Friday, May 2, 2014

Market Report…Internals…Daily Stock Market Rating…RSI now Overbought

Friday, the S&P 500 was DOWN about 0.1% to 1881 (rounded).
VIX fell about 3% to 12.91. Values of VIX in the range of 12 to 13 have been at short-term tops in 2013.
The yield on the 10-year Treasury Note fell again to 2.58% at the close.
The Bond Ghouls are getting more worried about the stock market.  If the smart money is selling, some are buying bonds.

RSI turned “overbought” yesterday (Thursday) at 70.  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.  As of Friday, the RSI (SMA) was 80 based on the 14-day simple moving average.   That means that the up moves are in the 80th percentile of all moves during the recent 14-day period and that is a strong value signifying “overbought.” This suggests a turn is coming as does the current value of VIX.  There have been some statistical “calm-before-the-storm” readings too.  As I noted earlier, the number (or percentage) of stocks above their 200-day moving average continues to fall.  I’d expect a reversal soon, but that doesn’t mean it will happen or that it will be anything more than a retreat to the lower trend line as has been the case all thru 2013.

I’m going to leave this posted until the S&P 500 breaks thru the old highs: The S&P 500 has closed in the vicinity of 1880 about 8 to 10 times since 31 December.  The index has only closed above 1880 3-times and then only about ½-% higher.  It needs to punch higher or the correction will be back.  The prior high was 1890 so, not yet.

The 10-day moving average of stocks advancing on the NYSE declined to 55% at the close.  (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 +112.  (It was +95 Thursday.) The 10-day moving average of change in the spread was +0.  In other words, over the last 10-days, on average, the spread has remained UNCHANGED each day. The smoothed 10-dMA of up-volume remained down today.  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 Thursday.  Sentiment climbed to 84%-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 now 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.