Thursday, May 8, 2014

Jobless Claims Drop…Percentage of Stocks Above Their 200-day Moving Average Suggests Trouble

“Initial claims for state unemployment benefits declined 26,000 to a seasonally adjusted 319,000 for the week ended May 3, the Labor Department said on Thursday… "Claims, in conjunction with (last) Friday's employment number, show that we continue to see an incremental improvement in the labor market," said Ron Sanchez, director of fixed income strategies at Fiduciary Trust Company International in New York.”  Story at…
Art Cashin said that Draghi surprised the market by saying that the EU will cut interest rates in June if inflation isn’t more stimulative.  Bob Pisani noted that today stocks are rising and yields falling (as of 11:30AM) and asked, “Has the inverse relationship ended?” Art said that low yields in the 10-year may not be bad news for the markets because there is global interest in US Treasuries as they scramble for yield especially if the EU plans to lower interest rates.  Video at…

When the percentage of stocks exceeding their 200-day moving average drops below 61%, there’s usually trouble.  The index is there now. Tuesday’s close was 60.1. Wednesday it was 60.8.  Check here for today’s value:
The NYSE is hovering at a possible down-turn based on this statistic.

Thursday, the S&P 500 was DOWN about 0.1% to 1876 (rounded).
VIX Rose about 0.2% to 13.43.
The yield on the 10-year Treasury Note rose slightly to 2.61% at the close.
The Bond Ghouls remain worried about the stock market.  If the smart money is selling stocks, some are buying bonds, although Art Cashin did suggest that the rally in bonds today might be due to foreign buying.

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 22-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 decreased to 51% at the close.  (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 +103.  (It was +58 Wednesday.) 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 continued to decline today.  The internals remained neutral on the market, but only because Breadth is positive at 51% advancing; otherwise Internals would be negative on the market.  Internals did improve modestly 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.

The NTSM analytical model for LONG-TERM MONEY remained HOLD Thursday.  Sentiment remained 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 (New Feature)--
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.”