Wednesday, May 21, 2014

Fed Minutes show Nothing New…Correction Now…Margin Decline Means Correction

“Federal Reserve officials discussed rate hike procedures at a joint meeting, but agreed the discussion does not signal rate action is coming soon. That was one of the key data points from the minutes of the FOMC meeting, released Wednesday. The Fed discussed the right mix of tools to control rates and board members agreed a mix of tools is likely needed to normalize rates. ‘Participants generally agreed that starting to consider the options for normalization at this meeting was prudent, as it would help the committee to make decisions about approaches to policy normalization and to communicate its plans to the public well before the first steps in normalizing policy become appropriate,’ the minutes said.” Full story and video at…
No new information was presented about when they may raise rates.

“The stock market is in the midst of a correction, closely followed investor Dennis Gartman told CNBC on Wednesday. ‘I think the process began several weeks ago … [with] the Nasdaq,’ the publisher of The Gartman Letter said in a ‘Squawk Box’ interview. ‘We're in a correction right now.’" From Yahoo Finance at…

“The New York Stock Exchange publishes end-of-month data for margin debt... The astonishing surge in leverage in late 1999 peaked in March 2000, the same month that the S&P 500 hit its all-time daily high, although the highest monthly close for that year was five months later in August. A similar surge began in 2006, peaking in July 2007, three months before the market peak….the April data shows a continuation of a decline that began in March. It will be interesting to determine in the months ahead if this is a brief pause in demand or was beginning of a major trend reversal.” – Doug Short.  Commentary, charts and analysis at…
As Doug points out in the piece, the margin debt peak and decline happened in 2000 and 2007 at prior peaks.

“Twenty-four hours of warnings were led by Federal Reserve Bank of New York President William Dudley’s acknowledgment that the slide in market volatility ‘makes me a little nervous.’ Bank of England Deputy Governor Charlie Bean said conditions were “eerily reminiscent” of the pre-crisis era, while Bundesbank board member Andreas Dombret said ‘we do see risks despite the fact that the markets are calm.’” Story at…

“E-commerce company eBay said client identity information including emails, addresses and birthdays was stolen in a hacking attack between late February and early March. EBay urged users to change their passwords after the attack on a database that also contained encrypted passwords, physical addresses and phone numbers. It said it found no evidence of any unauthorized access to financial or credit card information.” Story at…

This number is available after I post this blog so the following is Tuesday’s chart and value.  The percentage declined again and showed that 57% of all stocks on the NYSE were trading below their 200-dMA as of Tuesday’s close.  From the chart below, it appears that values below the mean of 61% (and declining) represent problems for the markets. (Reporting this number to four significant figures seems silly to me.) With a current value of 57% and falling more steeply this looks like trouble especially if the trend continues.


-Wednesday, the S&P 500 fell about % to 18 (rounded).
-VIX fell about 8% to 11.93 (at 4:09).That value is low and I had to go back to August of 2013 to find a lower value of VIX.  (VIX was 11.84 on 5 August and the S&P 500 fell 5% afterward.)  VIX is now at a point that has recently aligned with the start of corrections.  A falling VIX is usually good news so I think the correction connection has more to do with simple market cycles.  In other words, I don’t think a VIX at this level is a great indicator for a pullback; it is, however, a value that has preceded pullbacks in 2013 and 2014.
-The yield on the 10-year Treasury Note ROSE slightly to 2.54% at the close.
The Bond Ghouls are still worried.
The S&P 500 Index has closed within 1% of its all-time high 19-times since 1 Jan 2014.  This number has changed slightly as the market made new highs.  Still, the “stalling” market is disconcerting and the Index must make significant new-highs or the correction will be underway.

The 10-day moving average of stocks advancing on the NYSE remained to 52% at the close.  (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 +57. (It was +35 Tuesday.) The 10-day moving average of change in the spread was flat.  In other words, over the last 10-days, on average, the spread has not changed each day. The smoothed 10-dMA of up-volume turned DOWN today, but just barely.  The internals remained neutral on the market today and they are a mixed bag without direction at this point.

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 Wednesday.  Sentiment fell slightly, but remained a very high 84%-bulls (5-dMA of {bulls/(bulls+bears)} for funds invested in selected Rydex/Guggenheim funds. On a statistical basis, Sentiment is negative.  Price, Volume & VIX indicators are neutral.

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)--
For discussion see:
Motley Fool suggests that the owners of floating rigs have overbuilt and rig-rentals and revenues will fall in the future.  Commentary at…

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.”