The stock market experienced another decline caused by mixed economic news and the potential U.S. involvement in Syria. Interestingly, the big blue chips, as represented by the DJIA, have had the worst performance since the Dashboard’s April 26, 2013 BUY signal with a gain of only 0.74% as shown in the Top 5 ETF table. The S&P 500 has gained 3.02% during the same period, followed by the NASDAQ leader at 10.93%. The Top 5 ETF portfolio has gained 6.60% during this period and has been in cash since the August 15 close (or August 16 opening price to be more precise).
The number of 52-week highs continues to remain low with only 133 issues making new highs compared to 122 the prior week. Moreover, the S&P 500 Index is still below its critical 1700 level, the DJIA is below the 15000 level, and the NASDAQ Composite is now below its 3600 level again. Moreover, although the latter index is still 3.05% above its 100-dma (see first chart), the other two averages are below their respective 50- and 100-dmas (see second and third charts). So overall the market is sinking with the blue chips showing the worst performance and the NASDAQ showing the most resilience. That is why the Dashboard has not issued a SELL signal yet – the 100-dma has not been breached to the downside. Using the trailing stop approach with the ETF portfolio has worked well in protecting profits in this declining market.
This past week, the NASDAQ Composite was the weakest performer losing 1.86%, followed by the S&P 500 losing 1.84%, and lastly the DJIA dropping 1.33%. As we enter September the possibility of a total decline of 10% from the August 2 market high is still a strong possibility. Since the ETF portfolio is in cash the risk of a further decline should not an issue or concern.
So far, year-to-date the ETF performance has been 8.39% according to dark-liquidity.com. This compares with the NASDAQ Composite’s 18.89% performance, S&P 500 performance of 14.50%, and the DJIA performance of 13.02%.
Moreover, now only 3 of the 42 ETFs had “pass” ratings which illustrates the market’s continued weakness. Once the market bottoms and starts to rise, the strongest performing ETFs will have “pass” ratings. This will be an indication that an uptrend is finally starting to occur. So be on the lookout for a change down the road.
Indicator Review – No Change this week
Indicator #2 NASDAQ Composite Index and 100-dma. This indicator remains on its January 3 BUY signal with the index price only 3.05% above its 100-dma. (Refer to first chart).
Indicator #5 NASDAQ Composite with MACD. This indicator had a negative MACD crossover on Friday August 9, thus triggering a SELL signal. (Refer to first chart).
Indicator #6 AAII Weekly Investor Sentiment Survey Bullish Percentage. The latest August 28th bullish percentage reading of 33.5% was higher than the August 21st bullish percentage reading of 29.0%. Investors now are a bit more bullish than the prior week looking out six months. This indicator remains on its April 18th BUY signal and will not issue a SELL signal until it rises above 50% ,and then declines below that level. The indicator will not issue a BUY signal until it falls below 25% in one week and then moves about that level in a subsequent week.
Indicator #8 NASI Summation Index and MACD. The indicator issued a SELL signal as of August 5th as both the Index and the MACD had negative crossovers. (Refer to second chart). This indicator is nearing a low point and an upward reversal could occur in the next few weeks if the market consolidates and then moves higher.
Dashboard Remains on “2” HOLD signal
The latest Dashboard data is presented in the link below:
www.dark-liquidity.com/BDHV2new.php independently tracks the BDH performance. The Dashboard ETF portfolio year-to-date is up 8.39% which has improved substantially from prior weeks, but is still below that of the three major indexes. If the market drops in coming weeks, then the BDH year-to-date performance will improve relative to the market’s performance as reviewed earlier in this blog.
Top 5 ETFs – 100% Cash
The Top 5 ETFs were up 6.60 % since the April 26, 2013 buy signal compared to the market averages up 4.90%. Details are provided in the following link:
Note that on the etfscreen.com/buydonthold Decision page that now only 3 out of 42 ETFs have a “pass” rating. Currently the first 32 ETFs have a “fail” rating due to a MACD downward crossover. Remember that these ETFs are held until they drop below rank 10 or are taken out by stop loss orders.
Conclusion – Market Decline Continues
The stock market continues its decline into September with the market internals having further deteriorated. Being in cash and out of equity and bond ETFs is the safest strategy right now. Bond ETF prices hit a peak in early May and have deteriorated rapidly since then. Remember that although you will receive your income from these ETFs that you principal is decaying at a faster rate.