“The U.S. economy created a disappointing 113,000 new
jobs in January, the Labor Department reported Friday. Analysts expected
nonfarm payrolls to increase by 185,000 jobs last month. The unemployment rate
fell again to 6.6 percent, the lowest level since October 2008…Construction
companies added 48,000 workers in January after reducing employment by 22,000 a
month earlier.” Story and video
available at…
One would think that if this were weather related,
construction companies wouldn’t be adding workers, but the report indicated
they did. As a result, many have suggested that this poor report is not weather
related. I think some of it must be the
weather, but what do I know? Job losses
were in retail and Government, but in the end, the lack of job growth made this
report especially disappointing. The
December report (that some referred to as a “disaster” at 74,000 jobs created)
was revised upward by only 1,000 jobs. That too is a disappointment.FED UNLIKELY TO CHANGE THE RATE QE TAPERING (Reuters)
“Going a step further than his colleagues at the Federal Reserve, a hawkish policymaker said on Wednesday the U.S. central bank should wind down its bond purchases faster than planned and end it before mid-year. Philadelphia Fed President Charles Plosser's criticism of the policy stimulus is unlikely to sway new Chair Janet Yellen and the majority of Fed policymakers, whose position was reinforced on Wednesday by Dennis Lockhart of the Atlanta Fed…Lockhart, a centrist, said in Birmingham he was comfortable with the current pace of trimming accommodation… polls of economists show near unanimous expectation that the central bank will stick to $10-billion reductions at each meeting until the purchases end by the autumn.
REPORT FROM A TRADER BOARD
Comment from a day trader: “Sentiment update: The extreme
bullishness early January sets up the market for a more serious correction, and
in the past, and probably this time, the correction needs to garner tremendous
fear before the correction is over. That takes time or a more serious drop than
the recent 6%. We did get some fear with put buying on the CBOE the last couple
hours, probably setting up a rally Friday. But anything is possible and nothing
is certain, but a visit to SPX 1700 or so later this month sure makes the most
sense.”
MARKET REPORT
Friday, the S&P 500 was up 1.3% to 1797 (rounded).
VIX was down about 11% to 15.29.
The 10-year Treasury Note yield closed at 2.68%. Rates at
3% or above are considered by some traders to be “trouble-for-stocks”.
VIX continues to fall rapidly; the options players may
think the correction is over.
Market Internals are all positive for the 10-day averages
I follow, but I had expected that around 1800 would be a reversal point. S&P
500 1800 retraces half the loss so far.
(The Fibonacci guys will have a slightly different number for a
potential reversal.) So the markets would be expected to reverse in a correction
after a bounce at around 1800. Thus I find it hard to commit more money to the
stock market until the picture is a little clearer. See Market Internals below for more
discussion of the short term internals indicator.
MARKET INTERNALS (NYSE DATA)
The 10-day moving average of stocks advancing rose to 52%
at the close. (A number below 50% for
the 10-day average is generally bad news for the market.) New-highs outpaced new-lows Friday, leaving
the spread (new-hi minus new-low) at +58. (It was +13 Thursday). The 10-day moving
average of change in the spread was +11. In other words, over the last 10-days,
on average, the spread has increased by 11 each day.
All of the indicators are positive in the short
term. So the question arises is this
just a temporary bounce off the bottom or is the correction over? If the
reversals in the new-high/new low and breadth had been greater, it would have confirmed
an end to the correction. As it is, the
internals improvements would be expected for a dead-cat bounce or a correction
end, so at this point I don’t have an opinion.
Unfortunately, it will take a little longer to tell.
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 switched to HOLD today. It first indicated Sell on 24 Jan at S&P 500 1790.
Volume and VIX are currently negative. Price and Sentiment are neutral.
After 3-months of high sentiment, it has fallen (relative
to the extreme high %-bulls over the year) and has reached a neutral level at
73% bulls. That’s down 10% from the high
5-weeks ago. (The Sentiment sell level is based on a multiple of standard deviations above the
200-day average.)
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.
