Tuesday, May 20, 2014

More Activist Federal Reserve?...Correction Coming

“The arrival of former Bank of Israel Governor Stanley Fischer and former U.S. Treasury official Lael Brainard will add two strong voices to back Chair Janet Yellen's view that loose monetary policy needs to be extended to turn around a slack labor market…Interviews with former colleagues and a review of their public statements and published material also suggest both will want the Fed to remain in activist mode long after its current programs wind down and its bloated balance sheet shrinks.” Story at…
I commented yesterday on divergence between the Russell, Nasdaq and S&P 500.  I could have saved myself some trouble if I had just picked up the following story…
"As the Dow continues to make new highs, yet the Russell, the Nasdaq seem to be showing signs of weakness, it is a little disconcerting to me," said Gartman on CNBC's "Fast Money."… In Monday's issue of "The Gartman Letter," Gartman wrote, "With each passing day, we are more and more fearful too that a correction of some very real magnitude is hard upon us as the broader market indices such as the Russell and the NASDAQ have now 'failed' well below their previous highs and as upward sloping trend lines cast back into last year have been broken through to the downside." – Dennis Gartman, Gartman Letter.  Commentary at…

“We’ve been above trend for far too long. It’s been four years since we’ve had a close below the 150-day moving average. We have to go back to 2003 – 2007 to find a similar run,” said Rich Ross of Auerbach Grayson. “The stage is set for a serious 10 percent correction. Maybe even 20 percent”… Still, just because history or logic says something should happen doesn’t mean it will…” Posted at Yahoo Finance at…

“When the Federal Reserve ends its latest bond-buying quantitative easing program, stocks could drop 15 percent to 20 percent, said Peter Boockvar, chief market analyst at The Lindsey Group.  That's how much the market dropped when the Fed ended QE1 and QE2, Boockvar said in an interview on CNBC's ‘Squawk Box.’” Story and video at…

-The Percentage of stocks above their 200-day moving average continues to fall.
-Up-volume is falling. Volume over all is falling.  Perhaps we are running out of buyers
-Statistical analysis shows complacency and a “calm-before-the-storm” level of market activity. (This is an accurate indicator, but declines have been small (5% or so) in 2013 and 2014.
-VIX fell to 12.16 at the S&P 500 top on 13 May. That is a level at which pull-backs have started recently, although pullbacks have been small.  VIX is up 7% since then, but that is not a huge rise.  While the rise in VIX has not generated a sell signal in the NTSM VIX indicator, it is worrisome.
-Tuesday, the S&P 500 Bounced from the 1868 50-dMA during the day and moved up in the late day trading.  The computers are at work, and perhaps the computers will manage to stop the correction again.

Monday, the S&P 500 fell about 0.7% to 1873 (rounded).
VIX rose about 4% to 12.96.
The yield on the 10-year Treasury Note fell slightly to 2.51% at the close.
The Bond Ghouls are still worried.
The S&P 500 Index has close within 1% of its all-time high 18-times since 1 Jan 2014.  This number has changed slightly as the market made new highs.  Still the “stalling” market is disconcerting and the Index must make significant new-highs or the correction will be underway. 

The 10-day moving average of stocks advancing on the NYSE remained 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 Tuesday.  The spread (new-highs minus new-lows) was +35. (It was +92 Monday.) 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 turned UP today, but just barely.  The internals remained neutral on the market today and they are a mixed bag without direction at this point.

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 Tuesday.  Sentiment remained a very high 84%-bulls (5-dMA of {bulls/(bulls+bears)} for funds invested in selected Rydex/Guggenheim funds. On a statistical basis, Sentiment is negative.  Price, Volume & VIX indicators are neutral.
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: 
Motley Fool suggests that the owners of floating rigs have overbuilt and rig-rentals and revenues will fall in the future.  Commentary at…
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.”