Friday, March 21, 2014

Crash, but when?...China Slowing – What’s New?...Still no Buy Signal

China’s economy slowed this quarter, with industries including retail and mining showing weaker revenue growth while loans through non-traditional channels became more expensive, according to a private survey. Even with the moderation, the labor market and wage growth were little changed from the previous quarter…”  Story at…
Not long ago this would have been enough to cause worry in the US markets.  Everyone is used to it by now.  China is slowing…so what?
Response from a trader board: “How could it be otherwise? The markets are heavily margined, the Fed is tapering, and the economic fundamentals continue to deteriorate. Watch China.”
“[Yesterday] The Conference Board’s Index of Leading Indicators increased 0.5% in February after increasing a downwardly revised 0.1% (from 0.3%) in January. The consensus expected the index to increase 0.3%....In general, the index shows that the economic situation is accelerating.” Story and charts at…
THE TOP WILL BE 1931 (Fortune)
“Tom DeMark, CEO of DeMark Analytics,…[t]he market timing precisionist who famously called the S&P 500's 2011 bottom within a point or so, months before it happened, told Fortune this week that the bull had just a few days left to live…"Its pretty clear that this next rally, the one we're currently in, will be a good top," DeMark says. "And it looks like it's going to be a pretty important top that should last at least three months." During that time, brace for a decline of at least 11%, he adds.”  Story at…
“Moscow's MICEX index fell more than 2% -- taking its losses for the year to 14%. The ruble was steady, after dipping early in the day, but has still lost about 10% since the start of the year.” Story at…
While it is not clear that sanctions caused of the market retreat, it is interesting.  I for one won’t be buying any Russian ETF’s.  Remember, the Putin regime was caught rigging the first election, so it took 2 to make him supreme leader. 

Friday, the S&P 500 was up big in the morning on extremely high volume, but retreated after 11AM to finish down 0.3% to 1866 (rounded). There were differing opinions about why the Markets reversed, but there was a comment by a Fed Governor that reiterated Fed Chairman Yellen’s view that interest rates would be raised about 6-months after QE ends.  Fed short-term interest rates are now zero.  (BTW, Ms. Yellen has requested that she be referred to as Chairman not Chairwoman.)

VIX rose about 3% to 15.01. 
The yield on the 10-year Treasury Note fell to 2.74%.

As noted yesterday, Breadth continues to decline with lower lows and mostly lower highs.  The 10-dMA of breadth (measured as percent-advancing) is declining steeply even as the S&P is generally up since 14 February.  Internals are not confirming this move up and suggest a turn to the downside.  Until the Internals turn and move up, I will remain at a conservative stock allocation of only 30%.     

Volume was more than twice normal on the NYSE.  Hard to say whether that was all related to Options expiration and Index rebalancing.  The high volume sent my volume indicator to the positive side since it is based on up volume and not a percentage of volume up for the day. (I may have to change that internal. Today gives an unnaturally positive indication of buying volume since the up-volume was double normal up-volume, but only 53% of the total volume.

The 10-day moving average of stocks advancing on the NYSE increased to 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 Friday.  The spread (new-highs minus new-lows was +165.  (It was +64 Thursday). 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, but was helped by the oddly high overall volume.  The internals are neutral on the market.

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. Sentiment is negative, but just barely. Volume and VIX indicators are 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, but it all depends on the market.