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Is It Pump and Dump or Dump and Pump?

Monday, May 18, 2020
Fred Goodman
Actually, it's both.

AT A GLANCE: The Summary Index negative indicators have moved from 2 to 10, back to 5 and then to 16 before settling at 11 on Friday. As a result, the Quick Summary sell signal turned neutral twice in the last two weeks. Meanwhile, the NASDAQ Price/Volume Chart has completed and confirmed a buy loop while the others remain indecisive. Overall, we find ourselves in a rapidly changing environment in which technical indicators are of little help and fundamental indicators are distorted by self-inflicted business closures and mounting political rants.

When trades are found for the Discretionary GPS Portfolio by the Goodman Price/Volume Stock Selection System (GPS), they will be listed here. Mental stop losses are updated every week.

You can check the current mental stop losses for all positions held in the portfolio by clicking here.


If you have questions about the GPS that aren't answered in our Frequently Asked Questions pages, please send your questions via e-mail.

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ETF Review


Trading Notes

Last week we promised that, "Unless stocks collapse Monday, we'll take a 60 share position in QQQ for the GPS Portfolio. Our initial stop will be 203.54." Well we did buy just after 10 AM Monday, just in time for the collapse that followed in the next two days.

The good news was the partial recovery Thursday and Friday that left us with a paper loss of less than two points. Our new stop loss is 205.82, but it is likely we'll act before the stop is reached.

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 Dow Transportation & Industrial Averages finished the week T-I+, which has been followed by an advance less often than any other arrangement, just 46% of the time. The NASDAQ & S&P 500 Indexes finished N++S+ with a positive record of 53%.




Together, this combination has a record slightly below average -- advances have occurred the next day, 51% of the time since 1975.

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 are updated each week so we can follow the results going forward. Additional explanatory material is posted here, here and here.


General Market Comment

After many one-day reversals since the February market high, our 29 Summary Index indicators have become almost equally balanced between neutral, positive and negative. To make trading this market even more difficult, fundamental indicators have temporarily become useless as a result of the self-inflicted lockdown. Add to this the confusion caused by self-promoting politicians and you have a market in which conventional guidelines have vanished.

In a crisis the best is brought out of our first responders and the worst is brought out of bad elements. It is no surprise therefore, that pump and dump schemes have expanded since their heyday in the 1990s.

S&P 500

Dow Industrials

Dow Transports

The charts at the left clearly demonstrate that starting three weeks after the all-time high reached on February 19, traders have traded and politicians have pontificated in such a manner as to generate market fluctuations as follows:

The S&P 500 closed down an average of -1.19% Mondays, up 1.54% Tuesdays down -0.87% Wednesdays, up 0.26% Thursdays and finished with an average gain of 0.40% on Fridays.

Essentially, each week was dump and pump and dump and pump.

In the first 9 weeks of 2020 the S&P 500 gained 155 points while traveling 1400. In the second 9 weeks of the year it lost 109 points traveling 4000.

The more recent period has provided individual investors with poor results while providing hucksters with opportunity.


The May 4, 20-day buy signal by the Dow opening thirty minute indicator, lost 1/4 of its initial 90 point S&P 500 gain last week. It had a success ratio of 71.4% going into this trade, with 15 winning trades against 6 losses.

Dow Industrials first 30 minutes-- Previous buy signals
Through Friday, May 15, 2020

The Smart Put/Call Ratio (SPCR) has a 50 point S&P 500 paper gain after 11 trading days. It has been our best performing 20-day sell signal indicator, with a record of 61.5% winning short sales since 1995.

The indicator had 24 profitable trades averaging 4.48%, against 15 losses averaging -2.27%. A win/lose ratio of 61.5% and a profit ratio of 3:1.

Smart Put/Call Ratio (OEX-CBOE) -- 20-day sell signals
Through Friday, May 15, 2020 >>Learn more

The MACD Indicator gave a sell signal Wednesday when it slipped below its declining trendline.

S&P 500 MACD (Moving Avg. Convergence/Divergence)
Through Friday, May 15, 2020

The number of S&P 500 stocks with positive MACDs, after reaching the unequaled high of 498 positive stocks a week ago, fell below 50% on Wednesday, the day the MACD gave a sell signal. It finished the week with just 131 positive stocks.

Number of S&P 500 stocks with positive MACDs
Through Friday, May 15, 2020

The April 22, 20-day MACD buy signal is hanging on to a 64 point profit with 3 days to go. This indicator has produced 10 winning trades averaging 3.7%, against 3 losses averaging 2.2% since 2007. A positive result Wednesday will give the indicator a very high success ratio of 78.6%.

MACD 20-day Buy Signal based on the high number of positive MACDs
Through Friday, May 15, 2020


Economic Indicators

Many economic indicators are, and will continue to be useless until the economy reopens. To skip to the technical indicators, please click here.

**************

The Michigan Consumer Sentiment Index (dark blue line), which is based on a survey of 600 households, includes two measures of confidence -- current conditions and expectations for the future.

Last month the survey showed a whopping drop of 36% in the current conditions index since December, against a decline of just 21% by the consumer expectations index. This changed in May when current conditions improved 8% while expectations slipped 3%. The data suggest the public is becoming acclimated to the measures taken in response to the Coronavirus

Michigan Consumer Sentiment Indexes
Through May 2020


Technical Indicators

The VIX Index recovered from being sharply underpriced a week ago to being properly priced at the end of last week. The VIX Oscillator remained neutral in the center of its range where it belongs, considering that ten of our indicators are neutral while the remaining positive and negative indicators are roughly in balance.

VIX Volatility Oscillator Buy and Sell Signals applied to the S&P 500
Through Friday, May 15, 2020

The S&P 500 Swing Indicator (SWI) fell below zero last week, but its Short Trend Indicator (STI) is still positive, which made a combined sell signal impossible. The other two SWIs are falling, but they remain above zero and their STIs are positive.

S&P 500 Trend and Swing Indicators
through Friday, May 15, 2020

The Summary Index (SI) should be considered neutral, even though its recent Quick Summary Index sell signal remains in effect. There are 11 negative, 10 neutral and 8 positive indicators.

The SI fell to 11.60 and will slip further to 9.50 by the end of next week, unless there are changes in the indicators.

Technical Condition of the Market
through Friday, May 15, 2020 >>Learn more

The S&P 500 200-day moving average (green line in the chart above) lost 3.54 points to 2998.44 while the 50-day moving average (blue line in the chart above) fell 17.31 points to 2712.89.

The Trend Indicator (TI) (pink line below) added 0.26 points to 9.78 on Monday. It reversed the next day and by Friday had given back 0.14 points to 9.64. It will remain in the Downtrend state until it reaches 10.75.

Trend Indicator Long Term History
through Friday, May 15, 2020 >>Learn more

The S&P 500 14-day Relative Strength Indicator (RSI) remains neutral at 48.5%. It will reach 53.7% by the end of the week if the S&P 500 remains at current levels, but it continue to be neutral.

S&P 500 with the Relative Strength Indicator (RSI)
through Friday, May 15, 2020

The S&P 500 one-day Price/Volume Chart recently wandered in all directions without completing a positive or negative pattern -- it remains neutral

S&P 500 Price/Volume Chart
Volume = Total of Individual S&P Stocks
through Friday, May 15, 2020 >>Learn more

The one-day NASDAQ Price/Volume Chart completed and confirmed a very convoluted buy loop a week and a half ago that does not appear on the shortened chart below. A two-day advance on a bit more volume will complete and confirm a continuation buy loop.

NASDAQ Price/Volume Chart
Volume = Published Daily Total
through Friday, May 15, 2020 >>Learn more

The NASDAQ Long Term Price/Volume Chart, which plots 5-day moving averages of price and volume, completed and confirmed the long awaited clockwise basic buy loop when it crossed the downtrend line starting at the February 19 all-time high. It was the only index to do so.

NASDAQ Long Term Price/Volume Chart
Volume = Published Daily Total
through Friday, May 15, 2020 >>Learn more

This very complex Russell 2000 Price/Volume Chart shows how much further the index will have to advance to reach and penetrate its downtrend line.

Russell 2000 Price/Volume Chart
Volume = Total of Individual Russell 2000 Stocks
Through Friday, May 15, 2020 >>Learn more

The Average Signature fell last week, but it managed to stay above 500, so a sell signal has been avoided for the time being. The second chart did turn negative and makes the Average Signature neutral overall.

Average Signature -- Traditional Method 345 and 645 Triggers
through Friday, May 15, 2020 >>Learn more

Average Signature-- Traditional Method 20-day average
through Friday, May 15, 2020 >>Learn more

Average Signature -- moving averages of the percent > 700
through Friday, May 15, 2020

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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©2001-2020 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.