December 22, 2018
Welcome to the Bollinger Bands Letter Update for Saturday the 22nd of December.
This is one of the hardest updates I have ever had to write. I got the idea of a market top and correction right, but we have gotten much more than that. The S&P 500 is one day away from generating one of Jim Alphier's hyper rare Prolonged Liquidation signals and the S&P 600, small stocks, already has. The last such signals came in 2002! The NYSE Composite generated an Urgent Selling signal Friday and Friday was record volume for the NYSE. The huge volume spike was driven almost entirely by down volume, which was the second highest in history. The only higher reading came on the 26th of February 2007. Almost every indicator I track is either over sold or extremely over sold.
In order to help put the current market in some perspective I added a new chart to the chart pack at position eight. (Chart below.) The upper clip presents the NYSE Composite Index with a NYSE volume histogram. The lower clip presents the 12-day percent change of the NYSE Composite. This is a momentum indicator that was first suggested to me by Steve Achelis, the founder of MetaStock, many years ago. Like almost every other indicator I track it is at levels associated with important market bottoms.
To give you an idea how crazy things have gotten out there Apple's Price / Earnings ratio is now 12.7 an astonishingly low number for a quality growth company and our FAANG Index is now off 37% peak to trough. I strongly suspect that a major driver of the current decline is window dressing on the part of major funds that have to show their portfolios at year end and don't want to show any losers in them. Another major driver is probably tax loss selling to offset capital gains. Some may even be rotating into similar stocks to book losses for future use while maintaining exposure.
Our plan is to continue to work on lists of stocks that we want to hold for the intermediate to long term and rotate into them as market conditions permit. Friday may well have been a capitulation day; trading early next week should let us know if that is correct. A really strong up day would be a short term all clear signal.
A set of interesting sidelights for the so inclined: Friday was a triple witching day, the expiration of stock-index futures and options, traditionally a high volume and volatility day. It was also a Russell rebalance day, the day when the Russell Indices are reconstituted and all the index funds have to move to match the new formulations, another traditional volume and volatility generator. It was also the winter solstice, the darkest day of the year, and Saturday is a full moon. A tragic confluence on the face of it, but one that may well mark an important market bottom.
The holidays are here and the days are getting longer: Don't Panic. That is what it says of the cover of the Hitchhikers Guide to the Galaxy and sager advice does not exist.
Please accept out best wishes for a Happy Holiday Season and a happy, healthy, and prosperous 2019!
The Value Line Program is out of the market. With the Value Line Geometric Average at 456.27, the Friday buy stop stands at 463.75.
There are no changes to the ETF portfolios this week.
The ETF Program portfolio holdings:
Style (21): IVV 4, IWD 7, IVE 8
International (21): RSX 4, EWL 12, EWZ 1
Sector (27): XLV 4, XLU 2, XLP 6
Our allocations are 50% US stocks, 10% international, 10% yield and 30% cash.
Details on our Allocations, Ice Breaker positions and ETF portfolios along with your weekly Market Timing Chart Pack can always be found here:
Until next time, I wish you well.
John Bollinger, CFA, CMT
Copyright 2018 by Bollinger Capital Management, Inc.