Thursday, March 6, 2014

Jobless Claims Fall…PE’s Near Record Highs

“The number of Americans filing new claims for unemployment benefits fell more than expected and hit a three-month low last week, a sign of strength in a labor market that has been hobbled by severe weather.

Initial claims for state unemployment benefits dropped 26,000 to a seasonally adjusted 323,000, the Labor Department said on Thursday. That was the lowest level since the end of November and the drop more than unwound the prior week's rise…the drop in new filings for jobless benefits suggests labor market fundamentals remain strong.”  Story at…

"The Crestmont P/E of 24.9 is 80% above its average (arithmetic mean) of 13.8. This valuation level is similar to the 76% we see in the latest S&P Composite regression to trend update and higher than the 49% above mean for the Cyclical P/E10...The latest Crestmont P/E puts the current valuation at the 97th percentile of this fourteen-decade series." – Doug Short at Advisor Perspectives at,,,
As Doug's chart shows, the only time that Crestmont P/E has been above 25 was during the bubble and Aug-Sep of 1929.  The Crestmont PE adjusts earnings similar to Robert Shiller's methods in calculating PE.  For a full discussion of the Crestmont PE see...
YES: “CNBC contributor Gina Sanchez, founder of Chantico Global, says the index's earnings are going to keep it from reaching the 2,000 level…"The issue that I have with 2,000 is the P/E that it would take to get us to 2,000 – given what we're expecting for earnings – is just too high relative to where sales growth is…So, I don't see us hitting 2,000. Not this year…"
NO: “…Talking Numbers contributor Richard Ross, Global Technical Strategist at Auerbach Grayson, thinks the charts disagree with Sanchez and 2,000 is more than a distinct possibility. "We are going to get there," says Ross. "And, it could be far sooner rather than later. It could be something we see by the first half or by the end of the summer perhaps. That's based purely on the technicals alone. As we know, price and value in this market are like two ships passing in the night – tangentially related at best."

Thursday, the S&P 500 rose 0.2% to 1877 (rounded). 
VIX rose about 2% to 14.21.
The yield on the 10-year Treasury Note rose to 2.74%. 

Both the VIX and the bond market showed some mild concern today, so perhaps the Ukraine situation is the worry.  Cyclical stocks are outperforming the S&P 500 for every period from 10-days to 100-days.  Investors currently see no chance of recession.
The 10-day moving average of stocks advancing dropped to 58% 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, leaving the spread (new-highs minus new-lows) at +237.  (It was +171 Wednesday). The 10-day moving average of change in the spread was +13. In other words, over the last 10-days, on average, the spread has increased by 13 each day. The internals remain 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 system remained HOLD today, Thursday. The most recent Buy signal was 28 Feb, although I’ve adjusted the Buy override (5-10-20 Timer + Market Internals).  With the adjustments included, the Buy would have been 13 Feb. 

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 or sooner if there is a significant buying opportunity.