Always Leave The Dance With The Partner You Came With !

Great advice in life, and probably good advice in your investment decisions.

With the exception of Apple, the so-called FAANG stocks are down sharply over the last four or five weeks:

Facebook (FB)       -5.23% since all-time high on July 27, 2017

Apple (AAPL)       -1.63% since all-time high on August 16, 2017

Amazon (AMZN)  -12.74% since all-time high on July 27, 2017

NetFlix (NFLX)     -13.34% since all-time high on July 21, 2017

Google (GOOG)    -7.32% since all-time high on June 6, 2017

These same FAANG stocks have been the main source of strength for the current bull market since its beginning in March 2009. Is weakness among these key leaders a credible warning sign of trouble ahead for the broader market? 

The benchmark S&P 600 Small-Cap Index is actually DOWN 1.23% on the year now after being UP almost 5% exactly one month ago! With small-cap stocks and transportation issues now significantly under-performing the broader market, is the larger-cap space now vulnerable to a major correction? Just one look at the negative investment returns from the mega-cap FAANG stocks over the last month should provide the answer you need!

Here are some of the bullish arguments that many uninformed Wall Street pundits are now making to justify a fully-invested position in the U.S. equity market:

1. Long-promised "tax reform" from the Trump Administration is coming soon! Treasury Secretary Mnuchin and NEC Director Cohn are both saying that meaningful tax reform with significant tax cuts will be legislated before the end of THIS year

2. Corporate earnings will continue to "surprise" on the upside

3. With domestic interest rates still historically low, stocks are really your only place to earn "decent" rates of return

Other bullish reasons include ongoing corporate share buy-backs, relatively easy domestic and global central bank monetary policies, and positive forecasts for domestic and global economic growth.

If I had confidence in any of the above bullish arguments, I might be bullish too! However, in my view, every one of the bullish arguments listed above are shaky at best and not realistic (or completely false) at worst!

The tide has turned for this 100-month bull market, and a new bear market has already quietly begun. The music has stopped! The dance is over! And it's time to exit stocks with all your well earned profits!

Perhaps it's worth remembering that in 1987 the S&P 500 Index topped out on August 25th and then it fell 35.94% over the next 55 calendar days! Reasonable bearish arguments include the following:

1. Seasonal factors look negative for U.S. stocks over the next several months

2. The U.S. Federal Reserve is threatening tighter monetary policies over the next several months, including another  possible rate hike and partial liquidation of its bloated balance sheet for the first time since the bull market begin in early 2009

3. The Russell 2000 Index is currently trading at 88 times trailing twelve month earnings! While the S&P 500 and Nasdaq Composite Index are trading at a more reasonable 25 times trailing earnings, I think it's a fair statement to suggest that the overall U.S. stock market is currently "priced to perfection" and is therefore vulnerable to any disappointing news on the near term horizon.
4. The Trump Administration appears dead set on starting a trade war with China.
5. A misstep is very possible by the Trump Administration in its handling of the escalating "cold" war on the Korean Peninsula. North Korea appears embolden recently in its challenges to President Trump's threat to using overwhelming force to stop North Korean from continued development of its nuclear program.
6. The Trump Administration appears to be signalling a possible shut down of the U.S. Government if funding for a southern border wall is not provided in the upcoming budget negotiations.

7. And most important, in my computer trading system, Weekly Chart Sell Signals are now in force in almost every major benchmark U.S. stock index!

S&P 500 Index Weekly Chart with Computer-generated Buy & Sell Signals

U.S. Stock Market - Do Trading Systems Matter?

In the latest Barron's Magazine, published yesterday, there is an excellent interview with Joel Tillinghast, the top-rated portfolio manager of the Fidelity Low-Priced Stock Fund with more than $40 billion under management. Since its inception in late 1989, Mr. Tillinghast has posted a 13.8% compounded annual rate of return for his fund as compared to a 9.7% compounded annual return in the S&P 500 Index and a 10.2% compounded annual return for the Russell 2000 Index. His "out-performance" against both the benchmark S&P 500 and Russell 2000 Indexes is nothing less than spectacular, and his interview with Barron's Magazine is well worth a read by all investors, traders, and portfolio managers.

One part of Mr. Tillinghast's interview really struck home with me personally. He told Barron's that in his younger days while an analyst at Drexel, he tried to develop his own stock market timing system, using his own money to test it. Tillinghast said that he "failed miserably" in this effort. 

This begs the question, should we all abandon any efforts to "time" the markets as many financial advisers suggest? Or should we follow Mr. Tillinghast's lead and focus all our efforts on stock picking using "value" as our guiding principal? Or should we give up all together on any market timing systems and/or ANY stock picking efforts given the plethora of empirical evidence of poor historical results for both investment approaches (Tillinghast being an exception, of course)? Should we just follow the growing herd into "passive" investment approaches that rely almost exclusively on index funds as primary choices? The answers here are more complicated than many financial advisers would lead us to believe!

I will admit that for many (even most) investors, "passive" fund investing is the best option, albeit with careful asset allocation and diversification according to each individual's short term and long term financial needs. As for Mr. Tillinghast and his extraordinary record of out-performance, I think that small-cap value stocks will under-perform the S&P 500 Index over the next several years mostly due to current relative overvaluations here, but maybe Mr. Tillinghast will be able to use his stock picking expertise to overcome this projected disadvantage for his special sector ahead.

For me, I have spent the last 40 years developing my own stock market timing system, and I am totally confident in its forecasting strengths. Right now, my computer trading system is just about as negative on the U.S. stock market as I have ever seen! Weekly chart signals are the strongest and most reliable part of my trading system, and last week marked a major bearish turning point according to my computer algorithm in this time frame.

At Friday's close, August 11th, weekly chart sell signals were triggered in the following major benchmark indexes:

Dow Jones Industrial Average (see chart below)

New York Composite Index (see chart below)

S&P 500 Index (see chart below)

S&P 100 Index

Philadelphia Bank Index (symbol BKX) (see chart below)

The compelling case for a bear market ahead is made even stronger by an official monthly chart sell signal already triggered in my system on June 30th, 2017 in the Nasdaq Composite Index (see chart below).

Market leaders like Priceline (PCLN) and Nvidia (NVDA) lost more than 10% from their intra-week all-time highs last week (see charts of both stocks below).

In the interest of full disclosure, my accounts under management are now effectively 100% short the U.S. stock market using double-short SDS and TWM ETF's in the S&P 500 Index and Russell 2000 Index, respectively.

Bottom line: My computer-based trading system is indicating that a major stock market correction is now underway! 

S&P 500 Index Weekly Chart with Computer-generated Buy & Sell Signals

NY Composite Index Weekly Chart

 

Russell 2000 Index ETF Weekly Chart

Dow Jones Industrial Average Weekly Chart

Philadelphia Bank Stock Index (BKX) Weekly Chart

Nvidia (NVDA) Weekly Chart

Priceline (PCLN) Weekly Chart

Nasdaq Composite Index Monthly Chart with Computer-generated Buy & Sell Signals

U.S. Stock Market - Sell Signals Triggered Today in All Major Indices !

Daily chart sell signals were triggered today in all major U.S. Stock Market indices including the following:

Dow Jones Industrial Average (see chart below)
Dow Jones Transportation Average
New York Composite Index (see chart below)
Nasdaq Composite Index (see chart below)
S&P 500 Index (see chart below)
S&P 100 Index

Daily chart sell signals were also triggered in the following key financial stocks:

Bank America (BAC)
Citigroup (C)
Goldman Sachs (GS)
JP Morgan (JPM)
Morgan Stanley (MS)

An interesting daily chart BUY signal was triggered today in the Junior Gold Miners ETF (symbol GDXJ). See chart below.

Dow Jones Industrial Average Daily Chart

S&P 500 Index Daily Chart

NY Composite Index Daily Chart

Nasdaq Composite Index Daily Chart

Junior Gold Miners Index ETF (symbol GDXJ)

Will Apple's Stellar Earnings Mark The Top In the U.S. Stock Market?

The much anticipated Apple earnings report was just released after the close of NY trading this afternoon. And it was much better than expected! Apple's stock price is up about 6% in after-hours trading and many bullish stock market analysts are already forecasting another strong upside day on Wall Street tomorrow, Wednesday, August 2nd. The hit parade of ongoing record highs in most of the major U.S. stock indexes will almost surely unfold according to script, right?

While Wall Street's opening on Wednesday morning may produce several record intra-day highs (probably in the Nasdaq Composite and in the Dow Jones Industrial Average), I am now forecasting a meaningful intra-day downside reversal that will mark the beginning of a serious slide and fairly significant losses over the next several months. 

Historically, August is supposed to be a relatively strong month for U.S. stocks, but not this year!

The Trump Administration's escalating trade war with China may be the potential catalyst used by the financial press to explain the deluge of selling that is destined to unfold over the very near-term. Of course, any competent securities market analyst could list at least a dozen potential sparks which could contribute to this firestorm ahead. 

Below are six interesting weekly and monthly charts with key sell signals that have been triggered by my computer trading system over the last few days:

Russell 2000 Index ETF (IWM) Weekly Chart with Computer-generated Buy & Sell Signals

Amazon Weekly Chart

DuPont Weekly Chart

International Paper Monthly Chart

Philadelphia Semiconductor Index (SOX) Monthly Chart

Philadelphia Semiconductor Index (SOX) Weekly Chart