“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.
FOMC RATE DECISION
The Federal Reserve left interest rates and its pace of
bond buying unchanged on Wednesday following the conclusion of its first
meeting of the year. The Federal Open Market Committee kept its benchmark
rate in a range of 0% to 0.25% and maintained its $120 billion monthly pace of
bond purchases..."The pace of the recovery in economic activity and
employment has moderated in recent months, with weakness concentrated in the
sectors most adversely affected by the pandemic," according to the
statement.” Story at...
https://www.investing.com/news/economy/fed-holds-rates-steady-in-first-meeting-of-2021-2400764
DURABLE ORDERS (Fox Business)
“Orders to U.S. factories for big-ticket manufactured goods rose a
modest 0.2% in December, held back by a big drop in the volatile aircraft sector.
A key category that tracks business investment decisions slowed.” Story at...
https://www.foxbusiness.com/economy/us-durable-goods-orders-show-modest-0-2-december-gain
EIA CRUDE INVENTORIES (EIA)
“U.S. commercial crude oil inventories (excluding those
in the Strategic Petroleum Reserve) decreased by 9.9 million barrels from the
previous week. At 476.7 million barrels, U.S. crude oil inventories are about
5% above the five-year average for this time of year.” Press release at...
https://ir.eia.gov/wpsr/wpsrsummary.pdf
THE BIG SHORT: INSIDE CRYPTO’S DOOMSDAY MACHINE (Crypto
Anonymous)
“If you own meaningful amounts of cryptocurrency or
you’re considering buying some, you’re the reason I wrote this. Please do read
to the end.” Commentary and analysis at...
https://crypto-anonymous-2021.medium.com/the-bit-short-inside-cryptos-doomsday-machine-f8dcf78a64d3
My cmt: If you own Bitcoin, better read this. It’s long
but fascinating, even if you don’t own any.
CORONAVIRUS (NTSM)
Here’s the latest from the COVID19 Johns Hopkins website as
of 7:20pm 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 fell
about 2.6%% to 3751.
-VIX exploded up about 62% to 37.21.
-The yield on the 10-year
Treasury was little changed at 1.020%.
APOLLO 13, April 13, 1970:
55:55:20 – Swigert: “OK, Houston, we’ve had a problem
here.”
55:55:35 – Lovell: “Houston, we’ve had a problem. We’ve
had a main B bus undervolt.”
55:55:49 – Oxygen tank No. 2 temperature begins steady drop
lasting 59 seconds indicating a failed sensor.
55:56:38 – Oxygen tank No. 2 quantity becomes erratic for
69 seconds before assuming an off-scale low state, indicating a failed
sensor.
55:57:39 – Master caution and warning triggered by DC
main bus B undervoltage. Alarm is turned off in 6 seconds.
55:57:40 – DC main bus B drops below 26.25 volts and
continues to fall rapidly.
55:57:44 – Lovell: “OK. And we’re looking at our service
module RCS helium 1. We have — B is barber poled and D is barber poled, helium
2, D is barber pole, and secondary propellants, I have A and C barber pole.” AC
bus fails within 2 seconds.
55:57:45 – Fuel cell 3 fails.
55:57:59 – Fuel cell current begins to decrease.
55:58:06 – Master caution and warning triggered by DC
main bus undervoltage.
55:58:07 – DC main bus A drops below 26.25 volts and in
the next few seconds levels off at 25.5 volts.
55:58:07 – Haise: “AC 2 is showing zip.”
55:58:25 – Haise: “Yes, we got a main bus A undervolt
now, too, showing. It’s reading about 25 and a half. Main B is reading zip
right now.”
56:00:06 – Master caution and warning triggered by high
hydrogen flow rate to fuel cell 2.
As I checked the Indicators Wednesday, I was reminded of
the above crisis. While the markets aren’t life-threatening, the scale of today’s
decline in the Market indicators was dramatic.
The daily sum of 20 Indicators declined from -3 to -9 (a
positive number is bullish; negatives are bearish); but the 10-day smoothed sum
that smooths the daily fluctuations declined from -10 to -18. (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.
-MACD of Price turned negative.
-MACD of Breadth was already negative.
-New-high/New-low finally turned down.
-The S&P 500 is still 12.3% above its 200-dMA; still bearish.
-The Panic Indicator, based on
statistical analysis of the size of today’s move in Price-volume, flashed sell.
It usually signals the start or finish of a correction. Given the
relative calm prior to the drop and other indicators, it does not look like a
bottom.
Some good news?
At the recent all-time high,
2-days ago, breadth was pretty good. 8.9% of issues traded on the NYSE made new
52-week highs. This suggests a correction may be muted. The 5-10-20 Timer
System is still a buy. The S&P 500 is only 1.1% above the 50-dMA. The pullback could stop there.
Incredibly, 56% of the volume
Wednesday was advancing volume! The up-volume was narrowly focused in only 17%
of issues on the NYSE. That leads to an incredibly low high TRIN (Trader’s Index) of
6.3, suggesting a bottom.
The Long Term NTSM indicator
ensemble dropped to SELL. Volume & VIX are Bearish. Price & Sentiment
are neutral. During QE the Long-Term indicator sell-signals did not give great
results, since it often warned when pullbacks were very small. At that time, I put a limiter on the Long-Term
Indicator preventing sell signals when the market was down less than 5%. I have
since taken the limiter off. This time, I still suspect we have further to go,
but the FED could always embolden the Dip-Buyers.
The “correction” is now 2-days
old and has dropped 2.7% from the top – that’s hardly worth calling it a
correction. Let’s see if there is follow thru to the downside on Thursday. That
would be bearish. Futures are down 0.6% as I am writing this.
We could see a big bounce
Thursday, but I think there is more to come before this pullback ends. If I
had to guess, I’d say 5% more, or so, but that is just a guess – and it may be
too bullish.
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
I sold DOW this morning at a
27% gain. It is no longer a momentum play, but I may buy it back later. I do
like the dividend.
WEDNESDAY MARKET INTERNALS
(NYSE DATA)
Market Internals remained NEUTRAL on the market, because Advancing
volume was high. 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.
