Tuesday, March 18, 2014

Risk On…NTSM Hold

“Fund managers are shunning risk and are fearful of tensions between Russia and Ukraine, with 81 percent of investors admitting they think geopolitical risk poses a threat to financial market stability, according to new research. Investors have reacted to the concerns over Ukraine by hiking cash, ditching equities to a 15-month low and taking on extra protection, according to the monthly Bank of America Merrill Lynch fund Manager Survey for March.”  Story at…
Me too, but it has been risk-on for the last 2-trading days. If the Market internals turn positive, I will increase my stock allocation back to 50%.  VIX has been dropping rapidly and rising VIX along with sentiment were the reasons for selling.

“Defying Ukrainian protests and Western sanctions, Russian President Vladimir Putin signed a treaty on Tuesday making Crimea part of Russia again but said he did not plan to seize any other regions of Ukraine.”  Full story at…
Risk on again since Putin won’t annex Ukraine.  The markets rallied after the statement.  I am glad he is so trustworthy.  I always trusted the KGB.

Tuesday, the S&P 500 was up 0.7% to 1872 (rounded).
VIX fell about 7% to 14.52.
The yield on the 10-year Treasury Note closed at 2.67%.
The Bond market apparently doesn’t agree with the Stock market.  Bonds are showing some concern.
Sentiment remains extreme at 80%-bulls in the Rydex/Guggenheim long/short funds that I track. (Traders are betting 4 to 1 long averaged over the last 5-days.

Yesterday’s volume was about 20% below normal in the S&P 500 and was also low at the NYSE although Briefing.com never did print the final numbers yesterday.
Today, Tuesday, volume was also about 15% lower than the monthly average on the NYSE.  The low-volume indicates this post-Putin bump up is definitely not loved.  The S&P 500 is near its upper trend line, but not there yet, and only about a half-percent below the old high of 1878.  It appears that many are in a wait-and-see mode.  After bottoms, low volume is the norm as the same “many” don’t believe the bottom is in.  That may be the case here as investors are not sure that issues for the markets have been resolved by Putin’s all I-want-to-steal-is-Crimea.  (Please don’t worry that I stole Georgia before; it’s of no concern.) The lack of meaningful sanctions is good news for the markets that were concerned that real sanctions might send the cost of oil spiraling higher.

As I noted above, Briefing.com had issues Monday and didn’t publish the final NYSE data for market internals.  I updated the numbers using other sources, but the volume data is usually different because some sites report data from the NYSE and some seem to report volume of NYSE listed stocks that might have been traded elsewhere.  I subscribe to apples-to-apples comparisons so I am reluctant to use other sites under normal conditions.  Using the alternate sites data for Monday provided a Neutral guidance for internals.  Today internals remain neutral, but are almost negative.

The 10-day moving average of stocks advancing was 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 Tuesday.  The spread (new-highs minus new-lows was +126.  (It was +100 Monday). The 10-day moving average of change in the spread was minus-16. In other words, over the last 10-days, on average, the spread has decreased by 16 each day. The 10-dMA of up-volume is still falling.  The internals are neutral 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 switched to Hold, Monday and remained HOLD today.  The Volume indicators are positive but other indicators are all neutral.  I will put up an NTSM Buy signal if the Internals turn positive.
I reduced to 30% invested in stocks because of the NTSM sell signal on 13 March.  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.  I will return to 50%-stock allocation if the Market Internals or the NTSM indicators turn positive.  Internals could turn positive soon, but it all depends on the market.