Weekly Market Crash Indicators Update From Superstock Investors

The goal of the Market Crash Indicators model is very simple. Tell you when to raise cash and tell when to be invested. We are moving to delivery on Tuesday night and you will see Wednesday. Our market timing process has returned 70.44% since inception while the S&P 500 has gained 129.47%. So far this year, we are up 8.19% versus 16.39% on the S&P 500. This year has seen the S&P 500 rip higher until later April, then pull back and now trying to get back to a new high. We offer an ETF Timing Model to our process. If we are 100% invested then we own the Ultra S&P 500 Proshares (SSO) which returns 2X the S&P 500, 75% we own the S&P SPDRS Unit Trust (SPY), 50% invested a 50% allocation to S&P SPDRS Unit Trust (SPY), Cash is Cash and 100% short we own the S&P Ultrashort S&P 500 Proshares (SDS) which returns 2X the downside of the S&P 500. This week we remain 50% invested. We are 50% invested in SPY. Market crash/correction indicators remain at DEFCON 3 50% invested. Our DEFCON ratings are from 1 to 5 with five being the most severe. Below are the models that make up the Market Crash Indicators. 1.The Madison Letter remains invested this morning. Scores on the major indexes are +17 to +14 across the board which means we are positive but not extended. Overall Madison signals have returned 118.69% while the S&P 500 has returned 85.81% since 4/2/2007 through 11/18/16 for out performance of 32.88% since 4/2/07. We will be updating performance from 11/18/16 through yesterday by next week. POSITIVE 2.The Erlanger Big Barf Indicator is at 6.12 on a daily basis. The Weekly EBB moves to 0.55 and the Monthly EBB moves to 11.35. The EBB is only available in Erlanger Chart Room but we report on it once a week in this column. If you want to see it daily or intraday, which is killer, then we suggest signing up for Erlanger Chart Room where you will never look at a chart the same. MIXED TO POSITIVE 3.The proprietary advance/decline measure for NYSE/NASDAQ stocks is back to a buy as of last Thursday. Since inception this signal is up 152.00% while the S&P 500 is up 314.97% since 3/2/2009. This indicator is either buy, sell or cash. Sell signals have generated positive returns in addition to our buy signals. POSITIVE. 4.The Weekly Chart on the 50 Day Moving Average Slope of the S&P 500 remains below 0 this week. NEGATIVE. 5.The High Beta/Low Beta Indicator. It remains underweight high beta this week. Own low beta names.This turned on 4/30/19 close. NEGATIVE. 6.The Russsell 2000/S&P 500 sees the Russell 2000 lagging the S&P 500 since 3/5/19. This means small cap is lagging large cap. NEGATIVE. 7.The VIX Indicators are neutral to sell for stocks. We have expanded this model to be multidimensional from one data series. MIXED. What is interesting about these various market crash/correction indicators is they are independent of each other and use different methods but all arrived at similar conclusions at or around the December lows. These indicators also will allow some give and not provide a ton of false signals. The bottomline is these indicators will capture drops of 5% or more on a very consistent basis. We have assigned a percentage of the portfolio that is invested based on our DEFCON indicators. We have been publishing this in Superstock investor and will add to here. A rating of DEFCON 1 equals 100% invested. DEFCON 2 equals 75% invested. DEFCON 3 equals 50% invested. DEFCON 4 equals cash. DECON 5 equals 100% short. I am working on a new format for the history of the model. We will unveil this is coming weeks.

Will Be Posting In 2014

Given that I post for a variety of paid publications, content on this site will shift a bit in 2014 after taking the last year off to build out a variety of publications. If you want my best ideas, then do not be a cheap ass and sign up for some of our products whether you are an institution or an individual investor. I promise one thing, the ideas work because I use lots of data and a critical thought process. If you are not happy with current inputs to making money, then I suggest you become a reader of this blog in 2014. So as we start 2014, markets are struggling. Many believe that the best days of the recent bull run are behind us. I do not. Traditional news has ALWAYS led with "if it bleeds, then it leads". Ditto the financial media. The best story for viewership is markets in chaos even if they are not in chaos. That is it for now. Expect to see one to two posts a week going forward.

No Tax Selling...So Far

The day after the election we created a universe of stocks up 10% year to date. Why? Because these names could be sold if the capital gains rate rose. Each we we have been updating the results. The conclusion is there is NO or very little tax selling going on pay a lower rate. This could change if it becomes apparent the capital gains rate in fact is going up up 5% in addition to the 3.8% surtax for Obamacare. Effectively, taking the capital gains rate to 23.8% from 15%. Here is a quick summary of our stats. Our stock universe is 6415 stocks. Of this universe, 3650 had market caps above $250 million. YTD up> 10% with market cap above $250 million 1443 ran on 11/6 close. One month + change of up 10% universe of 1443 stocks > 912 (-71) We have added to the spreadsheet both the 5 year and 10 year returns. We note when we sort by the 5 year return the top 20 returners see 5 down more that -5% in the last month (PCYC LFVN HSTM OCN CRUS). In terms of 10 year return of the top 20 returners one is down more than 5% (ECPG).

Does The Rain In Spain Stay Mainly On The Plain?

A story is circulating this morning that a bailout of Spain may not be imminent as the country has failed to reign in its deficit. One thing is assured related to Europe, we must stay vigilant in tracking the news from across the Pond as actions their impact stocks here.

Spain

Current Postings

Currently we are posting on the web via:

• www.superstockinvestor.com and its sister publication www.buttonwoodclub.com
• www.goldandenergyoptionstrader.com
• We also publish for a variety of our research providers on www.minyanville.com as well as www.247wallst.com. 
• There are several internal research pieces we produce as well as currently commentary delivered via our various research providers.

Over the next couple of days, we will alert you to what is available on the web for free and what is behind a paywall.

Freedom To Publish Again

There has been a long period of no commentary by me given that as the finance industry became more regulated, post the financial meltdown, the ability to publish on a blog disappeared. Given that I recently gave up my security licenses due to this requirement, there will be comments from me on a more frequent basis.

Comments will be derived from the various research firms I work with along several websites where I publish. The comments should incent one to inquire about the various research firms I work. Nothing is free in this world and too much is published on the web that is free resulting in poor investment advice. The last thing you will get from me is poor investment advice.

"The reports of my demise are greatly exaggerated"

Is September a replay of August or do the "Ides of September" come to pass? Just like in August everyone was calling for the market to drop and now the skeptics will proclaim doom for September. The numbers do not back up another 9% or greater correction like we last saw in June/July.

The market call below is driven via Erlanger Chart Room. If you are not a client and you make investment decisions, then spend some time with our approach.

First the bias of the market is established. Then sentiment is reviewed. Third seasonal trends are noted. Fourth market timing tools from Phil Erlanger are reviewed. Next performance of the Russell 2000 to the S&P 500 is compared with breadth measures.

The process is rounded out with sector analysis of what is and is not working. Asset classes within the U.S. are compared against the world. The net result is a cohesive process that avoids making emotional decisions not ground on the facts. Numbers do not lie.

The bias remains positive. The S&P 500 is above its DMA channel on a daily basis, above it weekly and monthly. The Erlanger Trend Direction (ETD) is in uptrend on a daily, weekly and monthly basis. The one hitch here is the Erlanger Nantucket Sleigh Indicator (ENS) is in some trouble on a daily basis but weekly and monthly look great. The NASDAQ Composite looks to be in good shape but has a few more chinks in its armor. The daily ETD is struggling as is the daily ENS. The S&P 500 is leading the NASDAQ as of this update. The Russell 200o is still outpacing the S&P 500. No worries here in reviewing these indicators.

The prior reporting period saw short interest rise nicely. This has failed to confirm with the last two releases. Shorts covered and did not press their bets two periods ago and just and some shorts on an absolute bias but more stocks saw short covering than additions. This is not a surprise as the market motored the last two weeks of the month of July and continued its advance the first two weeks of August.

The fuel for a rally has been drained a bit here with the lack of shorts being led to the slaughter. I love the term "smart shorts" because the reality is they never make as much money as those on the long side. Somehow they are smarter than those long.

Call action has yet to reach an extreme as money is blindly bet on calls. There is more call action in equities versus indexes. We need to see the indexes get a little jiggy as well. Sentiment will not help the market continue to plug higher. It looks like the bulls will have to throw more money at the stocks they love.

The worst of the seasonal cycle lies ahead in September and the first half of October. The brief respite of positive seasonals played out perfectly on the S&P 500. However, the seasonals require some caution as it can be hard to make money during this period as the legislative branch of the government returns and corporate chieftains come back from the beach to tweak their business models. Also, mutual funds decide which dogs to sell for tax losses as their fiscal year ends on September 30th.

Erlanger's market timing tools the EBB and Squeezeometer remain in pretty good shape. The EBB is close to breaking below 0 on a daily basis. This could be another indication of sideways action. However, it is too early to reach a firm conclusion. Additionally, there is a negative divergence here that needs to be rectified.

The Russell 2000 (small cap) continues to dust the S&P 500 however it is slowing a bit at this juncture. In periods of market weakness, the S&P 500 takes control. It should be noted this has yet to happen.

Market breadth remains positive although the second derivate is starting to slow on several fronts. In particular, the Daily Advance/Decline Line and the Daily Advance/Decline Volume Line are struggling a bit.

There has not been a great deal of sector leadership change. What brought the market higher remains strong. Although technology, needs to be watched closely to make sure that its leadership position does not falter. The semis broke out above $25 today and some say this is a top and that Intel rung the bell. Such skeptics will feel the pain as the SMH runs to $27.50 without resistance. The sector technicals remain in good shape. Concern will arise when and if defensive sectors begin to perform. These include Utilities, Food/Beverage/Tobacco and Food/Staples Retailing.

In terms of assets classes stocks are doing well as are treasuries. Investment grade bonds are strong as are high yield. Mature overseas markets are strong while emerging is struggling just a bit here. The daily ETD is in pullback mode. A couple of weeks ago we noted that, "It looks like China is going to slow their growth a bit and kick start it later in the year when the world needs it more than right now." this is now widely known and it was not then. As such energy and materials are struggling a bit. The surprise in mid August had been the strength of the U.S. dollar which reversed course and fell over the cliff. This allowed equities to rock the second half of the month. The dollar should struggle as the reflation trade kicks into gear. As a result, the commodity patch cannot begin an uptrend until dollar weakness becomes more pronounced. IN OTHER WORDS IT IS ALL ABOUT THE DIRECTION OF THE DOLLAR. No bear can hope to make money if the dollar is weak. It is a matter of physics.

In the past few days, the equity market of several countries have begun to weaken and they include Malaysia, Taiwan, Mexico, South Korea, Brazil, China, India, Israel and Turkey. Themes here are pretty obvious. Countries with heavy commodity exposure are struggling while those ties to China are also failing to see more upside. This was the same motif in the last update.

That about wraps up the current state of things. Remain long and add to weakness. Shorts use tight stops unless you want your face ripped off and I would welcome this given the long bias. The uptrend is not complete. The bulls remain in control until as such time as data confirms trouble on the horizon.

New Format For Mid Week Update

Since April we have been working on advanced workspace in Erlanger Chart Room (ECR) to perfect the "market call". This process will continue infinitely as making a market call is a series of waiting to find another tool or indicator that can be added into the mix to improve the sensors or tools present on the aircraft carrier.
(the aircraft analogy was written for my friend Fari Hamzei, the ultimate navigator).

Just like in July everyone was calling for the market to drop. Then the market had corrected from 950 to 875. A drop of 75 points or thereabout. Now we have dropped from 1018 t0 995. Almost 25 points. It is amazing two down days and the world is crashing by design. It is not that simple.

As Phil Erlanger noted in this morning's video on http://www.goodmorningwallst.com the crucial level is 975, a test of the head and shoulders double bottom neckline. These videos are a must watch each week.

http://budurl.com/gmws081109

The market call is driven via Erlanger Chart Room. First the bias of the market is established. Then sentiment is reviewed. Third seasonal trends are noted. Fourth market timing tools from Phil Erlanger are reviewed. Next performance of the Russell 2000 to the S&P 500 is compared with breadth measures.

The process is rounded out with sector analysis of what is and is not working. Asset classes within the U.S. are compared against the world. The net result is the "bad mama jama".

The bias is positive. The S&P 500 is in its DMA channel on a daily bass, above it weekly and monthly. The ETD is in uptrend on a daily and weekly and in rally mode monthly. The one hitch here is the ENS is in some trouble on a daily basis but weekly and monthly look great. The NASDAQ Composite looks to be in respectable shape but has a few more chinks in its armor. The S&P 500 is leading the NASDAQ as of this update.

The prior reporting period saw short interest rise nicely. This has failed to confirm with the latest release. Shorts covered and did not press their bets. This is not a surprise as the market motored the last two weeks of the month of July. The fuel for a rally has been drained a bit here. Numbers are still coming so expect to see some more comments tomorrow night on this. Call action has yet to reach an extreme as money is blindly bet on calls. Sentiment will not help the market continue to plug higher.

The worst of the seasonal cycle lies ahead in September and the first half of October. A brief respite is in place for the next few weeks on the S&P 500. This requires some caution as it is hard to make money during this period as the legislative branch of the government returns and corporate chieftains come back from the beach to tweak their business models.

Erlanger's market timing tools the EBB and Squeezeometer remain in pretty good shape although the EBB is close to breaking below 0 on a daily basis. This could be another indication of sideways action. However, it is too early to reach a firm conclusion.

The Russell 2000 (small cap) continues to dust the S&P 500 however it is slowing a bit at this juncture. In periods of market weakness, the S&P 500 takes control.

Market breadth remains positive although the second derivate is starting to slow on several fronts. In particular, the Market Trin 10 Day Moving Average has dropped under 1 which is where the market typically starts to struggle.


There has not been a great deal of sector leadership change. What brought the market higher remains strong. Although technology, needs to be watched closely to make sure that its leadership position does not falter. The sector technicals remain in good shape.

In terms of assets classes stocks are doing better than treasuries. Investment grade bonds long strong as does high yield. Mature overseas markets are strong while emerging is struggling just a bit here. It looks like China is going to slow their growth a bit and kick start it later in the year when the world needs it more than right now. The surprise has been the strength of the U.S. dollar. It should struggle as the reflation trade kicks into gear. As a result, the commodity patch cannot begin an uptrend until dollar weakness becomes more pronounced.

IN the past few days, the equity market of several countries have begun to weaken and they include Canada, Sweden, Germany, Singapore, Taiwan, South Korea, South Africa, China, India, Israel, Turkey and Russia. Themes here are pretty obvious. Countries with heavy commodity exposure are struggling while those ties to China are also failing to see more upside.

That about wraps up the current state of things. Overall, buyers should be cautious here and shorts use tight stops. The uptrend is not dead rather simply slowing. The bulls remain in control until more data confirms trouble on the horizon.

What no one will admit about Monday's rout

What caused the selling today? Some or most media pundits said Bank of America's (BAC) earnings. This is rubbish. Why? There are several reasons why Bank of America's earning were not responsible for today's damage.

Over the weekend, White House Chief of Staff Rahm Emanuel appeared on ABC's "This Week" and stated that the existing loan money given to the banks will be converted to equity. This will prevent the banks from asking for more money as they will not have to repay the loan. Rather the government now becomes a shareholder. This is good for us as a taxpayer but bad a shareholder. As a taxpayer, our money will have the potential to earn a profit. However, if one held stock in Citigroup (C) then they could be diluted by 36%. Not good as dilution is a negative to earnings.

A follow-up to this story appeared in Monday's The New York Times. We view the sell-off on Monday as the equity market voting this proposal down. The media on the other hand blamed Monday's selling on a mixed conference call from Bank of America (BAC) on top of a huge earnings beat. A week ago these earnings would have driven Bank of America higher like it did for Wells Fargo (WFC). However, the earnings release occurred on the same day as this new proposal and the effect was investors buying the rumor last week and selling the news.

The problem with the current administration is they are simply floating trial balloons and seeing the reaction from the market. The market does not like this approach and every time it happens the selling begins. Sooner or later the administration will get how to handle markets. Once again, the lesson taught to us by Arthur Lafffer holds true. On days of extremes in the markets look to Washington for policy decisions. Unfortunately, this was a bad decision.

Another reason for the selling was the delayed reaction to last week's bankruptcy filing from General Growth (GGP). One may never have heard of General Growth but its properties are famous and include Ala Moana Center in Honolulu, Water Tower Place in Chicago and Grand Canal Shoppes at the Venetian in Las Vegas. In total, their are some 1,500 malls.

This failure is among the worst ever seen by the U.S. real estate market. Too much debt was coming due and it needed to be restructured. The problem is the bond market is not back to normal and such an event could not take place. Vacancies have risen from 5.8% to 7.1% in the past year and revenues have dropped for many stores. Could Sears be next?

The above news validates that the credit crisis has not ended but now will enter the tougher phase of its life cycle, the workout. Never a pleasant event but clearly needed in all too many situations around the U.S. and world. Solutions that negatively impact shareholders will see equity markets suffer. Take note President Obama, Treasury Secretary Geithner and Dr. Summers.

This Rally Is Different Than Those Seen Since September

BFG Outlier Research
BFG Comments Very positive as longest stretch since last summer for scores to remain above 0. Love to see the VIX crack 40. Market could run out of steam if VIX hits 36.54

Sector Potential Breakouts Based On Relative Strength to S&P 500 and 30 Day Exponential Moving Ave Cross

Improving Transports
Deteriorating Energy (watch closely) Food Beverage Tobacco Telecommunications (on the edge)


S&P 500 vs. Russell

Russell 2000 takes control. Move to high beta stocks.

Macro
Love It S&P 500 EEM EFA HYG

Like It TLT CFT IGE

Mixed S&P 500

Hate It UUP


Stock Specific Erlanger Review


Dow Jones Stocks criteria Weekly Displaced Moving Average (DMA)

+ BAC GM(speculative) HD INTC JPM KO T WMT
Close but no cigar
- JNJ KFT PG XOM

Transports criteria Weekly Displaced Moving Average (DMA)

+ JBHT UPS YRCW
- AMR CAL FDX JBLU LUV OSG

Stocks Getting Ready to Move as New Trend Ready to Begin

+ V FCL
- HANS (very aggressive sell or short) Y NDAQ ARO

MACD Special

+ PBCT
- BSY BPL

200 Day Upside

+ SOLR SHI

200 Day Downside

- HNG DEP

50 Day Upside

+ ZMH WAT MXB

50 Day Downside

- HMY EQT

Moving Average Crosses Of Note
+ PCLN
- ERIC

ETD Changes - Pullbacks and Downtrends crushing Rally and Uptrendx

+ AA PL LSR TMK DE LLTC BYD (for those that want a cheap priced stock)
- AWR LANC ACV