Wednesday, April 16, 2014

Industrial Production…China GDP…Stock Market Correction?

“Industrial production grew more than forecast in March, and February’s data were revised higher to show the biggest monthly advance since May 2010…For the quarter as a whole, manufacturing output rose an annualized 1.5%, while mining output gained 9.6% and utilities output surged 17.9%. Utilities benefited from the need to stay warm during the unusually frigid winter.” Story at…

MANIC MARKETS (Breakout - Yahoo Finance)
“Hope springs eternal as stocks came roaring back from steep mid-day losses yesterday [Tuesday]. Is the worst behind us? Maybe, but I doubt it. Picking exact lows and peaks is a sucker's game. Your job is to manage your emotions and look for opportunities…The selling will probably get worse. So far the fact that the tech and social media stocks have been pole-axed without taking the broader market with them is impressive, but it probably won't last. Selloffs don't end until the idea of a "rotation" is replaced with panic.” – Jeff Macke. Commentary and video at…

US ECONOMIC SITUATION (Economic Greenfiled)
“While most economic and investment professionals believe that we are experiencing an economic recovery, I believe this assessment is incorrect. My analysis indicates that the current economic strength (dating back to roughly mid-2009) represents the type of intermittent economic strength that is often seen during periods of prolonged economic weakness. In other words, although it may seem as if the economy is experiencing a sustainable recovery, in fact we are in a Depression…Absent a rather profound and rapid change in the effectiveness of our economic policies, we should not expect our economic predicament to improve in a sustainable manner.” – Ted Kavadas  Commentary at…
While it is certainly not clear that the US economy is as dire as stated above, just based on past history, it is not likely that the stock market will make a sustained recovery until it has experienced at least one more significant downturn in the range of 40-50%.

“China's economy lost some momentum in the first quarter, turning in a ho-hum performance that underscores the difficulty of executing reforms amid slowing growth. The world's second-largest economy grew by 7.4% in the first quarter, compared to the same period last year, according to the National Bureau of Statistics.”  Story at…
The problem with this data is that most of China’s numbers are made up.  That was proven last year when analysts showed their import/export data didn’t align with data of their trade partners.

Wednesday, the S&P 500 was UP about 1% to 1862 (rounded).
VIX was DOWN about 9% to 14.18. The yield on the 10-year Treasury Note was up slightly to 2.63% at the close.
The Option Boys seem to think the correction is over for the S&P 500.  The Bond Ghouls aren’t so sure.

Wednesday the S&P 500 had another fairly strong close late in the day, but Market internals only marginally improved.  Wednesday the S&P moved up in a pretty big way. Volume was low, about 10% below the average for the month so the conviction in this move was lacking.  It was not a statistically significant day (it didn’t exceed statistical parameters in price and volume in my number-crunching system), but it was strong so I decided to take a short position around mid-day. At the end of the day it finished over 1% up.  As the chart below shows, the Index is now at the upper range of the “high” line or the upper trend line, assuming the Index is now trending down.  It’s not a sure thing, by any means, but I still like the odds.  The Market Internals still don’t look good and the Index got to this point on a big move and that sometimes indicates a reversal to the downside.  I’ll cover the short tomorrow if it appears the Index is continuing higher after the early morning (9:30-10:30AM) amateur-hour is over.  I am not willing to lose much on this short bet – I’ll cover quickly if it the market seems to be headed up.  Since I still have long term money in the markets, I remain net long even with a short position.

The 10-day moving average of stocks advancing on the NYSE increased to 50.1% at the close.  (A number above 50% for the 10-day average is generally good news for the market.) In a reversal from yesterday, New-highs outpaced new-lows Wednesday.  The spread (new-highs minus new-lows was +87.  (It was -2 Tuesday). 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 continued down Wednesday.  The internals finished neutral on the market, but they were just a whisker away from being negative.

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 Tuesday.  Sentiment was a screaming high 82%-bulls (5-dMA of {bulls/(bulls+bears)} for funds invested in selected Rydex/Guggenheim funds. The VIX, Price & Volume indicators are all neutral, and have improved as the Index climbed the last 3-days.

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.