Big Month for Markets

BDH BLOG POST October 4, 2020

NASDAQ 11075.02 +1.48% for the week

NASDAQ Up 11.0% for the Quarter

Market Performance

The August 31, 2020 Blog Post in the Game Plan Going Forward section had the following warning Market at Critical High-Risk Juncture.  Also, regarding Indicator #8 I wrote:

“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.” Clearly, that warning proved accurate.

That was three days from the recent top on September 2. The NASDAQ Composite has fallen from a high of 12074.06 on that date to 11077.02 this past Friday, a decline of 8.3%, but was as low as 10519.49 on September 21 and 24, or down 12.9%.  At this point the NASDAQ hit a double bottom near 10520 (see first chart below) and has come up above the 20- dma, and is well above the 100- and 200-dmas.  However, it is just 2 points below the 50-dma (green line).   This short-term correction has taken some of the froth out of the market which is a healthy and desirable situation.

Nevertheless, with the market finally rallying the past 7 days, the BDH Dashboard received a fresh BUY signal on Indicator #5 on September 30 on the slow MACD, and on Indicator #8 on October 1.  Therefore, the BDH Dashboard is on a maximum “4” Buy signal.  Moreover, Indicator #6 also had another confirming Buy signal this past week rising from above 25% the prior week.  Therefore, on Monday, we will be investing the 20% cash position on the open in TAN, as explained below.

Clearly, the FAANG stocks have taken a hit from the high on September 2 to the low three weeks later, and have come back about 40% from that bottom.  At this point if the NASDAQ can stay above all the key moving averages we can work higher and challenge the early September highs in the next 10-14 weeks.  The performance year-to-date is as follows:

                             Week                YTD

NASDAQ           +1.48%             +23.4%    

DJIA                   +1.87%             – 3.00 %      

S&P 500             +1.51%              +3.64%        

BDH Strategy     +1.87%            +12.49%       

Market Internals

The percentage of NYSE stocks above their respective 200-dmas stands at 54% compared to

 56% last month, compared to a high reading of 74% in January 2020 and 75% in January 2019.  The low point was a drop to 44% on September 20 so it has recovered nicely so far. To drive home the point even further, the recent market drop resulted in the percentage of NYSE stocks above their respective 50-dmas falling to 23% before rebounding to its current level of44.7%, but way below the 77.5% a month ago.  New 52-week highs on the NYSE is a measly 200 or so.

BDH DASHBOARD – MAXIMUM “4” BUY Signal

During the month The BDH Dashboard (attached as separate item) declined to a “2” hold on September 4, then rebounded to a “3” on September 30 and a “4” on October 1.

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 which is still in effect.  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 September 30 cancelling the September 4 sell signal. 

Indicator #6 AAII Weekly Investor Sentiment Survey Bullish Percentage. The latest September 30, 2020 Bullish Percentage reading was 26.2%, up from 24.9% the prior week, thus issuing another confirming Buy signal.  This indicator is still on its long-term buy signal. Remember, a fall below and rise above 25% in any upcoming 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 BUY signal on October 1 cancelling its August 24, 2020 SELL signal.  Note that both the fast and slow MACDs have experienced positive crossovers.

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 35 ETFs with a “pass” rating compared to 43 last month, showing the market’s deterioration.  As the BDH etfscreens indicate the technology related ETFs (10 out of top 25 ranked ETFs) have soared outpacing all the others and masking the market’s mixed performance. The Top 6 on the BDH Decision Page are TAN, ARKK, ARKW, XHB, XWEB, XRT, and CLOU.  Our portfolio owns both ARKW and CLOU which have performed exceedingly well. 

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, XLU, TBF, and XBI.

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 four ETFs and their stop LIMITs.

The BDH strategy is still ranked a solid 9th moving up from 11th last month up 12.49% for the year, exceeding both the S&P 500 and DJIA’s figures.   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 with a 20% position each.  XBI was sold as provided in an interim update. Clearly, performance of ARKW (+66.8%), HACK (+34.5%) and CLOU (18.5%) have accelerated the portfolio profits, as they are leading the way higher after their initial 10% purchase each.    XLV has disappointed in recent weeks, so I will be watching it.  The original stops are still in place, not the lower ones provided in the interim update

Top 5 ETFs –80% Invested: Add XHB on Monday to Reach 100%

The BDH portfolio ETF portfolio has performed very well this year, beating both the S&P 500 and DJIA year-to-date, but well behind the NASDAQ Composite.  Therefore, the portfolio is positioned well going forward.

Now that we have a BDH “4” BUY signal and the market moving higher over the past week from the recent lows, I recommend adding the fifth position XHB to the portfolio with the 20% cash position on Monday’s open.  Clearly, TAN is by far the #1 best performing ETF over the past week, month, 3-, 6- and 12-months, quite a performance.  However, this is a more speculative play, and one that only aggressive investors may want to consider instead of XHB.  So, for our purposes I will buy XHB which us the more conservative choice.

Game Plan Going Forward – Market Attempting Sustained Upward Reversal

Can the market keep marching ahead?  Absolutely.  Will it?  No one knows.  We are in the sweet spot of the year and I expect a solid rally going forward.  However, if the market reverses lower, we have our stops in place and the Dashboard will signal danger ahead.  Of course, I will provide an interim update should conditions change from 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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