Wednesday, May 7, 2014

GDP Contracted in the First Quarter

As reported by the Wall Street Journal, trade data indicates that the economy contracted in the First quarter of this year.  JP Morgan Chase economists estimated that the economy contracted at an 0.8% pace.  Macroeconomic Advisors estimated the decline at 0.6%.  Not to worry; everyone seems to think the economy is rebounding in the 2nd Quarter.
Wednesday, the S&P 500 was UP about 0.6% to 1878 (rounded).
VIX Fell about 3% to 13.40.
The yield on the 10-year Treasury Note held steady at 2.59% at the close.
The Bond Ghouls remain worried about the stock market.  If the smart money is selling stocks, some are buying bonds.
The S&P 50 bounced up from the 50-dMA today.  Tomorrow will give us a clue whether the bounce will continue.  Last hour trading was up strongly today and that is a clue the bounce will continue.  The chart is no help concerning a possible bounce since the current value of the Index is squarely in the middle of the channel marked by high and low values of the S&P 500.

I’m going to repeat this point until the S&P 500 breaks thru the old highs: The S&P 500 has closed within about 1% of the all-time high of 1891 21-times since 1 Jan 2014. It needs to punch higher or the correction will be back. 

The 10-day moving average of stocks advancing on the NYSE increased 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 +58.  (It was +49 Tuesday.) The 10-day moving average of change in the spread was minus-7.  In other words, over the last 10-days, on average, the spread has DECREASED by 7 each day. The smoothed 10-dMA of up-volume continued to decline today.  The internals remained neutral on the market, but only because Breadth is positive at 52% advancing; otherwise Internals would be negative 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 Wednesday.  Sentiment was 84%-bulls (5-dMA of {bulls/(bulls+bears)} for funds invested in selected Rydex/Guggenheim funds. On a statistical basis, Sentiment is negative.  Price, VIX & Volume indicators are 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.

                             --INDIVIDUAL VALUE STOCKS--
For discussion see:
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 25-stocks to be “diversified.”