Monday, March 24, 2014

China Manufacturing Slowing…US Manufacturing Slows too

China’s manufacturing industry weakened for a fifth straight month, according to a preliminary measure for March released today, deepening concern the nation will miss its 7.5 percent growth target this year. The Purchasing Managers’ Index from HSBC Holdings Plc and Markit Economics dropped to 48.1…”  Story at…
What?  Did they have bad weather too?  OK, bad joke. The mention of China’s GDP growth missing its 7.5% target is the joke, because the 7.5% number is mostly made up.  For example, part of their GDP growth is based on a huge building program that has increased housing in the cities.  Now those real estate complexes stand vacant. In a State-run economy, can constructing buildings that do not satisfy an actual need be considered a positive for GDP?  I say no.  It is similar to the over building in the rest of the world from 2004 until the 2007/8 crash.  The rest of the world paid dearly.  China’s problems may be a continuation of those problems as well as an indicator that word demand is slowing.  

“U.S. manufacturing activity slowed in March after nearing a four-year high last month, but the rate of growth and the pace of hiring remained strong, an industry report showed on Monday. Financial data firm Markit said its "flash" or preliminary U.S. Manufacturing Purchasing Managers Index slipped to 55.5 from 57.1 in February. Readings above 50 indicate expansion.”  Story at…
The Chicago Fed reported that national economic activity increased in February, but it’s the above slowing in March reported by the private firm Markit in the preliminary PMI that is concerning.  There should be pent up demand as a result of bad weather in January and February.  March should be accelerating.
Monday, the S&P 500 was down about 0.5% to 1857 (rounded).
VIX rose about 0.6% to 15.09. 
The yield on the 10-year Treasury Note was down slightly to 2.73%.

Breadth continues to show lower lows and mostly lower highs.  The 10-day moving average of stocks advancing on the NYSE remained 50% at the close.  (A number below 50% for the 10-day average is generally bad news for the market.)   New-highs outpaced new-lows Monday.  The spread (new-highs minus new-lows was +44.  (It was +165 Friday). The 10-day moving average of change in the spread was minus-2.   In other words, over the last 10-days, on average, the spread has decreased by 2 each day. The smoothed 10-dMA of up-volume was up today, partly because of the high-volume day Friday.  The internals are neutral on the market, but new-hi/new-lo data may be turning upward so the internals might switch to positive soon. If they do, I will return to a stock allocation of 50%.   

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 analytical model remained HOLD today.  The Price indicator is positive, because up moves have been bigger than down moves recently. VIX turned positive today, too, since VIX has been dropping.  Sentiment is negative, but just barely. The Volume indicator is neutral.

I reduced to 30% invested in stocks because of the NTSM sell signal on 13 March.  This is a conservative stock allocation commensurate with the NTSM Sell signal.  Leaving 30% invested hedges the bet in case NTSM is wrong – no system is perfect.  I will return to 50%-stock allocation if the Market Internals of the NTSM indicators turn positive.  Internals could still turn positive soon; we’ll see.