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The Bartometer

educational newsletters, ETFS, indexes, market timing, Mutual funds, portfolio management

April 7, 2020

Hello Everyone,

The 2020 COVID-19 Virus has adversely affected the entire world, and this will go down as one of the most volatile years in the stock and bond market in generations and even more volatile than the 2008 Bear Market.

CURRENT MARKET CONDITIONS:

This reason is that the declines came over eight days and not like the 2007-2009 decline which took a year and one half. The great recession of 2008 was a humanmade financial problem and this is a virus where very few are working. In the Recession of 2008, people were at least going to work and going out and spending money to support the economy. Now we are all destined to stay in the house unless we have an essential business. But the U.S. Government is doing everything it can to give grants and forgivable loans so that the economy doesn’t totally crash. That is better than in 2008. It is still serial to be confined to your house or go for a walk.

When we get our statement of our investments from our 401(k) s or from these accounts, you will see pretty large drops in values in the investment account and you will wonder if this is all worth it to stay in it or are we all destined just to make 1-3% in a savings account or a 3% fixed annuity with me. Right now getting 3% with no fees looks pretty good.

If you believe that good stocks and funds from successful growing businesses do well over the long term and this sell-off in the markets are BUYING opportunities over the next few months you may want to dollar cost average into the markets. If you believe that this COVID-19 virus will soon be over within months and that 1 to 3 years from now the markets will be higher than they are now is it worth holding on OR Buying more when markets are lower? The question is if you are buying or investing for the next 1-20 years. Do you like suitable stock and bond investments that are cheap now or more expensive? If your answer is yes, than you may want to average into the markets over the next few months as it is down during this pandemic.

MARKET RECAP:

On my last 3 Bartometers I was getting and got Very Cautious about the stock and bond markets, but did I expect this? Not really. I said if the NASDAQ broke 9200, I will get very Cautious but a 25 to 35% decline I did not expect. The markets had rallied 20%+ from the low hit a couple of weeks ago but still, the markets are down 17-20% into 2020. Are we in a recession now? I’d say yes, but it is forced because of COVID-19, but it will be one just because of the number of people laid off.

In the following pages are discussions of the long term of the markets, what do in a Bear market and my technicals of the markets going forward. But above I would like to say that even though American Capitalism is under fire, and also though the market got hurt as well as our portfolios, we will rise to the COVID-19 challenge like any other war or attack on the United States of America going back to the Revolutionary War to WW1, WW2, and all the other wars we had in our history. This country and its citizens will find a vaccine to this virus and I believe in my heart that 1 to 2 years from now this market should be nicely higher. Dollar-cost averaging currently buying a lower priced shares of good companies should, with no guarantees expressed or implied, be a good deal higher over the next few years. What do you think? Have we gone down this much over the last 50 years? Yes, many times. Has it recovered each time? Yes. Because capitalism works and good companies over the long term make money.

Some of the INDEXES of the markets both equities and interest rates are below. The source is Morningstar.com up until April 7, 2020. These are passive indexes.
*Dow Jones -20%
S&P 500 -17%
NASDAQ Aggressive growth -9%
I Shares Russell 2000 ETF (IWM) Small cap -31%
Midcap stock funds -29%
International Index (MSCI – EAFE ex USA -22%
Investment Grade Bond -4%
High Yield Bond -13%
Government bond +4%
The average Moderate Fund is down -16% this year fully invested as a 65% in stocks and 35% in bonds and nothing in the money market.

WANT TO SHOW YOU THE YEAR BY YEAR RETURNS OF THE S&P 500 TOTAL RETURNS BY YEAR

WHAT HAPPENED TO THE MARKETS DURING THE PANDEMIC AND SPANISH FLU IN 1917-1918:

The stock market today is looking a lot like it did a century ago, and if Great Hill Capital’s Thomas Hayes’s interpretation of the trendlines is on point, the bottom could be approaching.

“Just as the market started discounting the worst-case scenario in 1917,” he wrote, “it was already discounting a recovery months before the worst-case scenario occurred in 1918.”

What was going on in 1917? The Spanish Flu was just starting to bubble up, with the deadliest month of the whole pandemic not hitting until October 1918 — by then, as you can see from this chart, the Dow Jones Industrial Average DJIA, -1.68% had already begun to heal.


Hayes then posted this chart of the modern-day market plunge, noting that the nasty drawdowns amid the early stages of both pandemics were virtually the same.

More than 51 million people died globally in the Spanish Flu Pandemic, and the market rebounded more than 80% in the following two years from its bottom to top. This is no guarantee the market will rally that much or at all, but the USA is now better equipped to handle a massive Pandemic then in 1918 to 1919. Also, many companies are internet companies that could do well as people shop and do business over the internet; in addition, it is much more diversified and global than it was in 1918. For these reasons and more, I believe that the long term is more promising now for a recovery over the next 1 to 2 years.

There is one caveat; the Commodity index is right near its low of 2009, where it found it at a 29-year support level. If that breaks through that level, then we can go into a deeper recession for a more extended period.
The market rebound depends on how quickly the government fixes this problem and people go back to work. I am optimistic over the next two years; but understand a recession should happen at least for a few quarters. I think the Recession should be relatively short term.

Since this graph was made a week ago, look at the next page and it is up to date. COMPARE the next graph to the Pandemic of 1918 and it is starting to look more like it. There is no guarantee expressed or implied, but look at the Pandemic and then the updated Dow on the next page.

The Dow Jones is above. This is the Daily Chart. As you can see, the decline of the Dow Jones Average was relatively very quick. Current is sitting at 22653 right BELOW THE 50% Fibonacci retracement level. A normal BEAR market usually tops on a countertrend rally right at a 50% or 61.8% Fibonacci level and declines or puts in a short top. So if this is true in this case there could be resistance at 23,901 or 25,236 area. There is also some resistance at the 200 day moving average at 26,660 and sloping downward. My AIQ models gave a BUY on 3/24/2020, but only a short term Buy not a longer term Weekly Buy. So even though the market is somewhat short term Bullish, there could be a short term top at 23,901, 25,236 or the 26,660 areas.

Momentum is good but can change quickly on the downside after earnings come out that will be bad. A buy signal is giving when the lavender line crosses blue line and Sell signal when it does it on the downside

One thing I don’t like is the On Balance Volume Line. Notice as the market is going up it is going up on low relative volume. This is somewhat negative. Over all I think the market should be higher when this is all done and when there is a vaccine and people go on living their normal lives it should be better. This market will be volatile. The market may continue on the upside but over the short term I think the rally is limited to the levels I said above on the Fibonacci levels and the 200 day moving average. In addition, the market may not like the earnings numbers over the next couple of weeks and the market could drop again towards 20000 or below again.

Key investor Points to remember in a Bear Market:

  • Stay calm and keep a long-term perspective.
  • Maintain a balanced and broadly diversified portfolio.
  • Balance equity portfolios with a mix of dividend-paying companies and growth stocks.
  • Choose funds with a strong history of weathering market declines.
  • Use high-quality bonds to help offset equity volatility.
  • Advisors can help investors navigate periods of market volatility

THE BOTTOM LINE:

The market has had its worst decline in 10 years. It has recovered about 35% of the loss over the last week. It is not a time to sell during this decline in my opinion but for some of you it would a great time to start to nibble in your mutual funds on setbacks because the COV19 virus should be controlled over the next year and if you look at all of the virus pandemics we have had, it has been a good time to Buy if your goals are longer term. It is not a time to throw caution to the wind but call me to make selective dollar-cost average buys. In addition, when EARNINGS come out in the next 2 weeks the stock market could go back down again. Remember you buy when there is blood in the streets. Bonds should be more in the investment-grade or short- term investment grade side. If you are a long-term investor and have 20 years+ towards retirement use sell-offs to add through dollar-cost averaging. Diversification is essential but portfolios should be somewhat safer.

Best to all of you,

Joe Bartosiewicz, CFP®
Investment Advisor Representative
5 Colby Way
Avon, CT 06001
860-940-7020 or 860-404-0408



SECURITIES AND ADVISORY SERVICES OFFERED THROUGH SAGE POINT FINANCIAL INC., MEMBER FINRA/SIPC, AND SEC-REGISTERED INVESTMENT ADVISOR.

Charts provided by AIQ Systems:

Technical Analysis is based on a study of historical price movements and past trend patterns. There is no assurance that these market changes or trends can or will be duplicated shortly. It logically follows that historical precedent does not guarantee future results. Conclusions expressed in the Technical Analysis section are personal opinions: and may not be construed as recommendations to buy or sell anything.

Disclaimer: The views expressed are not necessarily the view of Sage Point Financial, Inc. and should not be interpreted directly or indirectly as an offer to buy or sell any securities mentioned herein. Securities and Advisory services offered through Sage Point Financial Inc., Member FINRA/SIPC, and an SEC-registered investment advisor.

Past performance cannot guarantee future results. Investing involves risk, including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Please note that individual situations can vary. Therefore, the information presented in this letter should only be relied upon when coordinated with individual professional advice. *There is no guarantee that a diversified portfolio will outperform a non-diversified portfolio in any given market environment. No investment strategy, such as asset allocation, can guarantee a profit or protect against loss in periods of declining values.
It is our goal to help investors by identifying changing market conditions. However, investors should be aware that no investment advisor can accurately predict all of the changes that may occur in the market.
The price of commodities is subject to substantial price fluctuations of short periods and may be affected by unpredictable international monetary and political policies. The market for commodities is widely unregulated, and concentrated investing may lead to Sector investing may involve a greater degree of risk than investments with broader diversification.
Indexes cannot be invested indirectly, are unmanaged, and do not incur management fees, costs, and expenses.

Dow Jones Industrial Average: A weighted price average of 30 significant stocks traded on the New York Stock Exchange and the NASDAQ.
S&P 500: The S&P 500 is an unmanaged indexed comprised of 500 widely held securities considered to be representative of the stock market in general.

NASDAQ: the NASDAQ Composite Index is an unmanaged, market-weighted index of all over the counter common stocks traded on the National Association of Securities Dealers Automated Quotation System
(IWM) I Shares Russell 2000 ETF: Which tracks the Russell 2000 index: which measures the performance of the small capitalization sector of the U.S. equity market.

A Moderate Mutual Fund risk mutual has approximately 50-70% of its portfolio in different equities, from growth, income stocks, international and emerging markets stocks to 30-50% of its portfolio in different categories of bonds and cash. It seeks capital appreciation with a low to moderate level of current income.

The Merrill Lynch High Yield Master Index: A broad-based measure of the performance of non-investment grade US Bonds

MSCI EAFE: the MSCI EAFE Index (Morgan Stanley Capital International Europe, Australia, and Far East Index) is a widely recognized benchmark of non-US markets. It is an unmanaged index composed of a sample of companies’ representative of the market structure of 20 European and Pacific Basin countries and includes reinvestment of all dividends.
Investment grade bond index: The S&P 500 Investment-grade corporate bond index, a sub-index of the S&P 500 Bond Index, seeks to measure the performance of the US corporate debt issued by constituents in the S&P 500 with an investment-grade rating. The S&P 500 Bond index is designed to be a corporate-bond counterpart to the S&P 500, which is widely regarded as the best single gauge of large-cap US equities.

Floating Rate Bond Index is a rule-based, market-value weighted index engineered to measure the performance and characteristics of floating-rate coupon U.S. Treasuries, which have a maturity greater than 12 months.

Money Flow; The Money Flow Index (MFI) is a momentum indicator that measures the flow of money into and out of a security over a specified period. It is related to the Relative Strength Index (RSI) but incorporates volume, whereas the RSI only considers SK-SD Stochastics. When an oversold stochastic moves up through its MA, a buy signal is produced. Furthermore, Lane recommends that the stochastic line be smoothed twice with three-period simple moving averages: SK is the three-period simple moving average of K, and SD is the three-period simple moving average of SK

Rising Wedge; A rising wedge is a technical indicator, suggesting a reversal pattern frequently seen in bear markets. This pattern shows up in charts when the price moves upward with pivot highs and lows converging toward a single point known as the apex

The Ultimate Ugly Contrarian Play

commodities, educational newsletters, jay kaeppel, technical indicator

They always say you should buy when there is “blood in the street.”  They also say, “buy them when nobody wants them.”  So, let’s consider today what could be the most unloved, bombed out, everybody hates it “thing” in the world – coal.

Ugh, just the mention of the word coal elicits a recoiling response.  “Dirty energy!”  “Climate change inducing filth!” “Ban coal!”.  And so and so forth.  And maybe they have a point.  But “they” also say “facts are stubborn things” (OK, for the record, I think it’s a different “they” who says that but never mind about that right now).

So here is a stubborn fact: coal supplies about a quarter of the world’s primary energy and two-fifths of its electricity.  As I write, two of the fastest growing economies (at least they were as of a few months ago) – China and India – are not only heavily reliant upon coal for energy, but are still building more and more coal-fired plants.  Now I am making no comment on whether this is a good thing or a bad thing but the point is, it most definitely is a “thing.”

So however one feels about coal, the reality is that it is not going to go away anytime soon.  Does this mean it will “soar in value” anytime soon – or even ever for that matter?  Not necessarily.  But as an unloved commodity it’s sure is hard to beat coal.  And as “they” (they sure are a bunch of know it all’s they?) say, “opportunity is where you find it.” 

Ticker KOL is an ETF that invests in coal industry related companies.  And what a dog it has been.  Figure 1 displays a monthly chart of price action.  Since peaking in June 2008 at $60.80 a share, it now stands at a measly $6.29 a share, a cool -89.6% below its peak.  And like a lot of things it has been in a freefall of late.

Figure 1 – Ticker KOL Monthly chart (Courtesy AIQ TradingExpert)

So, is this a great time to buy KOL?  That’s not for me to say.  But for argument’s sake, Figure 2 displays a weekly chart of KOL with an indicator I call Vixfixaverageave (I know, I know), which is a version of an indicator developed a number of years ago by Larry Williams (Indicator code is at the end of the article).

Figure 2 – KOL weekly chart with Vixfixaverageave indicator (Courtesy AIQ TradingExpert)

Note that Vixfixaverageave is presently above 90 on the weekly chart.  This level has been reached twice before – once in 2008 and once in 2016.  Following these two previous instances, once the indicator actually peaked and ticked lower for one week, KOL enjoyed some pretty spectacular moves. 

To wit:

*Following the 12/19/08 Vixfixaverageave peak and reversal KOL advanced +252% over the next 27.5 months

*Following the 2/19/16 Vixfixaverageave peak and reversal KOL advanced +182% over the next 23.5 months

When will Vixfixaverageave peak and reverse on the weekly KOL chart?  There is no way to know.  One must just wait for it to happen.  And will it be time to buy KOL when this happens?  Again, that is not for me to say.  None of this is meant to imply that the bottom for KOL is an hand nor that a massive rally is imminent.

Still, if there is anything at all to contrarian investing, its hard to envision anything more contrarian that KOL.

Vixfixaverageave Calculations

hivalclose is hival([close],22).  <<<<<The high closing price in that last 22 periods

vixfix is (((hivalclose-[low])/hivalclose)*100)+50. <<<(highest closing price in last 22 periods minus current period low) divided by highest closing price in last 22 periods (then multiplied by 100 and 50 added to arrive at vixfix value)

vixfixaverage is Expavg(vixfix,3). <<< 3-period exponential average of vixfix

vixfixaverageave is Expavg(vixfixaverage,7). <<<7-period exponential average of vixfixaverage

Jay Kaeppel

Disclaimer: The information, opinions and ideas expressed herein are for informational and educational purposes only and are based on research conducted and presented solely by the author.  The information presented does not represent the views of the author only and does not constitute a complete description of any investment service.  In addition, nothing presented herein should be construed as investment advice, as an advertisement or offering of investment advisory services, or as an offer to sell or a solicitation to buy any security.  The data presented herein were obtained from various third-party sources.  While the data is believed to be reliable, no representation is made as to, and no responsibility, warranty or liability is accepted for the accuracy or completeness of such information.  International investments are subject to additional risks such as currency fluctuations, political instability and the potential for illiquid markets.  Past performance is no guarantee of future results.  There is risk of loss in all trading.  Back tested performance does not represent actual performance and should not be interpreted as an indication of such performance.  Also, back tested performance results have certain inherent limitations and differs from actual performance because it is achieved with the benefit of hindsight.

Thoughts on the Energy Sector (just in case we ever leave our homes again)

educational newsletters, ETFS, jay kaeppel

In a few recent articles (for example here) I suggested that one day we would look back on this period as a terrific buying opportunity for energy related issues.  At the same time, I still have yet to become comfortable “pulling the trigger”.  Thank goodness for small favors.

Anyway, the overall sentiment still holds.  Energy is dirt cheap as are shares of most energy related stocks/ETFs etc.  Again, that doesn’t necessarily mean that now is the exact moment to “load up”.  To say that there is a wee bit of uncertainty regarding the future would be about the greatest understatement one could presently make.  Still, it is important to plan ahead and to be prepared when the time comes.  So, what follows should be considered “food for thought” and not “an immediate call to action.”

A Few Things Energy

Ticker TAN

According to conventional wisdom, the future is “green”.  I’ll be candid – I am all for green energy, as long as when I flip the switch the lights come on AND when I look at my energy bill I don’t faint.  So, let’s start with a “green” play.

Turth be told, ticker TAN (Invesco Solar Energy ETF) has never been much of a performer.  Still, its in the solar business which people keep telling me is “the future.”  In reality the primary thing it has going for it is that it hasn’t completely cratered to the same degree as just about every other stock in the energy sector.  As you can see in Figure 1, TAN actually bottomed out at $12.60 in 2012 and – despite a near 50% decline during the recent panic – is presently trading around $26 a share.  Not necessarily a screaming buy signal, but a nice relative performance as we will see in a moment.

Figure 1 – Ticker TAN (Courtesy AIQ TradingExpert)

Ticker UGA

In a sure “Sign of the Times”, the Good News is that gasoline prices are at their lowest levels in year, while the Bad News is that we don’t have anywhere to drive to except the grocery store.  Figure 2 displays the chart for ticker UGA – the United States Gasoline Fund, and ETF that tracks the price of gasoline.

While attempting to “pick a bottom” is a fool’s errand, the primary point is that it is not that hard to envision the price of this ETF being significantly higher at some point in the years ahead.  Whether an investor has the fortitude to weather whatever the short-term uncertainty and the patience to see how the long-term plays out are the primary issues associated with contemplating this ticker at the moment.

Figure 2 – Ticker UGA (Courtesy AIQ TradingExpert)

Ticker XLE

Ticker XLE is a play on the broad (mostly fossil fuel related) energy sector.  As you can see in Figure 3, XLE has plunged to price levels not since 2004. In addition, it presently yields roughly 8.8%.  That being said, an investor has to realistically expect that dividend payments in the hard-hit energy sector will see some significant cuts as things play out in the months ahead. 

With an oil price war in full swing, not to mention a sharp decline in demand for the foreseeable future due to the coronavirus pandemic, the fundamentals for this sector are unlikely to improve soon.  Nevertheless, the reality is that – at least for the time being – the world runs on crude oil.  As a result, the current price range may one day be looked back upon as a once-in-a-generation buying opportunity.

Figure 3 – XLE (Courtesy ProfitSource by HUBB)

Ticker PAGP

OK, let’s throw in one obscure, totally speculative – yet fundamentally intriguing – thought for consideration.  Ticker PAGP (Plains GP Holdings, L.P.).  Here is what they do (straight from their website):

“Plains engages in the transportation, storage, terminalling, and marketing of crude oil and refined products, as well as in the storage of natural gas, and the processing, transportation, fractionation, storage, and marketing of natural gas liquids.

Assets include:

*17,965 miles of active crude oil and NGL pipelines and gathering systems (emphasis mine as these things will continue to function as long as crude and NG need to be moved – which they do)

*50 barges and 20 transport tugs

*109 million barrels of storage capacity

*1,600+ trucks and trailers

*9,100 rail cars”

The bottom line is that as long as crude oil and natural gas needs to be moved, PAGP has a niche in which to operate.  For the record, at $6.35 a share the stock’s present dividend comes to a yield of 22.7%.  Certainly, the prospect of a significant dividend cut is a Signiant risk associated with this stock.  But for the moment anyway the price is near an all-time low and the dividend yield is attractive.

Figure 4 – Ticker PAGP (Courtesy ProfitSource by HUBB)

Summary

As allows, DO NOT look upon what I have written as “recommendations.”  Particularly in the current environment.  They are simply “food for thought.”

Given current fundamentals:

*An ongoing oil price war (making drilling and refining unprofitable for many companies)

*An economy on shutdown (which cripples demand)

*An existential struggle between “green” energy and “traditional” fossil fuel-based sources (which creates uncertainty about future expectations)

All combine to make the energy sector a giant question mark at the present time.  But if the old adage that the time to buy is when there is “blood in the streets”, than investors might be well served in the long run to start thinking now about how much capital they might be willing to commit to energy, and what type of catalyst might prompt them to actually “take the plunge.”

Jay Kaeppel

Disclaimer: The information, opinions and ideas expressed herein are for informational and educational purposes only and are based on research conducted and presented solely by the author.  The information presented does not represent the views of the author only and does not constitute a complete description of any investment service.  In addition, nothing presented herein should be construed as investment advice, as an advertisement or offering of investment advisory services, or as an offer to sell or a solicitation to buy any security.  The data presented herein were obtained from various third-party sources.  While the data is believed to be reliable, no representation is made as to, and no responsibility, warranty or liability is accepted for the accuracy or completeness of such information.  International investments are subject to additional risks such as currency fluctuations, political instability and the potential for illiquid markets.  Past performance is no guarantee of future results.  There is risk of loss in all trading.  Back tested performance does not represent actual performance and should not be interpreted as an indication of such performance.  Also, back tested performance results have certain inherent limitations and differs from actual performance because it is achieved with the benefit of hindsight.

A couple of comments on current markets

Uncategorized

3-26-20 saw the market on the third day of a rebound from the low of 18213 on 3-23-20. The chart below shows the Fibonacci retracements from the recent high to this low.

The retracement hit the 38.2% level and this level can offer resistance. The market is down again and could be we are headed down to retest at or near the last low.

If we rally passes the 38.2% the next resistance level will be at 23775 or so at the 50% retracement level.

AIQ Market Timing signals

The AIQ Market Timing system issued a 99-1 up signal on 3-10-20, the chart below shows the signal. The Phase indicator changing direction in the direction of the signal (moving down then moves up) provides confirmation market Timing signals. IN this case that didn’t happen.

Another up signal 99-1 fired on 3-24-20 and this time the phase turned up the same day and confirmed the signal.

Here are 3 of the bullish rules that fired to create this high up signal

  • The 21 day stochastic has advanced and crossed the 20% line and the price phase indicator is also increasing.  In this weakly downtrending market this is taken as a strong bullish signal suggesting an increase in prices.
  • Volume accumulation percentage is increasing and the 21 day stochastic has moved above the 20% line. In this downtrending market, this is taken as a   strong bullish signal that could be followed by an  upward price movement.
  • The price phase indicator is negative but volume accumulation has started to advance.  This is a  non-conformation that, regardless of the type of market, is a bullish signal which usually results in an upward movement of the market.

The counter trend AI system that generates these signals can be early in their firing. 

HiLo Indicator Nears an Important Point

Uncategorized

The old adage is that we should “buy when there is blood in the streets.”  It basically means to buy when things look their worst.  Well, for the record I am not actually a fan of this intonation. While it is probably a fair statement, I for one prefer to see some sign of hope – some sign of a trend reversal at the very least – before taking the plunge. 

One historically useful indicator suggests we may be nearing that point. 

I refer to this indicator as JKHiLo.  I included my initials in the acronym because I “developed” it.  OK, all I really did was take one guy’s useful indicator and multiply it by another guy’s useful indicator and voila. 

In a nutshell JKHilo multiplies Norman Fosback’s HiLo Logic Index by Gerald Appel’s High/Low Indicator.

The Fosback HiLo Logic Index (FHLLI)

I wrote two articles here and here about this indicator.  In short, a very low number of stocks making new lows is bullish for the stock market – it indicates that stocks overall are going up and is bullish.  At the same time, a very low number of stocks making new highs is also (typically) ultimately bullish going forward, as it tends to signal a “washed out” market. 

So this indicator:

*takes the lower of new highs and new lows each day

*divides that number by the total number of issues trades

*takes a 10-day moving average of daily readings

Specifically, the Fosback HiLo Logic Index (HLLI) is calculated as follows:

A=Daily Nasdaq New Highs

B=Daily Nasdaq New Lows

C=The lower of A and B

D=The total number of Nasdaq issues traded

E = (C / D) * 100

FHLLI = 10-day average of E

Readings above 2.15% are considered a sign of “churning”, i.e., a lot of new highs AND new lows.  Reading below 0.40% are considered “bullish” because either new highs OR new lows is very low.

The Fosback HiLo Logic Index finally dropped below 0.40% on 3/23/20.  Figure 1 displays the OTC Composite Index with this indicator through 12/31/2019.

Figure 1 – Fosback HiLo Logic Index

The Appel High/Low Indicator

This indicator (heretofore AHLI) is more of a trend-following indicator.  It simply divides the number of new highs each day by the total of new highs AND new lows, then takes a 10-day average.

The AHLI is calculated as follows:

A=Daily Nasdaq New Highs

B=Daily Nasdaq New Lows

C = A / (A+B)

AHLI = 10-day average of C

Figure 2 displays this indicator versus the OTC Composite from 12/29/17 through 3/23/20.

Figure 2 – Appel High/Low Indicator (x100; blue line) with OTC Composite (/100; red line); Dec17 through 3/23/20

Extremely low readings tend to highlight oversold market conditions.  For the record, an actual “buy signal” for this indicator occurs when it drops below 0.20 (or 20 in Figure 3 since the blue line is the indicator x 100) and then rises back above that level.

The JK Hilo Index (JKHiLo)

So then one day some young punk comes along and multiplies the Fosback indicator by the Appel indicator and has the audacity to add his own initials.  Some people. Anyway:

JKHiLo = (FHLLI x AHLI) x 500

A “12-month Buy Signal” occurs when this indicator:

*drops below 5.00

*then turns higher for one day

The first part of this signal has happened.  As of the close on 3/23/20 JKHL has plunged to 1.8. 

Let’s look at previous instances when JKHL fell below 5.00 and then ticked higher for one day.

IMPORTANT: This upside reversal technically constitutes a “12-month buy signal”.  What does that mean?  It means:

*We expect the market to be higher 12-months later

*HOWEVER, it is NOT an “All Clear, Everything is Great, You Can’t Lose” signal

The bottom line is that it typically does NOT mark the actually bottom.  In most cases, another new low or at least a retest of the low follows within a few months.  But not always.

Figure 3 displays the 7 buy signals that have occurred since 1990.

A = Date of signal – i.e., date the JKHL indicator ticked up one day after dropping below 5

B = SPX closing price on date of signal

C = Subsequent low closing price for SPX

D = SPX closing price 12 months after signal date

E = # of trading days between date of signal and ultimate low

F = % decline by SPX from date of signal to ultimate low

G = % change in SPX closing price 1 year after date of signal

Figure 3 – JKHL 12-month buy signals

It is important to note that each previous “buy signal” was followed by further downside price movement prior to the ultimate low.  It ranged from 2 trading days in 2018 to 101 trading days in 2008.  6 of the 7 signals saw a further decline of no more than -6.3%.  But the 2008 signal saw the market continue to plunge another -31% of the following 3+ months.

So, like I said earlier, even when this indicator does turn up and generate a new signal, that DOES NOT mean “All Clear”.  Still, to get an idea of what we might expect, each of the previous signals are displayed in the Figures below.

Figure 4 – 1990 signal (-3.4% to low, +25.6% 12 months later)
(Courtesy AIQ TradingExpert)

Figure 5 – 1998 signal (-6.3% to low, +31.3% 12 months later)
(Courtesy AIQ TradingExpert)

Figure 6 – 2002 signal (-4.1% to low, +24.3% 12 months later)
(Courtesy AIQ TradingExpert)

Figure 7 – 2008 signal (-31.3% to low, +10.7% 12 months later)
(Courtesy AIQ TradingExpert)

Figure 8 – 2011 signal (-0.5% to low, +25.4% 12 months later)
(Courtesy AIQ TradingExpert)

Figure 9 – 2016 signal (-4.1% to low, +19.1% 12 months later)
(Courtesy AIQ TradingExpert)

Figure 10 – 2018 signal (-2.4% to low, +28.9% 12 months later)
(Courtesy AIQ TradingExpert)

We DO NOT have a new signal yet, but JKHiLo is below 5, so it is just a matter of waiting for the daily value to tick higher for one day (and then – if history is a guide – waiting for the ultimate low to be put in before a subsequent rally).

Figure 11 – As of 3/23/20 (Courtesy AIQ TradingExpert)

Summary

Are we on the cusp of a new opportunity?  Or on the edge of a cliff?  In this time of unprecedented uncertainty, I can’t pretend to know the answer.  So, I rely on objective indicators to guide me.

At this moment in time the “trend-following” indicators are bearish and so caution is undoubtedly in order.  But other indicators such as the one discussed here remind us to remain alert to new opportunities.

Jay Kaeppel

Disclaimer: The information, opinions and ideas expressed herein are for informational and educational purposes only and are based on research conducted and presented solely by the author.  The information presented does not represent the views of the author only and does not constitute a complete description of any investment service.  In addition, nothing presented herein should be construed as investment advice, as an advertisement or offering of investment advisory services, or as an offer to sell or a solicitation to buy any security.  The data presented herein were obtained from various third-party sources.  While the data is believed to be reliable, no representation is made as to, and no responsibility, warranty or liability is accepted for the accuracy or completeness of such information.  International investments are subject to additional risks such as currency fluctuations, political instability and the potential for illiquid markets.  Past performance is no guarantee of future results.  There is risk of loss in all trading.  Back tested performance does not represent actual performance and should not be interpreted as an indication of such performance.  Also, back tested performance results have certain inherent limitations and differs from actual performance because it is achieved with the benefit of hindsight.