Chicago PMI…Michigan Sentiment…FED to Raise Rates: Then Correction

CHICAGO PMI RISES (MarketWatch)
“Chicago PMI accelerated in May, according to the Chicago business barometer released Friday . It rose to 65.5 in May from 63.0 in April, beating the MarketWatch-compiled consensus of 62.1. It is the highest level of the PMI since October.” Story at…
http://www.marketwatch.com/story/chicago-pmi-accelerates-in-may-2014-05-30?link=MW_latest_news

MICHIGAN SENTIMENT (Fox Business.com)

“A monthly gauge of U.S. consumer sentiment fell in May as a gloomy view on income growth clouded an otherwise positive economic outlook, a survey released on Friday showed. The Thomson Reuters/University of Michigan's final May reading on the overall index on consumer sentiment came in at 81.9, down from 84.1 the month before." Story at...

http://www.foxbusiness.com/economy-policy/2014/05/30/consumer-sentiment-falls-in-may/

FED OFFICIAL: RAISE RATES SOONER AND FASTER (Reuters)

“Kansas City Federal Reserve Bank President Esther George said Thursday…that the Fed should start to raise rates "shortly after" it ends its current round of bond-buying, and that rate rises should be steeper than many now expect…The Fed is on target to phase out bond-buying completely by this coming fall.” Story at…
http://www.reuters.com/article/2014/05/30/us-usa-fed-george-idUSKBN0EA05E20140530?feedType=RSS&feedName=businessNews
George is a hawk and probably doesn’t represent the majority of Fed members.

CORRECTION WHEN RATES RISE (CNBC)

“When the Federal Reserve starts to increase interest rates, which could happen before the end of the year, "I do think there's a correction waiting for us out there," Joy [David Joy, chief market strategist at Ameriprise Financial] said in a "Squawk Box" interview. "It doesn't have to be that severe," he continued, "maybe somewhere between 5 percent and 10 percent ... in the fourth quarter or so." That won't be the end of the bull market, though, he added.” CNBC video and transcript at…
http://www.cnbc.com/id/101717817
 
MARKET REPORT

Friday, the S&P 500 rose about 0.2% to 1924 (rounded).

VIX fell about 1.5% to 11.40.
VIX remains at a point that has recently aligned with the start of corrections, but it is falling so on the whole I think it is good news for the time being.
The yield on the 10-year Treasury Note rose slightly to 2.48% at the close.
The Bond Ghouls remain worried.

PERCENT OF STOCKS ABOVE THEIR 200-dMA

That stat was 63% as of Thursday and that is good for the bulls.  61% has been an area that has caused problems in the past. Get today’s value (available later tonight after I post this blog.) here…
http://www.indexindicators.com/charts/nyse-vs-nyse-stocks-above-200d-sma-params-3y-x-x-x/

MARKET INTERNALS (NYSE DATA)

The 10-day moving average of stocks advancing on the NYSE was 60% at the close Friday.  (A number above 50% for the 10-day average is generally good news for the market.) New-highs outpaced New-lows Friday.  The spread (new-highs minus new-lows) was +145 . (It was +154 Thursday.) The 10-day moving average of change in the spread was +16.  In other words, over the last 10-days, on average, the spread has INCREASED by 16 each day. The smoothed 10-dMA of up-volume was UP today.  The internals remain positive on the market today.

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.

NTSM

The NTSM analytical model for LONG-TERM MONEY remained HOLD Friday.  Sentiment fell to 71%-bulls (5-dMA of {bulls/(bulls+bears)} for funds invested in selected Rydex/Guggenheim funds at the close on  Thursday. 71%-bulls is still a high number, but on a statistical basis, Sentiment is now neutral.  Price, Volume & VIX indicators also remain neutral.

 

MY INVESTED POSITION
I increased my stock allocation to 50% invested in stocks on 26 March because of the NTSM indicators turned positive 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.

                                --INDIVIDUAL VALUE STOCKS--

ENSCO (ESV): BUY

The chart looks OK with higher lows and today it made a higher high on the 1-month chart so I again rate ESV as BUY. It doesn’t hurt that it was upgraded to Buy on 27 May by The Street.com. For my initial discussion see the NTSM blog at:
http://navigatethestockmarket.blogspot.com/2014/05/coppock-curve-says-stock-crash-nowblow.html
ENSCO benefited from an upgrade of Diamond Offshore 29 May by Morgan Stanley and was up 2% on the day. Morgan Stanley upgraded Diamond Offshore to equal weight.  They said, “Our Underweight thesis based on significant negative earnings revisions has largely played out. We also believe that the cycle is turning and that floater availability has peaked.” 

TESARO (TSRO): BUY

For my initial discussion see the NTSM blog at:

http://navigatethestockmarket.blogspot.com/2014/05/gdp-contractsjobless-claims.html
[28 May 2014] BMO Capital upgraded Tesaro (NASDAQ: TSRO) from Market Perform to Outperform with a price target of $46.00. Posted at…
http://www.streetinsider.com/Upgrades/BMO+Capital+Upgrades+Tesaro+(TSRO)+to+Outperform/9071511.html
Research has shown that to have a diversified portfolio no one stock should be more than 4% of the portfolio total, or stated another way, if your total portfolio consisted of individual stocks, you would need at least 25-stocks to be “diversified.”

GDP Contracts…Jobless Claims…

GDP CONTRACTS (Reuters)
“The U.S. economy contracted in the first quarter for the first time in three years as it buckled under the weight of a severe winter, but there are signs activity has since rebounded. Commerce Department on Thursday revised down its growth estimate to show gross domestic product shrinking at a 1.0 percent annual rate.” Story at…
http://www.reuters.com/article/2014/05/29/us-usa-economy-idUSKBN0E918F20140529?feedType=RSS&feedName=businessNews
Most economists expect that this slowdown was weather related and there are already signs of acceleration in the current (2^nd) quarter; so does the Fed. From CNBC: “Federal Reserve Bank of Richmond President Jeffrey Lacker said he expects a positive GDP reversal in the second quarter.” CNBC story at…
http://www.cnbc.com/id/101714739

JOBLESS CLAIMS (Briefing.com)

“The initial claims level fell to 300,000 for the week ending May 24 from a slightly upwardly revised 327,000 (from 326,000) for the week ending May 17. The Briefing.com consensus expected the initial claims level to fall to 318,000… If claims can stabilize at 300,000, it would be indicative of payroll growth closer to 300,000 per month than the 200,000 we had been expecting in the past.” Charts and commentary at…
https://www.briefing.com/Investor/Calendars/Economic/Releases/claims.htm

MARKET REPORT

Thursday, the S&P 500 rose about 0.5% to 1920 (rounded).
VIX fell about 1% to 11.57.
VIX remains at a point that has recently aligned with the start of corrections, but it

is falling so on the whole I think it is good news for the time being.

The yield on the 10-year Treasury Note rose slightly to 2.46% at the close.
 
The Bond Ghouls remain worried.

 

BOND MARKET DISBELIEF (Global Economic Analysis)

“My take is the economy is poised to decelerate, not take off as most seem to think.” - Mike "Mish" Shedlock. Commentary at…
http://globaleconomicanalysis.blogspot.com/2014/05/us-economy-poised-to-accelerate-bond.html
That is certainly not a consensus view.
 
PERCENT OF STOCKS ABOVE THEIR 200-Dma

That stat was 63% as of Wednesday and that is good for the bulls.  61% has been an area that has caused problems in the past. Get today’s value (available later tonight after I post this blog.) here…

http://www.indexindicators.com/charts/nyse-vs-nyse-stocks-above-200d-sma-params-3y-x-x-x/
MARKET INTERNALS (NYSE DATA)
The 10-day moving average of stocks advancing on the NYSE was 58% at the close Thursday.  (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 +154. (It was +106 Wednesday.) The 10-day moving average of change in the spread was +11.  In other words, over the last 10-days, on average, the spread has INCREASED by 11 each day. The smoothed 10-dMA of up-volume was UP today.  The internals switched to positive on the market today.

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.

 

NTSM

The NTSM analytical model for LONG-TERM MONEY remained HOLD Thursday.  Sentiment fell to 73%-bulls (5-dMA of {bulls/(bulls+bears)} for funds invested in selected Rydex/Guggenheim funds at the close on Wednesday. 73%-bulls is still a high number, but on a statistical basis, Sentiment is now neutral.  Price, Volume & VIX indicators also remain neutral.

 

MY INVESTED POSITION

I increased my stock allocation to 50% invested in stocks on 26 March because of the NTSM indicators turned positive 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.
                             --INDIVIDUAL STOCKS--
ENSCO (ESV): BUY
The chart looks OK with higher lows and today it made a higher high on the 1-month chart so I again rate ESV as BUY. It doesn’t hurt that it was upgraded to Buy on 27 May by The Street.com. For my initial discussion see the NTSM blog at:
http://navigatethestockmarket.blogspot.com/2014/05/coppock-curve-says-stock-crash-nowblow.html
ENSCO benefited from an upgrade of Diamond Offshore 29 May by Morgan Stanley and was up 2% on the day. Morgan Stanley upgraded Diamond Offshore to equal weight.  They said, “Our Underweight thesis based on significant negative earnings revisions has largely played out. We also believe that the cycle is turning and that floater availability has peaked.”
 
TESARO (TSRO): BUY
I was ready to recommend Tesaro (NOT Tesoro) to Buy not long ago (I didn’t) and the stock shot up 20% in one day based on good news related to one of its cancer trials.  It has pulled back since then but today was up early in the day so I was a buyer. Tesaro is a biopharmaceutical company in the oncology field with no earnings and no dividend so this is not normally on my radar, but the chart looks like the stock bottomed.  It has strong institutional ownership (TR Price, Vanguard, Alliance Bernstein, etc.) and good analyst ratings with a mean target of $57, more than 100% above today’s closing price.  On the negative side, there is no guarantee that this company will ever make a dime so tread cautiously.  Limit the size of a position and do your own due-diligence.
 
Research has shown that to have a diversified portfolio no one stock should be more than 4% of the portfolio total, or stated another way, if your total portfolio consisted of individual stocks, you would need at least 25-stocks to be “diversified.”

Stock Market Nearing a Top or at a Bottom? Take Your Pick…Is the Small Cap Stock Market Correction Over

BULL NEARING END (CNBC) "...a pattern is emerging that was last seen in 2007, right before stocks turned sharply lower. Largely, Sebastian [Mark Sebastian, the director of trading and investments at Swan Wealth Advisors] notes that from 2002 until 2007, as the S&P advanced, the VIX would spike, but when the spike was over, the VIX would fall back. And when it fell back it would make lower and lower lows. That's important: lower and lower lows....Sebastian says the pattern held for years, and as long as it held, the rally in the S&P continued.  However, in 2007, after a big spike and subsequent pullback, the VIX failed to get anywhere near its previous lows. Instead it reestablished itself at a much higher level. When that happened, the bull was over. Turning attention to the current market, Sebastian says the VIX is still making lower lows. Again, as long as the VIX makes lower lows, the S&P 500 should continue to advance.” Full commentary and Jim Cramer video at...

http://www.cnbc.com/id/101707765

Not everyone agrees with the above assessment.  Chrsi Puplava see signs of a Bottom!

SIGNS OF A MARKET BOTTOM (Advisor Perspectives) "-Economic momentum is building -Market internals are stronger than headline indexes portray-Decade high percentage of "neutral" investors likely to capitulate to bull camp -Investor trepidation about putting capital back to work should take solace by signals from the smart money crowd.

Signs of a market bottom have been building over the last week with today serving as no exception." - Chris Puplava posted to Advisor Perspectives.  For the commentary see...
http://www.advisorperspectives.com/dshort/guest/Chris-Puplava-140528-Signs-of-a-Bottom.php
 
THE LATEST FROM JOHN HUSSMAN, PhD (Hussman Funds)

“On the basis of measures that actually are reliably related to actual subsequent market returns (and too many of Wall Street’s “valuation” measures aren’t at all), S&P 500 valuations are presently more than 100% above pre-bubble historical norms. In other words, stocks would be historically undervalued (in the sense of being priced for long-term returns in excess of about 10% annually) only after falling by half. That's not a forecast, but we also should not rule that out, and low interest rates alone are not sufficient to prevent that outcome in the event that investors seek higher risk premiums. Overly compressed risk premiums are now the largest ticking time bomb in the global financial environment.” – John Hussman, PhD, Weekly Market Commentary at…

http://www.hussmanfunds.com/wmc/wmc140526.htm
 
HUSSMAN VIDEO: A VERY MEAN REVERSION (Global Economic Analysis)Here’s a link to Mike Shedlock’s website.  He was a principal in the Wine Country Conference so you can watch a presentation direct from John Hussman regarding the market.  Warning: John Hussman’s presentation is very technical. Presentation at…
http://globaleconomicanalysis.blogspot.com/2014/05/wine-country-conference-ii-videos.html
 
IS THE SMALL-CAP CORRECTION OVER?

I commented last week that the Russell 2000 seemed to have bottomed and it was not at all clear that there would be a correction on the S&P 500.  Usually, when the leaders get taken out the Indices follow, but if the Russell was bouncing back this time might be different.  It still might be different, but I looked at the iShares Russell 2000 ETF (IWM) again.  The case for its bounce is the triple bottom it completed on 20 May.  I’m not buying it.  As a correction ends, volume should be drying up as the selling slows.  Eventually there are no sellers left and an upward trend can resume.  The key is falling volume near the bottom to indicate an exhaustion of selling.  In the IWM, volume was increasing at the bottom.  The recent lows on the Russell are likely to be tested again.

 

MARKET REPORT

Wednesday, the S&P 500 fell about 0.11 % to 1910 (rounded).

VIX rose about 1.5% to 11.68.

VIX remains at a point that has recently aligned with the start of corrections.

The yield on the 10-year Treasury Note fell again to 2.44% at the close.

 

The Bond Ghouls are very worried.

 
I know that many are suggesting that the low bond yield is no big deal because it just represents investors around the world seeking a decent yield.  The argument here is that it doesn’t represent a concern for the US stock market – it is due to low yields elsewhere.  OK…why are the yields poor elsewhere? The world’s economies are in bad shape.  That is not good for US stocks in the long run.

MARKET INTERNALS (NYSE DATA)
The 10-day moving average of stocks advancing on the NYSE was 55% at the close Wednesday.  (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 +106. (It was +187 Tuesday.) The 10-day moving average of change in the spread was minus-1.  In other words, over the last 10-days, on average, the spread has DECREASED by 1 each day. The smoothed 10-dMA of up-volume was DOWN today, but just barely.  The internals remained neutral on the market today.

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.

NTSM
The NTSM analytical model for LONG-TERM MONEY remained HOLD Wednesday.  Sentiment fell to 75%-bulls (5-dMA of {bulls/(bulls+bears)} for funds invested in selected Rydex/Guggenheim funds at the close on TUESDAY. That’s a lot and reflects that traders using the Rydex funds became less bullish on TUESDAY.  75%-bulls is still a high number, but on a statistical basis, Sentiment is now neutral.  Price, Volume & VIX indicators also remain neutral.

MY INVESTED POSITION
I increased my stock allocation to 50% invested in stocks on 26 March because of the NTSM indicators turned positive 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.
                             --INDIVIDUAL VALUE STOCKS--
ENSCO (ESV): HOLD
The chart looks OK with higher lows, but I’d like to see some higher highs before I recommend this stock again, although it was upgraded to Buy on 27 May by The Street.com.
For my discussion see the NTSM blog at:
http://navigatethestockmarket.blogspot.com/2014/05/coppock-curve-says-stock-crash-nowblow.html

Research has shown that to have a diversified portfolio no one stock should be more than 4% of the portfolio total, or stated another way, if your total portfolio consisted of individual stocks, you would need at least 25-stocks to be “diversified.”

Durable Goods…Consumer Confidence…Richmond Fed Manufacturing

DURABLE GOODS ORDERS RISE (Reuters)
“Orders for long-lasting U.S. manufactured goods unexpectedly rose in April, but a drop in a measure of business capital spending plans could temper expectations for a sharp rebound in economic growth this quarter. The Commerce Department said on Tuesday durable goods orders increased 0.8 percent as demand for defense capital goods surged and orders for fabricated metal products, transportation equipment and electrical equipment, appliances and components rose.” Story at…
http://www.reuters.com/article/2014/05/27/us-usa-economy-durablegoods-idUSKBN0E71GI20140527?feedType=RSS&feedName=businessNews
 
CONSUMER CONFIDENCE (CNBC)
“U.S. consumers were more optimistic in May than in April, the Conference Board reported on Tuesday, with sentiment recovering as shoppers became more optimistic about the future. The Consumer Confidence Index rose to 83 in May, up from 81.7 percent in the prior month…” Story at….
http://www.cnbc.com/id/101705931

I saw some very negative interpretation of the Richmond Fed data.  The real scoop follows…
RICHMOND FED (Advisor Perspectives)
“Fifth District manufacturing activity increased at a steady pace of growth, according to the most recent survey by the Federal Reserve Bank of Richmond. Shipments rose, although new orders softened. Manufacturing employment firmed, and average wages increased sharply. The average workweek increased at about last month’s pace. Manufacturers’ expectations were generally for improved business conditions.”  Doug Short had a good discussion of the Richmond Fed results at…

http://www.advisorperspectives.com/dshort/commentaries/Richmond-Fed-Manufacturing.php
 
GARTMAN BULLISH AGAIN (CNBC)

"Having called for a correction, I have been abundantly wrong," Gartman said. A correction is typically defined as a market downturn of 10 percent or more. "I am probably going to be wrong continuing to expect one. It's best to err on the side of remaining quietly bullish," he said. Last week, Gartman said the stock market is in the middle of a correction and that there is "more selling to come." Story and Video at…

http://www.cnbc.com/id/101705149
 
MARKET REPORT

Tuesday, the S&P 500 rose about 0.6% to 1912 (rounded).

VIX rose about 1.5% to 11.53.

VIX remains at a point that has recently aligned with the start of corrections.

The yield on the 10-year Treasury Note fell again to 2.51% at the close.

The Bond Ghouls are still worried.
 
The S&P 500 Index finally again closed above the prior high of 1897 and is sitting on the red trend line.  Can it break above it?  That’s another key for whether this bull still has legs.

Volume returned to normal today so it would seem that Friday’s low volume was little more than pre-Holiday effect as traders left early for the weekend.

STOCKS ABOVE THEIR 200-DAY MOVING AVERAGE (-dMA)
Our old friend stocks above their 200-dMA bounced up last week, but remains in a downtrend with lower highs and lower lows as of Friday’s close.  This trend is one of the more important ones to watch to see which way this market is going:  (1) continued new highs or (2) will it (finally) have that long awaited correction?

Chart from
http://www.indexindicators.com/charts/nyse-vs-nyse-stocks-above-200d-sma-params-x-x-x-x/
 
MARKET INTERNALS (NYSE DATA)

The 10-day moving average of stocks advancing on the NYSE fell 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 Tuesday.  The spread (new-highs minus new-lows) was +187. (It was +99 Friday.) The 10-day moving average of change in the spread was +4.  In other words, over the last 10-days, on average, the spread has increased by 4 each day. The smoothed 10-dMA of up-volume was UP today, but just barely.  The internals turned neutral on the market today, because the 10-day values for new-highs/new-lows aren’t strong enough.  Internals are almost 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.
 
NTSM

The NTSM analytical model for LONG-TERM MONEY remained HOLD Tuesday.  Sentiment fell to 80%-bulls (5-dMA of {bulls/(bulls+bears)} for funds invested in selected Rydex/Guggenheim funds at the close on FRIDAY. That’s a lot and reflects that traders using the Rydex funds became less bullish on FRIDAY. (These are not professional traders so they are a contrary indicator.)  On a statistical basis, Sentiment is now NEUTRAL.  Price, Volume & VIX indicators also remain neutral.

MY INVESTED POSITION
I increased my stock allocation to 50% invested in stocks on 26 March because of the NTSM indicators turned positive 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.
                             --INDIVIDUAL VALUE STOCKS (New Feature)--

ENSCO (ESV): HOLD

The chart looks OK with higher lows, but I’d like to see some higher highs before I recommend this stock again, although it was upgraded to Buy today (27 May) by The Street.com. For my discussion see the NTSM blog at:

http://navigatethestockmarket.blogspot.com/2014/05/coppock-curve-says-stock-crash-nowblow.html
Motley Fool suggests that the owners of floating rigs have overbuilt and rig-rentals and revenues will fall in the future.  Commentary at…http://www.fool.com/investing/general/2014/05/13/these-offshore-drillers-have-made-a-big-mistake-2.aspx

ENSCO UPGRADED (The Street)
"Ensco (NYSE:ESV) has been upgraded by TheStreet Ratings from hold to buy. The company's strengths can be seen in multiple areas, such as its revenue growth, expanding profit margins, good cash flow from operations, largely solid financial position with reasonable debt levels by most measures and notable return on equity. We feel these strengths outweigh the fact that the company has had sub par growth in net income.” Story at…

http://www.thestreet.com/story/12721046/1/ensco-plc-stock-upgraded-esv.html?puc=yahoo&cm_ven=YAHOO
Research has shown that to have a diversified portfolio no one stock should be more than 4% of the portfolio total, or stated another way, if your total portfolio consisted of individual stocks, you would need at least 25-stocks to be “diversified.”