Thursday, March 13, 2014

Initial Claims…Retails sales…China Slows…Time to Sell

The initial claims level fell to 315,000 for the week ending March 8 from an upwardly revised 324,000 (from 323,000) for the week ending March 1. The consensus expected the initial claims level to increase to 329,000…The DOL reported that there were no special factors that drove the initial claims level to its lowest point since November 2013.It is likely that the drop in claims was the result of normal volatility. “ Story and charts at…

“U.S. retail sales rebounded in February and new filings for jobless benefits hit a fresh three-month low last week, suggesting the economy was regaining strength after an abrupt slowdown caused by severe weather. The data on Thursday reinforced expectations of a pick-up in economic activity and should encourage the Federal Reserve to continue scaling back its massive monetary stimulus.”  Story at…

“China's manufacturing growth fell to an eight-month low in February…reflecting further weakening in the world's second-largest economy but also the effect of a major holiday. The purchasing managers' index (PMI) tumbled to 50.2, the National Bureau of Statistics reported on its website, in the third straight drop from 50.5 in January, 51.0 in December and 51.4 in November. A figure over 50 indicates expansion while one below shows contraction.”  Story at…

“Ritholtz subscribes to Lowry's Research's four factors to help identify market tops:
-Major market indexes reach a 52-week high while the number of stocks hitting new highs declines
-The slope of advancing vs. declining stocks declines lower while major indexes reach new highs
-Small-cap stocks weaken but mid- and large-caps appear healthy
-20% or more of stocks are trading 20% below recent highs
Using these metrics, Ritholtz says the current stock market has "absolutely" not topped out.”  Video and transcript at…
It may not be “The Top”, but it might be “a top” and the NTSM indicators are suggesting a correction.

Thursday, the S&P 500 was down 1.2% to 1846 (rounded). 
VIX rose about 12% to 16.22.
The yield on the 10-year Treasury Note fell to 2.65%.

The sharp VIX rise today and the Bond market indicate the markets are showing worry.  All this the day after I wondered why there was no fear.  Who knew?  Both the short-term indicator (based on market internals) and the longer term NTSM indicators are now negative on the market.  The NTSM system says SELL.

An up-day is suggested for tomorrow (Friday) because today was a statistically significant day based on the size of the price-volume action today.  These days are followed by an up-day about 60% of the time.  Now, I’m not so sure.  There’s some fear in the air and traders may not want to hold over the weekend if they are worried.

The 10-day moving average of stocks advancing fell to 49% at the close.  (A number below 50% for the 10-day average is generally bad news for the market.)   New-highs outpaced new-lows Thursday.  The spread (new-highs minus new-lows was +27.  (It was +15 Wednesday). The 10-day moving average of change in the spread was minus-9. In other words, over the last 10-days, on average, the spread has decreased by 9 each day. The 10-dMA of up-volume continues to fall.  The internals are now negative 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 system switched to SELL today, Thursday based on 2-indicators: Sentiment at 80%-bulls and VIX that has been rising recently and was up a lot today.  Volume and Price indicators are neutral.
I will cut my stock position back to 30% tomorrow.  At this point it is hard to know whether this is just another false alarm move back to the 50-dMA at 1829 or the lower trend line (now around 1780).  The 200-dMA is 1736, about 6% below today’s close and that is a support point.  Of course anything is possible based on news related to China’s economics or geo-politics related to Ukraine.  Sanctions against Russia will be harmful to the stock markets, as I noted earlier.

I am about 50% invested in stocks because I upped my stock holdings by 10% on 12 Feb and another 10% on 28 Feb.  I’ll sell back to 30%-stocks tomorrow.  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.