Our last update was on August 26th and the market had peaked on the 16th of that month. Almost a month later stocks are lower not higher. The S&P 500 is now down -10.28% since that close on the 26th of August. The S&P 500 closed at 3640.47 through Thursday. Since the August peak the S&P 500 is now down -15.44%.
Year to date now the S&P 500 is down -23.62% through Thursday’s close as noted above. The prior low on the S&P 500 was -23.07% on June 16th. So the S&P 500 had been in rally mode since mid to late June and mid August but now another correction is underway and a new low for the year.
In our last Bias Indicator update on the major equity indexes, the only periods that had strength were the Weekly (see August 26th Table). Now the all three time periods for U.S. Equity Indexes are below their respective DMA Channels (see September 21st Table).
August 26th Table
September 29th Table
Two month’s ago we noted, “The trick in August is going to be getting the indexes into their monthly DMA Channel first and then above the channel”. That never happened and now the S&P 500 has tested and failed its June closing low at 3671.25 on June 16th.
In our update on August 16th we noted, “The reality is that it may take a couple more months to get back above the monthly DMA Channel”. Clearly, that is the case now and we will monitor any changes and keep you aware of further improvements or deteriorations.
When we make recommendations or shortly thereafter, we will put a stop in play to limit losses or lock in gains before it erodes. Coming into this report we were down to one coverage name but we have been stopped out on our remaining recommendation.
In our July update, we showed the chart of Growth vs Value ETFs. We suggested to trade IVE for IVW and that has worked out well so far. IVW was recommended at $63.41 and was at $67.20 on the 26th. As such, we put a stop in place at $65.58 then. This was stopped out a few days later on August 30th.
We now have no open positions and will wait for an entry for a new long position that appears to be in order as we reach oversold status. We still like growth beating value into year end but with Wednesday’s FOMC announcement behind us the market could rally between now and November 2nd. However, we will need to see several indicators turn positive from negative before adding a new position.
The Erlanger Big Barf (EBB) has fallen to -19.21 on a daily basis after being positive a month ago. The EBB tracks the relationship of the S&P 500 against the CBOE Volatility Index. It will move higher if the S&P 500 rises and the VIX falls. Conversely, it will fall if the S&P 500 falls and the VIX rises.
The VIX has now risen back above 30 and sits at 31.84 with today’s close. Clearly, the S&P 500 and other indexes have taken a couple steps backward after moving forward since June.
Until our next update, start working on a shopping list.
© Erlanger Research
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