Thursday, August 1, 2013

Lots of Good News Today: Jobless Claims; ISM Factory Index

“Manufacturing in the U.S. expanded at the fastest pace in more than two years as orders and production jumped, indicating more factories were growing optimistic about the second half of the year.

The Institute for Supply Management’s factory index increased to 55.4, the strongest since June 2011 and exceeding the highest projection in a Bloomberg survey of economists, after 50.9 in the prior month, the Tempe, Arizona-based group’s report showed today. Readings above 50 indicate expansion…”  Full story at…

“…the Labor Department said initial claims for state unemployment benefits dropped 19,000 to a seasonally adjusted 326,000 last week, the lowest level since January 2008.

While claims are extremely volatile in July because of summer auto plant shutdowns, economists who had expected new filings to rise to 345,000 last week said the general tone of the report was consistent with a pick-up in job gains…"This suggests the labor market is still expanding. There is no sign that it's slowing. It might actually be picking up a bit," said David Sloan, senior economist at 4Cast in New York.”  Full story at…

“Art Cashin said the 10-year U.S. note yield is getting "dangerously close" to the range of 2.7 percent to 2.8 percent, a level that's been a "tripwire in the past" for the stock market.

In his daily video clip with Bob Pisani, UBS's Cashin said so far the stock market is "shrugging it off" but warned that could be due to new money coming into the market as August begins.  "We'll have to give that a couple of days to see how it plays out."  Video at…

Thursday, the S&P was up 1.25% to 1707 (rounded).
VIX was down about 4% to 12.94.

Thursday was a statistically-significant day in price and volume so a down day would be the likely outcome for tomorrow.  I wouldn’t be surprised to see at least a 5%-pullback start now or in a couple of days at most.  (Volume was about 15% above the monthly average today.)  There’s other evidence of pullback:

The S&P 500 is now 11% above its 200-day moving average. That level suggests a pullback...but wait, there's more: Take the percent above the 200-dMA and combine it with sentiment and that value is quite reliable at calling trouble – it says trouble is now!  This metric suggest at least a 10%-pullback.

There has been a lack of movement (or volativity) in price and volume (measured in daily statistics) that suggests a top now or within a few weeks. As noted below, Internals are also negative.

The 10-day moving average of stocks advancing on the NYSE ended slightly below 50% and is still trending down while the market is going up.  (Usually a value below 50% signals additional trouble for the markets.)  The downward trend in breadth is impossible for the index to resist.  Either this down-trend must change or the market must follow breadth down.

The change in the daily spread of new-highs and new-lows is improving while other measures derived from new-hi/new-lo data continues to suggest further downside ahead…soon.

Bottom line: Internals still don’t look good, but that could change.  Like most indicators, internals don't foretell the future, they just show the trend. 

Thursday, the overall NTSM analysis was HOLD at the close. 

Will this market continue up and ignore technical indicators that have been reliable in the past at analyzing the markets?  Perhaps.  The markets may be propped up by FED, Foreigners (buying), new-money entering (suckers) forever…only time will tell.  Perhaps I am the sucker!

I remain about 20% invested in stocks (yes, still) 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.