Friday, August 16, 2013

Consumer Confidence Falls…More Stock Market Correction/Crash Predictions…and Stock Market Analysis

Consumer confidence in the U.S. unexpectedly dropped in August from a six-year high as Americans faced rising interest rates.  The Thomson Reuters/University of Michigan preliminary index of consumer sentiment fell to 80 from 85.1 in July, which was the highest since July 2007…The decline this month was the biggest since December…“Interest rates are going up a little bit, that never helps,” Paul Ashworth, chief U.S. economist at Capital Economics in Toronto, said before the report. “But we still have the background of what looks like a still-improving housing market.”  Story from Bloomberg at…

The consensus listed at was for no change, i.e. 85.1.

A "giant reset" is looming for the markets because the improving economy is simply not trickling down to companies' bottom lines, CNBC's Jim Cramer said Thursday…"We have to deal with the four walls of the corporate canvas, and they are simply not able to turn this macro positive into micro earnings gains, and that's a real conundrum, particularly when the 10-year is signaling that happy days are here again," he said…"In the end, the market comes down because of the reset," he said. "I'm in love with macro, but I'm swimming in the toxic pit here." Commentary and video from CNBC at…

Jim Cramer is echoing the concerns posted here in recent blogs and pressed by John Hussman: earnings and revenue have been weak and this is occurring at all-time highs for the stock market. 

“Dan Seiver, editor of the Pad System Report and a professor of finance at San Diego State University, bases his long-term valuation model on Value Line's median appreciation potential, which he said has shown statistically to have predictive value of where the market is headed. "Right now, that number is relatively low. It's down in the range that it was in 2007," Seiver told "Squawk on the Street" on Thursday. "That tells me that over the next few years, the returns on stocks aren't going to be particularly good and they could even be negative." Commentary and video from CNBC at…

Friday, the S&P was down 0.33% to 1656 (rounded).
VIX was Down (surprisingly) 2% to 14.37.

In the NTSM section below, I noted that Sentiment is sky high and traders are buying the dip.  Apparently, so are the options players and that is pulling the VIX lower. 

The S&P 500 is 0.1% below the 50-dMA (now at 1625) at Friday’s close so we might as well say it is AT the 50-dMA.  Will it bounce as it has in the past or will it fall further? 

I think we fall from here, perhaps after a small bounce.  Volume was higher on the NYSE Friday than it has been in the last 3-weeks so some are getting concerned about this falling price on the S&P 500.  The market Internals look ugly.

The 10-day moving average of stocks advancing on the NYSE fell to 39% at the close.  Usually a value below 50% signals additional trouble for the markets.   For the day only 35% of stocks advanced.  With that sort of stat, I really would have expected more downside today, so perhaps Monday will be another follow-thru day and the markets will again move down.

New-lows of 316 outpaced the new-highs of 28 today leaving the spread at -288 with the 10-day change in spread trending down.

Today’s reading of Internals is negative on the market and suggests the market is likely to continue its downward trend. 

Friday, the overall NTSM analysis was HOLD at the close, but it moved a lot closer to a sell. 

That’s rather meaningless now (for me) since the 1st NTSM sell of this cycle was back at 1575 on 16 April and the most recent sell was 23 July at 1692. 

SENTIMENT climbed to 66%-bulls in the 5-day moving average of Guggenheim/Rydex funds I track.  Twice as many traders are betting the market will go up rather than down.  That extreme over-bullish position is negative for the markets.  So the buy-the-dip crowd is moving in at the 50-dMA, but this time I think they will be disappointed.  Even so, we’ll keep a close eye on technicals to see if we can identify a buy point if the market repeats recent history at the 50-dMA.

I remain about 20% invested in stocks as of 5 March (S&P 500 -1540).  The NTSM system sold at 1575 on 16 April.  (This is just another reminder that I should follow the NTSM analysis and not act emotionally – I am under-performing my own system by about 2%!) 

I have no problems leaving 20% or 30% invested.  If the market is cut in half (worst case) I’d only lose 10%-15% of my investments.  It also hedges the bet if I am wrong since I will have some invested if the market goes up.  No system is perfect.