Monday, May 5, 2014

ISM Services Up…QE to End in October…Fed Might Raise Rates Earlier…

“The ISM's nonmanufacturing purchasing manager’s index increased to 55.2 in April from 53.1 in March…Within the ISM nonmanufacturing survey, "the majority of survey respondents' comments indicate that both business conditions and the economy are improving."  Story at…

“The Federal Reserve will likely bring its massive bond-buying program to an end in October, and only after that will it consider when to raise U.S. interest rates, a top Fed official said on Sunday. ‘I personally expect us to end that program in October," Dallas Federal Reserve Bank President Richard Fisher said in an interview on Fox News. "Then we have to see how the economy is doing, including these broader measures of unemployment and where we stand before we can talk about how we might move the short-term rate.’" Story at…
Even “considering” a rate raise in October will be too early for the Markets.
THE END IS NEAR (Hussman Funds)
"Taking the broad stock market as a whole, and considering all stocks – not simply the largest of the large caps – investors are now making the broadest and most leveraged bet on overvalued equities in U.S. history. Conditions somehow do not feel so dangerous because profit margins are cyclically extreme, but I suspect that this only means that investors will be surprised by the depth of the markets losses, as they were in 2000-2002 and 2007-2009. The lessons on this really are freely available all the way back to the South Sea Bubble. Meanwhile, with Bernanke out, the Federal Reserve no longer appears inclined to pursue his wildly experimental and financially distorting policies. That’s not a good mix for speculators, and there may not be much time left until Judgment Day.” – John Hussman, PhD.  Excerpted from Hussman Funds Weekly Market Commentary for 5 May 2014 at…

Monday, the S&P 500 was UP about  0.2% to 1885 (rounded).
VIX rose about 3% to 13.29. Values of VIX in the range of 12 to 13 have ocurred at short-term tops in 2013.
The yield on the 10-year Treasury Note rose slightly to 2.61% at the close.
The Bond Ghouls are worried about the stock market.  If the smart money is selling, some are buying bonds. 

The slope of S&P 500 is relatively flat and this pattern has persisted since 30 December.  Going back to December of 2009 I have only seen one instance when the S&P was moving upward at such a slow pace for this length of time and that was from mid-May to Mid-September of 2013.  That period was followed by about a 5% retreat to the lower trend line.
I’m going to make 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 27-times since 1 Jan 2014.It needs to punch higher or the correction will be back.  The prior high was 1891 so, not yet.
The Relative Strength Indicator (RSI) remains “overbought” Monday at 78.  In simple language, RSI is a technical indicator that shows the percentile of the size of up-moves compared to the size of all moves (up and down) over a given period of time usually 14-days.  An RSI (SMA) of 78 (based on the 14-day simple moving average) means that the up moves are in the 78th percentile of all moves during the recent 14-day period and that is a strong value signifying “overbought.”

I mentioned a few other “suggestions” in yesterday’s blog-post.

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 Monday.  The spread (new-highs minus new-lows) was +56.  (It was +112 Friday.) The 10-day moving average of change in the spread was minus-3.  In other words, over the last 10-days, on average, the spread has DECREASED by 3 each day. The smoothed 10-dMA of up-volume continued to decline today.  Only Breadth is positive.  The internals remained neutral 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 85%-bulls (5-dMA of {bulls/(bulls+bears)} for funds invested in selected Rydex/Guggenheim funds. This is a very high number and 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.