Who’s at Risk from Portuguese Bank Failure?...Federal Reserve Exit Plans

I got an invite to attend the Orioles-Yankees game Friday night in Baltimore, a considerable drive from here.  As a former Maryland native and long-time Orioles fan, how could I refuse? I had no time to blog earlier, so…here’s Friday’s blog a day late. The game?...Orioles-3 / Yankees-2 in extra innings…exciting well pitched game.

 

PORTUGUESE BANK: WHO’S AT RISK (Bloomberg)

Banco Espirito Santo SA sought to reassure investors by revealing its exposure to related companies after a missed payment on short-term debt by a member of the Portuguese group roiled global markets…“Banco Espirito Santo’s executive committee believes that the potential losses resulting from the exposure to Grupo Espirito Santo do not compromise the compliance with the regulatory capital requirements,” the Lisbon-based bank said. “Banco Espirito Santo is committed not to increase its total exposure to Espirito Santo Group.” Story at…
http://www.bloomberg.com/news/2014-07-10/espirito-santo-discloses-1-2-billion-euro-exposure-to-e-s-group.html

FEDERAL RESERVE EXIT PLANS (Reuters)

“Federal Reserve officials are cautiously nearing completion of a new plan for managing interest rates, concerned that some of the new tools they are likely to rely on could pose unintended risks in a crisis…"The broad concern is whether we want to facilitate what could be a period of financial stress by providing in a large or unlimited way that refuge, and whether that would tend to exacerbate a financially stressful situation," said Atlanta Fed President Dennis Lockhart…Lockhart said a completed exit policy could be formally announced as early as this fall.” Story at…

http://www.reuters.com/article/2014/07/11/us-usa-fed-exit-idUSKBN0FG2B120140711?feedType=RSS&feedName=businessNews

MARKET REPORT

Friday, the S&P 500 was up about 0.2% to 1968 (rounded) {good-to-me}.

VIX fell about 4% to 12.08. 
The yield on the 10-year Treasury Note was down to 2.52% at the close.  The Bond Ghouls still aren’t happy.  Troubles around the world are also sending buyers to the US and driving interest rates down.

 

CORRECTION WATCH – CLUES BOTH WAYS

No Correction: The Percentage of Stocks above their 200-dMA was 62% Friday (data is a day late); 61% is the trouble point for that stat.  The S&P 500 is 7.1% above the 200-dMA and 10% above the 200-day is the trouble point for that one. Sentiment is 78%-bulls and this indicator will switch to negative at 83%.  RSI (SMA/14-day) declined to a neutral 52. {70 is overbought}.  Sentiment has been falling, albeit, slowly, and this usually means there is room for advance. The Market Internals on the NYSE returned to neutral Friday.

 

Correction Now: Statistically, the index is too “quiet” (as it has been since mid-May) and a pullback is suggested anytime. Chart wise, the index has pulled back from the top of the 3-month chart upper trend line several days ago and that could mean the Index is already in pullback mode.

I am still guessing “No.” on a correction, but just barely.

MARKET INTERNALS (NYSE DATA)

The 10-day moving average of the percentage of stocks advancing (NYSE) rose to 50.1% at the close Friday.  (A number above 50% for the 10-day average is generally good news for the market. I’d call this a tie.) New-highs outpaced New-lows Friday.  The spread (new-highs minus new-lows) was +83. (It was +48 Thursday.) The 10-day moving average of change in the spread rose to minus-4.  In other words, over the last 10-days, on average, the spread has DECREASED by 4 each day. The smoothed 10-dMA of up-volume was DOWN today and the Internals turned neutral on the market, but just barely. These “just-barely” readings aren’t strong enough to signify a trend change.  Internals look neutral.

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 Friday.  Sentiment remained 78%-bulls (5-dMA of {bulls/(bulls+bears)} for funds invested in selected Rydex/Guggenheim funds at the close on Friday (data is a day late). (83% is the negative level for the Sentiment indicator.) This value was 85%-bulls on 19 May. Sentiment, Price, Volume & VIX indicators are all neutral.

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
Ensco has surpassed the mean and median analyst price targets so time to get more cautious.

When Jim Cramer was asked about Transocean, he replied, "No, I need you to be in Ensco International (ESV). Swap out of yours."