Wednesday, September 11, 2013

Topping Concerns…1987 Again?

“The six-day rally in the S&P 500 suggests a ‘topping process’ for stocks is in the making, Brian Kelly of Brian Kelly Capital said Tuesday.  ‘I don't know if this is the absolute top, but this is what you see when you start to see markets start to get disconnected from their fundamentals,’ he said.” Full story at…

1987 AND NOW (Minyanville)
The similarities with 1987 are looking a little bit creepy…NQ (NASDAQ-100 (INDEXNASDAQ:NDX) futures)…is taking some heat. That NQ lag started yesterday and is normally a bearish sign. What is even more troubling is the equity put-to-call ratio the past few days.  Here are the readings for the past 6 days in a row:
0.54, 0.54, 0.52, 0.5, 0.45, 0.48.
These are extremes in bullish sentiment, never mind the polls. Big upside bets are being put on by the smaller speculative crowd. Add NYSE margin debt exceeding what we saw in 2000…and the potential cycle mentioned above, and the recipe for a strong bearish event is present.”  Full opinion and analysis from Minyanville at …

U.S. wholesale inventories rose less than expected in July, suggesting restocking will probably not contribute much to economic growth in the third quarter. The Commerce Department said on Wednesday wholesale inventories edged up 0.1 percent after falling 0.2 percent in June…It was the largest decline since August last year and partially offset gains in automobile, petroleum, furniture, machinery, electrical and apparel stocks…Sales at wholesalers nudged up 0.1 percent after rising 0.4 percent in June. Economists had expected sales to rise 0.4 percent in July.”  Full story at…

“…retailers face soft -- and in some cases, declining -- demand in consumer spending,…Retail stocks are a leading economic indicator. When I look at the retailers today, I see a declining trend in their prices. One of my favorite leading indicator retail stocks to watch is The Gap, Inc. (NYSE/GPS). Its stock price is down roughly 13% off its August highs -- not good news at all for this sector.” – Michael Lombardi.  Opinion and analysis posted on dShort Advisor perspectives at…

My review of Cyclical stocks vs. the S&P 500 index indicates there is currently NO Recession Concern by market participants.  Over the past 2-months cyclical stocks (in the Morgan Stanley Cyclical Index) have outperformed the S&P 500 by 5%.

Wednesday, the S&P finished up 0.3% to 1689 (rounded) at the close.
VIX was down 5% to 13.82.

Today the S&P 500 closed 1.2% above the simple 50-dMA and this is the 3rd close above the 50-dMA so that is bullish for the markets.

The 10-day moving average of stocks advancing on the NYSE was up again to 58% at the close Tuesday.  (A number above 50% for the 10-day average is generally good news for the market.) 

New-highs outpaced new-lows today, Tuesday, leaving the spread at +114 (it was +168 Tuesday), with the 10-day moving average of change in spread still positive. 

The Internals are positive on the market; the New-high/new-low data picked up so forget yesterday’s suggestion that the indicator looked like it was going to reverse to the down-side.

In spite of my overall long-term concerns (as echoed in the above crash-articles and the NTSM long-term positioning) the short term Market Internal indicators look pretty positive, but there are a couple of negatives: (1) the S&P 500 is up 9 out of the last 10-days and that is too bullish for market health.  (2) Sentiment is down to 52%-bulls; but it peaked at 65%-bulls 2-weeks after the recent top on 2 August.  That is consistent with a top or correction start. 

I expect to see a reversal soon.

Wednesday, the overall long-term NTSM analysis remains HOLD at the close.

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.