“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.
"The problem is a lot of grown-up Americans still
think like a 7-year-old. Except they don’t think Santa Clause lives up in
the North Pole. They think he lives in Washington D.C.” – Peter Schiff, CEO and
chief global strategist of Euro Pacific Capital Inc.
MARGIN DEBT AT RECORD HIGHS (WSJ)
“The stock market is euphoric right now,” said James
Angel, a Georgetown University finance professor. “A lot of people are
extrapolating from the recent past and going, ‘Wow, the market’s gone up a lot
and I think it’ll go up more.’ We’ve seen this play out before, and it doesn’t
end well.”...A strong indicator of stock-market euphoria flashed red last
month. Investors borrowed a record $722.1 billion against their investment
portfolios through November, according to the Financial Industry Regulatory
Authority, topping the previous high of $668.9 billion from May 2018. The
milestone is an ominous one for the stock market—margin debt records tend to
precede bouts of volatility, as seen in 2000 and 2008.” Story at...
My cmt: Anyone familiar with stock market history would
recognize 2000 and 2008 as crash years. The problem is that even though margin
debt is now at record highs, it could still go higher. So far, I have not see a
lot of topping indicators flashing red; it doesn’t look like a top is in yet.
JOHN HUSSMAN COMMENTARY EXCERPT (Hussman Funds)
“When people say that extreme stock market valuations are
“justified” by interest rates, what they’re actually saying is that it’s
“reasonable” for investors to price the stock market for long-term returns of
nearly zero, because bonds are also priced for long-term returns of nearly
zero. I know that’s not what you hear, but it’s precisely what’s being said...
I’m content to have a neutral near-term outlook. Still, I think it’s an utterly
awful idea to imagine that these valuation extremes are somehow “justified” by
anything other than a desire to jump on the bandwagon.” – John Hussman, PhD. Full
commentary at...
https://www.hussmanfunds.com/comment/mc201220/
CORONAVIRUS (NTSM)
Here’s the latest from the COVID19 Johns Hopkins website as
of 5:20pm Monday. 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
-Monday the S&P 500 rose
about 0.9% to 3735 (new alll-time high).
-VIX dipped about 1% to 21.70.
-The yield on the 10-year
Treasury slipped to 0.922%.
Holidays are here. I don’t think we get a lot of good
information this week.
The daily sum of 20 Indicators remained +3 (a positive
number is bullish; negatives are bearish). The 10-day smoothed sum that smooths
the daily fluctuations improved from +10 to 12. (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 remained BUY. Now, Price & VIX are bullish; Sentiment & Volume
are neutral. Since I think the market is near a top; I will wait before adding
to stock holdings.
The market remains overbought
with the S&P 500 16.2% 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. We may see a
Holiday rally until the new year.
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
MONDAY 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.
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 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.
