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Valued Contributor

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


@yogibearbull wrote:

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.


Death Cross can be very late. 

In 2018-19 (link) the buy signal was over 20% from the bottom(around 04/19) and you missed most of the upside.

In 2015-2016 (link) the buy signal at the top (end of Dec 2015), then another buy on the end of 04/2016 was too late.

In 2011(link) sell close to the bottom mid 08/2011.

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


@FD1001 wrote:

@yogibearbull wrote:

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.


Death Cross can be very late. 

In 2018-19 (link) the buy signal was over 20% from the bottom(around 04/19) and you missed most of the upside.

In 2015-2016 (link) the buy signal at the top (end of Dec 2015), then another buy on the end of 04/2016 was too late.

In 2011(link) sell close to the bottom mid 08/2011.


I mentioned formations [actual or potential] of bearish death-cross* after which more downside typically follows. You are mentioning bullish golden-crosses** [2018-19, 2015-16] that typically signal all-clear. In 2011, death-cross formed in early August and the market finally bottomed in early October. As I am not in-out trader, I use this info, along with other info, as to whether add or reduce positions or adjust TAA.

*50-dMA crossing 200-dMA on the downside

**50-dMA crossing 200-dMA on the upside

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

Staring yesterday could be a typical sucker rally.  If it gets to the 20 days MA, there is a good chance it will go down again.

MACD shows the possibility of SP500 going up but I would expect it to stall around 2600-2700(20 days MA)

 

spx.PNG

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Re: T/A March 2020 - Bear Market Edition

 

Treasury Yield Curve at the 3/24/2020 close.

Yield Curve 3-24.jpg

With the Federal Reserve bank pumping liquidity into the market (ensuring a buyer for every seller) it is difficult to discern what is organic, and what is introduced.

Considering the extraordinary news and policy response, my best guess is that the market is pricing 3 solid months of pandemic uncertainty with it's 0.01% yield. With the yield curve steepening at the 3 month point, I suspect the market expects some clarity and also expects it to be mildly positive. The market seems to be a little more unwilling to commit cash to the 6 month through 2-year period. The long end also steepened placing the 30-year yield between the close of the previous 2 days.

On the equity side:

ADX 2-25.jpg

For continuity, I placed the "dot" at the same place discussed yesterday.  Support is at $228.80 which is a very good thing. Resistance remains at $297.51.  I think the best we can hope for at this point is that support holds and a trading range develops. While this could easily be a head fake as RSI is fading, lets hope that the predominant pattern of lower highs and lower lows has been broken.

Looking at the ADX

ADX Zoom.jpg

The left arrow at the top shows what the first "head fake" looked like.

  • The red line started downward
  • The orange line (ADX) flattened
  • The green line started up

The point we discussed yesterday looks similar to the first "head fake" but there are some differences.

  • The downward trend of the red line has weakened consistently over a longer period of time.  It continues to weaken even though the green line has turned upward. Red does not seem to be acting against green, while it can be seen that green is acting against red.
  • The orange line (ADX) is weakening from a very high signal. This line (ADX) measures the "strength" of a trend. The trend can be either up or down. For the better part of a month, the price trend has been down and has become a very strong trend as evidenced by the high ADX number. So, this very strong trend is weakening.
  • Notice too that the head fakes which came after the first were not able to affect the ADX until now. 

So, the trend that has been directing the RSI towards "oversold" has weakened for the first time in weeks. The CMF is starting to confirm this with less money favoring the bears. The RSI has been flattening some which hopefully can be ignored.  It has been a while since we had two successively higher closes.

What investors are buying

What is being bought.jpg

Caution - we are still under a Hurricane Flag

The market is delicate and sensitive to policy missteps and tweet risk. My sense is that we have a chance to avoid unnecessary disaster if those can be avoided. Hopefully, the green and red lines of the ADX will be allowed to cross.

We still are in the beginning of what could be a long-term disaster.  China's curve has flattened, but its rate of death is still doubling in less than a week. The bond market seems to be pricing 3 months of uncertainty.

I am looking for a trading range to form with several months of a sideways market. Support needs to be successfully tested.

Thank you,

Holiday

edit: Spaz, yes you made me think about TA with your post.  My head was deep in bond math and I was not looking up from it. Sorry, but I keep forgetting to say that.

Anitya, I think the indiscriminate selling of the indices has created what looks like great valuations for the best companies for the stock-pickers. I am nibbling at the best in the defensive sectors, but not making big moves.

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Re: T/A March 2020 - Bear Market Edition

Thanks again, Holiday.  Your thoughts on non-agency rMBS would be appreciated.  Have they bottomed?   A

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Re: T/A March 2020 - Bear Market Edition

 

Treasury yield curve at the 3/25/2020 close.

Yield Curve 3-25.jpg

The yields on the short end went to zero making a negative yield at some point almost a certainty. The yield curve steepened slightly after the 3-month with the 30-year bond yield gaining 6 Basis Points.

On the equity side

SPY 3-26.jpg

I took this screen shot before 11:00 am today, and the S&P 500 has continued its advance to $257.46. Market breadth is very strong with 88.94% of the stocks on the NYSE advancing with only 10.33% declining. The CMF shows the cash flow still favoring the bears, but it continues to diminish. We need to see CMF peek its head above zero.  RSI continues to strengthen from its oversold "home" which should be a good thing.

I placed the "dot" where we began the ADX and RSI "smoothing towards a bottom" discussion.

ADX 3-26.jpg

As you can see, the strength of the prevailing trend (which has been downward for weeks) is continuing to weaken with the green line turning upward towards the red which continues on its downward path.  The green line has started to flatten, and hopefully this will not become an issue. The ADX looks very good all things considered with the orange line continuing downward.

What people are buying:

3-26 Sectors.jpg

Given the relatively even distributions across the 11 sectors of the S&P 500, I am guessing that the broad indices are being purchased today as opposed to the more uneven distribution indicative of sector investors and stock pickers that probably drove the market over the previous two days.  It looks we could close today with 3 consecutive up days on good market breadth with > 80% of the NYSE advancing. This increases the likelihood of the S&P 500 being able to find a trading range between the current levels shown as support and resistance imo.

Other things that seem good:

Bear Markets.jpg

Of the 5 bear-markets shown above with a length of 8-months or less, none of them resulted in a recession with the exception of the 1990 bear market.

At the risk of torturing the data to find a better result, let's think about the above data like this.

Bear Markets 2.jpg

The 2020 bear of -34.10% places the current drawdown roughly between the averages (including recession) with and without the Great Depression. The data chart table does show additional losses (-48% -36% through -86%) depending on how you estimate the worsening outcome towards a depression.

Averages don't predict any specific outcome, but they can offer a range of probabilities.  My best guess is that barring worsening pandemic news, the averages suggest that we are already priced somewhere between the two worst categories of outcomes. Jurrien Timmer at Fidelity recently said that the market appears to have priced a 35% hit to earnings.

We are still only 1-month into this so Prudence is surely warranted.

Thank you,

Holiday

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Re: T/A March 2020 - Bear Market Edition

Lest I forget .....

US TREASURIES: Friday Event Agenda

03:17 PM EDT, 03/26/2020 (MT Newswires) -- Friday's calendar has the February personal income and spending at 8:30 am ET with the March final University of Michigan consumer sentiment report at 10 am.

The University of Michigan Consumer Sentiment report may help confirm if capitulation has occurred in stock/bond prices. A lot of closely watched monthly reports and indices will update early next week.

Hopefully, it will NOT make for an exponentially negative "witching" week!

Thank you,

Holiday

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Re: T/A March 2020 - Bear Market Edition

https://www.cnbc.com/2020/03/26/sp-500-just-hit-a-level-that-could-spark-the-next-meltdown-dwyer.htm...

Canaccord Genuity’s Tony Dwyer warns the S&P 500 just hit a level that sets the stage for another meltdown as the country copes with the coronavirus impact.

“We put 2,575 as a level for this relief rally,” the firm’s chief market strategist told CNBC’s “Trading Nation” on Thursday.

The S&P 500 is coming off its biggest three day gain since 1933. On Thursday, it closed up more than 6% to 2,630. However, it’s still almost 23% off its record high.

“There is unbelievable monetary and fiscal stimulus that has come into play,”  Dwyer said. “I know once we bottom out after the COVID-19 weakness has hit its limits, I think the rebound is going to be extraordinary.”

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Re: T/A March 2020 - Bear Market Edition

"The data chart does show additional losses (-48% through -86%) depending on how you estimate the worsening outcome towards a depression."

What is the significance of -48%?  Are you suggesting that there are not any other draw downs between 34% and 48% that resulted in a recession?  I am confused by your lower bound data point of -48% - may be you can elaborate.

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Re: T/A March 2020 - Bear Market Edition

Hi Anitya,

I meant "Data Table" and not chart, meaning the table that I used to calculate the averages. Sorry, it was a typo. The only significance is that it is part of actual history.

The average that I calculated was something like 34%, and the next larger value in the table was 48% provided that I did not miss one.  I just checked, and I missed the 36% drawdown in the table.  Thanks for catching it.

Thank you,

Holiday

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Re: T/A March 2020 - Bear Market Edition

Hi FD,

I think we all know that stock prices cannot continue on this trajectory forever, so there will be some down days. Expect support to be tested at some point, and let's hope it holds. If price breaks through support, then we are looking at $199 i think. We will have to see what the consumer confidence, and consumer sentiment reports have to say as they may suggest "capitulation-type" lows during the indiscriminate sell off.

My hope is that the market has found a trading range, and that a sideways market will take place over the next several months. I will be looking at setting up some trade armor stops this morning. Slight gain-harvesting is what I have in mind. I believe there are others thinking the same way this morning. Hopefully today won't turn into another run on the bank. We will just have to take the wait and see approach with that.

According to the "averages" data I posted, this 34% drawdown is between what you would expect for a bear market that resulted in a recession both including and excluding the Great Depression, or a range of 32% to 38% on average. A lot of downside has already been priced into what could become a trading range.

Thank you,

Holiday

 

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Re: T/A March 2020 - Bear Market Edition

 

I had the data lying around, so I decided to explore the effect of rebalancing during this crisis.

Rebalancing is a reasonable option that helps a person stay in the market psychologically as opposed to jumping in and out. Establishing a diversified asset allocation commensurate to risk tolerance and rebalancing according to a rule can also deliver a "premium".

Rebalance Comparison.jpg

To create this chart, I used historic YTD data through 3/24/2020 sorted the oldest first. I copied and pasted this data and sorted it most recent first. I then renamed the 3/24 data as being 3/25 data and created the fictitious path back to the start of the year. 

path to start.jpg

My assumption is that we will get back there eventually, we just don't know when or how. There are an infinite number of possibilities but, the Rebalancing Benefit or Rebalancing Premium as it is sometimes called should present itself as shown if no new rebalances take place during a prolonged sideways market.

We don't talk about rebalancing as much as we used to. At one time it was considered "market timing" when the buy and hold philosophy was the preferred strategy. Today, I think it is mostly thought of being "risk control" with no additional benefit.

But as you can see, (in this case) buy and hold simply guarantees that you will arrive back at the same dollar value. On the other hand, the rebalanced portfolios both end with higher balances. I used strict rules meaning that the rebalance happened the first time the criteria was met.

In my view, bonds continue to add value to a stock portfolio regardless of their price. The higher a bonds price goes, the more sensitive it becomes to even small changes so meaningful capital gains and losses are generated regardless of bond price. A strong inverse relationship between the price of stocks and bonds usually results in a rebalancing premium. The premium fades as this inverse relationship fades.

In my long treasury sleeve, I am trading capital gains and losses with stocks. Yield is the additional cherry (not shown) put on top.

Thank you,

Holiday

 

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Re: T/A March 2020 - Bear Market Edition

Rebalancing is a reasonable investing method when stocks are going down 10-20% until a real meltdown shows up like 2008-9 and 2020 where you need it most and then rebalancing causes you to lose more.

Let's assume a simple example of 50/50 where only stocks lose money while bonds stay the same and we rebalance when it's 5% off.

Starts 50/50.  Stocks lose 10%, you have 45/55 and rebalance back to 50/50, Stocks lose another 10% and another rebalance.  After 4-5 times your portfolio lost more than just doing nothing because you increased your stocks % while they were going down.  

The best way to avoid a black swan is to recognize it first because it's rare and sell risky stuff.  Why did I sell 99+% of my portfolio to cash several weeks ago? stocks were going down, bonds were going down but also trading irrationally to rates + VIX > 50 (not seen since 2008, above 40 is pretty high already)

 

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Re: T/A March 2020 - Bear Market Edition

The US Treasury Yield Curve took a breather yesterday with the curve remaining steep and only changes of a basis point or two being typical across the curve. I don't think it is worthwhile to post two lines pretty much on top of each other.  However, I consider this a real relief, and hopefully treasury yields are done Spaz'in out for now.

Looking at corporate yields instead:

Corporate yields.jpg

I have two primary corporate bond ladders that will fund my retirement distributions 100% over the next 5-years, and 50% over the following 5-year period or roughly 10 years from today.

The 10-year ladder is made with individual issues with AAA through AA credit ratings. The 5-year ladder is made with Bulletshares, High-Yield-Corporate, Target-Date ETFs with credit quality between the top two lines (between 6% and 7%).  The ETF structure diversifies credit risk by holding hundreds of issues that mature in the target year.  On December 31st of that year, the money is returned to the investor. I have seen some amazing deals in the AAA through A rated credit space, and may increase my individual-issue hold-to-maturity sleeve.

On the equity side:

spy 3-27.jpg

The SPY is consolidating this morning after a months long plunge -34% into a bear market and then rocketing +20% back up into a "technical" bull over a 3-day session. One for the books and the record will probably stand in perpetuity.  

I positioned our "dot" on top of the CMF "spike" that technically "favored the bulls" being above zero.  If you follow the "dot" to the price chart, you will notice that it is sitting exactly on our "support" line. My sense that this CMF spike was due to the sheer number of trades (including big institutional money) placed around this technical point. The market "bottomed" (for now) when RSI touched the "oversold" level the next day.

From this point, the CMF looks to be forming its own "megaphone" pattern towards the base line where money neither favors the bears or the bulls.

The RSI is weakening, but my sense is that this is just due to the market harvesting some gains as it blows off steam and price dips. Hopefully, the market will ignore it.

Zooming on the ADX

ADX 3-27.jpg

The ADX still looks good to me. The bear market trend continues to weaken, and the red and green lines are headed towards a cross. As you can see on the left, the bulls and the bears can trade positions until the ADX weakens to the point of "no trend" and one of them manages to get the "leg up". The green line is weakening as it continues to be pressured by the red. 

What people are buying (selling)

3-27 Sectors.jpg

In all, I still think that the most likely scenario is that a trading range has started between the lines of support and resistance. I expect to see support tested at some point. I also think that the resistance level will move lower mid-term as a sideways market begins to form.

This continues to be my hope.

Thank you,

Holiday

 

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Re: T/A March 2020 - Bear Market Edition

Hi Holiday,  By now you probably know that I study your posts (the deference I accord to only a handful of posters) and it was not my intention to point out omissions.  A

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Re: T/A March 2020 - Bear Market Edition

Hi Holiday, Could you please share with us the tickers or links to research target date ETFs you mentioned?  Thanks.  A

 

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Re: T/A March 2020 - Bear Market Edition


@Anitya wrote:

Hi Holiday, Could you please share with us the tickers or links to research target date ETFs you mentioned?  Thanks.  A

 


Hi Anitya,

They are:

  • BSJK - 2020
  • BSJL - 2021
  • BSJM - 2022 - Yield 13.48%
  • BSJN - 2023
  • BSJO - 2024
  • BSJP - 2025

These are high-yield bond etf's that have elevated default risk going into a recession. Defaults do matter, but price swings do not (to me) since I plan to hold them to maturity. I have a credit risk barbell in my hold-to-maturity sleeve.

Bulletshares are thinly traded so liquidity might be a concern. Don't buy unless you plan to hold. Do your own due diligence. 

bsjm.jpg

Thank you,

Holiday

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Re: T/A March 2020 - Bear Market Edition

@Holiday : What does “BSJM - 2022 - Yield 13.28%” mean? It looks like it yields about 5 and-a-half % or so. Thanks in advance :)

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Re: T/A March 2020 - Bear Market Edition

Thanks, Holiday.  I would not be interested in high yield.  But will look into investment grade.  It would be great to find BBB+ and above rated holdings in a target maturity date ETF.  Are you aware of any?  I am not able to find information on the underlying indices for both bullet shares and ibonds (ie., what criteria are used in selecting constituent members and whether the indices are reconstituted after the initial creation prior to the final year?)

Please pay attention to the following for bullet shares as written in footnotes for Invesco BulletShares 2025 Corporate Bond ETF

-  the last year interest could be half of other years as instruments mature, the fund will keep the proceeds in cash until fund liquidation

- The fund intends to effect creations and redemptions for cash - which means this ETF is not as tax efficient as ETFs are supposed to be. 

Graust & Holiday

Should we open a separate thread for target maturing bond ETFs?

The 13% yield is based on the price on 3/26/2020 - https://www.invesco.com/us/financial-products/etfs/product-detail?ticker=BSJM

 

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Re: T/A March 2020 - Bear Market Edition

ECRI’s U.S. Weekly Leading Index (WLI) plunged to 113.1 while the growth rate plummeted to -15.5%. "Both readings are their lowest since the Great Recession."    

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