percentage of stocks advancing on the NYSE
(breadth) made a bearish crossover 14 Dec.
-McClellan Oscillator is below zero.
-Bollinger Squeeze. This suggests a big downside move is
coming, but I don’t think the signal is all that strong.
-MACD of S&P 500 price made a bearish crossover 10 December.
-The smoothed advancing volume on the NYSE is falling.
-Breadth on the NYSE compared to the S&P 500 index is
warning of a correction at any time. I’ve been following this for 9 years. It
has only been as stretched as it was on 8 Dec once - 4 days before an 8%
correction in Feb 2011.
-The S&P 500 is 16.3% above its 200-dMA. (Sell point
is 12%.) When Sentiment is considered, the signal is also bearish.
-My Money Trend indicator is trending down.
-Cyclical Industrials (XLI-ETF) are underperforming the
S&P 500.
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 9
bear-signs and 10 bull-signs. Last week, there were 9 bear-signs and 10
bull-signs.
Indicators are flat compared to last week, but overall,
Market Internals don’t look that bad.
The daily sum of 20 Indicators declined from +4 to zero
(a positive number is bullish; negatives are bearish). The 10-day smoothed sum
that smooths the daily fluctuations declined from +45 to 37. (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 Long Term NTSM indicator
ensemble switched to BUY, 15 Dec. and it remains BUY. Now, Price & VIX are
bullish; Sentiment & Volume are neutral. Since it appears we are near a
top, I will wait.
Even while the market indicators
are neutral to bullish, the market remains extremely overbought with the
S&P 500 16.8% above its 200-dMA. If past history follows, that tends to cap
the gains going forward and suggest that the downside risk is greater than the
upside risk.
I’ll continue to keep a low %
of funds in the stock market until I see a better buying point.
I wouldn’t be surprised to see
a big move higher when the COVID relief bill passes, followed by a sell-off.
I’ll watch the indicators.
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 remained 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.
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 markets have not
retested the lows on recent corrections and that has left me under-invested on
the bounces. I will need to put less reliance on retests in the future.
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 a correction is deep
enough, 80% would not be out of the question.
