yield curve inverted market crash

i am not a predictor of the market, neither do i have any crystal ball. but the last post accuracy has been immediately proved in the market on Tuesday December 4th 2018. wow, what  fall!

IBD narrates – “At one point in the session, a 2.78% yield on the five-year note dropped under a 2.80% yield on the shorter two-year note. In other words, it made less sense for investors to hold the longer-dated bond for a specific return.”

usually the 10  year is compared with 2 year curve. But this is telling. Market need something to sell.

IBD continues – This was supposed to be a banner week for the Dow Jones industrial average and the broader stock market. President Donald Trump called off his escalation of China tariffs days after Fed Chairman Jerome Powell traded his hawkish talons for a Santa rally cap. But financial markets just aren’t buying the good cheer.

so i will either short or stay out of the market

preserve our capital and profits at all cost! Market is in correction.

then they my be a possibly to play an other day

Lessons learnt in market crash

S&P 500 Stocks DAILY Above 50-Day Average BEFORE FALL

Price is the true north star and her sisters are a few – one particular one is how many stocks in S&P 500 are above their 50 days SMA ($S5FI)

The first big red candle and a drop of 10 percentage points in the number of stocks above their 50 days SMA happened 12 days  before the actual market crash!

Market lost its floor on October 10th and you see in the above chart that the big red candle appeared on 9/24.

Do you see the gradual descent in the above chart! It falls below all the Moving Averages (MA)..the green 10 Days Exponential MA and also the 22 days SMA and 55 days SMA.

It falls below 50 % on 10/04.

there are other signs that go along with this. More in the coming days posts.

now a drop of more than 10 points in $S5FI occurred  in 4 days by 02/01/2018 and NASDAQ dropped to the low 765 points in the next 6 days!

Similarly $S5FI dropped more than 10 points on 02/27/2018 and NASDAQ dropped to the low of 246 point in the next 3 days.

similarly in 4 days by 03/15/2018 it dropped by more than 10 points and then in next 11 days the NASDAQ dropped by 676 points!

and it dropped by more than 10 points in 4 days by 6/19/2018 and in the next few days NASDAQ dropped 362 points

and it falls by more than 10 points on 9/24/2018 and NASDAQ drops 1000 points in the next 18 days!

I am staying in cash

 

 

 

Where is the stock market now

The delta market sentiment indicator is at 19.6 currently.

Screen Shot 2018-10-20 at 11.14.55 AM

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

 

Market still in the weeds

Happy weekend from Seoul, South Korea

As observed on April 13th, 2660 is a critical test for S&P. It passed with flying colors on Monday and Tuesday April 16th and 17th. In fact April 17th was a solid gap up (when the market opens well above the previous days price )

Look at the volume of the entire stock market at the bottom of thr above picture. This is the most beautiful pertinent information. Why? This is the sum Total of all actions of the entire 100s of money managers and pension funds and hedge funds. When the market is falling the volume is going up – red lines and when price is rising the volume in blue is not that great.. this last week it went up 80 points and gave back 80 points. So the volatility is still high and it’s up and down

About 47-50 % of S&P stocks are below their 100 day SMA (say there are 100 stocks in entire market 50 stocks are below their price averaged over their last 100 days) – 2nd picture

On Friday the market S&P and NASDAQ price sliced below their 50 day SMA

S&P 500 is back to testing the 2660. It is just a few points above it.

7300 is now shaping up to be solid resistance for NASDAQ

FFTY the 50 top growth stocks – last picture is back down its 10 days SMA (growth stocks are first bought by institutions when the market is healthy).. if growth stocks are not braking out in high volume..the market is not healthy

In the side lines for now. Let it play through.

Happy weekend

Ps: a blog on my travels

https://ourhumanex.com/

DMZ zone North Korea

behavior of leading stocks in a market correction

Screen Shot 2018-03-29 at 9.49.25 AM

FFTY is the fund that has the 50 leading stocks in the market. Since Feb 17th 2016 techs have been dominant leading index. the purple line is the 50 day simple Moving average (SMA) and the red line is 200 day SMA. If the leading stocks are testing their 200 SMA. Time to get to the sidelines and watch (as indicated in previous post) The volatility has been crazy!

on Monday The Nasdaq composite up 3.3%; the Dow Jones industrial average soared 2.8% and the S&P 500 jumped 2.7%. a pure dead cat bounce!! because on Tuesday The Nasdaq composite plunged 2.9% and undercut Friday’s low. The S&P 500 slid 1.7% !!

Both indexes’ price ranges Tuesday exceeded the prior day’s — a bearish behavior that’s known as an outside day!

semiconductor, software, internet have taken much more pounding as the stock market sees its second intermediate-level correction unfold so far this year.

The Nasdaq 100 slid 1.1% and pierced the 6500 level for the first time since Feb. 8.

The biggest winners fall 1-1/2 to 2-1/2 times as much as the major indexes do. What does this mean? With the Nasdaq at 6949, down 9% from its 7637 all-time peak, expect some of the leaders to fall anywhere from 14% to 23% from their own 52-week or all-time peaks.

look at the S&P index – a very robust broad and key index

Screen Shot 2018-03-29 at 10.03.53 AM

It is in hair’s breath of the most important indicator 200 day moving average. Why is this most important indicator ? mutual funds, hedge funds, pensions, sovereign wealth funds see this level at 200 day MA as the key level to buy or sell.

there is no buying now – look at the triple top in the second chart above. Stay in sidelines and watch

Source of some of this article : IBD

 

 

 

volatility is back

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The stock market does not like uncertainty.  Uncertainty is a component of how the stock market discounts future earnings back to a price today.  The discount rate is the denominator of the equation.  Just as 1/10 is a smaller number than 1/5, stock prices are lower as uncertainty rises.

Whether we look at the relative performance of stock market components based on exposure to foreign trade or the CBOE Volatility Index (VIX), it is evident stock investor anxiety is on the rise.  How concerned should we be?

We look to the credit market to see if lenders are also feeling anxious.  The debt market is substantially larger than the stock market and often provides a more reliable and leading indicator of broad investor sentiment.  Specifically, we monitor the high-yield spread.  If the differential between junk-debt interest rates and treasury rates is 5% or greater and rising, we get worried about the stock market

Currently, the high yield spread is about 3.6%.  3.6% is down from about 3.8% a month ago and 4.1% a year ago.  If the bond market were the British Government, it would be telling us to “keep calm and carry on.” (source : delta market sentiment )

Having said that – based on our trading philosophy – the price is the true north star

on Monday March 19th 2018  market fell very badly

S&P 500 solidly gave up the 50 Day MA under a clear gap down . Very close to 2700 support

The 2800 was a solid resistance. Time to get in sidelines