Monday, October 5, 2020
Fred Goodman
Well, it is October.

AT A GLANCE: In spite of many negative indicators and the illness of President Trump, the number of positive MACDs among the stocks in the S&P 500 made its first higher high since April 17. The indicator itself gave a buy signal Thursday. Nevertheless, we remain in cash and will likely stay there until after the election.

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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Trading Notes

Still fishing. There were signs of improving indicators, until Friday when reaction to the President's illness slowed them down. Our decision to wait for a regular buy signal from the Summary Index remains in force.

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.

Tellingly, after moving sharply higher and above the 50-day moving average on Thursday, the S&P 500 fell below again upon the release of news of the President's illness. There is no way to view the news other than negative for the stock market. In addition to the dismay of his supporters, the uncertainty of his condition is likely to be a negative for his detractors as well.

The head and shoulders sell signal completed a week ago last Monday projects to 3030. There is support at the round number of 3000 and again at 2750, halfway between the all-time high and the low of the February-March decline.

S&P 500
Through Friday, October 2, 2020

The Dow Transportation & Industrial Averages finished T+I-, an arrangement with the highest probability of an advance the next day -- 60%. The NASDAQ & S&P 500 Indexes finished N--S-. This arrangement has a success ratio of 53% -- the average for all NS arrangements.

In spite of the good record for T+I-, the combination of these two arrangements has an average record, just 54% 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

The Smart Put/Call Indicator (SPCR) 20-day sell signal on September 8 will end on Tuesday. It was behind by just 1/2 of one percent at the close Friday, but it's anyone's guess where it will be in two days.

However, it is almost guaranteed that another 20-day sell signal will begin Wednesday. This is still our best performing sell signal indicator, even though it's record has fallen from 61.5% in August, to 59.5% today. Since 1995 it has made 25 profitable short sales averaging 4.32%, against 17 losses averaging -2.42%.

Smart Put/Call Ratio (OEX-CBOE) -- 20-day sell signals
Through Friday, October 5, 2020 >>Learn more

There was some improvement last week, but the Dow Transportation Average is still stuck 188 points below the upper trendline of its weekly Broadening Top Formation.

Dow Transportation Average -- Weekly chart
Through Friday, October 2, 2020

The 20-day buy signal from the final hour of trading indicator is still 33 points behind, with six trading days to go. We will continue to ignore it.

Dow Industrials final hour of trading indicator -- Previous buy signals
Through Friday, October 2, 2020

The CBOE Put/Call ratio gave a sell signal on September 4. It will remain negative until it reverses and turns lower.

CBOE Put/Call Indicator
Through Friday, October 2, 2020

The MACD reversed early in the week and then gave a buy signal Thursday. Note that every time the indicator fell below -25 (horizontal line), it's recovery was interrupted by a throwback before the market fully recovered.

S&P 500 MACD (Moving Avg. Convergence/Divergence)
Through Friday, October 2, 2020

The number of S&P 500 stocks with positive MACDs bottomed out at 59 a week ago. It then grew to 279 and surpassed its midline on Friday, in spite of the decline.

This is very encouraging since it is the first time it has managed to reach a higher high since April, when a record number of stocks (498) were positive.

Number of S&P 500 stocks with positive MACDs
Through Friday, October 2, 2020

A 20-day buy signal by the MACD, on September 21, gave an early warning that a longer term buy signal would soon occur.

20-day signals occur at high levels as well as low, as was the case two weeks ago. The current signal has 10-days to go and is already ahead by 2%. It has a fine batting average of 70.5%, but its losses were almost twice the size of its winning trades.

Signals can also be given when positive stocks reach much higher levels. When a signal is given with many positive stocks, the batting average is even better. 11 out of 14 trades have been successful (78.6%), and the winning trades returned almost twice as much (3.94%) as the losers lost (2.16%).

MACD 20-day Buy Signal from a low level of positive MACDs
Through Friday, October 5, 2020

Economic Indicators

Many economic reports were released last week but few were worth comment. Many of their changes have been masked by the sharpness of the pandemic-related declines that started in March. Violent swings in their charts obscure current changes, and fail to create meaningful patterns. To skip to the technical indicators, please click here.


An example of violent change in economic indicators appears below in the chart of layoffs released by Challenger Gray & Christmas in their monthly job-cut report for September.

Layoffs increased 2.6% year-over-year last month. However, that was just half the 5.7% decrease the month before when industries reacted to changes in pandemic-related stimulus bills now in negotiation in Congress.

Challenger Layoffs
Through September 2020

The ISM Manufacturing Index was released at 10 AM Tuesday. The market had opened the day explosively, and the report helped it extend its rally to within two hours of the close.

The index gave back 0.6 points in September, which was insignificant following its 14.5 point surge since the April low. Nevertheless, this was the first dip in 4 months and suggests a possible slowing of the recovery.

ISM Purchasing Managers Index
Through September 2020

Technical Indicators

The VIX Index went up slightly, as would be expected in the face of negative news about the president's health. However, it was not excessive under the circumstances, just slightly elevated beyond last month's average. The VIX Volatility Oscillator is also slightly above average.

VIX Volatility Oscillator Buy and Sell Signals applied to the S&P 500
Through Friday, October 2, 2020

Also as expected, in a market making frequent reversals, all three Short Trend Indicators (STI) remain neutral, while their Swing Indicators (SWI) remain well below zero. Combined buy signals are possible, but they will not occur until there is a period of rising prices and a sign of stability.

S&P 500 Trend and Swing Indicators
through Friday, October 2, 2020

The Summary Index (SI) continued in the narrow path between 5.35 and 6.35 that was established in the last three or four weeks. However, it broke out Friday to 6.60 and will reach 8.70 this week if the S&P 500 advances.

SI indicators ended the week higher than a week ago, but they are still neutral -- 11 negative, 11 neutral and 7 positive. Theoretically, with 7 positive indicators, after falling below 3 a few weeks ago, the August 26 QSI buy signal has been reinstated. However, a regular Summary Index buy signal will not occur without a decline below the buy signal trigger at 4.5 followed by another rally.

Technical Condition of the Market
through Friday, October 2, 2020 >>Learn more

The S&P 500 200-day moving average (green line in the chart above) gained 4.58 points last week to 3111.78. The 50-day moving average (blue line in the chart above) gained 10.68 points to 3361.61, a slight improvement over last week.

The 50-day average managed to move another 6 points above the 200-day last week. It is now 249.83 points above it, another new high since 2012.

The Trend Indicator (TI) reversed (pink line below), but it lost less than it did the week before. It gave up 0.20 points to 12.12 where it remains in the Uptrend state. It will continue to be positive until it drops below 10.75.

Trend Indicator Long Term History
through Friday, October 2, 2020 >>Learn more

The S&P 500 14-day Relative Strength Indicator (RSI) finished the week up a little at 46.2% where it is remains neutral. It will move higher next week to 60.5% if the S&P is unchanged. A decent rally is needed to move it to positive.

S&P 500 with the Relative Strength Indicator (RSI)
through Friday, October 2, 2020

The S&P 500 Price/Volume Chart moved higher last Monday but has been stagnant since. A clockwise basic buy loop is still possible with an advance on more than 2.7 billion shares, and a confirming advance the next day. However, a continuation sell loop is also possible with a decline on rising volume. In essence, little has changed since last week.

S&P 500 Price/Volume Chart
Volume = Total of Individual S&P Stocks
through Friday, October 2, 2020 >>Learn more

The Dow 5-day chart also has these options. However, it is a closer to a buy loop than a sell. It will complete a clockwise buy loop with an advance of 500 points on volume 10% above last week's average. A continuation sell requires a loss of 700 points on rising volume.

Dow Long Term Price/Volume Chart
Volume = All NYSE Stocks
Through Friday, October 2, 2020 >>Learn more

The Average Signature recovered to 833 last week but fell on Thursday and Friday. It ended the week at 820 where it remains neutral, with one positive and two neutral charts.

Average Signature -- Traditional Method 345 and 645 Triggers
through Friday, October 2, 2020 >>Learn more

Average Signature-- Traditional Method 20-day average
through Friday, October 2, 2020 >>Learn more

Average Signature -- moving averages of the percent > 700
through Friday, October 2, 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: 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.