Wednesday, March 26, 2014

Durable Goods a Mixed Bag…Stock Market Crash Prediction…Bank Runs in China

“Orders to U.S. factories for long-lasting manufactured goods rose in February by the most in three months, but a key category that reflects business investment fell sharply. This category fell 1.3 percent, the second setback in three months. Economists said the weakness in business investment might reflect the severe winter, which led some industries to put modernization and expansion plans on hold…’The rebound could be huge once spring actually appears,’  said [Joel Naroff, Chief economist at Naroff Economic Advisors.]”  Story at…
Doug Short always has a great analysis of durable goods adjusted for population growth and inflation.  For the “real” goods on goods see…
“The winds are changing, my friends. For most of the past year, each time the S&P 500 sold off, it was a buying opportunity. I think we are at an inflection point this year, as we all know nothing lasts forever… Very rarely does the S&P 500 increase during a period of monetary tightening. This is not to say that the S&P 500 will drop tomorrow; the Federal Reserve is continuing monetary easing for the moment. But investors in the market should be aware that once the Federal Reserve begins changing its monetary stance, the S&P 500 will be affected.” – Sasha Cekeravac posted at Advisor Perspectives at…
“Hundreds of people rushed to withdraw money from a branch of a small Chinese bank after rumors spread about its solvency, reflecting growing anxiety among investors as regulators signal greater tolerance for credit defaults. The case highlights the urgency of plans to implement a deposit insurance system to protect investors' deposits in case of bank insolvency, given that Chinese are growing increasingly nervous about the impact that slowing economic growth will have on the viability of financial institutions.” Story at…
Still think the Chinese GDP is growing at 7.5%?  Not likely.  It sure seems like a slowdown in China will cause problems in the US.

LET THEM EAT I-PADS (David Stockman Blog)
“We are at peak debt. Household, business and government balance sheets are tapped-out.  The problem is not too little CPI inflation, but the unavoidability of a pay-back era of sustained debt deflation. Yet the entire purpose of the Fed’s money printing regime—ZIRP, QE and all the rest—-is to force more debt into an economy that is already saturated. And as I have demonstrated elsewhere, the end result is that the Fed’s massive liquidity injections do not flow into the busted and exhausted Main Street credit channel, but only into the ‘Wall Street Bubble Channel’ where they fund endless carry trades, speculations and eventually rip-roaring bubbles.”  Commentary at…

Wednesday, the S&P 500 was down about 0.7% to 1853 (rounded).
VIX rose about 6% to 14.93. 
The yield on the 10-year Treasury Note fell sharply to 2.69% indicating some real fear.
The market sold off sharply at about 1:30 and again in the last hour today as the pros bailed out.  CNBC blamed the losses on the US and EU who agreed to enact stronger sanctions against Russia.  Story at…

The 10-day moving average of stocks advancing on the NYSE fell to 50.1% at the close.  (A number above 50% for the 10-day average is generally good news for the market.)  New-highs outpaced new-lows Tuesday.  The spread (new-highs minus new-lows was +55.  (It was +62 Tuesday). The 10-day moving average of change in the spread was +4.   In other words, over the last 10-days, on average, the spread has increased by 4 each day. The smoothed 10-dMA of up-volume continued up today.  The internals are positive 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 was BUY today, Wednesday, based on the numbers that I follow.  The Price indicator is positive, because up moves have been bigger than down moves recently. Sentiment, Volume and VIX indicators are all neutral, but the 5-10-20 Timer is positive as were the Market Internals so today the NTSM system is a buy based on those one-time indicators.  Given the action in the afternoon I’ll watch the market ahead since the fears over sanctions will bring correction fears back. 
NOTE: I'd be leery of buying stocks until the direction of the market is clearer. 

I increased my stock allocation to 50% invested in stocks because of the NTSM indicators turned positive Monday at the close.   Given the market sell-off in the afternoon, I may come to regret stepping up my stock allocation today.  Unfortunately, my 401k rules require a change to be requested before noon and the market was relatively calm at the time.