“Trade what you see; not what you think.” – The Old Fool,
Richard McCranie, trader extraordinaire.
“Faced with a combination of record speculative extremes
and deteriorating speculative conditions, investors may want to remember that
the best time to panic is before everyone else does.” – John Hussman, Phd.
MARKET REPORT / ANALYSIS
-Wednesday the S&P 500 fell about 1.8% to 4226.
-VIX rose about 8% to 31.02.
-The yield on the 10-year Treasury dipped to 1.904%.
Pullback Data:
Days since top: 35 (Avg= 30 days top to bottom for
corrections <10%; 60 days top to bottom for larger, non-crash pullbacks)
Drop from Top: Now 11.9% at closing. (Avg.= 13% for
non-crash pullbacks)
The S&P 500 is 5.2% BELOW its 200-dMA & 7.6%
BELOW its 50-dMA.
Max Retracement from bottom: 56% 2 Feb.
The slope of the 200-dMA is up, but just barely.
The market is overstretched to the downside and Bollinger
Bands and RSI are both oversold – a bullish sign suggesting at least a bounce.
The overbought/oversold Index (Advance decline Ratio) is also oversold. Breadth
vs the S&P 500 also shows that the S&P 500 is stretched too far to the
downside when compared to the % of issues advancing on the NYSE (Breadth). Together,
these give a very robust bottom signal. It can be early though; it was 10-days
early during the Corona virus correction and 6 days early calling the recent bottom
on 27 Jan. So, we need to check other bottom signs.
Looking at today’s numbers, volume was lower, but market
internals were weaker so it appears that this correction is not done with us
yet, in spite of what the bottom indicator ensemble says. As I write this, I
note that the futures are down 0.7%, pointing to another very weak stock market
for tomorrow, Thursday. [Update: An hour later (10:30 pm) the futures are down
1.7%. Maybe tomorrow we’ll see some real
panic.]
As I noted before, it may take a huge volume down-day to
put an end to this downturn. The highest volume in the pullback so far was
about 164% of the monthly average. Today’s volume was equal to the monthly
average; not much panic-selling Wednesday.
The daily sum of 20 Indicators improved from -7 to -5 (a
positive number is bullish; negatives are bearish); the 10-day smoothed sum
that smooths the daily fluctuations dropped from -28 to -37 (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 remained to SELL. Volume & VIX are bearish; Price & Sentiment
are Neutral.
Until we see some more bullish signs, I remain bearish.
TRADING POSITIONS:
XLE; Purchased Wednesday, 26 January. I had my finger on
the sell button today and then XLE went up ½% in a few minutes. I am still holding XLE. I am watching because
I don’t want a loss in this trading position.
BEST ETFs - 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
BEST DOW STOCKS - TODAY’S MOMENTUM
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
WEDNESDAY MARKET INTERNALS
(NYSE DATA)
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 about 40% invested in stocks. This is below 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. If I can see
a definitive bottom, I’ll add a lot more stocks to the portfolio using an
S&P 500 ETF.
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.
