“Manufacturing grew at a substantially slower pace in January as new order growth plunged by the most in 33 years, driving overall factory activity to an eight-month low, an industry report showed on Monday. The Institute for Supply Management (ISM) said its index of national factory activity fell to 51.3 last month, to its lowest level since May 2013, from a recently revised 56.5 in December…The biggest red flag in the ISM report was the huge drop in the forward-looking new orders index, which fell to 51.2 from 64.4 in December.” Story at…
http://www.reuters.com/article/2014/02/03/us-usa-economy-manufacturing-idUSBREA120X720140203
Any number above 50 is expanding, so while growth has slowed, it is still expanding. It’s the speed of the slowdown that is troubling.
FACTSET EARNINGS INSIGHT (FactSet)
“At this point in time, 54 companies in the index have issued EPS guidance for the first quarter. Of these 54 companies, 44 have issued negative EPS guidance and 10 have issued positive EPS guidance. Thus, the percentage of companies issuing negative EPS guidance to date for the first quarter is 81% (44 out of 54). This percentage is above the 5-year average of 64%, but slightly below the percentage at this same point in time for Q4 2013 (84%).” Excerpted from FactSet Earnings Insight report for 31 January 2014 at...
CORRECTION NOTES
-VIX is breaking its downtrend extending back to June of 2012 as it has
continued to climb. Rising VIX is not
healthy for the market.
-The S&P 500 is now about 2% below the 50-dMA so that barrier has
been broken.
-The S&P 500 tested the 7 Nov 2013 low of 1747. Volume was higher so selling pressure is not
declining compared to that low. This
test was another failure. In theory
we’ll need to revisit today’s low of 1742 on lower volume to see if the
correction will end.
-The S&P 500 is 2% above its 200-day moving average and that is a
simple moving average. The 200-dMA is
now 1707. That may be where the markets
will reverse.
RSI indicates the S&P 500 is now “oversold.” RSI is a momentum indicator
that is used by many to determine “oversold” and “overbought” levels. RSI is best used with other indicators since
it does not give particularly timely signals since stocks can remain oversold
or overbought for a long time. RSI cycles between 0 and 100 (for 14-straight
down days or 14-straight up-days respectively). Normally a reading of about 30 is
considered oversold and 70 is considered overbought. I ran the numbers for RSI on the S&P 500
and found the readings have usually cycled between 35 and 65 so I set 35 as
oversold and 65 as overbought. For a
view of RSI for the S&P 500 you can go to < http://finance.yahoo.com/q/ta?s=%5EGSPC+Basic+Tech.+Analysis > and click on
RSI in the Indicators line. (Yahoo’s values don’t agree with mine, but RSI
depends on the time frame of the data set so it is hard to compare...In the
mean time I’ll review my calculations.)
Monday and Wednesday of last week were very nearly the first “oversold”
readings on the relative Strength Index (RSI) for all of 2013. Amazing!
Today was another “oversold” day.
I expect an oversold bounce, perhaps back to the 1800 area, especially
since today (Monday) was a statistically significant day in price/volume
action based on statistical analysis of price/volume movement. These days are followed by a reversal about
60% of the time so an up-day is favored for tomorrow; however, if the
correction has entered its waterfall phase, expect a number of down-days in a
row. I don’t think it has yet, but
investor psychology is hard to guess now after the huge run-up in 2013. In the waterfall phase of a correction, the
markets will trend nearly straight down.
We’ll see; it is time for the dip buyers to move in and there is no guarantee
that we’ll even see a waterfall phase.
MARKET REPORT
Monday, the S&P 500 was down 2.3% to 1742 (rounded).
VIX was up about 16% to 21.44.
The 10-year Treasury Note yield fell to 2.57%. Rates at
3% or above are considered by some traders to be “trouble-for-stocks”, but now
rates are falling because of a flight to safety. As bond-prices rise, yields fall.
Art Cashin, UBS Head of Floor Trading & CNBC contributor,
“…urged viewers to carefully watch the yield on the 10-year U.S. note.
"It's very close to breaking 2.6 percent. So there's more here than just
the stock market technicals. That's a good sign that there's trouble again in
the emerging currencies." As noted
above, the 10-year did break 2.6%. Video
at…
MARKET INTERNALS (NYSE DATA)
The 10-day moving average of stocks advancing fell to 43%
at the close. (A number below 50% for
the 10-day average is generally bad news for the market.) New-lows outpaced new-highs Monday, leaving
the spread (new-hi minus new-low) at minus 77. (It was -26 Friday). The 10-day moving average
of change in the spread fell to minus 23. In other words, over the last
10-days, on average, the spread has decreased by 23 each day.
Market Internals are a decent trend-following analysis of
current market action, but should not be used alone for short term trading. 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.
NTSM
The NTSM system remained SELL today.
The four areas of analysis, Sentiment, Price, Volume and
VIX are currently rated as follows:
-Sentiment is negative at 78%-bulls, down 5% from its
peak. 78%-bulls means that nearly 4 out
of every 5 investors are betting long in the Rydex-Guggenheim long/short funds
I track. Incredible!
-VIX (tracking direction and intensity of VIX) and Volume
(a variant of on-balance-volume) are negative
-Price (calculates and compares the size of up and down
moves) is neutral, but it is on the edge of a sell. There are also a number of indicators
designed to identify tops and bottoms such as the statistical analysis
“panic-indicator” that flashed sell a week ago.
MY INVESTED POSITION
I am about 30% invested in stocks as of 20 December
(S&P 500-1540) because I upped my stock holdings by 10% on the 20th
of December. 30% is a reasonable level
of stock holdings for a correction, so I don’t need to reduce holdings since I
don’t think this will be a major crash.
Even if a surprise collapse did take the stock market down by 50%, I’d
only lose 15% in the stock portfolio. On
the other hand, if I am wrong, leaving 30% invested in stocks hedges the bet
since no system is perfect.
