Friday, March 28, 2014

China slowdown impacts Commodities…Correction? Still not yet.

How the slow-down in China is beginning to affect the world’s economy.

“The U.S. Department of Agriculture confirmed that China has canceled orders for 517,000 metric tons of soybeans, used to make cooking oil, and compares to imports of 63.4 million tons last year. South American soybean contracts have also been canceled because of weak demand, says trade journal Oil World.  The cancellations are a big worry for the commodity markets as exporters around the world had relied for years on China's insatiable appetite for a wide range of raw ingredients. But now as jitters rise over the health of the economy, the fallout is rippling through into agricultural commodities, just weeks after the price of copper and iron ore tumbled on worries they had been used in risky Chinese financing deals.”  Full story (for subscribers only) at…
(The WSJ is a great newspaper that has a lot more info than just financials.  My wife loves the art and fashion pieces. My obligatory plug.)

Perhaps.  It is underperforming the S&P 500 by nearly 5% in 1-month and 4% in the last 5-days when compared to the S&P 500.  The talking heads on CNBC say this is a bad sign for the markets. The theory is that if the momentum stocks (the high flying leaders) are failing, the rest of the market is not far behind.  The ETF is MTUM

“I am becoming increasingly cautious on the stock market for a variety of reasons:
1. There has been some meaningful technical deterioration in the market. Market leaders tech and biotech have become tech and bio-wrecks
The number of new highs has not broken out coincident with intraday all-time highs set last Friday in the S&P 500
The advance/decline line and up/down volume have not given extraordinarily positive signs amid the market's most recent rally.
2. There has been considerable froth in the IPO market, of late, often times a signature of a maturing bull-market move.” – Ron Insana.  Commentary at…

“There's a real sense that something foreboding may be lurking just around the corner, said Jim Cramer. And the "Mad Money" host isn't surprised. He says that since there have been so many conflicting cross currents, investors just don't know which end is up.” Story and video at…
MY COMMENT ON THE 3-PRIOR STORIES: I have long observed that when everyone thinks one thing will happen on Wall Street, the opposite is much more likely, i.e., the markets will probably go up to new all-time highs.  When the consensus becomes the market can’t fail…look out!

“It has happened over and over again throughout history.  Nations, empires, and dynasties have made bad economic decisions which lead to their own destruction.  The scenario usually goes something like this--one generation sacrifices and works hard to overcome global challenges and creates an economic powerhouse, which in turn allows it to project military power.  Follow on generations take their elders work for granted and ignore and even denigrate the fruits of hard labor, they just want the benefits and start giving away the spoils for free.  The next generation indulges itself in sloth and corruption and is overrun by the barbarians…We need to stop spending money we don’t have and…[t]he government needs to get out the way.  If you are in a hole and want to get out the first thing you need to do is stop digging.” - L Todd Wood.  Commentary at…

Friday, the S&P 500 was UP (fixed a typo here) about 0.5% to 1858 (rounded).
VIX was down about 1.4% to 14.41.
The yield on the 10-year Treasury Note rose to 2.72% indicating the bond-ghouls (as Louis Rukeyser used to call them) were less worried.

RSI: 70 OR 39? (SELL OR HOLD?)
I commented yesterday (Thursday) that RSI was in the 30’s (it was 39), but I have seen Trader Board discussions that the RSI was high (70) and that indicated a sell.  Hmmm…What gives?  It looks like they are calculating RSI in intervals of 14, but the input is not a closing value for the S&P 500, but rather a much shorter term value.  They were apparently using the S&P chart of Price at 10-minute intervals of the Index (or SPY) and thus the indication of RSI of 70 is based on a shorter, day-trader value. If the RSI(14) was based on a 10-minute value, one would get a single data point every 10-minutes and 14-data points every 2-hours and 20-minutes.  While this is valid as far as an RSI value is concerned for day-trading, it is not going to be the same as an RSI(14) based on daily closes. Based on closing data, today’s RSI is 43.  This is a neutral value.

The S&P 500 has been generally falling since 7 March and some are suggesting that the Index is now in a downtrend.  Clearly the Index is trending down.  Seems simple right? There is an important component here that shouldn’t be ignored.  The percentage of stocks advancing is trending UP over the same time frame at a very sharp upward angle.  What this means is that most stocks on the NYSE are advancing and the number advancing is accelerating.  These upward moving stocks just are not the ones heavily weighted in the S&P 500.  In most cases the S&P 500 will catch up and begin advancing too, because the majority wins.  As I noted yesterday, 10-day stats for Market Internals are not confirming a correction.

The 10-day moving average of stocks advancing on the NYSE was up to 54% 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.  The spread (new-highs minus new-lows was +61.  (It was +17 Thursday). The 10-day moving average of change in the spread was +5.  In other words, over the last 10-days, on average, the spread has increased by 5 each day. The smoothed 10-dMA of up-volume continued up today.  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 analytical model was HOLD today, Friday.  The Price indicator is positive, because up moves have been bigger than down moves recently. Sentiment, Volume and VIX indicators are all neutral.  The 5-10-20 Timer model is positive again because the 5-dMA and 10-dMA are both above the 20-dMA.

I increased my stock allocation to 50% invested in stocks on 26 March because of the NTSM indicators turned positive Monday (24 Mar) at the close.   Further the 5-10-20 Timer was positive along with market internals on 26 March as they are today, 28 March.