THIS REPORT IS TWO WEEKS OLD.  IT IS PRESENTED HERE FREE OF CHARGE TO ILLUSTRATE THE SCOPE AND DEPTH OF FRED GOODMAN'S COMPREHENSIVE MARKET ANALYSIS AND COMMENTARY. FRED'S REPORTS ARE AVAILABLE EVERY MONDAY MORNING ONLY BY SUBSCRIPTION, WITHOUT ADVERTISEMENTS, USUALLY SEVERAL HOURS BEFORE THE MARKET'S OPENING BELL. LEARN HOW YOU CAN SUBSCRIBE WITHOUT RISK (pro-rated refunds are available for all annual subscriptions), CLICK HERE.

 

Growth or Value, That Is the Question

Monday, September 30, 2019
Fred Goodman
When will investors switch from one to the other, that is the answer.

AT A GLANCE: Positive indicators have fallen to three, so a Quick Summary Index buy signal is not far off. Other indicators are starting to position themselves in positive positions, so we need to be on the alert for our reentry. However, being a little late can save anxiety at relatively little cost. The move by investors from growth to value is about to reverse.


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.

> Latest Goodman

> Discretionary GPS Portfolio


> Goodman archives


> Fred's Forum
>Fred Goodman's Key Technical Indicators for Investment Success


> Recommended Books

> GPS Intro > GPS FAQ
>
ETF Review


Trading Notes

There was more good news from the housing industry last week, as you will see below. This reinforces our interest in taking a 5% position in the iShares Dow Jones US Home Construction Index ETF (ITB), once the Summary Index sell signal is behind us. ITB closed at 42.66 Friday, our initial stop loss will be 34.86.

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 and the NASDAQ & S&P 500 Indexes closed in the same order Friday, T--I- and N--S-. The pattern is better for the S&P -- 53% positive -- than for the Dow -- 49% positive.




However, taken together there's a 53% chance that the S&P will rally Monday, exactly the average for an advance on any day selected at random 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 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

Very little changed last week. The S&P 500 moved away from its all time high of 3026.52. It now finds itself in close proximity to support at 2955, which was overhead resistance when the S&P was stuck in its August trading range above 2840.

It is common for resistance to turn into support once it has been penetrated, and that appears to be the situation now. Hopefully 2955 will hold, and if it does we may see the second half of the measured move between the white trendlines, leading to a target of roughly 3150.

The rally, should it develop, will be propelled by a new Summary Index (SI) buy sell signal of at least the Quick variety when positive indicators exceed seven, now that just three remain.

We anticipated a moderate decline based on the still advancing Trend Indicator, and so far it has been moderate.

S&P 500
Through Friday, September 27, 2019

September has the worst record for any month, but October holds the record for being the most volatile. October has been 37% more volatile than the average month, and 16% more volatile than January, its closest competitor.

Note that volatility is a double edged sword, monthly returns may be volatile and positive or volatile and negative.

For example, September has a volatility index of -0.86 (average return / percent negative years) while January's index was 2.63.

September had an average return of -0.46% since 1950 and declined 54% of the time while January had an average return of +1.03% and declined just 39% of the time. However, their volatilities are nearly the same at 4.5 and 4.8.

The volatility king of the months, October, has produced a return of +0.79% while declining 41% of the time so its volatility index is 1.96, but its volatility has been 5.6.

Based on the volatility index, the best month to have been in the market since 1950 was December, with an index of 6.46.

The Growth/Value Oscillator, which is based on the relative performance of stocks included in the Russell 2000 Growth and Value Indexes, has fallen to a level from which important recoveries or rallies have occurred in the past. It is driven lower when investors switch out of growth stocks and into value.

The oscillator turned down from a high of 1.89 on June 24, but it did start moving rapidly lower until just after the S&P 500 made its all-time high on July 26, the oscillator then fell to 1.37.

The blue markers appear on the first day that more money is in value than in growth stocks. Most recently it occurred on September 10 as the oscillator entered negative territory at -0.41. The oscillator closed at -3.38 Friday and is still falling. When it reaches zero again it will earn a yellow marker to show the majority of money has returned to growth.

A more timely buy signal, but one with higher risk, will occur when the oscillator first reverses and starts to move higher. Previous buy signals are represented below by black vertical lines. A reversal can occur at any time.

Reversals that occurred under the red horizontal line have been good opportunities to reenter the market. Of the eight buy signals identified with vertical lines below, only one, in 2008, was not followed by a rally.

Growth/Value Oscillator
Through Friday, September 27, 2019 >>Learn more

The Smart Put/Call Indicator (SPCR) gave a 20-day sell signal September 3. It has given 21 profitable sell signals out of the 32 since 1995. To be successful this time, the S&P 500 must fall 55 points by the close Tuesday, to 2906.27.

Smart Put/Call Ratio (OEX-CBOE) -- 20-day sell signals
Through Friday, September 27, 2019 >>Learn more

The MACD Indicator gave a sell signal at 2966.6 on Tuesday, when it fell below its signal line.

S&P 500 MACD (Moving Avg. Convergence/Divergence)
Through Friday, September 27, 2019

The number of stocks in the S&P 500 with positive MACDs fell from 349 a week ago to 194 on Friday. It has been below 50% since Wednesday.

Number of S&P 500 stocks with positive MACDs
Through Friday, September 27, 2019

Economic Indicators

In the last report we wrote of an improvement in housing industry data, and of our interest in adding a 5% position in the iShares Dow Jones US Home Construction Index ETF (ITB). Since then there has been a report from the Census Bureau supporting that interest. To skip to the technical indicators, please click here.

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

According to the Census Bureau, New Home Sales exploded in August to an annual growth rate of 15.5%, up from 4.7% the month before, and from a negative -13.2% last December.

The annual growth rate in Inventory fell from 34% in November to negative 13% in August. With increasing sales and declining inventory, the housing industry is going to have to become more active, which should help the iShares Dow Jones US Home Construction Index ETF (ITB).

New Home Sales
Through August 2019

Technical Indicators

The VIX Volatility Oscillator recovered for a couple of days last week but fell back below its sell signal line for the VIX Index on Thursday. The VIX Index continued to move higher Friday and is now 14% overbought at 18.18.

Sell signals on the VIX Index are often buy signals on the S&P 500 (green markers), but as you can see below, several green markers that followed steep rallies ushered in periods of weakness.

VIX Volatility Oscillator Buy and Sell Signals applied to the S&P 500
Through Friday, September 27, 2019

The NASDAQ and S&P 500 Short Trend Indicators (STI) are positive, while the Dow (STI) is neutral. However all three have strongly positive Swing Indicators (SWI) and cannot turn negative in the next week or two.

S&P 500 Trend and Swing Indicators
through Friday, September 27, 2019

The Summary Index fell to 10.60 and will reach 6.35 in a week if there are no further changes in the indicators. However, since there are now just 3 positive indicators, a Quick Summary Index buy signal is more likely than a regular buy signal.

This is true because the SI is not likely to fall below its buy signal trigger at 4.50 for another couple of weeks. However, the number of positive indicators can reach 7 or more in just a day or two. There are now 13 negative, 13 neutral and 3 positive indicators.

Technical Condition of the Market
through Friday, September 27, 2019 >>Learn more

The S&P 500 200-day moving average (green line in the chart above) added 7.90 points to reach 2832.89. The 50-day moving average (blue line in the chart above) lost -2.58 points to 2948.83 the day before.

The moving averages drew 10-1/2 points closer to a death-cross last week but still remain 116 points apart.

The Trend Indicator (TI) (pink line below) is now moving lower, but it lost just 0.02 points last week to 13.33 so it will take weeks to reverse from the Uptrend state .

Trend Indicator Long Term History
through Friday, September 27, 2019 >>Learn more

The S&P 500 14-day Relative Strength Indicator (RSI) fell sharply to 43.8% last week. It will reach 29.9% by the end of the week unless the S&P moves higher. It will turn negative when it falls below 30.

S&P 500 with the Relative Strength Indicator (RSI)
through Friday, September 27, 2019

The S&P 500 Price/Volume Chart produced counterclockwise basic sell loop when the volume spiked as a result of the quadruple witching Friday the week before last. The loop was reversed Monday when volume returned to normal, but it is threatening to cross the uptrend line once again.

S&P 500 Price/Volume Chart
Volume = Total of Individual S&P Stocks
through Friday, September 27, 2019 >>Learn more

The Average Signature continued to fall and reached 429 Thursday. However, it then reversed and returned to 465 Friday, in spite of a decline by the market. The indicator neutral once again, with one positive, one negative and one neutral chart. However, it can change direction in a day, so it is currently of little predictive value.

Average Signature -- Traditional Method 345 and 645 Triggers
through Friday, September 27, 2019 >>Learn more

Average Signature -- moving averages of the percent > 700
through Friday, September 27, 2019

Average Signature-- Traditional Method 20-day average
through Friday, September 27, 2019 >>Learn more

Return



Click here to sign up for or to cancel free e-mail alerts that let you know as soon as a new Fred Goodman report is published on the web!

 


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©2001-2019 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.