August 31, 2020 Blog Post

Market Keeps Marching Higher

NASDAQ 11695.63 +3.39% for the week

NASDAQ Closes at All-time High

 Intraday on Friday August 28

Market Performance

Consider the following commentary about the market from CNBC during the week of August 24:

“Though the S&P 500 has hit a new all-time high and wiped out losses from the coronavirus sell-off, a CNBC analysis shows that the majority of stocks have yet to climb back to their prior levels. Between the prior market high on Feb. 19 and new high on Aug. 18, 38% of stocks in the index made gains while the remaining 62% posted losses. Performance varied by sector, with more than 50% of stocks in the consumer staples, health care, and information technology sectors showing gains. That figure is less than 10% for energy and utilities stocks.”

Clearly, the FAANG stocks have led the NASDAQ and S&P 500 higher while many stocks have languished well. The FAANG stocks make up approximately a 34% of the weighting of NASDAQ index (as of August 30, 2020), so they have an oversized impact on the index’s performance.   The S&P 500 index also closed at an all-time high on Friday at 3508.01.  The only laggards are the DJIA and the Russell 2000. 

All the three major averages are above all their three critical moving averages – 50-, 100 and 200-dmas. The market has spectacularly recovered from -34% levels on March 23 with a gain of over 50% since then. 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).  However, over the past month the BDH strategy has gone up a few percentage points less than the major averages due to the weak performance of XLV and XBI:

For the:               WEEK                        2020 YTD  Performance

                                                      July 30         August 30

NASDAQ           +3.39%             +19.76%     +30.35%

DJIA                   +2.59%              – 7.39 %      + 0.40%

S&P 500             +3.26%              +1.25%        +8.58%

BDH Strategy        N.A                 +9.26%       +14.73%

Market Internals

The percentage of NYSE stocks above their respective 200-dmas stands at average 56compared to a high reading of 74% in January 2020 and 75% in January 2019.  To drive home the point even further, the percentage of NYSE stocks above their respective 50-dmas increased to 77.5% compared to 63% last month, a slight increase.   Clearly with a market at all-time high many stocks are not participating in the rally and are below water.  For example, believe it or not, 20 of the 30 DJIA stocks are down for the year.  In a very strong market this result would never be the case.  Clearly the euphoria around APPL and TSLA upcoming stock splits on August 31 has added fuel to the fire and resulted in big up moves for those issues over the past two weeks.

BDH DASHBOARD – “3” BUY Signal

During the month The BDH Dashboard (attached as separate item) rose to a “4” Buy on August 18, but fell back to a “3” on August 24 as Indicator #8 issued a SELL signal (see second chart below).  There was no need to send an interim update for this change,  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 above. 

Indicator #5 NASDAQ Composite with MACD.  This indicator had a BUY signal on July 6, 2020, after a SELL signal of June 11.  Note that this indicator had six signal changes between May 19 and August 18 indicating the market’s volatility, although not excessive in any way.

Refer to $comp chart above. 

Indicator #6 AAII Weekly Investor Sentiment Survey Bullish Percentage. The latest AUGUEST 26, 2020 Bullish Percentage reading was 32.1%, up from 30.4% the prior week.  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 August 24 cancelling its August 12, 2020 BUY signal.  Note that both the fast and slow MACDs on the bottom of the chart are both pointing down. Moreover, note the major negative divergence of the NASI indicator and the price of the NASDAQ, as well as on the MACD and price.  These are both clearly a danger sign that a price reversal is imminent.

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  ETFscreen.com Decision Page,  there were 43 ETFs with a “pass” rating showing the market’s incredible recovery and sustained advance.  This was the same number in our last blog report.  This strong performance of the BDH universe over this past two months is noteworthy and encouraging going forward. As the BDH etfscreens indicate the technology related ETFs (11 out of top 16 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, XWEB TAN, and CLOU.  Our portfolio owns ARKW and CLOU which have performed above average.  Note XBI in our portfolio is ranked #22 and is labeled a “fail”.  It has been declining the past few weeks.  We will comment more on XBI in the next section.

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, ARKK, IYT, VGT and ARKW.

Dark- Liquidity.com

 At 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.  You will see the performance of all the five ETFs and their stop LIMITs.

The BDH strategy is still ranked a solid 11th.   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 (+67.2%), HACK (+42.1%) and CLOU (18.1%) 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, last blog I raised all the stop LIMITs as follows, effective on August 3rd.

HACK $45.00 stop LIMIT

ARKW $89.00 stop LIMIT

CLOU $21.00 stop LIMIT

XLV $101.50 stop LIMIT

XBI $108 stop LIMIT (Friday close of $108.79 is close)

Top 5 ETFs –100% Invested

The BDH portfolio ETF portfolio has performed well this year, beating both the S&P 500 and DJIA year-to-date, but well behind the NASDAQ Composite.  The market continues higher day after day and week after week with the tech sector, and particularly the FAANG’s going through the roof.  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 – Market at Critical High-Risk Juncture

Can the market keep marching ahead?  Absolutely.  Will it?  No one knows.  In my opinion, this market reminds me of the late 1999- march 2000 bubble in the NASDAQ Composite from the perspective of big price gains in the hot issues of the day.  However, the companies leading the way higher now are more mature, highly profitable, and have a great future.  Nevertheless, the party will end eventually and a decline of 10% or more will occur.

I want to give you two moving average levels on the NSDAQ Composite that if breeched to the downside would be an indication that the tide has possibly turned south:

8-ema 11475.75      20-dma 11184.13 If we go below the 20-dma I recommend you consider taking action unless your personal stop LIMITs have already been triggered.

HOWEVER, the BDH strategy will not generate a “SELL” signal until we receive a  “1” reading on the Dashboard.  This signal is no where on the horizon.  For example, Indicator #5 could issue a ‘SELL” signal within a week if the NASDAQ tanks 5% or so.  That would leave it at “2” NEUTRAL. To issue a sell signal, Indicator #2’s 100-dma would have to be penetrated to the downside which will require a decline of 15.4% from Friday’s close.   That would leave it at “SELL” and the Dashboard at a “1” Sell signal.  Indicator # 6 hasn’t issued a sell signal for years, and is not near one now.  So, in summary, we have to wait for a 15.4% decline from here on Indicator #2 and a Sell signal on Indicator #5to get a Dashboard sell signal because the price on the NASDAQ Composite is so extended on the upside.  That would not be prudent.

That is why I emailed you an interim update on Auguste 23, with a few alternatives and some stop LIMITs at two critical moving averages instead of the ones mentioned at the top of this blog last month.   You can use these personally to tighten your stops, the ones listed above, or those that you have determined are best for you.  Alternatively, you could hold all your positions and buy some PUT options on the NADAQ 100 Index or S&P 500 Index if you have the knowledge to do so.

You can also sell a portion of your holdings over the next few weeks, say 25% at a time, or just a portion and hold the rest.  Note that XBI has underperformed and is now only $0.79 above its original $180. stop LIMIT

The BDH strategy issued a BUY signal on March 23, 2020, that was 3 days off the bottom, and has been on it ever since.  The market has risen over 50% since then in a rapid and unprecedented fashion.  Don’t give up these gains by not paying attention to the current situation.

How you handle the current market situation is in your hands, but you should protect your profits and principal and not let it disappear which can easily happen in a few big down weeks.  Remember that in retirement accounts any ETF sales have no capital gains implications, and you can re-enter the market at any time.

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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