“The Federal Reserve said it would remain "patient" on raising rates, but indicated it saw the U.S. economy getting stronger… The statement completely dropped "considerable time" from its language on tightening…The statement said that economic activity has expanded "at a solid pace" since it met in December—since the last statement, the language changed from "moderate pace."… Lindsey Group Chief Market Analyst Peter Boockvar said in a note after the statement release [that] he interpreted Wednesday's statement to mean that there will be no rate hike in March, and "an April hike is still on the table with the latest first hike being in June." Story and videos at…
http://www.cnbc.com/id/102376338
TIME TO LEAN TOWARD SMALLER CAPS
My retirement fund (the TSP) is limited in its fund choices. I have generally stayed with the S&P 500 (“C”-fund) in my 401k (TSP). On occasion, I have invested in the Dow Jones U.S. Completion Total Stock Market Index (DWCPF) (“S”-fund); it includes the remainder of the market excluding the S&P 500. (I think this fund used to track the Wilshire 4500, but don’t quote me.) I’ve used the “S”-fund after major bottoms and a few other times when it looked promising. Now is one of those times.
The S&P 500 companies will have trouble with non-US earnings since the dollar is very strong. That makes prices for US products more expensive overseas at a time when Europe is already concerned over a possible dip into recession. To avoid this risk, I will switch my retirement holdings away from the S&P 500 and move to a US based smaller cap stock index, the DWCPF.
Since the TSP limits the number of shifts in stock allocation to 3-per month, changing now (at the end of the month) leaves options open for next month. I am shifting to S-40%; C-10%; G-50% tomorrow.
ANOTHER LOST DECADE IN THE STOCK MARKET (YahooFinance)
“…stock market valuations are currently at the same level they were when Warren Buffett, in November 1999, wrote his famous op-ed for Fortune magazine explaining that investors would inevitably be disappointed by returns over the coming decade…. The valuation indicator…total stock market capitalization in relation to Gross National Product…Buffett’s favorite, currently forecasts an annual return over the coming decade of about -0.88%. Yes, that’s losing almost 1% per year over the next decade – the very definition of a lost decade…” Commentary with charts and analysis at…
http://jessefelder.tumblr.com/post/109242478660/heres-why-investors-are-now-facing-another-lost
Even though I believe the above article, I am fully invested in the stock market (50% due to my retired status) since overvaluation can persist for some time and many have been burned calling tops for the past several years. This is not a time to be too complacent, however; currently, there is much concern over forward earnings and it is important to watch market action for clues of a turn downward.
MARKET REPORT
-Wednesday, the S&P 500 was down about 1.4% to 2002 (rounded). (The Russell 2000 was down 1.6% today, more than the S&P 500, and that is not a good sign.)
-VIX was up about 19% to 20.44.
-The yield on the 10-year Treasury Note declined to 1.73% indicating further investor fear.
SOME THOUGHTS ON TECHNICALS
The S&P 500 has dropped again back to 1.5% above its 200-day moving average (200-dMA). Relative to the 200-dMA, that’s about where it was on 15 Jan and 16 December. Compared to recent visits to the 200-dMA, market conditions are better now. This may suggest a short-term bottom Wednesday. This is far from certain; but there were a few more reasons to be positive on the market. Today (Wednesday) the Trader’s Index (TRIN) was very high at 3.6 and that reading suggests a bottom. TRIN is the resultant of an equation that relates up and down volume with advancing and declining stocks. Wednesday’s big down day also suggests an up-day tomorrow (about 62% of the time). Further, the S&P 500 was at its lower trend line today. Looks like a bottom to me. So with all this good news Thursday should be up right?
One big negative: there was huge late day selling Wednesday as the S&P 500 tanked in the last hour of the day. That’s when the pros trade so it’s a concern.
As I have noted before, calling small bottoms is as much guess work as skill so I’ll watch before I decide whether to commit any more funds to the market. (I’ll post tomorrow if I buy.)
MARKET INTERNALS (NYSE DATA)
The 10-day moving average of the percentage of stocks advancing (NYSE) dropped to 52% at the close Wednesday. (A number above 50% is usually GOOD news for the markets.) New-highs outpaced New-lows Wednesday. The spread (new-highs minus new-lows) was +230. (It was +280 Tuesday). The 10-day moving average of change in the spread fell to +15. In other words, over the last 10-days, on average, the spread has INCREASED by15-each day and that’s still pretty good.
Internals switched to positive 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 analysis is HOLD. The PRICE indicator is positive; VIX is negative; other indicators are neutral.
MY INVESTED STOCK POSITION
I remain fully invested at 50% invested in stocks in the long-term portfolio. 50% is conservative, but appropriate for a retired guy.
I might commit some cash to trading positions if it looks like the markets are more positive. On the other hand, things may break down from here if investors continue to worry about earnings. I’ll post tomorrow in the blog if I buy.
