November 1, 2020 Blog Post

NASDAQ COMPOSITE 10,911.59 -2.29% for the MONTH

NASDAQ -5.51% for the week

Market Performance

Since the October 12 recent peak in equity (with a solid early October performance), the stock market has had an almost uninterrupted spiral down with all major averages taking a beating.  This waterfall decline was not at the same rapid pace as the September 2 to 23 rout, but the damage has been swift and significant.  This past week in the market was the worst week measured by percentage decline since the March 2020 lows with our ETF portfolio losing 6.65% on average compared to a loss of 5.51% for the NASDAQ, 5.64% for the S&P 500, and 6.47% for the DJIA large-cap blue chips.

This last two week market decline has resulted in the BDH Dashboard falling two notches from a maximum“4” BUY signal to  reading of “2” NEUTRAL reading which is on the brink of going to a “1” SELL signal, if the NASDASQ Composite falls a measly 9 points on Monday — thus falling below its 100-dma (Indicator #2).  The election outcome uncertainty and the worsening COVID crisis are the two main factors negatively impacting the markets.  The NASDAQ Composite is now down 9.6% from its 12074 all-time high on September 2, 2020, and only 0.4% away from correction territory identified as a 10% decline from a high.  Moreover, there has been extensive selling by big players on Wednesday and Friday which exacerbated the decline.

                                       Month             YTD

NASDAQ Composite       -2.29%            +21.6%

S&P 500                            -2.77%            -1.21%

Dow Jones Industrials       -4.61%            -7.14%

BDH Strategy                    -3.31%            +9.18%

Looking at the first chart below, you will note that the NASDAQ hit a September double bottom of 10519.49. That is the next area of support that needs to hold, if the market continues to tumble.  Right now you can see how close – 9 points — we are to falling below the critical 100-dma in the orange box. This short-term correction, so far, has taken some of the froth out of the market which is a healthy and desirable situation.  However, a further decline is possible and we have to make some decisions going forward on how to handle the market.  That will be covered in the Game Plan section at the end of this blog.

Clearly, the FAANG stocks (drivers of the NASDAQ due to their size) have taken a big hit from their Sept 2 highs highs with big Friday declines including: AAPL, AMZN, FB, and others such as Twitter down 21% Friday alone. 

Market Internals

The percentage of NYSE stocks above their respective 200-dmas stands at 51.74% compared to 54% last month, not much of a decline (since it had the benefit of a nice rise in the first half of the 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.  On the other hand the percentage of NYSE stocks above their respective 50-dmas has declined to 27.26% well below last month’s 44.7%, but way below the 77.5% of 2months ago.  New 52-week highs on the NYSE is a measly 83 compared with 200 or so last month.  Only 33% of NASDAQ Composite stocks are above their respective 50-dmas.

BDH DASHBOARD – NEUTRAL “2” HOLD

The BDH Dashboard (attached as separate item) declined to a “2” hold on October 29 from a  “4” on October 1.

 Indicator #2 NASDAQ Composite Index and 100-dma. Its last BUY signal was on May 2, 2020 which is still in effect, but just barely. The NASDAQ is only 9 points away from triggering a sell signal on this indicator and the BDH Dashboard. Refer to $comp above.

 Indicator #5 NASDAQ Composite with MACD. This indicator had a SELL signal on October 22 negating its BUY signal on September 30.

Indicator #6 AAII Weekly Investor Sentiment Survey Bullish Percentage. The latest October 28, 2020 Bullish Percentage reading  was 35.3% down 0.5% for the week compared to the September 30 reading of 26.2%. 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 SELL signal on October 29, as the slow MACD confirmed the index crossover on October 26.  Note that the fast MACD experienced a negative crossover on October 21 a very good signal on the upcoming decline.

BDH Decision Page – BDH Dashboard ETFs

Important Note:  A dozen ETFs were eliminated from the 46 ETF portfolio and replaced by others who better represent the current changing environment. They are all updated on etfscreen.com

Deletions: EWC,CQQQ,SKYY,FDN,PDP,XLV,XLP,VNQ,CIBR,XAR,TBF, and EFA

Additions:  BCLN,ICVT,PTNQ,SRVR,ARKF,ARKG,ESPO.OGIG,QCLN,IBUY,DBW, and BOTZ

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

On ETFscreen.com Decision Page, there were 13 ETFs with a “pass” rating compared to 35last month, showing the market’s deterioration. The screen indicates that the technology related ETFs (5 out of top 12 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, QCLN ARKF, ARKW, IBUY, and ARKK.

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 “Rtn5d” 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 universe were KWEB, XLU, QCLN, TAN, and ASHR.  Note that KWEB and ASHR focus on Chinese companies.

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 ETFs in the portfolio and their stop LIMITs. XHB’s stop LIMIT of $51 will be added shortly.

The BDH strategy is still ranked a solid 9th moving up from 11th two months ago. 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 XHB. Clearly, performance of ARKW (+68%), HACK (+30%) and CLOU (14%) have accelerated the portfolio profits. XLV has constantly disappointed in the last two months.

Top 5 ETFs –100% Invested

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. Nevertheless, it peaked with a 20% gain around October 12,  but is now up only 9.18%. 

XLV’s stop limit is $101.50 with a Friday close of $101.66 and  Hack is only $0.05 above its $45.00 stop limit. XHB at $51.98  has no stop but is down substantially from its high of $58.34.  I suggest a stop LIMIT of $50 for XHB.

Game Plan Going Forward – Market Attempting To Stabilize Rapid Decline

Can the market keep declining? Absolutely. Will it? No one knows. Although we are in the sweet spot of the year, especially November and December, things may not work out this time.  Therefore, if the market continues to fall on Monday, our stops for XLV and HACK will probably be triggered and they will be sold out based on a closing price.  If that occurs we will  keep the 40% cash ready for redeployment as early as possible if we see a reversal upward coming.  Historically speaking, the S&P 500 has risen 71% of the time in November and December with an average gain of 2.3%, so it pays to be patient and not panic or sell near a potential bottom.  However, not one knows where a bottom lies, so stop limits should be honored.

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.

The President and the Market

Over at least 50 years, the total return of S&P 500 under Republicans has been 16.61% and under Democrats 57.44% so keep that in mind, no matter what you read in the papers.

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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