JANUARY 2018 HUSSMAN COMMENTARY EXCERPT (Hussman Funds)
“As we begin 2018, the most appropriate starting point is
to clarify our actual investment stance. A central aspect of our outlook is the
distinction between investment and speculation. If Wall Street believes that
stock prices could advance further because investors temporarily have a
speculative bit in their teeth, and that they care more that the environment
“feels good” than about any careful evaluation of long-term investment
prospects, we have no strenuous objection to that argument. Indeed, that’s
exactly why, until we see more than the early deterioration in market internals
we observe at present, our immediate investment outlook is rather neutral. On
the other hand, if Wall Street believes that current valuations are actually
“justified,” that 10-12 year S&P 500 total returns are likely to be
meaningfully positive, or that the S&P 500 will avoid a collapse on the order
of -65% over the completion of the current market cycle, my view is that these
beliefs are strenuously at odds with the evidence from a century of market
history.” - John Hussman, PhD. Commentary at…
MARKET REPORT / ANALYSIS
-Monday the S&P 500 was up about 0.2% to 2748.
-VIX was up about 3% to 9.52.
-The yield on the 10-year Treasury rose to 2.488%.
My sum of 17 Indicators slipped from +6 to +5 today. On a
10-day basis, values were down slightly. A “+” number means that most
indicators are bullish.
No point in getting too detailed in the write-up today.
Most short-term indicators are bearish.
I am not shorting though. So many
of these normally reliable indicators are questionable now as Investors and
Traders seem to be in the mood to buy, buy, buy. It looks like the markets may
trade sideways for a while until they don’t – at that point I think we’ll see
some sort of pullback. We just don’t know how big.
I am bearish short-term; longer term I am a
bull, but I recommend caution with the Fed raising rates and shrinking its
balance sheet. In addition, we are due for a correction in 2018 due to
Presidential election cycle history.
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. While momentum isn’t stock performance per
se, momentum is closely related to stock performance. For example, over the 4-months
from Oct thru mid-February 2016, the number 1 ranked Financials (XLF) outperformed
the S&P 500 by nearly 20%.
*For additional background on the ETF ranking system see
NTSM Page at…
Energy (XLE) was #1. The markets are due for some
reversion so perhaps I’ll get a better buying opportunity later. I’ll wait before adding any positions. (I
hold XLK, DVY and SPY. DVY is a dividend play. SPY is a good core holding.)
Under my system in 2017, Technology (XLK) was ranked in
the top 3 Momentum Plays for 52% of all trading days in 2017 (if I counted
correctly.) XLK was up 35% on the year.
TODAY’S RANKING OF THE DOW 30 STOCKS (Ranked Daily)
The top ranked stock receives 100%. The rest are then
ranked based on their momentum relative to the leading stock.
Caterpillar remained #1.
I hold Intel – I’m waiting for a better entry point
before adding other positions. Intel is now a value play so I am holding it. Avoid GE and Merck. Their 120-day moving averages are
falling.
*I rank the Dow 30 similarly to the ETF ranking system.
For more details, see NTSM Page at…
MONDAY MARKET INTERNALS (NYSE DATA)
Market Internals remained
Positive on the market. (Market Internals are based on a package of internals
and all must be positive to create a positive indication. At this point, they look too good.)
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. In 2014, using these
internals alone would have made a 9% return vs. 13% for the S&P 500 (in on Positive,
out on Negative – no shorting).
LONG TERM INDICATOR
Monday, Price indicator was positive; Sentiment was negative; Volume
& VIX indicators were neutral.
With VIX recently below 10 for a couple of days each month from May thru
December 2017, and now January 2018, VIX may be prone to incorrect signals.
Usually, a rising VIX is a bad market sign; now it may move up, but that might
just signal normalization of VIX, i.e., VIX and the Index may both rise. As an
indicator, VIX is out of the picture for a while. VIX below 10 last occurred
about 4-months before the year 2007 crash and also several months before the
2001 crash. 6-months with VIX below 10 is unprecedented in the last 20-years.
MY INVESTED STOCK POSITION:
TSP (RETIREMENT ACCOUNT – GOV EMPLOYEES) ALLOCATION
I increased
stock allocation to 50% stocks in the S&P 500 Index fund (C-Fund) 24 March
2017 in my long-term accounts, based on short-term indicators. The remainder
is 50% G-Fund (Government securities). This is a conservative retiree allocation,
but I consider it fully invested for my situation.
