Monday, May 12, 2014

Mid-term, Off-Presidential Election Year…Revenues Underwhelm…Stock Market Divergence in the Percentage of Stocks Advancing

Corrections have occurred in each of the last 13-mid-term off presidential election years.  The average drop has been 23% and (time wise) the “average” bottom was achieved at the end of July.  7 have bottomed in the months June thru September.  Only 2 of those 13 corrections bottomed before 1 June.
“Overall, 454 companies have reported earnings to date for the first quarter. Of these 454 companies, 75% have reported actual EPS above the mean EPS estimate and 25% have reported actual EPS below the mean EPS estimate. The percentage of companies reporting EPS above the mean EPS estimate is above the 1-year (71%) average and above the 4-year (73%) average….
In terms of revenues, 54% of companies have reported actual sales above estimated sales and 46% have reported actual sales below estimated sales. The percentage of companies reporting sales above estimates is equal to the 1-year (54%) average, but below the 4-year average (58%).”  Excerpted from the FactSet Earnings Insight Report for 9 May 2014 at…
The broken record on revenues continues.
“…it's the stock market's own behavior that could be most key in the week ahead [12 May]. The divergence between the big caps and small caps and momentum names became more pronounced in the past week and is viewed as a red flag for stocks. The Dow finished the week at a record high and the small cap Russell continued its move toward correction territory.”  Story at…
“Wells Capital Management's Jim Paulsen believes the market has corrected many of its imbalances in recent weeks, from the current rotation out of momentum names to "excess sentiment" in more defensive names. That's setting up the market for another bull run, despite five years of record highs and valuations since the 2008 financial crisis, he said in an interview with CNBC…"You don't want to be out because it just seems like there's momentum and you want to be in this thing," Paulsen said. "It's probably going to go up over 1,900 pretty soon." Video and transcript at…
Cmt: It is possible that the market has corrected sideways and there won’t be a decline; but the S&P 500 is now again at new highs and today’s big move (statistically significant in price and volume) implies some down time ahead.  I think a reversal down is a bit more likely than continuing higher.  As a mid-term off presidential election year, it would be unusual not to see a correction this year.  Of course nothing says it will start now.
“Goldman is out with its forecast for Q2. It basically expects a strong rebound from the weak, weather-induced Q1 weakness….’We continue to forecast 3.5% GDP growth in H2. Under our current forecasts, real GDP would increase 2.6% on a Q4/Q4 basis in 2014, below the 2.8 - 3.0% central tendency included in the Summary of Economic Projections from the March FOMC meeting.’" Full story at…

Monday, the S&P 500 was UP about 1% to 1897 (rounded).
VIX FELL about 5% to 12.23.
The yield on the 10-year Treasury Note rose to 2.66% at the close.
The Bond Ghouls may have been selling treasuries and buying stocks today.
The S&P 500 finally moved above the old high of 1891, but not by much.  Now it will be imperative that the Index advance further.  A stall now could signal a pullback.
- Monday the S&P 500 had a statistically significant move up in price and volume often seen at turning points.
- 79% of stocks advanced today on the NYSE and that is a typical over exuberantly high value often seen near a top.
- Friday the percentage of Stocks exceeding their 200-dMA was 61%.  That’s at the point where problems have occurred in the past.  Monday’s value will be posted later at Index Indicators at…

…On the other hand...The market advanced in the afternoon and late afternoon so the pros weren’t too worried about a correction.
The 10-day moving average of stocks advancing on the NYSE increased to 56% 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 +145. (It was +10 Friday.) The 10-day moving average of change in the spread was +10.  In other words, over the last 10-days, on average, the spread has INCREASED by 10 each day. The smoothed 10-dMA of up-volume was up today.  The internals switched to positive 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 Monday.  Sentiment fell to 82%-bulls (5-dMA of {bulls/(bulls+bears)} for funds invested in selected Rydex/Guggenheim funds. On a statistical basis, Sentiment is negative.  Volume indicators are neutral. Price & VIX indicators are positive.

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:
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.”