“The NFIB Small Business Optimism Index remained
basically unchanged in December, drifting down 0.4 points to 104.4.” Story at…
JOLTS (Bloomberg)
“The number of positions waiting to be filled fell
by 243,000 to 6.89 million, from a revised 7.13 million in the prior month,
according to the Job Openings and Labor Turnover Survey or JOLTS, released by
the Labor Department on Tuesday…The number of openings remains near a record,
signaling employers continue to seek workers at a healthy pace.” Story at…
CORRECTION UPDATE
This is day 74 of this correction. As of today’s close, the S&P 500 Index is
down 12.2% (19.8% max) from its prior high and has included 21 new-lows. In
recent years only the 2011 correction contained 21 new-lows. That correction
bottomed at 19.4%.
Over the last 20-years (excluding major crashes and the
current year) there have been 2 corrections that exceeded 19%, in 1998 and
2011. In 2011, the waterfall phase (nearly straight down with little or no
bounces) took place over 3-weeks (about 15-trading sessions) and included a 17%
drop with almost no relief. In 2018, the waterfall phase that ended Christmas
Eve lasted 3-weeks over 15-trading sessions and included a drop of 16%.
The 2011 correction took 108-days to complete, top to
bottom.
MARKET REPORT / ANALYSIS
-Tuesday the S&P 500 was up about 1% to 2574.
-VIX dropped about 4% to 20.47.
-The yield on the 10-year Treasury rose to 2.731%.
My daily sum of 17 Indicators slipped from +10 to +8 (a
positive number is bullish; negatives are bearish) while the 10-day smoothed
version that negates the daily fluctuations improved from +22 to +32.
We saw more good market internals today. Advancers
outpaced decliners 3 to 1; 70% of the volume was up-volume and new-highs
outpaced new-lows for a change.
The Fosback New-High/New-Low Logic indicator remains
bullish. This is the indicator that turned bearish at the top of the current correction.
Investors are now afraid of being left behind and we have
seen the S&P 500 up 7 out of the last 10-days. 65.7% of stocks on the NYSE
have been up over the last 10-days. That’s not just bullish, it’s too bullish. The overbought/oversold ratio is now
overbought, but this indicator is always early so there’s not point in paying
attention to it. Still, it is time for caution.
I’ve been suggesting that I will sell the rally. Just about every talking head, both on TV and
on the net, has mentioned S&P 2630-2640 as major resistance based on the
lows of the consolidation zone back in November and December. The 50-dMA is now
2640 so that just reinforces the number. 2640 is also the 50% retracement zone
if you believe in Fibonacci numbers. The markets may just fool everyone and
blast higher, but it is not likely to get too much higher based on correction
history. It would be VERY unusual to
see the market get to its old highs without a retest near the old lows. I can’t
recall that has ever happened on a correction 10% or greater.
Since a retest of the prior low at 2351 is likely, I will
sell my stock holdings back to 30% Wednesday.
I am not doing this to make money by trading my long-term funds. This is to protect the portfolio. There is a possibility that this “correction”
could be the bear-market crash some have been anticipating for several years.
My 401k (the Gov TSP) requires a request be made by noon
to adjust stock holdings at the close.
It’s not possible to wait till late day to make a decision so the lack
of flexibility requires an early decision.
A huge move up – say on the 1.5-2% range – would be the
ideal time to sell, because that would signal a blow-off top. At the present time it takes a 2% move just
to meet my minimum for a statistically significant move. That option carries
the risk that markets may fall sooner rather than later making it less likely
to exit at a decent price.
Only a retest at the 2350 level will tell us whether 2350
was THE bottom. A retest is likely due to the low volume we saw at the low
before Christmas. One might think the
low volume was due to the Holiday, but we have seen low-volume days like this
during corrections that weren’t around a holiday.
THE BOTTOM LINE: I’m selling the rally now. If one
chooses not to sell, keep in mind that a significant drop below 2350 (3% or
more) could be the beginning of a further drop that could take the markets down
drastically. I am still optimistic that a retest of prior lows will be successful and lead to new highs in the markets. Since there's no guarantee, it is better to be cautious.
MOMENTUM ANALYSIS:
(Momentum analysis is suspect in a selloff, so I‘d be
careful using momentum data for the time being – the only reason utilities are
highly ranked among ETFs is as an alternative to stocks during the correction.) The same is true for individual stocks in the
Dow 30.
TODAY’S RANKING OF
15 ETFs (Ranked Daily)
The top ranked ETF receives 100%. (In this case -100%
since all are negative.) 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%. 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
while the S&P 500 was up 18%.
*For additional background on the ETF ranking system see
NTSM Page at…
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.
*I rank the Dow 30 similarly to the ETF ranking system.
For more details, see NTSM Page at…
TUESDAY 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. 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).
I increased stock allocations to 60% invested in stocks
on 27 November. I bumped up stock investments to 65% on 19 December. Both increases
were made at technical bottoms or shortly thereafter; unfortunately, those
bottoms didn’t hold. For me, fully invested is a balanced 50% stock portfolio
so this is higher.
INTERMEDIATE / LONG-TERM INDICATOR
Tuesday, the Sentiment
and Volume indicators were positive; VIX and Price indicators were neutral.
Overall this is a POSITIVE indication, BUT IT MAY BE TOO EARLY to Buy now since
we expect a retest of the low. It does
indicate that conditions have greatly improved.
