Sixty-Nine Years and Counting
Monday, July 27,
several 20-day buy signals will end this week, the MACD indicator
is now falling and close to a sell signal, the NASDAQ has stopped
leading the market and volume is still shrinking.
Looks like it's time to take a break.
We will sell half our position in QQQ opportunistically this week and have raised our mental stop loss to 249.60. For SPY, the new stop has been raised to 312.90. We will also consider selling both when the negative Summary Index indicators reach 9 or more.
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-- while the NASDAQ & S&P 500 Indexes finished N--S-. The Dow arrangement has a negative record of 49% advances the next day, while the NASDAQ and S&P arrangement is right on the average for any random day, at 53%.
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 S&P 500 broke to a new interim high on Monday, as predicted by the 79% positive win ratio of the combination N+S++, T+I- two Friday's ago. However, the rest of the week cancelled the gain and the close was below the point of breakout.
In addition, we now face the two worst months of the year -- August and September, as you will see below.
Another reason for caution is the reversal by the Dow Industrial and Dow Transportation Averages. They have at least temporarily backed away from their approach to a new Dow Theory buy signal.
The final hour of trading indicator is ahead by 206 S&P 500 points, but it is just a day away from ending. To make matters worse it will give a 20-day sell signal on Tuesday unless a rally occurs between now and then.
The Dow opening thirty minute indicator is 165 points ahead. It will end Tuesday but is not likely to generate a sell signal at that time.
The MACD indicator turned lower on Thursday. It will give a sell signal when it falls below its signal line (red dotted line below), which will happen Monday unless the S&P 500 rallies.
The number of S&P 500 stocks with positive MACDs reached 369 Friday. However, it is likely that the number will soon decrease and produce a third lower high. This pattern has been prelude to several important corrections in the past (blue trendlines).
A recent MACD 20-day buy signal will end in six days. It is 36 points ahead, but a sell signal is likely next week at the rate the indicator is now falling.
Hopefully the new lockdown will not last long enough to cancel the progress recently achieved. However, here's an indicator on the verge of turning positive that is especially vulnerable to the rioting in the streets of Chicago. To skip to the technical indicators, please click here.
Many Federal Districts continued to recover in June. Some of them were noteworthy, as was the Chicago Federal National Activity Index. This severly damaged district reported an increase from -18.09 in April to +4.11 in June.
This, and several other Federal District reports, give reason to expect a strong ISM Manufacturing Index report on August 3. Another reason to expect strength is the early "flash" report from the independent MARKIT organization. It was up in July from 46.8 to 50, the number needed for the index to be considered "expansionary."
The VIX Index fell to 24.41 last week, a low since February 28. As mentioned last week, low levels of the VIX have often been followed by market corrections. One becomes even more likely when the VIX Volatility Oscillator falls to 63 or below. On Wednesday, the index made a low for 2020 and can easily fall the rest of the way in the week ahead.
All three Short Trend Indicators (STI) are now positive. The S&P 500 gave a combined buy signal when its Swing Indicator (SWI) turned positive Thursday, but the Dow and NASDAQ will not join the S&P, since their SWIs are now below zero.
The two-week-old Quick Summary Index buy signal is about to reverse. All that is needed is for three more indicators to turn negative, since the negative indicators fell to three last week. There are now 4 negative, 13 neutral and 12 positive indicators.
The SI increased from 12.85 a week ago to 14.85. It will reach 15.35 by the end of this week if there are no further changes among the indicators.
The SI is unlikely to reach its sell signal trigger at 17, which suggests that we will avoid a regular sell signal. That's the good news, but it does not prevent us from the less powerful QSI sell signal.
The S&P 500 200-day moving average (green line in the chart above) gained 8.27 points to 3041.34, while The 50-day moving average (blue line in the chart above) gained 36.10 points to 3104.14. The 50-day now leads the 200-day average by 62.8 points.
The Trend Indicator (TI) (pink line below) rose 0.66 points to 13.04 last week where It remains in the Uptrend state.
The S&P 500 14-day Relative Strength Indicator (RSI) turned neutral when it fell from 76.8% to 55.2% last week. It will reach 64.9% in the week ahead if the S&P moves higher.
The S&P 500 Price/Volume Chart completed a somewhat strange continuation sell loop Friday. If the market falls on volume Monday and penetrates its uptrend line, it will convert the pattern to a basic sell loop. In any case, the chart is bearish.
The Average Signature still has three positive charts, but they are now close to reversing. The primary chart fell from above 900 to 802 and will give a sell signal if 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©2001-2020 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.