Monday, May 19, 2014

Watch the Bond Market…Stock Market Divergence…Hussman Even More Negative

“Stocks are likely to take their cue from the bond market in the coming week, as traders worry low yields are a warning that the economy is not springing back…"The key indicator will be the yield on the 10-year," said Art Cashin, director of floor operations at UBS. "Unless the saloon full of Fed speakers says something to move the market, you've got to watch the 10-year."… The 10-year yield, along with the entire Treasury curve, has been moving lower, reaching 2.47 percent Thursday, the lowest level since July.” Story at…

MARKETS TO RISE SLOWLY (Breakout, Yahoo Finance)
“I see markets in a gradual but rocky uptrend because we have a bewildered set of investors,” surmises…[David Kotok of Cumberland]. “Those who have missed the stock market and gave up 30-some percent now don’t know what to do. They were afraid of stocks then and they’re more afraid of stocks now because prices are higher. A bewildered mass doesn’t move.” Commentary and video at…

It is rare to see major indices diverge.  I expect the S&P 500 to follow the leaders sooner rather than later.  Below we see the Russell 2000 (Small Cap Index) and the Nasdaq Composite have underperformed the S&P 500 by roughly 6%.

CHART FROM:;range=1d
Another way of considering the same divergence is to look at the 50-day Moving Average (dMA) of the percentage of stocks advancing on the NYSE. On 18 March the percentage of stocks that have advanced over the last 50-days (on average) was 55%.  That number is now 53%, so fewer stocks have been advancing recently.  Still another way of looking at similar trends is to consider the number of stocks trading above their 200-dMA. That value was 59% as of Fridays’ close.  It was around 70% on April 1st.  Looking at charts, when this value has fallen below 61%, it has indicated trouble for the markets; it looks like we’re due for some trouble….But…market internals are almost positive so the short term may be reversing up.

“I’m sometimes viewed as an evil quant, sitting in a dimly lit room, stroking a hairless cat ironically named Mr. Whiskers, and hoping for the worst. That’s undoubtedly because of my view that all of the market’s gains since roughly April 2010 are likely to be wiped out in a rather ordinary completion to the present market cycle…
…While we certainly hope to provide evidence and data sufficient for disciplined investors to maintain their confidence in our full-cycle approach, we have no particular desire to convert disciplined buy-and-hold investors or reckless speculators to our views… …Meanwhile, given that the majority of my income is directed to charity, I have a rather vested interest in doing good for others over time (undoubtedly, my particular focus on finance and autism research demands unusual patience, long horizons, a deep respect for evidence, and no expectation that progress evolves smoothly)…Accordingly, I am changing my guidance. For those investors who trust our analysis and discipline, no change of course is encouraged. But for those who find our work to be a constant source of irritation to be regarded with open disdain, I am retracting all of it herewith – for you alone mind you – and I leave you free to buy with both hands to whatever extent you are inclined. Not that I encourage it really – that would be bad Karma – but someone is going to have to hold equities at these prices. It would best be those who are fully aware of our concerns and prefer to reject them. So the more you dislike my work, and particularly if you are nasty about it, I have no objection to you accumulating – perhaps on margin – as much stock from other investors as possible.” – John Hussman, PhD, Hussman Funds Weekly Market Commentary at…

Monday, the S&P 500 rose about 0.4% to 1885 (rounded).
VIX fell about 0.2% to 12.42.
The yield on the 10-year Treasury Note rose slightly to 2.54% at the close.
The Bond Ghouls are still worried.
The S&P 500 Index has closed within 1% of its all-time high 17-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.  Up-volume is the worst performing market internal right now; are the markets running out of buyers?  Possibly, but those who have shorted in anticipation of a top have been slaughtered all thru 2013 and so far in 2014. 

The 10-day moving average of stocks advancing on the NYSE increased to 52% at the close.  (A number above 50% for the 10-day average is generally good news for the market.) In another reversal, New-highs outpaced New-lows Monday.  The spread (new-highs minus new-lows) was +92 (It was +41 Friday.) The 10-day moving average of change in the spread was +4.  In other words, over the last 10-days, on average, the spread has INCREASED by 4 each day. The smoothed 10-dMA of up-volume remained DOWN today.  The internals remained neutral on the market today, but not by much.  Only up-volume is negative, and then, just barely.

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 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 stockholdings. 

                             --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.”