Monday, February 24, 2014

Triple Top at the Prior High

Art Cashin said the benchmark S&P stock index is approaching a key technical level that could spark either big gains or big losses.  Cashin, UBS' director of floor operations at the NYSE, told CNBC's Bob Pisani around midday he expects a "great flirtation" with the S&P's old highs. He sees a significant band of resistance around 1848 to 1851. "If they approach that and get repelled again you could get a pretty severe pullback... If they get through that you may get some stampede buying from short-coverers…”  Story and video at…
The above video was published at 1:50 PM Friday.  I must point out that the S&P 500 hit 1846 just after 11AM and was unable to push higher. The index fell for most of the remainder of the day Friday.  Monday, the same pattern followed.  The markets made the old high but couldn’t remain above it.  Time is running out for the push above 1848.  Perhaps the index will make it Tuesday.

“I would associate wild speculation in this type of companies with a near-term top of the market,” Wilbanks, [Wayne Wilbanks of Wilbanks, Smith & Thomas Asset Management LLC ] based in Norfolk, Virginia, said in a Feb. 19 phone interview. “People bid these things up like crazy. The fact they’re so strong right now means we’re probably not quite there yet as far as the market rolling over.” Story at…

Monday, the S&P 500 was up 0.6% to 1848 (rounded) as the index closed at its prior high forming a Triple Top going back to 31 December.  The so-called smart money (those who trade the last hour) apparently didn’t like the intra-day new-high today and sold the rally into the close.
VIX was down about 3% to 14.23.    

The yield on the 10-year Treasury Note rose slightly to 2.74% indicating bond buying overall.
The 10-day moving average of stocks advancing fell to 62% at the close.  (A number above 50% for the 10-day average is generally good news for the market.)   New-highs outpaced new-lows Monday, leaving the spread (new-highs minus new-lows) at +230.  (It was +157 Friday). The 10-day moving average of change in the spread was +17. In other words, over the last 10-days, on average, the spread has increased by 17 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.
In addition, some 10-day new-high/new-low stats are slowing rapidly.  This can indicate a coming reversal (or not).  It doesn’t always work.  Deteriorating internals at the new-high are not encouraging, but it doesn’t guarantee the market will fail here.  We saw about a 3% gain in November 2013 on falling internals.
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, Monday.  The first Sell signal of this cycle was just over 2-weeks ago on 24 January. 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 in my retirement account.