“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.
PERSONAL INCOME / PERSONAL SPENDING (NASDAQ.com)
“While the Commerce Department released a report on
Friday showing a much bigger than expected increase in U.S. personal income in
the month of December, the report also showed a modest decrease in personal
spending.” Story at...
https://www.nasdaq.com/articles/u.s.-personal-income-rebounds-in-december-but-personal-spending-dips-2021-01-29
PCE PRICES (Reuters)
“The report from the Commerce Department on Friday also
showed inflation steadily picking up last month. Stirring price pressures were
also corroborated by other data showing a solid increase in labor costs in the
fourth quarter. Though inflation is expected to breach the Federal Reserve’s 2%
target this year, the U.S. central bank is seen maintaining its ultra-easy
policy stance for a while as the economy battles the COVID-19 pandemic.” Story
at...
https://www.reuters.com/article/us-usa-economy-spending-idUSKBN29Y21F
CHICAGO PMI (Advisor Perspectives)
“The latest Chicago Purchasing Manager's Index, or the
Chicago Business Barometer, jumped to 63.8 in January from 58.7 in December,
which is in expansion territory. Values above 50.0 indicate expanding
manufacturing activity.” Analysis at...
https://www.advisorperspectives.com/dshort/updates/2021/01/29/chicago-pmi-jumped-in-january?topic=covid-19-coronavirus-coverage
UNIV OF MICHIGAN CONSUMER SENTIMENT (Univ Michigan)
“The Consumer Sentiment Index has shown only relatively
small variations since the pandemic started, averaging 81.5 in 2020, marginally
above January’s 79.0. Needless to say, Sentiment levels were well below the average
of 97.0 from 2017 to 2019, according to the University of Michigan Surveys of
Consumers... The Consumer Sentiment Index was 79.0 in the January 2021 survey,
just below December’s 80.7...” Press release at...
https://news.umich.edu/consumer-expectations-stabilize-despite-partisan-extremes/
S&P 500 AT THIRD PERILOUS HIGH SINCE 1871 (RIA)
“On January 8, 2021, the S&P 500 reached its third
perilous high since 1871 according to the Extreme Analytics (EA)
algorithm. Recently concluded research of 150 years of empirical data revealed
that 1929 and 2000 were the first-ever perilous highs for the S&P 500 since
its inception...The Bull Vix, another algorithm that identifies Bullish
Sentiment Anomalies (BSA), which has been integrated into the EA, is projecting a
double-digit correction to begin by February 5, 2021. The Bull Vix is
projecting that Subsequent to the double-digit correction, the S&P 500 will
fail to recover back to new highs and will instead decline 50% to 80% by 2023.”
- Michael Markowski.
https://realinvestmentadvice.com/markowski-sp-at-3rd-perilous-high-since-1871/
THE NEXT DECADE WILL LIKELY FOIL MOST FINANCIAL PLANS –
EXCERPT (RIA)
“The more risk that is taken within a portfolio, the
greater the destruction of capital will be when reversions occur. This time
is “not different.” The only difference will be what triggers the
next valuation reversion and when it eventually occurs. Two bear markets
taught many this lesson. Currently, there is a whole generation of investors
who will have to learn this lesson the hard way.” – Lance Roberts. Commentary
at...
https://realinvestmentadvice.com/the-next-decade-will-likely-foil-most-financial-plans/
INSTABILITY (NORTHMAN TRADER)
“These are dangerous times both for longs and shorts
as no one can know when the bubble pops and how quickly it’ll collapse on its
own weight. Every bubble has its moment of, ok maybe this is stupid, maybe this
is getting too far, maybe now is the time to take some money off the table and
then suddenly selling begets selling and the whole thing collapses. I don’t
know if this is the moment but it might as well be, indeed some are getting
concerned at precisely this moment...” – Sven Henrich. Commentary at...
https://northmantrader.com/2021/01/27/instability/
CORONAVIRUS (NTSM)
Here’s the latest from the COVID19 Johns Hopkins website as
of 5:45pm 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 dropped
about 1.9% to 3714.
-VIX rose about 10% to 33.09.
-The yield on the 10-year
Treasury rose to 1.064%.
In year 2000 during the Dot.com mania, just preceding the
crash, my Boss subscribed to a stock market newsletter. Its readers rushed to
buy the author’s recommended stocks the day the letter was published. It worked
because the herd drove the prices up.
Now, herds of investors are following a few stocks (GameStop, AMC, Blackberry,
etc.) based on recommendations in chat rooms and online sites. It doesn’t look
good to me – too much like year 2000.
Since the Coronavirus Crash/Correction, the markets have
acted like it was the end of Bear-Market and a new major Bull-market beginning.
Indeed, we saw numerous rare signs of extreme-bullishness as the market
rocketed higher. The problem is that valuations never approached anything like
those needed to qualify for a Bear-market bottom and the Coronavirus correction
was ridiculously short. There is major trouble ahead – is it now? We don’t
really know, but the last time my NTSM Long-Term Indicator was this negative was
4 days after the Coronavirus Top, on 19 February 2020 before a 34% drop. That’s
not a guarantee we’ll see anything like that this time, but it is concerning.
When we look at the Friday rundown of indicators, we see the same kind of nasty
signals.
Here’s today’s 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 50-dMA % of stocks advancing on the NYSE (Breadth)
is above 50%.
-The Fosback High-Low Logic Index is very bullish. (We’ve
seen high new-highs and low new-lows although that is changing.)
NEUTRAL
-The 5-10-20 Timer System is HOLD; the 5-dEMA is below the
20-dEMA.
-The smoothed advancing volume on the NYSE is rising, but
I’m putting this in Neutral, because the high-volumes we have seen recently
have screwed this indicator.
-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).
-The 100-dMA of the % of stocks advancing on the
NYSE (Breadth) is above 50%. However, it is falling.
-Non-crash Sentiment indicator remains neutral, but it is
too bullish and that means it is leaning bearish.
-Bollinger Bands.
-Overbought/Oversold Index (Advance/Decline Ratio).
-6 Jan, the 52-week, New-high/new-low ratio improved by 4.3
standard deviations – very bullish and also rare. Signal has expired.
-We’ve seen 5 up-days over the last 10-days. Neutral.
-There have been 12 up-days over the last 20 days.
Neutral
-The market has broadened out; 6.7% of all issues traded
on the NYSE made new, 52-week highs when the S&P 500 made a new
all-time-high on 8 Jan. (there is no bullish signal for this indicator.)
-RSI.
-Breadth on the NYSE compared to the S&P 500 index is
neutral.
BEAR SIGNS
-The 10-dMA of stocks advancing on the NYSE
(Breadth) is above below 50%
-MACD of S&P 500 price made a bearish crossover 27
January.
-Cyclical Industrials (XLI-ETF) are underperforming the
S&P 500.
-McClellan Oscillator is below zero.
-The S&P 500 is 10.9% above its 200-dMA (Sell point
is 12%.); but when Sentiment is considered, the signal is still bearish.
-Slope of the 40-dMA of New-highs is falling.
-MACD of the percentage of stocks advancing on the NYSE
(breadth) made a bearish crossover 21 Jan.
-VIX is sharply rising.
-Long-term new-high/new-low data is falling.
-Short-term new-high/new-low data is falling.
-Statistically, the S&P 500 gave a panic-signal, 27 January.
This usually means more downside to come.
-The size of up-moves has been smaller than the size of
down-moves over the last month.
-My Money Trend indicator is falling.
-The S&P 500 is outperforming Utilities ETF (XLU),
but the outperformance is falling sharply, so I’ll call this one Bearish.
-41% of the 15-ETFs that I track have been up over the
last 10-days – bearish.
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 15
bear-signs and 2 bull-signs. Last week, there were 7 bear-signs and 5
bull-signs.
So, we see a strong turn to the downside. Given the
market action recently, that’s not too much of a surprise.
The daily sum of 20 Indicators remained -12 (a positive
number is bullish; negatives are bearish); but the 10-day smoothed sum that smooths
the daily fluctuations declined from -33 to -49. (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 SELL. Price, Volume & VIX are Bearish. Sentiment is neutral. The
last time my NTSM Long-Term Indicator was this negative was 4 days after the
Coronavirus Top, on 19 February 2020. That’s not a guarantee that we’ll see a
20%-correction, but it is concerning.
S&P 500 “correction” data:
-Day 4
-S&P 500 down 3.7% from
the top – that’s hardly worth calling it a correction.
-0% above the 50-dMA. (The
S&P 500 closed at the 50-dMA.)
-13.2% above the 200-dMA.
Let’s see what happens Monday. Will we bounce off the 50-dMA? Only time will
tell.
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, because Advancing-volume was high due to the overall high volume. Otherwise, this
indicator would have been SELL.
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.
