Friday, February 28, 2014

GDP…Chicago PMI

"The economy in the U.S. grew at a slower pace in the fourth quarter than previously estimated, giving the expansion less momentum heading into 2014. Gross domestic product grew at a 2.4 percent annualized rate from October through December, compared with the 3.2 percent gain issued last month, revised figures from the Commerce Department." Story at...

The Chicago PMI [Purchasing Managers Index] increased to 59.8 in February from 59.6 in January. The consensus expected the Chicago PMI to fall to 56.0…the blustery weather in February had absolutely no effect on Chicago-area manufacturers.” Story and charts at…

"Despite recent signs of a possible slowdown, the growth story for the U.S. economy remains intact, top Federal Reserve officials said on Friday, suggesting they will continue to support reductions in the Fed's massive bond-buying program.
Recent bad weather in large portions of the United States is having an impact on economic activity, but that is no reason for less optimism about economic prospects for the rest of the year, St. Louis Federal Reserve President James Bullard told CNBC television on Friday.” Story and video at…

Friday, the S&P 500 was up 0.3% to 1859 (rounded).  Today the markets moved up early in the day and looked good.  This might be one of those days when even the pros bought in the morning.  All looked well until about 2PM when news/rumors began to emerge that Russia had invaded Ukraine and the market collapsed.  They recovered late day and improved into the close.
VIX fell about 0.3% to 14.0.

The yield on the 10-year Treasury Note rose slightly to 2.65%. 

I don’t know how the Ukraine crisis will affect stocks.  It will depend on events, but it may not have a huge effect unless the U.S. gets involved. 

The “correction” of Jan-Feb 2014 was slightly less than 6%.  Not much of a drop, but it seems that investors continue to buy stocks and as I have said before, the “correction” is over. I added more to the stock portfolio today, but I will remain vigilant.  This market still faces issues that should worry investors, especially High valuation in the PE10 (Shiller PE or CAPE).  That’s a PE based on 10-year averages of earnings that are then adjusted for inflation.  Other valuation issues are concerning too.  Should PE’s based on next year’s earnings be above normal when growth is a very low 2%?  Probably not, but that doesn’t mean more investors won’t pile in.  In fact, I expect that they will.

That’s why I upped my stock portfolio today.  Because of the 401k rules, I made my decision before noon.  

The 10-day moving average of stocks advancing fell to 59% at the close.  (A number above 50% for the 10-day average is generally good news for the market.)   New-highs outpaced new-lows Friday, leaving the spread (new-highs minus new-lows) at +201.  (It was +113 Thursday). The 10-day moving average of change in the spread was +8. In other words, over the last 10-days, on average, the spread has increased by 8 each day. 10-dMA of up-volume rose today and the 10-dMA of percent of up volume was 64%. 

The internals are positive.
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 switched to BUY today, Friday, because the 5-10-20 Timer is positive along with the Market Internals noted above.
I am about 50% invested in stocks because I upped my stock holdings by 10% on today.  That’s fully invested for me at least as far as long term money goes.