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Contributor ○

T/A March 2020 - Bear Market Edition

I thought that it would be nice to revive the old T/A thread since we are back in Bear Market Territory. This was actually an afterthought. I looked all day for a good place to post this and finally dumped in a different thread. It seemed off topic when I checked it for accuracy, and I thought "what a shame the old T/A thread died after so many years.

Then that light bulb turned on ....

3-18 Yield Curve.jpg

The yield curve continued to steepen at yesterdays close.  The short is below the fed funds rate, and close to zero with the 30 year is now yielding 1.77%.  The "confidence" needle looks to break upward after about 1-year. It is nice to see a steepening curve.

SPY 3-19-2020.jpg

The S&P 500 has found resistance at $237.07.  Yesterdays close at $240 effectively wiped out 3-years of gains dating back the current presidents first day in office.

Yesterdays action took the S&P 500 into Bear Market Territory.

Buy and Hold vs SPY.jpg

A $100,000 diversified portfolio bought and held since the first day of the year returned -2.3% on the invested capital.  $100,000 invested in SPY returned -26.1% YTD.

This is a summary of the last 14 bear markets:

Bear Markets.jpg

So, we are hardly a month into this bear, and the average (peak to trough) duration for all of them is about 20 months. However, there are 5 examples of bear markets that lasted 8 months or less.  With the exception of the 1990 bear, the remaining 4 shortest bear markets did not result in a recession and have an average duration of only 4.8 months. This is roughly what the yield curve seems to be pricing. 

The bear markets that did result in recession had the longest recovery periods averaging 28.22 months for that group. In all cases, the bear is considered "dead" once the bottom is in, and recovery begins

We are not yet 1 month into this one. The balance will be tipped when it is known if we will slide into recession. The St. Louis Fed's indicator (RECPROUSM156N) lags by two months so it is reporting what the probability was in January. It is 2.02% and recession follows in 5 months or less after it breaks 10% according to history. 

Thank you,

Holiday

 

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Valued Contributor

Re: T/A March 2020 - Bear Market Edition

Holiday, nice start.  On another thread I posted when I would start buying

Charts for T/A

Stocks: SP500 (chart) from 2008 to 2009. See the 3 moving averages below. 100 MA(red line) is the best, not too early and not too late.  For the current chart, use this (link)

Chart1.PNG

 

CEFs: PCI(chart).  Use weekly MACD and enter when it's positive

Chart2.PNG

Bond OEFs: PIMIX (chart). You want to see several weeks of uptrend

Chart3.PNG

 
 
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Valued Contributor

Re: T/A March 2020 - Bear Market Edition

@Holiday , thanks for posting.

Bear market is here for sure,   https://stockcharts.com/h-perf/ui?s=$SPX&compare=$COMPQ,$INDU,$TRAN,MDY&id=p62503910830

Some in media are saying that recession may be coming. Q1 will be OK as it is mostly pre-coronavirus. Q2 will be negative. So, it depends on whether Q3 is negative too [thus confirming the recession] or positive [then missing the recession]. Best time to buy stocks is in the middle of recession but that is hard to know in advance.

Anyway, some of us have been shopping already, picking up what look like bargains with low-ball limit orders. It seems that good bargains appear briefly only - this is good, IMO. I watch distance below 200-dMA [absolute or %] as a tool - specifics depend on the stock or fund that I am looking at. Sometimes I hesitate as I see a death-cross forming soon and that can trigger further decline regardless of how good bargains look now. I do what has worked for me over the years. I suppose there is T/A for the bear market and T/A for the bull market and their rules may be different.

FWIW, some low-ball limit-buy orders I put in yesterday or this morning are such that I couldn't put those in later today - most broker platforms don't permit limit-buy orders more that 25-30% below current prices, so many prices have rebounded from lows quite sharply. But I can leave them in place just in case disaster strikes again.

Edit/Add: Latest GS forecast has negative GDP for Q1 and Q2, so we may be in recession already.   https://image.cnbcfm.com/api/v1/image/106453972-158471963668320200320_goldman_forecast.png?v=1584719...

YBB
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Contributor ○

Re: T/A March 2020 - Bear Market Edition

oops ... misfire

I will try another post

 

 

 

 

 

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Contributor ○

Re: T/A March 2020 - Bear Market Edition

 

I made these charts this morning so the data should be fresh

Yield Curve 3-19.jpg

Yields stabilized some on the short end (ultra-short) with the 1-year remaining near the main inflection point in yesterdays action. Yields dropped between the 1-year and 10-year maturities suggesting that retail investors  may have been buying short and intermediate-term bond funds.  The 30-year yield remained relatively unchanged.

The corporate landscape looks like this:

Corporate Bond Curves.jpg

The top two (highest yielding) are BB and CCC which represent the range of credit grades in the typical high-yield fund. An individual high-yield-corporate funds performance will usually plot between these two lines depending on the weighted average credit rating of the fund. Liquidity is a concern in the high-yield market. JR commented once that some securities in this space trade by appointment only.

The bottom two (lowest yielding_ are the AAA and BBB rated bonds which represent the range of credit grades in the typical investment grade corporate fund. The individual IG fund will usually plot between these two lines depending on the weighted average credit rating of the fund.  Liquidity is less of an issue but BBB yields did spike on downgrade concerns.

This chart summarizes the specific yield of each index at yesterday's close

Corporate Bond Yields 3-19.jpg

On the equity side:

Spy 3-19-2020 full.jpg

Today's open was up slightly and remained close to the support level which is troublesome. The main characteristic is a steep staircase down with high-velocity moves. It is a pattern of lower highs and lower lows.

Fast large magnitude changes can be difficult to capture.  This next capture shows some of the indicators I use.  I wasn't looking, and I sometimes don't trust the indicators.  But in hindsight:

ADX indicator.jpg

The first warning was in the ADX or Average Directional Index.  It's goal is to detect inflection points by determining if a trend is strengthening or weakening. The uptrend (green) and downtrend (red) are negatively correlated meaning one strengthens while the other weakens. I look for the point where all three lines converge, but it is worth watching whenever the green or red lines cross the signal (thick line).  Green on top is good. Red on top is bad. If you follow the dots up towards the top of the chart, you will see this was the first alarm.

It was next confirmed by the CMF or Chaikin Money Flow on the next line up along with the RSI or Relative Strength Index. CMF is a momentum indicator that looks at the volume of money flowing into and out of a security along with price. RSI only considers the price.

The RSI quickly headed towards the oversold line. Notice where RSI was near the "overbought" threshold. You will notice that the first "head fake" began when RSI crossed the "oversold threshold". The following series of "headfakes" tend to follow the RSI sawtooth that followed.  Both the ADX and RSI indicators were developed by J. Wells Wilder.

The next confirmation came when price crossed below the 50 day moving average (blue line) at the top of the picture followed by the MACD crossover shown in the indicator just below the price chart. The MACD gives a range of 4 signals. The bearish cross shown, the bearish cross over zero, The bullish cross below zero, and the bullish cross across zero from below.

The final confirmation (by my chart) came when the 50-day moving average crossed over the 200 day moving average shown on the price chart.

Had I looked and heeded, I could have taken action with my tactical sleeve before the current resistance level was met.

As I said, "in hindsight" because I have cataracts . Prudence is a virtue. I recommend caution until the main thrust of this directional move has changed. The bond market has priced a significant amount of uncertainty out a year or so.

Thank you,

Holiday

 

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Valued Contributor

Re: T/A March 2020 - Bear Market Edition

Today being quadruple witching day, higher volume and volatility are expected.   https://community.morningstar.com/t5/forums/forumtopicprintpage/board-id/market/message-id/3220/prin...

YBB
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Contributor ○

Re: T/A March 2020 - Bear Market Edition


@yogibearbull wrote:

Today being quadruple witching day, higher volume and volatility are expected.   https://community.morningstar.com/t5/forums/forumtopicprintpage/board-id/market/message-id/3220/prin...


Thank you Yogi, I did not know that.

Holiday

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Contributor ○

Re: T/A March 2020 - Bear Market Edition

Maybe the market is just beginning to capitulate?

More than $90 billion was poured into money market funds this week

The largest outflows in bond funds on record this week likely reflect money managers selling illiquid assets like corporate debt to meet outflows.

Funds and exchange-traded funds invested in bonds saw $108 billion of outflows this week ending on Thursday, nearly four times of the previous record. On the other hand, investors flocking to cash poured more than $90 billion into money market funds SEE ARTICLE HERE

"Seeking to liquidate assets without locking in big losses, investors cashed out of bond funds on an epic scale," said Cameron Brandt, director of research at EPFR Global, in a Friday note.

The redemption spree has spared no corner of fixed-income markets.

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Contributor ○

Re: T/A March 2020 - Bear Market Edition

 

3/20/2020 Market Close

Yield Curve 8.jpg

The yield curve began to flatten on the long end starting at the 1-year. The Federal Reserve entered the market this week buying $125 billion early in the week, and bought $150 billion over Thursday and Friday to insure enough liquidity to meet the demands of the sellers. The 4-week T-Bill yield briefly turned negative on Thursday.

SPY 3-20.jpg

The SPY extended it's "staircase down" pattern on Friday closing at $228.80 or -4.31% which effectively wipes out the entire market gain since 1/03/2017, and takes us 17 days into President Barack Obama's term.

I extended the period back two years, and support for the SPY is found around $199.44, or about 12.7% lower. 

The chart below is from the Fidelity Active Trader Chart of the Week.

Fidelity Chart of the Week.jpg

There are signs of capitulation starting to show in the markets, and even evidenced in posts on the Morningstar forums. We are only about 1-month into this correction, and we are still looking for a bottom. This high-velocity staircase-down pattern has become a devilishly tricky little blighter. 

For a wider perspective, below is the University of Michigan's Consumer Sentiment index. It is different than the Consumer Confidence index, but they are relatives.

consumer sentiment index.jpg

This chart only updates once a month so the carnage of March is not yet represented. It is reasonable to assume that the actual level is lower, but we may have a way to go before retail investors throw in the towel. Both indices may need to crater.

It might be time to brush up on historic P/E ratio's and to learn more about Trading Earnings.

Thank you,

Holiday

 

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Explorer ○○○

Re: T/A March 2020 - Bear Market Edition

I would love to see this thread brought back on a regular basis.

It reminds me of Field of Dreams quote... “build it and they will come”.  I will be all smiles if DI shows up with his computer!  Those were the days...

The press made a big deal out of the death cross.  Seems to me like it is a little late to be of much use as a leading indicator.

erryl

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Contributor ○

Re: T/A March 2020 - Bear Market Edition

Hi erryl,

Words cannot express how happy I am to see your post here. DI would certainly be a treat, as would Alan88, Anil, Uncleharley, THE COD, and the rest of the gang. I feel like we are flying by the seat of our pants here without the guidance of the old timers.

Hopefully, everyone will remain civil.  It only took 2-trolls to ruin the thread the last time.

Thank you

Holiday

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Valued Contributor

Re: T/A March 2020 - Bear Market Edition

(linkJohn Murphy

===============================

(link) Arthur Hill

I consider High-Low Percent bullish when it exceeds +10%. This suggests that enough stocks are recording new highs to support a bull market. Even though this indicator can dip into negative territory after a bullish signal, it does not turn bearish until there is a move below -10%. Such a move means new lows have expanded enough to justify a bear market environment.

As the chart above shows, this indicator trigger bearish on 11-Oct-2018, bullish on 15-Feb-2019 and bearish on 27-Feb-2020. The indicator continued lower here in March and clearly has some value when it comes to timing the broader market.

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Participant ○

Re: T/A March 2020 - Bear Market Edition


@Holiday wrote:

DI would certainly be a treat, as would Alan88, Anil, Uncleharley, THE COD, and the rest of the gang. I feel like we are flying by the seat of our pants here without the guidance of the old timers.

Hopefully, everyone will remain civil.  It only took 2-trolls to ruin the thread the last time.

Thank you

Holiday


Thanks for this thread Holiday. 

Did me resurrecting the old "Why Technical Analysis is Garbage" thread have anything to do with beginning your new Bear Market Edition?

I miss the old timers too..

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Participant ○

Re: T/A March 2020 - Bear Market Edition

Excellent thread, guys.  I hope it survives trolls.

With CCC yields nowhere near the 2016 lows which were caused by oil prices like now.  So, if you add Covid to the cratered oil prices, CCCs must have more downside left.  I think the stock market is not going to bottom until bond market stabilizes, including CCCs bottom.   Given the above, the SPY support levels posted by Holiday and FD are reasonable.  In fact, I would put Holiday's support level of 1999 as the best case scenario.  It is a question of whether we get there in two days or one week -10 days, which will determine if we break-thru to FD's support level - 1835.   I do not think Covid cases / deaths will peak next week but are accelerating on Sunday - so, we need the stock market to slow its slide. 

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Valued Contributor

Re: T/A March 2020 - Bear Market Edition

Thanks for the thread, guys! Am sitting in a car outside a bakery with Wi-Fi using an Android phone, so analysis is pretty basic.

I note that the Russell 2000 small cap index has crashed to 2016 levels, while the S&P ist over 200 points away from that important support level. My guess is that the S&P will test 2016 levels. 

Reasons: Corona death rate still increasing, credit issues are scary and poorly understood, fear that central banks + government can't protect small business, which already had low margins and significant debt, big EU problems, etc.

The pent-up demand will send markets soaring at some point. Meanwhile, forced selling may continue? Lots of questions about Corona: a HC friend in NYC talks about airborne transmission and possible mutation. It's a big deal.

I added a little Asian stock last week, but US valuations are still not compelling like in 2008. Am waiting to see capitulation chart action before adding. Have drastically cut MS bond and RE exposure because of surprising losses and to protect capital, also gaining optionality on stock buys going forward. Think now is too early, though see no reason why a young, long-term investor shouldn't buy right now.

Sorry, no computer or Wi-Fi at home here, difficult to do serious analysis.

Norbert

 

 

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Contributor ○

Re: T/A March 2020 - Bear Market Edition

Extraordinary commentary from the St. Louis Federal Reserve Bank President James Bullard this morning. The piece is titled: 

Coronavirus shutdown not a recession but an investment in survival

This might be better placed in the Off Topic forum, but I rarely visit there. Maybe someone who is interested in discussing this topic in depth will repost it. It probably deserves to have it's own thread.



Thank you,

Holiday

edit: I fixed the link

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Participant ○

Re: T/A March 2020 - Bear Market Edition

Thanks, Holiday.

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Valued Contributor

Re: T/A March 2020 - Bear Market Edition [Death-Crosses]

Death-cross [50-dMA crossing 200-dMA on downside] has just formed for DJIA/$INDU   https://stockcharts.com/h-sc/ui?s=%24INDU&p=D&yr=0&mn=6&dy=0&id=p35344216952.

It formed a few days ago for SP MC 400/MDY and SC R2000/IWM, and a while ago for DJ Transports/$TRAN [any Dow Theorists?].

It may form for SP500/$SPX in a week.

Strange that Nadsaq Comp/$COMPQ and DJ Utilities/$UTIL won't be there for 3-4 weeks.

Change tickers appropriately in the chart above to see for yourself.

YBB
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Contributor ○

Re: T/A March 2020 - Bear Market Edition

 

Treasury Yield Curve 3/23/2020 Close

Treasury Yield Curve 3-23.jpg

More extraordinary action in the yield curve with the short end dipping below the Federal Funds Rate at 0.01% and the 30-year Bond loosing 22 Basis Points. With the fed making sure there are enough "buyers" to match the sellers, it is tough to know how much is priced "flight to safety".

The bond market prices many things including liquidity, term premium, credit quality. This produces a range of returns throughout the credit or business cycle.

Bond market callan.jpg

This is a year for Treasury Bond outperformance, but 1999, 2009, and 2016 put Treasury's at the bottom. It pays to follow the credit and business cycle. No two cycles are identical.  Think of the link as a general guideline intended to point toward places to investigate .  I "tilt" and rebalance "from and to". I look for new positions when out of favor.

I took this screenshot earlier today before attending a webinar.

SPY 3-24.jpg

You will notice that the price movement today reversed on the RSI crossing the oversold point. This might be strictly coincidental, or based on a news event, but the RSI seems to form a megaphone pattern over the past month as it swings across the oversold line in smaller increments above and below. It almost looks like the hysteresis of the RSI is searching for and settling toward the 30 mark. Maybe a real chart technician will chime in, but is RSI "smoothing" towards a  bottom

I really don't know.

It is interesting that 92% of the stocks on the NYSE were advancing while only 6.69% were declining. Yet, the Chaikin Money Flow (CMF) still favors the bears. We are still under the hurricane flag imo.

Speaking of business cycle investing, I did make small moves.  ADM with a P/E of 12 and a yield of 4.91%?   K with a P/E of 19 and a yield of 4.26%?   A man's gotta eat right?

ADM and K.jpg

The Federal Reserve issued its first cut in interest rates by half a percentage point since 2008. The recent rate cut marks the fourth consecutive cut in less than a year. And, this comes on the "heels" of roughly 1-year of an inverted yield curve. 

Throughout history, four consecutive Fed rate cuts have been followed by U.S. recessions 100% of the time, so I am thinking very defensively especially with new money.

Thank you,

Holiday 

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Participant ○

Re: T/A March 2020 - Bear Market Edition

Thanks very much, Holiday.

The level of FOMO exhibited in the market today is astounding.  Walmart was down most of the day and closed only 1% up.  I guess folks were selling Walmart to buy other speculative or beaten down stuff.

"Is RSI "smoothing" towards a  bottom?"  That may end up being prophetic.

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