Friday, April 11, 2014

Consumer Sentiment Up…Stock Market Down

“The Thomson Reuters/University of Michigan preliminary index of sentiment climbed to 82.6 this month from a four-month low of 80 in March….’The confidence that we had going into 2014 got pushed back a couple months, but now we’re going to see it blossom in the spring,’ said Jay Morelock, an economist at FTN Financial in New York…’Expectations are high for the second quarter to really rebound from the first quarter.”' Story at...

It certainly looks like the 1742 level must be tested, especially since the 50-dMA was taken out decisively Thursday.  While it is possible that the Index could bounce up from the vicinity of 1790-1800, the lower trend line, that doesn’t seem likely since the Nasdaq is performing so poorly.

“…the thing that's troubling to me is take a look at the 10-year. You know, it's gone beyond the short covering and even some of the flight-to-safety. I mean, we are down at levels that give at least a vague hint, if not a warning, that the economy may be beginning to sputter in here. So I think the viewers have to keep watching that 10-year. If it continues to rally [i.e., yields keep dropping], it's got a stronger signal going on than perhaps we wanted.”  Story and video at…

Art also said, Watch 4100 on the Nasdaq that could be trouble and certainly if it breaks 4050.  Then we may get significant selling.

It seems pretty clear that the 10-yr is rising (falling yield) because of flight to safety.  Investors are leaving the stock market expecting more downside ahead for stocks.

Friday, the S&P 500 was down about 1% to 1816 (rounded).
VIX was UP about 7.5% to 17.09.
The yield on the 10-year Treasury Note was 2.62% at the close.

The S&P 500 is 1.5% below its 50-dMA and close to the lower trend line at about 1790-1800.  If the index breaks the trend line I think we can say the correction will begin to gain traction and fall to the previously mentioned level of 1742.

For all the angst over this current downturn, keep in mind that the S&P 500 is only down 3.9% below its all-time high.  It normal for the Index to trend up and down 5% as it advances.  The concern of course is the downturn in the Nasdaq.  We all remember 2000 and 2001 as the Nasdaq stocks led the retreat.  Once again the Nasdaq has gotten ahead of the markets, but not nearly as much as it was during the bubble.

Friday was not a statically significant day the way I run the numbers, but a drop of nearly 1% down is often seen as a potential turn-around point to the upside. Many may bet long on Monday.  Another positive for the markets is that Passover begins Monday and Holidays have a strong upward bias. 

The S&P 500 Index is nearing a moment of truth; it either bounces or enters a real correction.

The 10-day moving average of stocks advancing on the NYSE declined to 50% at the close.  (A number above 50% for the 10-day average is generally good news for the market.) New-lows outpaced new-highs Friday.  The spread (new-highs minus new-lows was minus-32.  (It was +31 Thursday). The 10-day moving average of change in the spread was minus-9.  In other words, over the last 10-days, on average, the spread has DECREASED by 9 each day. The smoothed 10-dMA of up-volume turned down Friday too.  The internals finished neutral on the market, but only by the slimmest of margins.

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 for LONG-TERM MONEY remained HOLD Friday.  Sentiment was a screaming high 84%-bulls (5-dMA of {bulls/(bulls+bears)} for funds invested in selected Rydex/Guggenheim funds. The VIX, Price & Volume indicators are all neutral, but just barely.

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.   I am watching closely to see if it is time to reduce my long-term stock holdings. An NTSM sell-signal along with a break of the trend line would convince me.