August 2, 2020 Market Keeps Moving Higher

NASDAQ 10207.63 +3.69% for the week

+5.27% for July

NASDAQ Hits All-time High Intraday on July 21 at 10839.93

Market Performance

Since our July 5 and May 30 blog posts the NASDAQ, and particularly the FAANG stocks and other technology issues have continued their march higher while the rest of the market has followed suit at a slower pace.  June had two periods of declines, but had a strong week this past holiday shortened week.  The past Thursday earnings reports from AMZN, AAPL, GOOGL, and FB were solid and those stocks bounced nicely after hours.  Jeff Bezos had a good afternoon with a gain of $8 billion of personal wealth on Thursday, and likewise Mark Zuckerberg’s $5 billion gain was noteworthy.

Clearly, the FAANG stocks have led the NASDAQ and S&P 500 higher while many stocks have languished not doing so well. The FAANG stocks make up approximately a 32% of the weighting of NASDAQ index (as of July 30, 2020), so they have an oversized impact on the index performance.   The S&P 500 index peaked on February 19 at 3393.52 and closed Friday at 3271.12, only 3.7% from its high.  Similarly, the DJIA peaked on February 12 at 29,568, but closed Friday at 26428, still 11.8% from the high, and the laggard of the three major indices.  And more importantly, the DJIA is still trading above its 200-dma by 340 points.

The market has recovered significantly and spectacularly from -30% levels on March 23, as you can see in the data below with the NASDAQ now up 20% for the year.  The BDH strategy has also had a good run with a positive return beating both the S&P 500 and DJIA averages with less risk (taking into account periods of 100% cash):

For the:               WEEK           2020 YTD          

NASDAQ           +3.69%             +19.76%    

DJIA                    -0.16%              – 7.39 %    

S&P 500             +1.73%              +1.25%     

BDH Strategy        N.A                 +9.26%     

Market Internals

The percentage of NYSE stocks above their respective 200-dmas stands a 42.6% compared to 44% in June and way below 75% in January.  This low percentage clearly indicates that many stocks are not participating in the market’s advance.  This is clearly a NASDAQ tech rally with the FAANG’s and TSLA dominating the performance numbers.

To drive home the point even further, the percentage of NYSE stocks above their respective 50-dmas has actually declined to 63% on Friday from the previous levels of 71.83% in early July, and from 89.09% at the end of May after hitting a high of 91% earlier that week.  Clearly, the 89% level was not sustainable and has declined to 63% now.  Thus, being in the majority of stocks has not worked out well this year, and most portfolios and mutual funds are down for the year with the exception of tech related issues – Internet, cloud, chips, AI, etc.

As you can see in the weekly Nasdaq Composite chart below, we have been in a four-week trading range of 10182 as support, and 10839 as resistance.  A break below or above those key levels will likely indicate the market direction going forward into the Fall and Election day.  Just because we have come so far in such short a time does not mean this rally can’t continue, but caution is urged during the weak seasonal period.

BDH DASHBOARD – “3” BUY Signal

During the month The BDH Dashboard (attached as separate item) rose a “3” Buy from a to “2” Neutral on June 23.  There was no need to send interim updates since there was no BDH sell signal, so we keep the portfolio intact. 

Indicator #2 NASDAQ Composite Index and 100-dma. This indicator gave an unusual six buy and sell signals between February 27and May 2.  Its last BUY signal was on May 2, 2020.  The number of signals during that massive decline and recovery indicated the high volatility during that period. Refer to $comp chart below. 

Indicator #5 NASDAQ Composite with MACD.  This indicator had a BUY signal on July 6, 2020, a SELL signal of June 11.  Note that the fast MACD had a Buy signal of Friday and the slow MACD is nearing a positive crossover which if occurring this week would bring the BDH Dashboard to a maximum “4” BUY signal Refer to $comp chart below. 

Indicator #6 AAII Weekly Investor Sentiment Survey Bullish Percentage. The latest July 29, 2020 Bullish Percentage reading was 20.2%, down from 26.1% the prior week, surprisingly low percentage numbers for a market this stretched.  This indicator is still on its long-term buy signal. A rise above 25% in any subsequent week will result in another confirming buy signal that has been frequent over many over the years.

Indicator #8 NASI Summation Index and MACD.  This indicator issued a SELL signal on June 23 cancelling its March 26, 2020 BUY signal.  Note that neither lower fast or slow MACDs on the bottom of the chart is mearing an upturn. Refer to $NASI chart directly below.

BDH Decision Page – BDH Dashboard ETFs 

The link to the BDH Decision Page is as follows: https://www.etfscreen.com/buydonthold/bdh-decision-page.php

On July 3 and July 31, the ETFscreen.com Decision Page had 43 ETFs with a “pass” rating showing the market’s incredible recovery and sustained advance.  This strong performance over this past month is noteworthy and encouraging going forward. As the BDH etfscreens indicate the technology related ETFs (12 out of top 17 ranked ETFs) have soared outpacing all the others and masking the market’s mixed performance. The Top 5 on the BDH Decision Page are ARKK, ARKW, TAN, XWEB, and KWEB.

You can easily check the top performers for the past 5-days and one month by clicking on the “Additional Fund Stats” tab on the right side of the BDH Decision Page, and arraying the “Rtn-5d” and “Rtn-1mo” columns, respectively heading from high to low.  If you check the performance over the one month by hitting the down carat you will note that the best performing ETFs in our 46 ETF universewere TAN, XHB, ARKW, XWEB and SMH. Our portfolio owns ARKW which has been a big winner as it has a 10% position in TSLA.

Dark- Liquidity.com

www.dark-liquidity.com/index.php/strategies  scroll down the page to see the Buy – Don’t Hold  Signal History and Strategies Performance- Masonson sections:

The BDH strategy is still ranked a solid 9th.   Note that all the higher ranked portfolios are based on the NASDAQ Composite which makes our ranking stand out with a more diverse portfolio.  The dark-liquidity BDH table shows the current portfolio of HACK, ARKW, CLOU, XLV and XBI each with a 20% position each.  Note that we purchased these ETFs in two batches on March 27 and June 3.  So, there are 5 ETFs in the portfolio purchased at two different price levels.  Clearly, performance of ARKW (+50.8%), HACK (+39.2%) and XBI (12.5%) of the initial batch purchased have accelerated the portfolio profits, as they are leading the way higher.    XLV and XBI have disappointed in recent weeks, so I will be watching them carefully for possible replacement.

Based on the market’s advance over the past month, I am raising all the stop LIMITs as follows, effective on Monday morning: THIS INFORMATION PROVIDED TO SUBSCRIBERS ONLY.

Top 5 ETFs –100% Invested

The ETF portfolio is has recovered nicely with top performing ETFs, as mentioned in the last paragraph.  The market continues higher with the tech sector leading the way; however, biotech’s have reversed direction to the downside which bears attention.  Therefore, the portfolio is positioned well going forward.

Game Plan Going Forward – Hold and Have Stop LIMITs in Place

Currently, the portfolio performance has exceeded that of the DJIA and S&P 500, but is well below that of the pure NASDAQ.  I recommend using the tightened of the stop LIMITs, as the market has accelerated higher to better retain most of the profits if the market tumbles between now and mid-October, the historical weak period of the market.

Use the stop LIMITs that best suit your personal situation, if you decide to move forward.

Be careful here as the markets can change direction at any time.  Being forewarned with a defensive strategy is the key to investing  successfully.

Interim updates are sent to subscribers during the week, as needed.     Any subscriber who has recently sent in a payment and has not received this regular blog today should email me at lesmasonson@yahoo.com so I can check my records and correct any oversight.

Remember that you are responsible for your investments and how you manage them. This website was developed for educational purposes only and is not responsible for any actions you take with your investments.  If you decide to follow the BDH strategy, then you are 100% responsible for your investment outcome.  Make sure to check the BDH indicators daily during times when the market is volatile like now.  Just bookmark the charts above and look for any signal changes.  I may not available during the week to provide interim Dashboard signal changes. It is important to be pro-active, so as not to miss any Dashboard signals. Decide on and place your stop LIMITS, if you use them, that meet your own risk profile.

Les

Leslie N. Masonson, MBA, CCM, is President of Cash Management Resources, a financial consulting firm that he founded in 1987. He is an ETF Strategist and currently actively trades ETFs on a daily basis Masonson’s 47-year working career has spanned financial advisory services, trading, investing, banking operations management, teaching, and cash/treasury management consulting. He was a Financial Advisor for six years offering investment management services to retail clients. Much earlier, he worked at three large banks for a total of 17 years as a Vice President at Citibank, an Assistant Vice President at Bank of America, and an Assistant Secretary at Irving Trust Company. He has written more than 140 articles – interviews with traders, software product and book reviews – for numerous financial publications including Technical Analysis of Stocks & Commodities (TASC), Active Trader, SFO and Futures magazine, as well as on Amazon. He has lectured on investing on several cruise lines including Crystal, Celebrity, and Norwegian. In November 2003, he spoke at the Intershow Online Investor’s Expo, on “Successfully Trading Stocks for a Living.” As of September 2016, he has been the ETF Columnist for TASC. Masonson has been researching and investing in the stock market for 60 years. He has invested in mutual funds, stocks, options, futures, ETFs, and commodities. Masonson has read more than 625 books on investing and trading, and he is proficient in technical analysis. He has used many investing and trading software programs over the years, including Telescan, OmniTrader, DTN, TradeStation, ULTRA, VectorVest, High Growth Stock Investing, TheWizard, and ETFReplay.com, as well as many brokerage charting programs including Fidelity Active Trader, Think or Swim, Interactive Brokers Trader Workstation, and Schwab’s StreetSmart Edge. He has been interviewed on business radio stations, as well as on cable TV on the Financial News Network and CNBC. The Wall Street Journal, USA Today, Institutional Investor, Bottom Line/Business, Inc., Las Vegas Review-Journal, and Advertising Age have interviewed him. His latest book Buy DON’T Hold: Investing with ETFs Using Relative Strength to Increase Returns with Less Risk was published in May 2010. He has previously authored the following books: All About Market Timing: The Easy Way to Get Started, (McGraw-Hill, November 2003 and translated into Chinese in February 2010) as well as the Second Edition published in April 2011, Day Trading On The Edge: A Look-Before-You-Leap Guide to Extreme Investing, (AMACOM, 2000), Cash Cash Cash: The Three Principles of Business Survival and Success, (Harper Business, 1990), Corporate Cash Management: Techniques and Analysis, (Dow-Jones Irwin, 1985. Co-edited with Frank Fabozzi), and the Corporate Treasury Management Manual (A.S. Pratt & Sons, 1998. Editor and Contributor). In April 2011, his first ebook was published with the title Profiting from ETF Rotation Strategies in Turbulent Markets. Masonson received a BBA in Finance and Investments from The City College of New York and an MBA in Operations Research from Bernard M. Baruch College. His master’s thesis title was “Statistical Evaluation of the Relative Strength Concept of Common Stock Selection.”

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