The Current Correction Has Been Marching Forward Since Aug 01, As Of Aug 10, 2023

Introduction

Last week the TDI (Trifecta Distribution Index) flashed a Correction Signal from nowhere. This week Monday (Aug 07), TDI, the SDI (the S&P 500 11-Sector Diffusion Index), and the current 4.5 months old Uptrend, unanimously confirmed the Correction Signal. Both the SDI and the TDI have a Daily Signal.

These two indices are not products of the time-series analysis such as econometric models, but a sort of a cross-section analysis outputs. They are really invaluable tool to watch the signal. You don’t know what they are? Please click here.

Adding a couple of days will help their signals clearer day after day. Also, the Uptrend watch hints whether it indirectly supports the signal. The description of the Paper-And-Pencil-Only [PPO} Approach for Uptrend, the TDI, and the SDI) is there.

On the other hand, in retrospect, among the previous 4 batches of the Dow Jones Industrial Average [DJIA] (which is in the REFERENCE section) were not fitting well for Group #2 (8 Bullish [BL] 8 stocks, and Group #3 (Bearish [BR] 7 stocks) to the July data.

The former had only lower CORRELs, and HD and AMGN had no negative and no lower CORREL with others. The latter had no lower CORREL, and negative ones only. I could made only 6 Templates in Part II, and 10 Template in Part III.

As a consequence, I reshuffled the deck with July data, and drew the following New 4 batches:

1) 7 BL Stocks (HON, MRK, AXP, VZ, MSFT, V, MCD)

2) 8 BL Stocks (WBA, CSCO, TRV, CRM, DIS, KO, JNJ, WMT)

3) 7 BR Stock (AAPL, AMGN, NKE, PG, CVX, UNH, CAT)

4) 8 BR Stock (JPM, HD, DOW, IBM, INTC, GS, MMM, BA)

The Focus

The SDI, TDI, and Uptrend Watch as of Aug 10.

The Analysis of the New Batch #1 of the DJIA 8 BL Stocks.

The SDI As Of Aug 10, 2023

As of Aug 10, the SDI was 36% which was far below than Jul score 60% that is 1% shy of the record log of Jan. The SDI must clime 24% more.

The TDI As Of Aug 10, 2023

As of Aug 10, the TDI (Trifecta Distribution Index) Tp vs. Tm was 1 vs. 3. The TDI has recovered a bit from Tp vs. Tm as 11 vs. 7 on Aug 09 to 12 vs. 7 on Aug 10. There is still only 5 points to tie at 12.to 12, so the TDI doesn't have a big room.

The 4.5 months Old Uptrend As Of Aug 10

In Aug, Bullish [BL] point was only 2 while the Bearish [BR] points were 6. Together BL vs. BR deteriorated from 13 vs. 7 to 15 vs. 13. As a result, the current Uptrend, started in the end of Mar, is in a dangerous zone.

In sm, the economy slows and the correction signal becomes clearer day by day now.

For the TDI and the SDI, view this, and to reconcile Tables 1, 2, 3, please check Tables 11, 22, 33 in the “TABLE” section after the main text.

The Market On Aug 09, 2023

Charles Schwab reported:

“[The] stock market closed with losses again today. The major indices had been following a similar form to yesterday's trade and looked poised to close on an upswing after rebounding from their lows. The market turned sharply lower ahead of the close, however, and settled near the worst levels of the day.

On Tuesday, the S&P 500 traded down to 4,464 before reversing and finishing the session at 4,499. Today, the S&P 500 traded down to 4,461 before reversing and stopping short of the 4,500 level, which precipitated the late selling interest. The deterioration was broad and orderly with many stocks participating, but mega cap losses had an outsized impact on index performance.

The Invesco S&P 500 Equal Weight ETF (RSP) was up 0.3% around 3:00 p.m. ET, but closed with a 0.3% loss; the Vanguard Mega Cap Growth ETF (MGK) was down 0.5% around 3:00 p.m. ET, but closed with a 1.1% loss; and the market-cap weighted S&P 500 was down 0.1% around 3:00 p.m. ET, but closed with a 0.7% loss.

The S&P 500 energy sector (+1.2%) was the top performer by a decent margin. The information technology sector (-1.5%), meanwhile, closed with the steepest loss. “

The 12 Portfolio Templates Of 7 DJIA stocks (Part one)

The Special Note: Three References, R1, R2, and R3, are put in the “REFERENCE” section after the main text to help readers:

R1: The PPO Approach, R2: Portfolios vs. Individual Stock, and R3: CORREL, The Description of the DJIA, four Batches of the DJIA, and the CORRELs among all 7 components of Batch I, and Their 13 Portfolio Templates.

This first Batch of new data, 7 Bull Stocks, follow the same method which was applied to the first Bach (of old data) 7 Bull Stocks. The latter consist of MMM, DOW, MSFT, CAT, CSCO, AAPL, VZ, the former does of Honeywell (HON), Merck (MRK), American Express (ASP), Verizon (VZ), Microsoft (MSFT), Visa (V), McDonald’s (MCD).

Each line of Table4 from HON to MCD has the CORRELs with other 7 Stocks:

1) HON has 4 lower CORRELs with MCD, MRK, VZ, MSFT.

2) MRK has 2 negative CORRELs with MSFT, V, and 2 lower CORRELs with ASP, HON.

3) ASP has 2 lower CORRELs with MRK, VZ.

4) VZ has 2 negative CORRELs with MSFT, V, and 3 lower CORRELs with HON, ASP, MCD.

5) MSFT has 2 negative CORRELs with MRK, VZ, and 2 lower CORRELs with HON, MCD.

6) V has 2 negative CORRELs with MRK, VZ, and 1 lower CORREL with MCD,

7) MCD has 4 negative CORRELs with V, MSFT, VZ, HON.

The 12 DJIA BL 7 Portfolio Templates

1) HON (35%) MRK (35%) VZ (30%)

2) HON (30%) MSFT (35%) MCD (35%)

3) HON (30%) MSFT (35%) MCD (35%)

3) MRK (35%) MSFT (35%) ASP (30%)

4) MRK (25%) V (25%) HON (25%) MCD (25%)

5) ASP (35%) MRK (35%) VZ (30%)

6) VZ (30%) MSFT (35%) HON (35%)

7) VZ (25%) V (25%) ASP (25%) MCD (25%)

8) MSFT (35%) MRK (35%) HON (30%)

9) MSFT (30%) MCD (35%) VZ (35%)

10) V (25%) MRK (25%) VZ (25%) MCD (25%)

11) MCD (35%) V (35%) VZ (30%)

14) MCD (30%) MSFT (35%) HON (35%)

The Final Concerns

Aug 01 (Tue), Aug 02 (Wed), Aug 03 (Thu), and Aug 04 (Fri), the market revolted, by shaking unusually. The market pulled down drastically.

Tuesday (Aug 01) the DJIA pushed higher to avoid another bearish Trifecta.

Wednesday (Aug 02), Thursday (Aug 03), and Friday (Aug 04), nonetheless, Three Jumbo Marks of Negative Trifecta were Logged in a Row.

Then Monday (Aug 07) we had a nice BL SDI 91%, a good BL TDI print, and a tick improvement in the Uptrend. Following Tuesday (Aug 08) and Wednesday (Aug 09), nevertheless, the S&P 500 Index slid -0.42% and -0.70%, respectively. Thursday (Aug 10) three market indices were inch up.

We don’t know the size and length of correction, but a correction no doubt is going ahead now, and we must check the run of the correction status every session.

The positive news is the SDI, the TDI, and the current Uptrend fulfilled very promptly and accurately.

The negative news is bulls have to stay the course no matter what will happen in the correction road in a couple of months.

REFERENCE

R1. The Innovative “Paper-and-Pencil-Only” (“PPO”) Approach

The “PPO” Approach with a minimum help of EXCEL demonstrated a clear track on the coming up-/down-momentum and up/downtrend which has not been detected by clever algorithms (i.e., moving average) or sophisticated graphics or charts.

The PPO distinguishes the movement SPY or other ETFs as “P” (plus) or “m” (minus), without considering the size of changes.

Currently, The PPO approach works on 1) Uptrend, starting March 31, 2023, 2) the Trifecta Distribution Index [TDI], and the Sector Diffusion Index (SDI), as described in “Trend Investing with the Paper-and-Pencil-Only [PPO]”, Jul 17, 2023.

R2. Selecting Individual Stocks vs. Portfolios

Most investors invest in any single securities (stocks or ETFs). A single security is riskier than a portfolio, which is not just a group of securities, but is a well-selected cluster, considering mainly a lower correlation among all component to achieve your investment goal.

The portfolio templates are made by my investment experience in a couple of decades, and an extensive analysis with the observed market data which is the most trustful source. You can easily adapt any template and follow my instruction.

R3. Correlation Coefficient [CORREL]

CORREL computes how tightly to move for two components, ignoring the causality between them one way or the other. The tighter, the higher percentage. When two components move in opposite direction each other, we have a negative percentage.

Negative percentages or lower percentages are carefully selected and making a Portfolio with a bunch of three or four components

The Dow Jones Industrial Average [DJIA}

The DJIA is not a market-cap weight averaged, but a price weighted index. The DJIA moves faster than the S&P 500 and the economy, so quite often leads the market and the economy upward or downward.

Since July 10, the DJIA has moved up in 13 sessions in a row until July 26.

The 3 highest price stocks were 1) UnitedHealth (UNH) ($505.23), 2) Goldman Sachs (GS) ($354.19), and, 3) Microsoft (MSFT) ($350.98), while the 3 lowest price stocks were 1) Walgreens Boots Alliance (WBA) ($30.63, 2) Verizon (VZ) ($34.24) and 4) Intel (INTC) ($34.55).

We have to concentrate on higher priced stocks which have a heavier influence compared to lower price stocks.

The 4 Segments of the DJIA 30 stocks

1) The Leader (Bullish) [Bull] 7 Stocks (MMM, DOW, MSFT, CAT, CSCO, AAPL, and VZ)

2) The Bull 8 Stocks (UNH, CVX, CRM, JNJ, WBA, HD, AMGN, IBM)

3) The Laggers (or Bearish) [Bear] 7 Stocks (Hon, INTC, PG, WMT, KO, V, and AXP)

4) The Bear 8 Stocks (GS, MCD, JPM, MRK, TRV, NKE, BA, and DIS)

Fifteen “Bull” Stocks (which are 7 stocks, and 8 stocks), and Fifteen “Bear” stocks (which are 7 stocks, and 8 stocks) are just a tentative division.

The “Bull’ group happened to outperform, while the “Bear” bunch somewhat underperformed recently. All 30 DJIA stocks are well-selected blue chips. Therefore, investors should not think the latter are inferior to the former.

(From “ The Economy And The S&P 500 Led By The Dow?” Jul 31, 2023)

TABLE