Thursday, April 10, 2014

Initial Claims – Good News…Correction?

“Initial claims for state unemployment benefits dropped 32,000 to a seasonally adjusted 300,000 for the week ended April 5, the Labor Department said. That was the lowest level since May 2007, before the start of the 2007-09 recession… "The return of warmer temperatures has brought with it better data. There are a number of signs that progress in the jobs market could be accelerating, a positive sign for the broad economy as well," said Jim Baird, chief investment officer at Plante Moran Financial Advisors in Kalamazoo, Michigan.”  Full story at…

Thursday, the S&P 500 was down about 2.1% to 1833 (rounded).
VIX was UP about 15% to 15.89.
The yield on the 10-year Treasury Note moved up slightly to 2.69%.

Although Wednesday’s strong price-volume action indicated Thursday would be a down day (as I noted Wednesday), I can’t say I expected this much down.  Thursday was another statistically significant day since it exceeded my price and volume statistical parameters, but it was in the down direction.  This would usually (about 62% of the time) be followed by an up day on Friday. 

There are other hints too.  “Trin” is short for Trader’s-Index.  It is simply an equation relating advancing and declining stocks with advancing and declining volume.  Today’s high Trin of 2.4; positive Market Internals; strong advance decline ratio; and a high negative Tick of -743 suggest a possible short term bottom, with the emphasis on “possible.”  (“Tick” measures positive versus negative last trades at the close.)                                                         
Not all signs agree: The size of Thursday’s down move triggered what I refer to as a panic indicator and that can mean that there is more downside to come, either now or in the near term. The Index closed near the low, but there was a little attempt to rally late, so it would seem the Pros are unsure or decided not to play.  The Index hasn’t even gotten to the lower trend line, now roughly around 1800-1790.  The RSI (Relative Strength Index) is not in oversold territory.  The increased choppiness does support the argument that there is a bigger correction coming.
I wrote Wednesday: “All in all…it appears the correction has been postponed.”  Hmmm.  That could still be true, but I am less certain today.
In a correction, the low of 1742 on 3 Feb will be tested.  Then we may have a better idea of how serious any correction may be (if there is one). 

The 10-day moving average of stocks advancing on the NYSE declined to 54% at the close.  (A number above 50% for the 10-day average is generally good news for the market.) New-highs outpaced new-lows Thursday.  The spread (new-highs minus new-lows was +31.  (It was +70 Wednesday). The 10-day moving average of change in the spread was +1.  In other words, over the last 10-days, on average, the spread has INCREASED by 1 each day. The smoothed 10-dMA of up-volume remained up Thursday too.  The internals remained positive 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 remained HOLD Thursday.  Sentiment was up slightly to a screaming high 85%-bulls my highest reading ever (5-dMA of {bulls/(bulls+bears)} for funds invested in selected Rydex/Guggenheim funds. The VIX, Price & Volume indicators are all neutral.

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.