MARKET REPORT / ANALYSIS
-Friday the S&P 500 fell about 2.6% to 2847.
-VIX jumped about 19% to 19.87.
-The yield on the 10-year Treasury dropped to 1.538%.
We were Trumped and Chinatized Friday. Unless you can
figure out where this conflict is going, it almost seems pointless to guess the
market direction. For now, do we buy the dip or sell stocks? The Pros bought the
dip very late in the day on high volume.
That’s a good sign. What me worry? Maybe not that good...
The S&P 500 bottomed at 2835 near the close, well
below the 14 August low of 2841, and rebounded nicely of good volume. The rebound was enough to keep the day from qualifying as a
90% down-day (although technically the actual down volume was 89.7%).
I suppose the close was close enough to the prior low to
constitute a test of the low, but the closing numbers didn’t support giving a
buy signal based on the market internals. i.e., the test of the prior low was
not successful.
This suggests some further backing and filling around the
2840 zone is a likely outcome in the near-term, at least that’s what the numbers
suggest. We might guess that the strong final 5-minutes of trading that
increased the S&P 500 value by nearly a half percent could carry over till
Monday? It might, but the closing data is not encouraging; we may not have seen
the last of our troubles.
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%. 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%.
Increasing tariffs by 10% on 300 billion dollars is a 30
billion dollar increase on the cost of goods from China. 30-billion divided by
300-million US citizens is $100 per capita for goods
imported from China to the extent we buy Chinese goods. This doesn’t seem like
it should garner the reaction we saw Friday, but we just follow the market.
My daily sum of 20 Indicators dropped from +2 to -7
(a positive number is bullish; negatives are bearish) while the 10-day smoothed
version that negates the daily fluctuations improved from -37 to -34.
(These numbers sometimes change after I post the blog based on data that comes
in late.) Most of these indicators are short-term so this is not a surprise.
The index would need to close below 2841 with
deteriorating internals before I get too worried; however, I am concerned. The long-term
indicator is sell again and the Fosback High/low logic indicator is back in
play with its "big drop" warning.
TOP / BOTTOM INDICATOR SCALE OF 1 TO 10 (Zero is a
neutral reading.)
Today’s Reading: -1
-The Long-term Fosback Logic Index indicators was bearish.
This is a concern since the McClellan Oscillator has turned negative.
- Most Recent Day with a value other than Zero: -1 on 22
August.
(1) +10 Max Bullish / -10 Max Bearish)
(2) -4 or below is a Sell sign. +4 or better is a Buy
Sign.
MOMENTUM ANALYSIS:
Just a reminder…During corrections, momentum is
generally not giving a very accurate picture – it will reverse when the
correction ends. During the correction, Utilities will generally outperform as
will similar Dow stocks, like Verizon. Momentum here is a short-term
call.
TODAY’S RANKING OF
15 ETFs (Ranked Daily)
*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…
FRIDAY MARKET INTERNALS (NYSE DATA)
Market Internals remained
NEUTRAL 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).
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 55% invested in
stocks as of 20 August 2019. This is a conservative balanced position
appropriate for a retiree.
INTERMEDIATE / LONG-TERM INDICATOR
Friday,
the VOLUME and VIX were negative; SENTIMENT and PRICE Indicators were neutral.
Overall, the Long-Term Indicator switched to SELL. Since we are already testing
the correction low, I see no point in exiting the market until we see a break
below the prior low with deteriorating signs. I’ll remain fully invested for
the time being.
