Tuesday, February 25, 2014

Consumer Confidence...Worrisome Triple Top Formation with High RSI

“Ultralow borrowing costs. Pent-up demand. Aging infrastructure. Record consumer wealth levels. JPMorgan Chase's Tom Lee has a long list of reasons to remain bullish on stocks this year.  "To me it's really a formula for stocks to do quite well because it's going to be a story about earnings surprise for the next few years," Lee said Monday on "Squawk on the Street." Story and video at...

”Consumer confidence improved in January. The Conference Board’s Consumer Confidence Index increased to 80.7 from a downwardly revised 77.5 (from 78.1) in December. The Briefing.com consensus pegged the Consumer Confidence Index at 77.5…Consumption is reliant upon income, not sentiment. As long as the labor situation improves, consumption growth will follow.” Summary and charts at…

Tuesday, the S&P 500 was down 0.1 % to 1845 (rounded).  There was late day selling again today, suggesting the Pros are unsettled.

VIX was down about 4% to 13.67 and that suggests the options players didn’t agree that stocks should be down.    

The yield on the 10-year Treasury Note fell to 2.70% indicating bond buying overall.

The markets seem to be drifting.  I don’t see much in the indicators that say up or down, so for now it’s in a holding pattern.  The biggest worry is the chart of the Index that has stalled around 1848.  If the S&P 500 index can’t get above the old 1848 high, the most likely direction is down.  RSI says the same. 

The 14-day RSI is very high at 86 and it suggesting a short-term top. (“…the Relative Strength Index (RSI) is a momentum oscillator that measures the speed and change of price movements. RSI oscillates between zero and 100…RSI is considered overbought when above 70 and oversold when below 30.  More at…http://stockcharts.com/help/doku.php?id=chart_school:technical_indicators:relative_strength_in  )
RSI can remain overbought for some time, but a triple top is a bearish technical chart formation.  The S&P 500 needs to break to upside soon, or we should expect a reversal.

The 10-day moving average of stocks advancing fell to 61% at the close.  (A number above 50% for the 10-day average is generally good news for the market.)   New-highs outpaced new-lows Tuesday, leaving the spread (new-highs minus new-lows) at +108.  (It was +230 Monday). The 10-day moving average of change in the spread was +6. In other words, over the last 10-days, on average, the spread has increased by 6 each day. Up volume fell again on the day, and the 10-dMA is now falling so I judge internals to be neutral due to falling up-volume.
New-high/new-low stats are continuing to stall.  This can indicate a coming reversal (or not).  It doesn’t always work.  Deteriorating internals at the new-high is not encouraging, but it doesn’t guarantee the market will fail here.  We saw about a 3% gain in November 2013 on falling market internal stats.
Market Internals are a decent trend-following analysis of current market action, but should not be used alone for short term trading. They are usually right, but they are often late.  They are most useful when they diverge from the Index.  In 2013, using these internals alone would have made a 16% return vs. 30% for the S&P 500 (in on Positive out on Negative – no shorting).  Of course, few trend-following systems will do well in an extreme low-volatility, straight-up year like 2013.
The NTSM system remained HOLD today, Tuesday.  The first Sell signal of this cycle was just over 2-weeks ago on 24 January. As noted before, I expect we’ll either get a buy soon, if the market climbs much higher, or market internals will lead the index down.
All NTSM indicators are now neutral.  The 5-10-20 Timer remains neutral as do the Market Internals.
I am about 40% invested in stocks because I upped my stock holdings by 10% on 12 February (S&P 500-1819) based on Market Internal signals.  This is a conservative allocation, but putting a bit more into stocks recognizes that the market internals are improving on the S&P 500 and the “correction” may once again confound the bears.  Can you say March? I’ll reassess at the end of the month and add more or pull some out depending on indicators.  The end of the month is Friday so I’ll have to make a decision by then to game the 401k rules.