What Did Election Day and Valentine's Day Have in Common?
July 2, 2018
AT A GLANCE: The Summary Index will fall below its buy signal trigger at 4.50 on Monday and will give a regular buy signal when it recovers. We plan to reenter the market with positions in SPY and/or QQQ when the signal occurs.
SPY is in a better
position for buying than QQQ, according to the GPS Program,
but we are likely to buy both of them after the next Summary Index
A list of current and closed trades appears with the table above at the regular link (Discretionary GPS Portfolio), which you can also find among the links at the beginning of every report. The preferred ETFs for trading are QQQ, SPY, XLB, XLF, XLK, XLU, XLV and XLY.
The NASDAQ & S&P
500 and Dow Transportation & Industrials finished
the week in their most common arrangements -- N++S+ and T++I+.
Each of these arrangements gives the market a tiny positive edge on
The most reliable combinations are those in bold type. The very best performers are colored green, while the very worst are in pink. The tables will be updated each week so we can follow the results going forward. Additional explanatory material is posted here, here and here.
General Market Comment
In the 16 years since 2001, profits have been earned 11 times (69%) when the SPY was bought at the close on the Friday before the 4th of July, and sold at the close on the second trading day following the holiday.
This is related to the observation that the market generally does the opposite in the two sessions after the 4th, to what it did on the two days leading up to it. This year the S&P closed Friday within a point of where it closed last Monday, so we should not expect too much from the market in the week ahead.
However, with the Summary Index on its way to an inevitable dip below its buy signal trigger at 4.50 on Monday, we should prepare to buy when it reemerges.
The most profitable day around the holiday has been the second day after the fourth, which falls on Friday this year. In the past, volume has generally returned to its pre-holiday level on that day. Of course, volume is always lowest the day before the holiday, since the market closes early.
The S&P 500 fell back to the middle of its three-month trading range. It closed one point above its 50-day moving average after spending two days below it. We plan to take 10% positions in QQQ and/or SPY once the SI buy signal begins. We will select nearby mental stop losses at the time.
A Quick Summary Index buy signal is no longer possible, since the SI will fall below its buy signal trigger on Monday. A regular buy signal will occur when it reemerges.
The S&P 500 lost 70 points since the Dow final hour trading indicator buy signal occurred on June 16. However, with a Summary Index buy signal on the horizon there is still a good chance that the final hour 20-day buy signal will be successful by the time it expires on July 13.
In spite of many positive signs directly ahead, market prospects over the near term are diminished by the S&P 500 MACD indicator, which is now in the third week of a sell signal.
The number of S&P 500 stocks with positive MACDs has continued to fall. There are now just 149 positive stocks among the 500 included in the index. At least the number has stopped falling, five stocks turned positive on Friday to reach the total of 149.
The Confidence indicators reflect public enthusiasm for the present and concern for the future. There are economic indicators to support both of these views. To skip to the technical indicators, please click here.
The Conference Board Consumer Confidence Index (dashed line), which is based on a survey of 5000 US households, reflects a higher degree of public enthusiasm for the present situation than it has in more than a decade. However, in spite of their enthusiasm, their expectations for the future (green line) haven't moved much in over a year.
The same is found in the numbers behind the Michigan Consumer Sentiment Index. It also has current conditions at a multi-year high and consumer expectations below those reached at the peak in 1999.
It is not difficult to attribute the pessimism to the constant drumbeat of displeasure spewing from the pens and mouths of an angry media, but is it justified by the indicators?
The observed pessimism is not supported by the Bureau of Economic Analysis (BEA) report that shows first-quarter growth in Real Gross Domestic Product (GDP) at a three-year high of 2.8%. True, personal spending is growing at 2.6% against its 2015 high of 3.3%, but that compares to an average annual growth of just 1.9% in the last 15 years.
Another reason for pessimism might be the sharp drop in 2017 fourth quarter corporate profits, which fell to a 2-year low according to the Bureau of Economic Analysis (BEA). However, they improved by 2.8% in the first quarter of this year.
Expectations for an expansion of the trade deficit may be justified following the imposition of tariffs and the possibility of a trade war. However, it is certainly not inevitable judging from the US Census Bureau report, which revealed a third monthly decline in the growth of the deficit. The annual rate is now 2.69% against a high of 15.15% in February.
In conclusion, while there may be bumps in the road ahead, it appears that lagging expectations may be more the result of media agitation than reality.
The slightly overbought VIX Index two weeks ago became very overbought on Wednesday. However, a sell signal occurred and the index fell back by the end of last week. It is now correctly priced and the VIX Volatility Oscillator has returned to the middle of its range.
The Dow and S&P 500 Short Trend Indicators (STI) turned neutral, but the NASDAQ STI remains positive. It will not turn neutral in the next week and a half unless the index loses more than 50 points.
All three Swing Indicators (SWI) are below zero and falling, but each of them can produce a combined buy signal with its STI when the indexes start to move higher.
It is no longer possible for the Summary Index to give a QSI buy signal since the SI has fallen to its buy signal trigger at 4.50. The SI will continue to fall and will reach 1.10 this week if the indicators remain where they are. A regular Summary Index buy signal is now inevitable when a few indicators turn higher.
There are 21 negative, 8 neutral and zero positive indicators. This has been one of the most rapid reversals on record, three weeks ago 18 indicators were positive and now there are none.
Nevertheless, a reversal can happen just as quickly, so we should be ready to buy SPY and/or QQQ when the regular buy signal occurs.
The S&P 500 200-day moving average (green line in the chart above) gained 5.82 points last week to 2668.98, while the 50-day moving average (blue line above) added 2.64 points to 2717.47.
This has been a very rapid deterioration of the 50-day average, from a gain of 12.55 points a week ago to a gain of just 2.64 last week. It actually fell 0.12 points on Wednesday when the S&P closed below it.
The Trend Indicator (TI) (pink line below) also reflects market weakness. It lost 0.45 points to 13.29 but will continue in the Uptrend state unless it falls below 10.45.
The S&P 500 14-day Relative Strength Indicator (RSI) fell below 30% and is now negative. It will slip to 27.8% this week if the S&P fails to move higher.
The S&P 500 Price/Volume Chart is clearly negative, but it has not completed a sell loop.
The Average Signature is still stuck at neutral where it will remain until it falls below 500.
Fred Goodman, CFP, is a fee-only Certified Financial Planner based in Los Angeles. To send Fred your questions or comments, click here: Fred@MarketMonograph.com. E-mail sent to Fred may be edited for clarity and brevity and published on this web site, and may include your name unless you request anonymity or specify not for publication. The charts and commentary represent what Fred thinks about the market and what he is thinking of doing for his own account and for accounts he manages at the time of writing. Fred, his clients, or his family may have positions or may make trades in securities mentioned in these commentaries. There is no guarantee that you will profit from trading as discussed herein. You may lose money and Fred assumes no responsibility for what you do or do not do with this information. Copyright©2001-2018 Fred Goodman. All rights reserved. For information purposes only, offered as a periodical of general circulation; not to be deemed to be recommendations for buying or selling specific securities or to constitute personalized investment advice. Derived from sources believed to be reliable, but no warranty is made as to accuracy.