Thursday, March 27, 2014

Initial Claims Down…GDP Up…Correction now? Probably not yet.

“The initial claims level fell to 311,000 for the week ending March 22 from an upwardly revised 321,000 (from 320,000) for the week ending March 15. The consensus expected the initial claims level to increase to 330,000…It would not be surprising to see payroll growth over 200,000.” Commentary and charts at…
If the payroll growth were to hit 200,000 it would be huge.  That is the level needed to keep up with population growth.  We need jobs in the range of 200k just to keep up with college graduates.  Job growth has been 189,000 per month over the last 12-months according to BLS.
“The fourth quarter ended up not quite as sluggish as believed last month but growth clearly had softened from the third quarter. Real GDP growth for the fourth quarter was revised up slightly to an annualized 2.6 percent from the second estimate of 2.4 percent and compared to the third quarter's 4.1 percent…The picture of the fourth quarter is little changed-it was a soft patch and one that likely will be followed by another in the first quarter.” Story and charts at…
Here’s why the market tanked yesterday in the afternoon…
“After a positive start to Wednesday's session, the stock market took a serious intraday slide that saw it lose more than half a percent in half an hour, and took the S&P from positive to negative on the day. While an especially strong five-year Treasury note auction is another likely culprit in the intraday decline, many traders blamed the turnaround on a massive bearish options trade on the S&P 500 that was effectively a multibillion-dollar short bet on the market…this trade cost about $200 million.

“U.S. and European security agencies estimate Russia has deployed military and militia units totaling more than 30,000 people along its border with eastern Ukraine, according to U.S. and European sources familiar with official reporting.  The current estimates represent what officials on both sides of the Atlantic describe as a continuing influx of Russian forces along the Ukraine frontier, the sources said.” Story at…

I thought this was worth repeating…
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…

Thursday, the S&P 500 was down about 0.2% to 1849 (rounded).
VIX fell about 2% to 14.62 so the options boys are not concerned about a correction.
The yield on the 10-year Treasury Note held at 2.69% indicating the bond-ghouls (as Louis Rukeyser used to call them) were concerned about stocks.

54% of all stocks on the NYSE were advancing today and the 10-dMA of percent advancing is now 52% and that was up from the prior day. Market Internals are a whisker from being positive.  RSI is in the upper 30’s and a number in the lower 30’s or below is often (not always) a turn-around point.  It could all change, but so far, this doesn’t look like a correction is underway.  Many seem to disagree with that assessment.
The 10-day moving average of stocks advancing on the NYSE was up to 52% at the close.  (A number above 50% for the 10-day average is generally good news for the market.)  New-highs outpaced new-lows Thursday.  The spread (new-highs minus new-lows was +17.  (It was +55 Wednesday). The 10-day moving average of change in the spread was -1.  In other words, over the last 10-days, on average, the spread has decreased by 1 each day. The smoothed 10-dMA of up-volume continued up today.  The internals are neutral on the market because the new-hi/new-lo data is weak but by the slimmest of margins.  Otherwise they would be 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, Thursday.  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 neutral because the 5-dMA of the S&P 500 index is now below 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.  Given the market sell-off in the afternoon after I made the order, I may come to regret stepping up my stock allocation.  Unfortunately, my 401k rules require a change to be requested before noon and the market was relatively calm at the time.