last week, the day after Christmas we have had the best one day show in about 10 years in the market. But it was not convincing, why? because there was so small rise in the number os stocks going above the 50 days SMA in S&P 500. On the big day it went up by 3.39 which is insignificant compared to the drops (look at the big red candle o Dec 4th – one day drop of 23%!!)
also checking QLD – we see that on the same close at 12/20 the OBV was 56 million and on 12/26 the OBV was 53 million. this is divergence and hence the market is going to go down further.
on the COMP 6630 is the next resistance (weekly low on the week of Feb 5th 2018)
One positive thing is the DMSI – quoting them “The Delta Market Sentiment Indicator (MSI) declined to 7.5% this week. The range on the Delta MSI is from 0% to 100%. A 7.5% reading is very low and a sub-10% reading has only occurred during four periods (including this week) in the past 15 years (a longer history is shown this week instead of the usual 12 month review). Historically, the stock market has shown strong performance over the next twelve months post a sub-10% reading.”
The delta market sentiment indicator is at 19.6 currently.
the percentage of S&P 500 stocks that closed below their own resepctive 50 days SMA has fallen to an extreme of 15 % (out of say 100 stocks, only 15 stocks are above their own 50 Days Simple Moving Average (SMA))
According to Delta newsletter – “Since January, 2009 through today, we have only had eight instances when the MSI declined below 20%. Shown below is a chart of the MSI since January 2, 2009. Buying the market when the MSI dropped below 20 previously during this bull cycle has benefitted patient investors willing to incur heightened market volatility”
When the Delta MSI drops below 10%, Delta’s MSI based strategies may buy stocks. During the current bull cycle beginning in 2009, this has happened only twice. Over the past 27 years, it has happened five times. These times were:
- August 1990
- September 1998
- July 2002
- October – December 2008
- August 2011
The chart below shows the price change in the S&P 500 from the closing monthly price when the MSI went below 10% to twelve months and three years later. The chart does not include the additional benefit of dividends during the holding periods.
Be prepared to enter soon into the market
CNBC has this “For the quarter, the S&P 500 rose 7.2 percent, its best quarterly gain since the fourth of quarter 2013.”
The article further adds this “The Nasdaq Composite also notched a 7.1 percent quarterly gain, its best since first quarter 2017. ”
DMSI – delta market sentiment indicator is 56.0
s&p 500 stocks above their 50 day SMA stabilized after it declined entire last week.
my decision – continue to stay in QLD and long on NQ
The last two weeks steep downhill and loss of 10+ percent on S&P
RED DOTS – inter year DRAWDOWNS
The chart below shows calendar year S&P 500 returns without dividends (grey vertical bars). Below the bars are red numbers which indicate the maximum intra-year drawdowns. The chart makes clear that 10% drawdowns are fairly common. What is not common is a drawdown of only 3% which was the case in 2017.
Another important observation from the above chart is that as long as the economy is not in a recession (areas shown with horizontal green bars), the calendar year returns are usually positive. The U.S. is not currently in a recession.
From January 1950 through December 2017, the S&P 500 has declined by 5-10% 41 times. The average length of the decline was one month. The average recovery from the low was one month. In the 11 cases that the S&P 500 declined by 10-20%, the sell-off lasted and average of 4 months and recovery took and average of 3 months.
Source : delta maker sentiment
accumulation distribution (money flowing in and out of the market) gets a grade of C to D. Which means that there is a net flow of money out of the market. (A, A+ is the best time to keep the money in the market).
Delta Market Sentiment Indicator is below 50.
So, the bottom line is this : Stay in the sidelines, till the big money (Mutual funds, Institutional investors) get back in.
PS: Source of the above article is Delta Investment Management newsletter and Investors Business daily.
this morning i read this in yahoo finance (note the 20/20 vision looking at the past) – “To those poor souls Trennert suggests backing up and remembering that valuation always matters. Corrections lead to selling that takes down blue chips as well as garbage names.”
I am not a poor soul, I did not get into the market. Because the market is still in correction (How long or how short time will tell).
Let me again empathize the fundamental difference. I trade based on one and only one thing – Price.
I have one and only one signal – 75 day Simple Moving Average.
DMSI, and IBD big picture help me a lot in confirming my signal.
So valuation based on opinions don’t matter in my style of trading.
The market is in correction. Distribution days have reached and have tipped over. Get in cash, to be on safe side.
But the DMSI has not triggered. That is the signal is still 100% equity. I am not getting into cash as yet. I will wait and see.
The Delta MSI measures the position of ~3,600 stocks relative to an intermediate-term moving average crossover (MAC) point. When greater than 50% of the stocks followed are above this MAC point, the market is bullish and equities are attractive. When the indicator is below 50%, risk is elevated and stock exposures should be reduced. Manager uses discretion on asset allocation when MSI is 50% +/- 3%
Current Market Exposure: 100% Equities, 0% Bonds, 0% Cash