Market Rally Continues — July 5, 2020 Blog

NASDAQ 10207.63 4.62%for the week

Market Performance

Since our last May 30 blog post the NASDAQ, and particularly the FAANG stocks and other technology issues have continued march higher.  June had two periods of declines, but had a strong week this past holiday shortened week.  The NASDAQ closed at an all-time high on Friday and has advanced 13.76% for the year, clearly outpacing the S&P 500 which lost 3.12%, and the DJIA which fell 9.50%.  Clearly, the action was in the NASDAQ technology and communications sectors, and the consumer discretionary sector as represented by XLY which houses Amazon (24% holding), Home Depot, Lowe’s Companies, Inc., Dollar General and others.

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 29% of the weighting of NASDAQ index (as of June 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 3130.01, still 8.4% from its high.  Similarly, the DJIA peaked on February 12 at 29,600, but closed Friday at 25778.12, still 14.6% from the high.  And more importantly, The DJIA is still trading below its 200-dma, but barely.

For the week and year-to-date, the market has recovered significantly from -30% levels on March 23, as you can see in the data below with the NASDAQ now solidly positive for the year.  The BDH strategy has also had 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           +4.62%             +13.76%    

DJIA                   +3.25%               -9.50%    

S&P 500             +4.02%               – 3.12%     

BDH Strategy        N.A                 +4.05%     

Market Internals

The percentage of NYSE stocks above their respective 200-dmas stands a 30.2% compared to 27.60% on May 30, still quite a low level compared to the market comeback so far.  This low percentage clearly indicates that many stocks are not participating in the market’s advance compared to the reading of 74% at the market high on February 23, 2020,

On the other hand, the percentage of NYSE stocks above their respective 50-dmas has actually declined to 71.83% from 89.09% at the end of May after hitting a high of 91% earlier in the week.  Clearly, the 89% level was not sustainable and has declined to 72% now.  Interestingly, only the NASDAQ is the major market supporter compared to last month.

As you can see in the monthly $NYA50R chart below, we have come straight down from rarified levels which was expected.  Although the overall market has lost momentum over the past month, the NASDAQ has not.

BDH DASHBOARD – “2” NEUTRAL Signal

During the month The BDH Dashboard (attached as separate item) declined to “2” Neutral from a “4” on May 19th.  There was no need to send interim updates since there was no BDH sell signal, so we keep the portfolio intact.  Note the commentary below and be aware that a positive week ahead for the NASDAQ will likely result in a #5 BUY signal resulting a “3” BDH Buy signal again from the current Neutral rating.

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 February 26, 2020, a SELL signal of May 14 and another BUY signal on May 19 on the slow MACD, and a SELL signal on June 11. Note that the fast MACD had a Buy signal of Friday and the slow MACD is nearing a positive crossover.  Refer to $comp chart below.  

Indicator #6 AAII Weekly Investor Sentiment Survey Bullish Percentage. The latest July 1, 2020 Bullish Percentage reading was 22.2%, surprisingly low for a market this stretched.  This indicator is still on its long-term buy signal. A rise above 25% in a subsequent week will result in another confirming buy signal which there have been many over the years.

Indicator #8 NASI Summation Index and MACD.  This indicator issued a SELL signal on May 23 cancelling its March 26, 2020 BUY signal.  Note the lower fast MACD on the bottom of the chart is mearing an upturn. Refer to $NASI chart 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 May 30, the ETFscreen.com Decision Page had 43 ETFs with a “pass” rating showing the market’s incredible recovery, however the current number is a different story with only 24  passes, quite a deterioration in a market that is moving higher.  This decline in passes is another indication of this selective market, where only certain sectors are outpacing all the others and masking the market’s mixed performance. The Top 5 on the BDH Decision Page are ARKK, ARKW, CLOU, XWEB, and KWEB

You can easily check the top performers for the past 5-days and one month by going to the “Additional Fund Stats” tab on the right side of the BDH Decision Page, and arraying the Rtn-5d and Rtn-1mo column, 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 universe last week were KWEB, ARKW, ARKK, CQQQ, XBI and CLOU.  Our ETF portfolio owns three of these: ARKW, XBI and CLOU.

Dark- Liquidity.com

www.dark-liquidity.com/index.php/strategies  scroll down the page to see the Buy – Don’t Hold section:

The BDH strategy is now ranked  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 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 price levels.  Clearly, the addition initial purchase on March 27 of ARKW (+34.8%), HACK (+29.28%) and XBI (16.2%) have accelerated the portfolio profits, as they are leading the way higher.

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 with  biotechs  accelerating as well.  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 a tightening of the stop LIMITs, as the market has accelerated higher to better retain the profits if the market tumbles between now and mid-October, the historical weak period of the market.

The stop LIMITs recommended are:

HACK $41.99

ARKW  $81.10

CLOU $20.70

XLV  $96.72

XBI $108.00

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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