In light of the big market drop this past week, a full blog post is provided.
The stock market got crushed for the second consecutive week with the DJIA declining twice over 1000 points during the week. For the week the three major averages were down about 5.1% each. A rally near the close kept the S&P 500 above its critical 200-dma by only 86 points. As of the close Friday, the DJIA is only 1396 points above its 200-dma which could easily be breached next week if the market decline continues. The NASDAQ is 317 points above its 200-dma.
For reference purposes, you should be aware of the key support levels for this market:
S&P 500 2539 2718
DJIA 22792 25090
NASDAQ 6556 7074
The BDH Dashboard changed from a “3” BUY signal to a “1” SELL signal on February 1, as both indicators #5 and #8 went negative (see accompanying two charts). This resulted in 4 ETFs being immediately sold on the open on February 2. XOP was sold on January 30 on its trailing 5% stop. Therefore, as of the open on February 2, all the ETFs were converted into cash. There are currently no open ETF positions. These results are shown in the links below.
This was the first BDH Dashboard SELL signal since November 10, 2016. This strategy stayed with the trend the entire time until this past week. As of the close on Friday, the BDH strategy had a YTD gain of 2.79% compared to a loss of 2.14% for the DJIA, a loss of 2.02% for the S&P 500, and only a 0.42% loss for the NASDAQ Composite. In essence, January’s great start has been wiped out in less than seven trading days. Whether or not this is the beginning of a correction (defined as a percentage drop of 10% or more) or bear market remains to be seen. No one knows what will happen next.,
The number of new NYSE 52-week highs cratered to 60 from 360 the prior week. Also, the number of new 52-week lows jumped significantly to 791 from 483. Normally, this number of new lows would be a note of caution. However, upon looking through the list of new lows, I found that only 111 new lows for equities, while the remainder were preferred stocks or fixed income related, not equities. Therefore, this increase does not show a broad selling of typical stocks.
As to be expected, the percentage of NYSE stocks above their 50-dmas dropped very sharply to 15.29% from 48.46% the prior week ,and 75.12% from two weeks ago. Clearly, this is a major deterioration over a two-week period. This week’s reading is the lowest since the last market low in January 2016. Perhaps this represents a good buying opportunity. Likewise, the percentage of stocks above their longer-term 200-dma is currently at 47.25%, down dramatically from 63.77%, and the prior week’s level of 73.65%. This large percentage drop on a long-term moving average is rare and could mean the market has flushed out its excesses or we are about to enter a much steeper decline. We will see how the market responds next week.
Oil stocks got crushed falling over 10% after a drop of 1.5% the week before. Surprisingly, gold and gold miners dropped 1.3%, and 5.4% respectively. Fixed income also fell, but less than 1%. In the above chart, please type in ETF ticker symbols IEF, TLT, BOND, SHY or AGG or others one at a time to see their current bond weekly performance, or GLD, GDX and USO and $BRENT for the other averages.
Indicator #2 NASDAQ Composite Index and 100-dma. This indicator issued a BUY signal on November 8, 2016.
Indicator #5 NASDAQ Composite with MACD. This indicator issued a MACD SELL signal on February 1, 2018 cancelling the previous BUY signal in November.
Indicator #6 AAII Weekly Investor Sentiment Survey Bullish Percentage. The latest January 31, 2018 Bullish Percentage reading was 44.8% down a 0.7 percentage points from the prior week. This indicator triggered its first sell signal on January 10, 2018 since May 27, 2015. Remember that a reading above 50%, then followed by any subsequent weekly decline below that level is a SELL signal on this indicator.
Indicator #8 NASI Summation Index and MACD. This indicator is currently on a SELL signal, as of February 1, 2018 (second chart).
Here is a chart showing all Dashboard buy and sell signals (it may take a day or two for the new signal to be posted):
Dashboard Now on “1” SELLsignal
Here is the latest Dashboard as of February 2 which has not changed during the past week. Click on the line below:
Note that I could not provide a spreadsheet type link due to a software issue with this WordPress software. Go back to January 2017 to see the last spreadsheet and all prior data.
Dark Liquidity BDH Performance Statistics
www.dark-liquidity.com/BDHV2new.php independently tracks the BDH performance. For the year-to-date 2018, BDH is up 2.79%. It is in 1st place out of a 22 strategies followed by that website, and the only strategy to be positive for 2018. See the “Strategies Summary” link on the top of their page.
Top 5 ETFs – 100% Cash
BDH Decision Page – BDH Dashboard ETFs — Note Change Below
Here is the link to the Decision Page. Copy and paste it into your browser:
Currently, there are only 4 “passes” out of 52 ETFs. These are TBF, DBA, SH, FXE. The 3 inverse ETFs –SH, PSQ, and DOG are up 5%.
To get a feel where the best performing ETFs are by asset class, I suggest that you pull up the seven asset classes on the right side of the Decision Page (in blue ink) to see which ETFs have been doing the best — e.g., sector ETFs. You can click on the down arrow in the three month and one month columns of the each grouping to see short-term performance. Currently, international (BRF, EEM) and sectors (SMH, VGT, XRT, and XLY) are on top of the list but they also got caught in the market down draft.
Conclusion — Market Continues to Drop and Caution is Urged
The stock market tanked the past two weeks, after a substantial rise in 2017, coupled with a solid January. A correction of more than 10% was long overdue, so you should not be surprised at all to see the market declining now. There is always a correction, and bear markets always follow bull markets. As far as how the market will react going forward , that is unknown. Remember, that if the market rises by 5% or more next week, the BDH strategy will not have had enough time for the indicators to issue a buy signal. Therefore, if you want to act before the next buy signal that is certainly your call. I am not making a recommendation, but making it clear that the BDH signal is delayed until the market starts to reverse and the indicators are in sync with the market’s direction.
Wait for the next BDH BUY signal by being safely in cash or enter the market before it occurs at your own risk, either way.
Remember that you are responsible for your investments and how you manage them. If you decide to follow the BDH strategy, then you are responsible for checking the BDH indicators daily during times when the market is volatile. Just bookmark the two 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 that meet your risk profile.