“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.
JOBLESS CLAIMS
The number of Americans filing first-time applications
for unemployment benefits surged last week, confirming a weakening in labor
market conditions as a worsening COVID-19 pandemic disrupts operations at
restaurants and other businesses... Initial claims for state unemployment
benefits increased 181,000 to a seasonally adjusted 965,000 for the week ended
Jan. 9, the highest since late August.” Story at...
STRETCHED (Northman Trader)
“I’ve been saying it for a while: The extremes are becoming ever more extreme, to the upside as well as to the downside. Last year I kept highlighting multiple warning signs in markets leading into the 35% crash (example: Never go full retard) and now I feel like I’m repeating the same exercise again. People forget tops are processes and bottoms are events and as processes take time to unfold, but when things crack they tend to move quickly.” Commentary at...
https://northmantrader.com/2021/01/12/stretched-2/
PROSECUTORS GO AFTER RIOTERS (WSJ)
“The FBI and National Counterterrorism Center on Wednesday
circulated among law-enforcement agencies a bulletin warning that partisan
grievances pose the greatest domestic terrorism threat in 2021, a
law-enforcement official said. The bulletin also said last week’s Capitol
breach could serve as a driver of future violence and could lead to more
threats against elected officials by extremists...” Story at...
My cmt: Trump’s claims of a stolen election are the best
recruiting tool for anti-government-radicals ever.
CORONAVIRUS (NTSM)
Here’s the latest from the COVID19 Johns Hopkins website
as of 5:40pm Thursday. 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
-Thursday the S&P 500 dipped
about 0.4% to 3796.
-VIX rose about 5% to 23.25.
-The yield on the 10-year
Treasury rose to 1.128%.
The story today is probably the weak price action the in the S&P 500. Other indices eventually followed the S&P 500 to close lower for the day. Selling started in the big caps, but never got very heated in smaller stocks. The Russell 2000 was up 2% on the day and that is a wide separation between large and small caps. Who will win? Usually, the S&P 500 follows breadth. Breadth was strong today with advancers outpacing decliners better than 2 to 1 so, tomorrow should be a positive day. If tomorrow is another down-day, we may suspect that a pullback might be starting.
The daily sum of 20 Indicators improved from +3 to +4 (a
positive number is bullish; negatives are bearish). The 10-day smoothed sum
that smooths the daily fluctuations improved from +13 to +14. (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 improved to BUY. Now, Volume is bullish along with the big improvement
in new-high/new-low data last week. 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%. Bank should do well as interest rates
rise, although I’d expect rates to fall if we see a decent pullback.
THURSDAY MARKET INTERNALS
(NYSE DATA)
Market Internals remained POSITIVE 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.
