“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.
EUPHORIA IN THE STOCK MARKET (CNBC)
“Billionaire investor Leon Cooperman told
CNBC on Wednesday he believes the stock market will struggle to generate
meaningful returns in the years ahead...“Whenever you bought into the market
when it was selling at the present multiple of, say, 22 times or higher, you’ve
never really made any serious money one year, three year, five years out. I
think that’s what we’re looking at...” Story at...
CORONAVIRUS (NTSM)
Here’s the latest from the COVID19 Johns Hopkins website
as of 6:30pm Wednesday. 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
-Wednesday the S&P 500 rose
about 1.4% to 3852.
-VIX dropped about 7% to 21.58.
-The yield on the 10-year
Treasury dipped to 1.083%.
In 1998, I was convinced the markets were getting overheated.
I sold out as the markets headed higher.
They kept going up and I began to second guess myself. I bought back in on 31 August at the bottom
of a 20% correction. I didn’t have a system back then it was all feel. Now, I
see some warning signs. Probably the biggest is that the S&P 500 is still
stretched at 16.3% above its 200-dMA (Sell point is 12%.). We could easily see a 1998 event again.
The last time the markets go this stretched was back in
2009 after the March bottom that followed the multi-year Financial crash. The
problem is that at the current time PEs are very stretched while in 2009 they
were very low. I am not in a hurry to invest more funds in the stock market.
Today was a statistically significant up-day. That just means
that the price-volume move exceeded my statistical parameters. Data shows 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 not all statistically-significant,
up-days occur at tops. Today could be a top, but other than the market being
stretched, there aren’t too many top indicators. There are fewer now than there
were on 8 January and I thought that was a top! Bollinger Bands were overbought
then; they aren’t now, but they are close.
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 +13 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.
The Long Term NTSM indicator
ensemble remained HOLD. Volume is bullish: Price, VIX & Sentiment are
neutral. I still think we are near a short-term top based on % over the 200-dMA
and a couple of other indicators.
I’ll continue to keep a low %
of funds in the stock market until I see a better buying point.
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
We note the banks have moved
into 1st and 2nd place in DOW momentum. I lean toward JPM
due to its higher dividend yield, 2.6%. Banks should do well as interest rates
rise, although I’d expect rates to fall if we see a decent pullback.
WEDNESDAY MARKET INTERNALS
(NYSE DATA)
Market Internals remained BULLISH 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.
