“Market conditions presently match those that have repeatedly preceded either market crashes or extended losses approaching 50% or more. Such losses have not always occurred immediately, but they have typically been significant enough to wipe out years of prior market gains…On the basis of historically reliable measures, the S&P 500 would have to move slightly below the 1000 level to raise its prospective returns to a historically normal 10% annually. Given short-term interest rates near zero, economic disruptions would probably be required in order to produce that outcome over the completion of the current cycle, and we have no forecast or requirement for that to occur…Regardless of whether the market’s losses in this cycle turn out to be closer to 32% (which is the average run-of-the-mill bear market loss) or greater than 50% (which would be required to take historically reliable valuation measures to historical norms… it’s going to be difficult to avoid steep losses without a plan of action…it’s advisable to panic before everyone else does.” – John Hussman, PhD, Weekly Market Commentary at…
http://www.hussmanfunds.com/wmc/wmc140609.htm
My Plan of Action: I’ll watch the NTSM indicators.
Still, the action today was pretty bullish with a strong end of the day and only a fractional decline.
VALUATION (dShort.com)
Here’s a chart from Doug Short. The
2000 dot-com bubble was a valuation crash so (based on this metric), it is possible
that this market could run a lot further than the bears think. I refer you to…
http://www.advisorperspectives.com/dshort/commentaries/Buffett-Indicator-140610.php…for a discussion of the chart and its meaning (link corrected 14 June 2014).
MARKET REPORT
Tuesday, the S&P 500 was fractionally down, but
practically unchanged at 1951 (rounded).
VIX rose about 1.4% to 10.99. VIX remains at a point that
has recently aligned with the start of corrections. The yield on the 10-year Treasury Note rose slightly to 2.64% at the close.
The Bond Ghouls remain worried.
S&P 500 RELATIVE STRENGTH INDEX (RSI)
RSI (SMA, 14-day) dipped slightly to a still high 73
Tuesday suggesting an overbought condition.
Overbought conditions can persist, but many put great faith in RSI and
it is a warning that conditions are ripe for a pullback.
The S&P 500 is now about 8% above its 20-dMA. 10% often indicates a short term top so it
looks like this rally still has legs.
MARKET INTERNALS (NYSE DATA)
The 10-day moving average of stocks advancing on the NYSE
remaned 59% at the close Tuesday. (A
number above 50% for the 10-day average is generally good news for the market.)
{As a point of interest (not a prediction) the 2010 value right before a 16%
correction was 59%. Whether this turns
out to be a similar “too much of a good thing” remains to be seen.}
New-highs outpaced New-lows Tuesday. The spread (new-highs minus new-lows) was +123.
(It was +285 Monday.) The 10-day moving average of change in the spread was minus
6. In other words, over the last 10-days, on
average, the spread has DECREASED by 6 each day. The smoothed 10-dMA of up-volume
was DOWN today and internals switched to 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.
NTSM
The NTSM analytical model for LONG-TERM MONEY remained
HOLD Tuesday. Sentiment remained 74%-bulls
(5-dMA of {bulls/(bulls+bears)} for funds invested in selected Rydex/Guggenheim
funds at the close on Monday. This value was 85%-bulls on 19 May. Sentiment,
Price, & Volume indicators all remain neutral. The VIX indicator is now positive because the VIX
has been falling. VIX is actually sending a
mixed signal: a falling VIX is good, but the lack of volatility (and fear) is a negative
on the market in the short term.
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 STOCKS--ENSCO (ESV): BUY
The chart looks OK with higher lows and it made a higher high on the
1-month chart so I again rate ESV as BUY. It doesn’t hurt that it was upgraded
to Buy on 27 May by The Street.com. For my initial discussion see the NTSM blog at:
http://navigatethestockmarket.blogspot.com/2014/05/coppock-curve-says-stock-crash-nowblow.htmlENSCO benefited from an upgrade of Diamond Offshore 29 May by Morgan Stanley. Morgan Stanley upgraded Diamond Offshore to equal weight. They said, “Our Underweight thesis based on significant negative earnings revisions has largely played out. We also believe that the cycle is turning and that floater availability has peaked.”
TESARO (TSRO): BUY
For my initial discussion see the NTSM blog at:
http://navigatethestockmarket.blogspot.com/2014/05/gdp-contractsjobless-claims.html
[28 May 2014] BMO Capital upgraded Tesaro (NASDAQ: TSRO) from Market Perform to Outperform with a price target of $46.00. Posted at…
http://www.streetinsider.com/Upgrades/BMO+Capital+Upgrades+Tesaro+(TSRO)+to+Outperform/9071511.html
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.”
