Monday, April 28, 2014

Revenues Remain Weak…Valuation is High…Fed Meeting this Week

“With 48% of the companies in the S&P 500 reporting actual results for Q1 to date, the percentage of companies reporting EPS above estimates is in-line with recent historical averages, while the percentage of companies reporting revenue above estimates is below recent historical averages.”  Report at…
The earnings are in-line with analyst estimates, but revenues continue to lag.  The question remains, “How much longer will investors live with poor revenue growth?”  At some point, companies will no longer be able to grow earnings thru efficiency improvements.  That’s been a broken record so far.
THE FUTURE IS NOW (Hussman Funds)
“The median price/revenue multiple for S&P 500 constituents is now higher than at the 2000 market peak. The average price/revenue multiple across S&P 500 constituents is now above every point in that bubble except the first and third quarters of 2000. The central message to investors with unhedged equity positions and investment horizons shorter than about 7 years: Prospective returns have reached zero. The value you seek from selling in the future is already on the table today. The future is now.” - John Hussman, Ph.D. Excerpted from the 28 April Weekly Market Commentary, Hussman Funds at

The Federal Reserve releases its next policy statement on Wednesday. And with nervousness about the future of the federal funds rate mounting, investors will certainly be watching intently.”  Story at…
It is expected that the Fed will continue reducing its bond buying.  This will be the third installment of “Tapering.”  Will investors see “three-steps-and-a-stumble” in the stock market?  That’s the rule that predicts poor market returns after three Fed tightenings.
“The biggest the appearance of Belgium on the list, which jumped ahead of several other nations by more than doubling the amount that is being lent to the U.S. government from the small European nation over the last six months. Since Belgium is a major international banking center, what this really represents is the accumulation of U.S. debt by other foreign entities through Belgium's banks in much the same way as London's banks have historically served this role for countries such as China. Here though, it appears that Russia-based interests may be behind the apparent surge in the nation's holdings of U.S. government-issued debt, with the driving factor being the desire to avoid losing access to the holdings from economic sanctions. Much of the increase in holdings through Belgium took place in the several months preceding Russia's 23 February 2014 actions to seize control of the Crimea peninsula from Ukraine, which indicates the very premeditated nature of the action.” Craig Eyermann posted at Advisor Perspectives at…
The article at included a chart with all of the debt holders.  Federal employees will note that 20% of the US debt is owed to the Civil Service Retirement System and Social Security System.  A “fix” of the national debt (at some future point) will probably include screwing Federal Employees even though they paid 7% into the CSRS while everyone else paid 1% into Social Security (40-years ago) and continuing thereafter.
“A large portion of the world's browsers are vulnerable to attack from a flaw discovered in versions of Internet Explorer, Re/code reported. The flaw, disclosed Saturday by Microsoft is a "Zero Day" vulnerability…The flaw affects Microsoft's Internet Explorer 6 through 11.” Story at...
Let’s hope MS fixes this this when they push out the updates on the second Tuesday of the month or better still…sooner!

Monday, the S&P 500 was UP about 0.3% to 1869 (rounded).
VIX was DOWN about 0.6% to 13.97.
The yield on the 10-year Treasury Note fell slightly to 2.70% at the close.
The Bond Ghouls still have concerns about the stock market, but perhaps some money flowed back into stocks today.
This is an odd day.  Only 45% of stocks advanced on the NYSE, but the S&P 500 was up.  Usually, that portends a down day as the Index tends to follow the majority the next day.   On the other hand, Market Internals were up today on a 10-day basis and this trend usually holds for a few days at least.  So tomorrow is anybody’s guess.
Repeating: The S&P 500 has closed in the vicinity of 1880 about 8 to 10 times since 31 December.  The index has only closed above 1880 3-times and then only about ½-% higher.  It needs to punch higher or the correction will be back.

The 10-day moving average of stocks advancing on the NYSE increased to 58% at the close.  (A number above 50% for the 10-day average is generally good news for the market.) New-highs outpaced new-lows Monday.  The spread (new-highs minus new-lows was +42.  (It was +35 Friday.) The 10-day moving average of change in the spread was +7.  In other words, over the last 10-days, on average, the spread has INCREASED 7 each day. The smoothed 10-dMA of up-volume increased today.  The internals switched to 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 for LONG-TERM MONEY remained HOLD Monday.  Sentiment climbed to 80%-bulls (5-dMA of {bulls/(bulls+bears)} for funds invested in selected Rydex/Guggenheim funds. This is a very high number, but on a statistical basis Sentiment is now neutral.  It wouldn’t take much for sentiment to issue a sell signal.  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.  50% in stocks is fully invested for me, given my age (semi-retired) and the risk inherent in today’s stock market. I am watching closely to see if it is time to reduce my long-term stock holdings.