Stock Market Collapse? Cyclicals Don’t Agree!

You would expect that if the stock markets were starting a major correction, the cyclical stocks (those that do poorly in recession) and transports (the shippers who are moving the freight) should be falling faster than the S&P 500.  That’s not the case.  The Morgan Stanley Cyclical Index is handily outperforming the S&P 500 over both the short and long term (anywhere from 2% to 5% depending on the time frame).  Over the past 2-weeks, the cyclicals are actually up 2%.  Transports haven’t confirmed anything either.  The conclusion?  The market pros aren’t betting on a market collapse – perhaps they’re just shearing the sheep.

My smart money indicator that tracks the last hour of trading agrees.  Although it wasn’t true today, since early October the pros have been buying in the afternoon.

FOR FEDERAL EMPLOYEES

Since the large cap multi-national stocks are the ones that have reported poor earnings, it may be worthwhile to shift into smaller cap stocks.  For Government employees in the TSP, that would mean shifting to the S-fund (Wilshire 4500) and out of the C-Fund (S&P 500).  Over the past month the Wilshire 4500 is exactly even with the S&P 500, but that may not continue due to revenue shortfalls associated with the slow-down overseas.  Since TSP only allows limited moves per month, it would be best to make the switch at the end of October.  That’s my plan, assuming the NTSM system doesn’t give me a sell signal in the interim. 

MARKET RECAP                                                                               

Wednesday the S&P 500 fell 1/3%, to 1409 (rounded) and VIX fell 2-2/3% to 18.33.   

VIX is not indicating a lot of fear now, so as I noted yesterday VIX is not confirming a correction.

NTSM

The NTSM analysis remained HOLD Wednesday.

MY INVESTED POSITION

Based on the BUY signal, 6 July, I moved back into the market on 9 July (after the weekend) at S&P 500 1352. 

I currently have a 50% stock allocation overall.  For my age, that is what many advisors recommend as a fully invested position, however, I am normally much more aggressive.  I have less invested in stocks now because there’s a lot of risk.