Wednesday, March 12, 2014

Wholesale Sales Fall…Russian Troop Buildup…Stock Technicals indicate Trouble?

WHOLESALE SALES FALL (Global Economic Analysis)
“U.S. wholesale inventories rose more than expected in January, as companies built up stocks of autos and machinery, though sales posted their largest decline in nearly five years. The Commerce Department said on Tuesday wholesale inventories rose 0.6 percent to $521.2 billion after a revised 0.4 percent gain in December…Is this all weather related? I suspect not.” Analysis at…

“Russian forces, who’ve already seized control of the Crimean peninsula, continue to deploy along Ukraine’s eastern frontier and are “constantly increasing their presence,” First Deputy Premier Vitaliy Yarema told the government in Kiev…Russia’s takeover of Crimea, home to its Black Sea Fleet, has sparked the worst crisis with the West since the Cold War as the European Union and the U.S. try to use sanctions to force President Vladimir Putin to retreat. Russia’s incursions may spread to Ukraine’s east, according to Amanda Paul, an analyst and program executive at the European Policy Centre.”  Story at…

“[Art] Cashin, UBS' director of floor operations at the NYSE, told CNBC's Bob Pisani around midday that's Jason Goepfert has noted "we had made a 52-week weekly high on the S&P (500 stock index) and now, several days later, we've made a somewhat higher high but on negative breadth (more stocks lower than higher) for four straight days." Cashin added, "That has happened only a few times since 1940. On some of the occasions, it has led to a selloff."  Video and transcript at…
OK.  I keep some stats that we might use for comparison.  So let’s look at the 50-day MA of breadth (%-of stocks advancing) at the recent highs on 31 Dec (S&P500-1848), 15 Jan (S&P500-1848), and the new high on 7 Mar (S&P500-1877).  The 50-dMA of percent advancing was 51.4%, 52.2% and 54.9% on the three highs respectively.  So the percent of stocks advancing was improving at each more recent high.  On strictly a daily basis, the %-advancing was 65% at the two 1848 highs and only 42% advancing at the recent 1878 high.  There was some deterioration there, but I prefer to use moving averages to smooth the data.  On a 10-dMA the recent high was made on 56.2%-advancing stocks and the prior 1848 high was made on 54.3%-advancing stocks.
Other than those specific new-highs, there has been some recent deterioration in breadth but no smoking gun yet.

Sentiment is once again at stratospheric levels.  My 5-day moving average of sentiment is 80%.  In other words 4 out of 5 traders are betting long in the Rydex/Guggenheim, long/short Funds I track.  Statistically, that is as extreme a positive number as the low at the 2009 bottom was negative, if that makes sense.  Sentiment can’t be used to trade by itself, but it is an indication (again) that markets are stretched. On a statistical basis they have been stretched off and on since May of 2013 without a significant correction.

Wednesday, the S&P 500 recovered in the last hour to finish unchanged at 1868 (rounded).
VIX fell about 2% to 14.47.
I am surprised the pros aren’t more worried about Ukraine, but the VIX and last hour trading both suggest they are not worried at this point.

The yield on the 10-year Treasury Note to 2.72%. 

The 10-day moving average of stocks advancing remained 53% at the close.  (A number above 50% for the 10-day average is generally good news for the market.)   New-highs outpaced new-lows Wednesday.  The spread (new-highs minus new-lows was +15.  (It was +74 Tuesday). The 10-day moving average of change in the spread was minus-13. In other words, over the last 10-days, on average, the spread has decreased by 13 each day. The 10-dMA of up-volume continues to fall.  Only 10-dMA of breadth (%-advancing) is positive.  Breadth is always the slowest internal to react.  The internals remain neutral on the market, but continue to hint at a downturn.

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, Wednesday. 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 12 Feb and another 10% on 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 for someone my age.  Since bonds are yielding very little now, I will consider adding more to stocks later if there is a buying opportunity.