Thursday, July 31, 2014

Market Analysis…Time to Sell

MARKET REPORT
Thursday, the S&P 500 was DOWN  2% to 1931 (rounded).
VIX rose about 27% to 16.95.  (That is less than the 32% rise just 2-weeks ago and a 32% rise in Jan 2014 when the market fell about 6% top to bottom.)
The yield on the 10-year Treasury Note rose slightly to 2.56% at the close; the bond Ghouls apparently didn’t get the word about a panic on Wall Street.

PULLBACK NOW?
Yes, and as is normal after a big down day, tomorrow (Friday) will probably be an up-day (62% of the time).
Potential bottoms are:
1950 was the 50-dMA so Art Cashin’s line in the sand has already been breached; forget 1950.
1910 – That is currently the bottom of the channel and all “corrections” have ended at a channel bottom in years 2013 & 2014. Can the Fed do it again?
1860 – 200-dMA. (Top to bottom this would only produce a 6% correction.  This is a likely guess though.)
1850 – There were numerous closes in this range so there is support here.
1816 – A prior low offering support.
1742 – A prior low offering support. (This would be a 12% correction top to bottom.)
I am betting on a relatively shallow pullback.
 
MID-TERM, OFF PRESIDENTIAL ELECTION YEAR
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.
 
MARKET INTERNALS (NYSE DATA)
The 10-day moving average of the percentage of stocks advancing (NYSE) fell to 46% at the close Thursday.  (A number below 50% for the 10-day average is generally BAD news for the market and the average in a normally rising market is 53%.) In a reversal, New-lows outpaced New-highs Thursday.  The spread (new-highs minus new-lows) was minus-75 (It was +26 Wednesday.) The 10-day moving average of change in the spread fell to minus -12.  In other words, over the last 10-days, on average, the spread has DECREASED by 12 each day. The smoothed 10-dMA of up-volume was DOWN today and the Internals remained negative 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 switched to SELL Thursday. Indicators are as follows:
 
SENTIMENT: Sentiment remained neutral at 77%-bulls (5-dMA of {bulls/(bulls+bears)} for funds invested in selected Rydex/Guggenheim funds at the close on Wednesday (data is a day late). (84% is the current negative level for the Sentiment indicator.) Sentiment was 85%-bulls on 19 May. While officially neutral, a Sentiment of 77%-bulls (3 out of every 4 investors betting long) is extremely high so I could easily call it negative.
 
PRICE: The Price indicator switched to negative on the big down move today.  Including Thursday, down moves have averaged more than twice the size of up moves recently. This indicator had been deteriorating steadily for the last 2-weeks.
Another Price indicator flashed negative, too. The “panic indicator” turned negative based on statistical analysis of the size of moves.  Today was big enough to suggest panic. The panic indicator has only been this high on 2-occasions in the past 4-years: (1) 16 Apr 2010 - the day after the top before a 16% correction and (2) 15 Apr 2013 - a false negative.
 
VOLUME: This indicator is neutral, but on the negative side of neutral.
 
VIX: The VIX indicator switched to negative on the huge up move today that left VIX plunging down. VIX is the most accurate and, therefore, the most heavily weighted indicator. I believe the Option boys.
 
On the whole, NTSM is SELL.
 
MY INVESTED POSITION
I will reduce my investment in stocks to 30% on 1 August because of the NTSM indicators have turned negative at the close on 31 July.  30% invested protects the portfolio. If there is a 50% crash I would only lose 15% of the portfolio value.  At the same time, if the market goes up, I will make some gains. No system is perfect and the NTSM system has underperformed a buy and hold strategy in the current Fed driven market.
                                          --INDIVIDUAL STOCKS--
ENSCO (ESV): HOLD (Earnings announce 31 July)
For my initial discussion see the NTSM blog at:
http://navigatethestockmarket.blogspot.com/2014/05/coppock-curve-says-stock-crash-nowblow.html
I like the dividend.
ENSCO EARNINGS BEAT…REVENUES MISS (Yahoo Fincnace)
Oil and natural gas driller, Ensco plc (ESV) reported diluted second-quarter 2014 earnings of $1.58 a share (excluding onetime items), which surpassed the Zacks Consensus Estimate of $1.32. The figure also increased 7% from $1.48 earned in the year-earlier quarter. Significant improvement in average dayrates aided the results. Total revenue grew 6% to $1,203.0 million from $1,130.3 million in the year-ago quarter but missed the Zacks Consensus Estimate of $1,219.0 million.    

 

 

Unemployment Claims Rise…Fed in no Rush to Raise Rates…1950 on the S&P 500 is “Critical”

UNEMPLOYMENT CLAIMS RISE (USA Today)
“The Labor Department says weekly applications for unemployment aid rose 23,000 to a seasonally adjusted 302,000. The prior week's was revised down to 279,000 claims, the lowest since May 2000. The four-week average, a less volatile measure, fell 3,500 to 297,250. That's the lowest average since April 2006, more than a year before the Great Recession began at the end of 2007.” Story at…
http://www.usatoday.com/story/money/business/2014/07/31/weekly-jobless-claims/13378535/

FED IN NO RUSH TO RAISE RATES (Reuters)
“The Federal Reserve on Wednesday reaffirmed it was in no rush to raise interest rates, even as it upgraded its assessment of the U.S. economy and expressed some comfort that inflation was moving up toward its target. After a two-day meeting, Fed policymakers took note of both faster economic growth and a decline in the unemployment rate, but expressed concern about remaining slack in the labor market.” Story at…
http://www.reuters.com/article/2014/07/30/us-usa-fed-idUSKBN0FZ24820140730?feedType=RSS&feedName=businessNews

BLOOMBERG CONSUMER COMFORT DECLINES (Bloomberg)
“Confidence among U.S. consumers retreated last week to an almost two-month low as limited wage growth chipped away at perceptions about personal finances. The Bloomberg Consumer Comfort Index fell to 36.3 in the period ended July 27, the lowest June 8, from 37.6 the week before. A gauge of households’ financial well-being dropped by the most since mid-May after reaching an 11-week high.” Story at…
http://www.bloomberg.com/news/2014-07-31/consumer-confidence-declines-in-u-s-to-lowest-since-june.html

ART CASHIN: IT’S CRITICAL S&P 500 HOLD 1950 (CNBC)
"If they don't hold 1,950, it's going to be a bit of a problem," Cashin said on "Squawk on the Street." Video at…
http://www.cnbc.com/id/101883819
Oooops.  The markets crashed thru 1950 to settle in at 1931.

I'll have to post market analysis later, but I am seeing sell signals.


Wednesday, July 30, 2014

GDP Up…ADP Payrolls Disappoint

GDP UP 4% (WSJ)
The U.S. economy rebounded strongly this spring after a first-quarter contraction, eking out positive growth over the past six months and raising hopes for sustained growth in the second half of 2014. Gross domestic product, the broadest measure of goods and services produced across the economy, advanced at a seasonally adjusted annual rate of 4.0% in the second quarter…The report showed the personal consumption expenditure price index, the Fed's preferred inflation gauge, an advanced at an annualized 2.3% in the second quarter. That was an acceleration from the first quarter, and above to Fed's 2% inflation target for the first time since early 2012.” Story at…
http://online.wsj.com/articles/second-quarter-gdp-expands-at-4-0-rate-1406723867
So the recession comments offered by some were totally off the mark.  But of some concern, the inflation rate is now above the Fed target rate.  As noted below, this apparently will be a huge surprise to the Fed since they were talking about keeping rates low for “a considerable period" on the assumption that inflation would remain tame.
 
4% GDP GROWTH?  2-WEEKS AGO THE FED WAS SOMBER ON THE ECONOMY
Yellen said, “…in June the Committee reiterated its expectation that the current target range for the federal funds rate likely will be appropriate for a considerable period after the asset purchase program ends, especially if projected inflation continues to run below the Committee’s 2 percent longer-run goal and provided that inflation expectations remain well anchored. In addition, we currently anticipate that even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the federal funds rate below levels that the Committee views as normal in the longer run.”
 
ADP PAYROLLS DISAPPOINT (CNBC)
“Private businesses created 218,000 jobs in July, a number that while solid and in line with trend fell below expectations, according to ADP. The number also fell well short of the 281,000 created in June…” Story at…
http://www.cnbc.com/id/101878695
 
MARKET REPORT
Wednesday, the S&P 500 was unchanged at 1970 (rounded).
VIX rose about 0.4% to 13.33.  (No worry here.)
The yield on the 10-year Treasury Note rose to 2.55% at the close. (The bond Ghouls breathed a sigh of relief after the GDP numbers.)
 
The decliners outpaced advancers today even though the S&P 500 was flat.  There was selling; it just wasn’t in the Index.   Usually the index will catch up so I’d say on that clue alone Thursday would probably be a down day.  Futures are down a tad as I write this so there’s another (better) clue.
 
ALL IS NOT WELL FOR STOCKS
“…maybe this is just the lull before the storm. As Josh Brown of the Reformed Broker CEO of Ritholtz Wealth Management notes in the attached clip, under the surface things are worse than they seem. Small caps are underperforming, the Nasdaq is being led by a tiny fraction of major stocks and it’s all but impossible to find ideas that are particularly fresh by any reasonable standard. For want of a better term the market is choppy and choppy is bad. “Tops are a process. A choppy market can sometimes be indicative of a change in trend.” Video at…
http://finance.yahoo.com/news/don-t-be-fooled--all-is-not-well-for-stocks-173341410.html

CORRECTION NOW?
-GDP news is good for the Economy, but may be bad for stock market because the Fed may act sooner to raise rates. 
-The percent of stocks trading above their 200-dMA fell to 57% Tuesday (data is a day late) and that is below the mean of 61.  This is a bearish sign.
-Market Internals remain negative.  If the 10-dMA is below 50%-advancing (it is now 47%), the trend is down.  Simply stated, most stocks have been falling over the last 10-days.  (That could change with a big up day though.)  This stat is typically around 53% in a rising market.
-The market has been too quiet with smaller than normal moves each day.
-At the recent top of 1985 (3 July 2014) the Index was at its upper trend line and it is due for a 5% pullback just as a normal cycle.
-The index made a triple top of 1985, 1987 and 1988 on 3 July, 23 and 24 July respectively and has pulled back 3-successive days.
 
Still, I haven’t seen that big short covering up-day that would say, “The pullback is NOW,” but in fact it may well have already started. There was a big up-day at the first top of 1985 on 3 July.
 
MARKET INTERNALS (NYSE DATA)
The 10-day moving average of the percentage of stocks advancing (NYSE) fell to 47% at the close Wednesday.  (A number below 50% for the 10-day average is generally BAD news for the market.) New-highs outpaced New-lows Wednesday.  The spread (new-highs minus new-lows) was +26  Wednesday. (It was +48 Tuesday.) The 10-day moving average of change in the spread fell to minus -7 .  In other words, over the last 10-days, on average, the spread has DECREASED by 7   each day. The smoothed 10-dMA of up-volume was DOWN today and the Internals remained negative 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 Wednesday.  Sentiment inched up to 77%-bulls (5-dMA of {bulls/(bulls+bears)} for funds invested in selected Rydex/Guggenheim funds at the close on Tuesday (data is a day late). (84% is the current negative level for the Sentiment indicator.) This value was 85%-bulls on 19 May. Price, Sentiment, Volume & VIX indicators are neutral, but all indicators have deteriorated over the past 2-weeks.

MY INVESTED POSITION
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): HOLD (Earnings announce 31 July)
For my initial discussion see the NTSM blog at:
http://navigatethestockmarket.blogspot.com/2014/05/coppock-curve-says-stock-crash-nowblow.html
I like the dividend.

Tuesday, July 29, 2014

Consumer Confidence…Pending Home Sales…Bear Market Coming

CONSUMER CONFIDENCE (MarketWatch)
“The U.S. consumer confidence index jumped to 90.9 in July, marking the highest level in seven years, from a revised 86.4 in June, the Conference Board said Tuesday.” Story at…
http://www.marketwatch.com/story/stock-trader-who-called-three-crashes-sees-20-collapse-2014-07-28?link=MW_story_popular

PENDING HOME SALES (Fortune)
“Pending home sales dropped in June, retreating after three consecutive months of solid growth and the latest sign the U.S. housing sector has suffered a setback as tight credit conditions and flat wages deter many potential home buyers. The National Association of Realtors’ pending home sales index, a forward-looking indicator based on contract signings, slipped 1.1% in June from the prior month and was 7.3% below last year’s level.” Story at…
http://fortune.com/2014/07/28/pending-home-sales-june/

20% BEAR MARKET WITHIN ONE YEAR (MarketWatch)
“Mark Cook, a veteran investor included in Jack Schwager’s best-selling book, “Stock Market Wizards,” and the winner of the 1992 U.S. Investing Championship with a 563% return, believes the U.S. market is in trouble…In simple terms, as stock prices have gone higher, the NYSE Tick has moved lower. This divergence is an extremely negative signal…Cook predicts that within 12 months, the market will suffer a 20% or greater pullback.” Story at…
http://www.marketwatch.com/story/stock-trader-who-called-three-crashes-sees-20-collapse-2014-07-28?link=MW_story_popular
Cook called crashes in 1987, 2000, and 2007.
 
MARKET REPORT
Tuesday, the S&P 500 was down 0.5% to 1970 (rounded).
VIX rose about 6% to 13.28. 
The yield on the 10-year Treasury Note fell slightly to 2.46% at the close.
 
CORRECTION NOW?
-The late day swoon in the S&P 500 is not a good sign for the bulls.
-The percent of stocks trading above their 200-dMA fell to 59% Monday (data is a day late) and that is below the mean of 61.  This is a bearish sign.
-Market Internals are negative.  If the 10-dMA is below 50%-advancing (it is now 49%), the trend is down.  Simply stated, most stocks have been falling over the last 10-days.  (That could change with a big up day though.)  This stat is typically around 53% in a normal rising market.
-The market has been too quiet with smaller than normal moves each day.
-At the recent top of 1985 (3 July 2014) the Index was at its upper trend line and it is due for a 5% pullback just as a normal cycle.
-The index made a triple top of 1985, 1987 and 1988 on 3 July, 23 and 24 July respectively and has pulled back 3-successive days.
 
Still, I haven’t seen that big short covering up-day that would say, “The correction is NOW,” but in fact it may well have already started.
 
MARKET INTERNALS (NYSE DATA)
The 10-day moving average of the percentage of stocks advancing (NYSE) rose to 49% at the close Tuesday.  (A number below 50% for the 10-day average is generally BAD news for the market.) New-highs outpaced New-lows Tuesday.  The spread (new-highs minus new-lows) was +48 Tuesday. (It was +25 Monday.) The 10-day moving average of change in the spread rose to minus -3.  In other words, over the last 10-days, on average, the spread has DECREASED by 3   each day. The smoothed 10-dMA of up-volume was DOWN today and the Internals remained negative 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 76%-bulls (5-dMA of {bulls/(bulls+bears)} for funds invested in selected Rydex/Guggenheim funds at the close on Tuesday (data is a day late). (84% is the current negative level for the Sentiment indicator.) This value was 85%-bulls on 19 May. Price, Sentiment, Volume & VIX indicators are neutral, but all indicators have deteriorated over the past 2-weeks.

MY INVESTED POSITION
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): HOLD (Earnings announce 31 July)
For my initial discussion see the NTSM blog at:
http://navigatethestockmarket.blogspot.com/2014/05/coppock-curve-says-stock-crash-nowblow.html
I like the dividend.