Wednesday, April 2, 2014

ADP Employment Report…Stock Market Correction; Maybe Not

“Businesses added 191,000 jobs in March, payroll processor ADP said Wednesday, signaling that the labor market may have bounced back from a stretch of weak gains stemming at least partly from extreme winter weather…The payroll processor also revised up job gains for February by 39,000 to 178,000. "The job market is coming out from its deep winter slumber," says Mark Zandi, chief economist of Moody's Analytics. "Even better numbers are likely in coming months as the weather warms." Story at…

“Human beings, especially those in the investment markets, are obsessed with trying to predict what has been proven time and time again to be an unpredictable future. Election-year tendencies are another attempt at predicting where stocks are headed. The latest obsession is with the midterm election year pattern in stocks. History shows us that betting on a midterm election year correction followed by a new yearly low in the fall can be a costly exercise.”  Story at…

Wednesday, the S&P 500 was up about 0.3% to 1891 (rounded).
VIX was nearly unchanged at 13.09.
The yield on the 10-year Treasury Note rose to 2.8%.
A falling VIX is good, but VIX below 12 has been a problem for the markets over the past year or so.  The markets have pulled back about 5-7% after the VIX has fallen in the vicinity of 12.  Apparently, when VIX gets that low, it’s too much of a good thing. 

The Index remains about 8% above its 200-dMA and values of 10% have usually resulted in a pullback of some kind. Recently, those pullbacks have been only about 5% down to the lower trend line. 

The 10-day moving average of stocks advancing on the NYSE rose to 57% 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 +177.  (It was +158 Tuesday). The 10-day moving average of change in the spread was +9.  In other words, over the last 10-days, on average, the spread has increased by 9 each day. The smoothed 10-dMA of up-volume continued up.  The internals are positive.

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.

Final volume showed that the NTSM analytical model remained HOLD Wednesday.  The VIX has been falling and remains positive. Price, Volume and Sentiment are neutral.  Sentiment is still screaming high at 78%-bulls, but this is now below the statistical level or multiple of standard deviations that was prevalent at the 2009 bottom.  The sell point for the sentiment indicator 79%.  That’s only one indicator so  it won’t affect the overall NTSM analysis unless other indicators also switch.

I increased my stock allocation to 50% invested in stocks on 26 March because of the NTSM indicators turned positive Monday (24 Mar) at the close.   Further the 5-10-20 Timer was positive along with market internals on 26 March as they are today, 28 March.  50% is fully invested for me at this time.