Wednesday, May 14, 2014

PPI Jumps…Bond Yields Continue to Warn…Beware the Downside Risk

“Producer prices increased 0.6% in April, up from a 0.5% increase in March. The consensus expected producer prices to increase 0.2%... Even though pipeline pressures remain tame, headline producer prices have run hotter-than-expected over the last couple of months.”  Commentary and charts at…

Global bond yields are in a deep slide, taking the 10-year U.S. Treasury to a level not seen since October—well before the Fed began winding down its easy money program… ‘The catalyst is the more dovish stance on European monetary policy, the weaker data in Europe a combined with less ambitious hiking expectations in the U.K. They didn't pull forward hiking expectations,’ Lyngen [senior Treasury strategist at CRT Capital] said…Concerns about Ukraine are also putting a bid in Treasurys, in a flight-to-safety trade.
“With an S&P 500 coming off all-time highs while the Russell 2000 and the Nasdaq have lagged, the greater risk in the stock market is to the downside, professional day trader Larry Altman said Wednesday.  "My gut tells me: If the S&P were to rally another 150 points, what are you making, 10 percent? But if the S&P has a correction similar to, or more dramatic, to what happened in the Russell and the Nasdaq, I think the risk-reward is to the downside…maybe there's a better opportunity coming up to get involved." Story at…
As noted below, I remain fully invested.  I think the message above is be cautious with new money.

Wednesday, the S&P 500 fell about 0.5% to 1889 (rounded).
VIX ROSE about 0.3% to 12.17.
The yield on the 10-year Treasury Note collapsed to 2.54% at the close.  While the link/article I posted above may explain the slide, it still comes down to fear of poor economic performance, either here or worldwide.  No matter the source, I don’t see how falling bond yields are good for equities.
The Bond Ghouls are still suggesting that stocks may be under pressure soon, perhaps even more urgently.
Repeating yesterday’s comment: 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.
The 10-day moving average of stocks advancing on the NYSE dropped 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 Wednesday.  The spread (new-highs minus new-lows) was +47. (It was +113 Tuesday.) The 10-day moving average of change in the spread was minus-2.  In other words, over the last 10-days, on average, the spread has DECREASED by 2 each day. The smoothed 10-dMA of up-volume turned DOWN today.  The internals switched to neutral 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 Wednesday.  Sentiment remained a very high 83%-bulls (5-dMA of {bulls/(bulls+bears)} for funds invested in selected Rydex/Guggenheim funds. On a statistical basis, Sentiment is negative.  Volume & VIX indicators are neutral. Price is 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)--
The chart still looks good. 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.”