Monday, March 3, 2014

ISM Manufacturing…Margin Debt Another All-time High

“In a role reversal, the ISM Manufacturing Index improved in February to 53.2 from 51.3 in January….The data have thus not been either a good forecasting tool or a good read on current conditions during this business cycle. It must be recognized that the index is not hard data of any kind, but simply a survey that provides broad indications of trends.”  Full story and charts at at…

High margin has a correlation with market tops and Doug Short notes that margin debt peaked in the summer of 2007, about 3-months before the S&P 500.  He wrote: “There are too few peak/trough episodes in in this overlay series to take the latest credit-balance trough as a definitive warning for U.S. equities. But we'll want to keep an eye on this metric in the months ahead.” – Doug Short.  Full commentary and charts at Advisor Perspectives at…

It is difficult to see how the Russia move in the Ukraine will affect stocks, so there isn’t much point in guessing.  Unless the US convinces the world to enact severe economic sanctions, or we go to war, I think it won’t have much impact.  Much of Europe is dependent on Russia for oil and gas so sanctions likely won’t have much teeth 

“No country has the right to send troops into another country un-provoked.” – President Obama, 3 March 2014

Too bad President George Bush wasn’t intelligent enough to understand that basic concept of sovereignty before he ordered an invasion of Iraq.  That action made it much more difficult for the US to rally the world against Russia in this situation and it is why the Russian press is calling the U.S. “hypocrites” and worse.
Monday, the S&P 500 was down about 0.7% to 1846 (rounded). 
VIX rose about 14% to 16.02.
The yield on the 10-year Treasury Note fell to 2.6% as investors bought bonds. 

The 10-day moving average of stocks advancing fell to 56% at the close.  (A number above 50% for the 10-day average is generally good news for the market.)   New-highs outpaced new-lows Monday, leaving the spread (new-highs minus new-lows) at +58.  (It was +201 Friday). The 10-day moving average of change in the spread was minus-7. In other words, over the last 10-days, on average, the spread has decreased by 7   each day. The internals are neutral.

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 HOLD today, Monday,

I am about 50% invested in stocks because I upped my stock holdings by 10% on Friday, 28 Feb.  That’s fully invested for me at least as far as long term money goes.  This is a suitable stock allocation for a balanced portfolio.  Since bonds are yielding very little now, I will consider adding more to stocks later in the month.