“Trade what you see; not what you think.” – The Old Fool,
Richard McCranie, trader extraordinaire.
“The strong person is the person who can cut off the
chain of hate, the chain of evil. And that is the tragedy of hate – that it
doesn’t cut it off. It only intensifies the existence of hate and evil in the
universe. Somebody must have religion enough and morality enough to cut it off
and inject within the very structure of the universe that strong and powerful
element of love.” – MLK, 1957
EMPIRE STATE MANUFACTURING (Dow Jones via Morningstar)
“Factory activity in the New York state leveled off in
January compared with the previous month as demand for goods declined,
according to data from a survey compiled by the Federal Reserve Bank of New
York released Tuesday. The Empire State Manufacturing Survey's general business
conditions index fell sharply to minus 0.7 in January from 31.9 in December...”
Story at...
NAHB HOUSING MARKET INDEX (CNBC)
“Builder confidence fell one point to 83 in January,
according to the National Association of Home Builders (NAHB)/Wells Fargo
Housing Market Index (HMI). Anything above 50 is considered positive, but that
is the first drop in four months.” Story at...
https://www.cnbc.com/2022/01/18/homebuilder-confidence-drops-for-the-first-time-in-four-months.html
BOND CEF A-D LINE SHOWING LIQUIDITY PROBLEMS (McClellan
Publications)
“The message of the current divergence shown above is
that liquidity has suddenly become a problem, and it is affecting the more
liquidity-sensitive issues first. That can be a prelude to that same
illiquidity coming around and biting the big cap stocks that drive the major
averages. It has been a while since we have seen a divergence like this one.”
Commentary at...
HUSSMAN FUNDS COMMENTARY (Hussman Funds, Dec 11)
“...on Friday, November 19, we hit the motherlode. Across
four decades of work in the financial markets, and over a century of historical
data, I’ve never observed as many historical indications of a market peak
occurring simultaneously. Noise reduction is always a process of drawing a
common signal from multiple, partially correlated sensors, even if each
individual sensor might be imperfect. The reason that we follow boatloads of
these syndromes is the same reason we base our gauge of market internals on
thousands of securities – uniformity conveys information.
Emphatically – and this is important – my intent
here is not to “call the top” of this bubble. Yes, this is a bubble in my view.
Yes, I believe it will end in tears. Yes, the price investors pay for a given
stream of future cash flows is inseparable from the long-term returns they can
expect. Yes, if this bubble is ever to actually have a top, this would be a
perfectly reasonable moment to expect one. Still, my present intent is simply to
share what we’re observing.” - John
Hussman, PhD. Commentary at...
https://www.hussmanfunds.com/comment/mc211120/
HUSSMAN FUNDS COMMENTARY (Hussman Funds, Jan 14)
“The scatterplot below shows how...valuation measures are
related to actual subsequent 12-year S&P 500 nominal total returns, in data
since 1928...
...Put simply, by relentlessly depriving investors of
risk-free return, the Federal Reserve has spawned an all-asset speculative
bubble that we estimate will provide investors little but return-free risk...
we enter 2022 amid the most extreme financial bubble in U.S. history, driven by
yield-seeking speculation, amplified by a Federal Reserve that has abandoned
any tether to systematic monetary policy.” - John Hussman, PhD. Commentary at
https://www.hussmanfunds.com/comment/mc220114/
CORONAVIRUS (NTSM)
Here’s the latest from the COVID19 Johns Hopkins website as
of 6:00 PM ET Tuesday. U.S. total case numbers are on the left axis; daily
numbers are on the right side of the graph in Red with the 10-dMA of daily
numbers in Green. I added the smoothed 10-dMA of new cases (in purple) to the
chart.
If we focus on the box in the above chart we can see (below) that the 10-day moving average of new-cases has dropped a little since the 13th of January. Let’s hope that trend continues.
MARKET REPORT / ANALYSIS
-Tuesday the S&P 500 fell about 1.8% to 4577.
-VIX jumped about 19% to 22.79.
-The yield on the 10-year Treasury rose to 1.876%.
Pullback Data
Days since top: 10 (Avg= 30 days for corrections <10%;
60 days for larger, non-crash pullbacks)
Drop from Top: 4.6% (Avg.= 13% for non-crash pullbacks)
In Friday’s Blog I mentioned Buying Pressure minus
Selling Pressure as an indicator. The
chart I posted Friday was based on a 50-dMA. That’s based on my understanding
of the indicator developed many years ago by Lowry Research Corp. As one might
expect, the indicator showed selling-pressure outpaced buying-pressure by a
wider margin today. Perhaps more importantly, overall volume increased again,
suggesting more fear is creeping into the market. We still haven’t seen really high volumes
that would indicate panic.
The daily sum of 20 Indicators declined from -4 to -8
today (a positive number is bullish; negatives are bearish); the 10-day
smoothed sum that smooths the daily fluctuations declined from -28 to -39 (The
trend direction is more important than the actual number for the 10-day value.)
These numbers sometimes change after I post the blog based on data that comes
in late. Most of these indicators are short-term so they tend to bounce around
a lot.
The Long Term NTSM indicator
ensemble declined to SELL. Volume & VIX are bearish; Price & Sentiment
are Neutral. The important sell-signal was 12 Jan. Today is just a reminder
that conditions remain bearish.
Today’s close on the S&P 500 was another test of a
prior low. As such we are looking for lower volume with improving market
internals. We didn’t get either so it
still looks like this pullback has further to go. Like always, I will warn that
Mr. Market doesn’t always pay attention to my numbers. On the bullish side of the ledger...
The S&P 500 closed just above its 100-dMA today and that
may offer some support. The RSI turned bullish. That has signaled an end point for
recent pullbacks, but so far, it is the only Bottom Indicator that is oversold
so that’s not enough evidence for me.
I remain a Bear until proven
otherwise.
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
TUESDAY MARKET INTERNALS (NYSE
DATA)
Market Internals declined to 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.
My stock-allocation in the
portfolio is now about 35% invested in stocks. This is close to my “normal”
fully invested stock-allocation of 50%. I trade about 15-20% of the total
portfolio using the momentum-based analysis I provide here.
You may wish to have a higher
or lower % invested in stocks depending on your risk tolerance. 50% is a
conservative position that I consider fully invested for most retirees.
As a general rule, some
suggest that the % of portfolio invested in the stock market should be one’s
age subtracted from 100. So, a
30-year-old person would have 70% of the portfolio in stocks, stock mutual
funds and/or stock ETFs. That’s ok, but
for older investors, I usually don’t recommend keeping less than 50% invested
in stocks (as a fully invested position) since most people need some growth in
the portfolio to keep up with inflation.
