“The Federal Reserve was slightly more upbeat about the economy on Wednesday, leaving its options open for an interest-rate hike at one of the three meetings left this year. By making subtle changes to the six-paragraph policy statement, “the Fed did just enough to preserve the option to hike rates at the September meeting,” said Eric Green, head of rates and economic research at TD Securities.” Story at…
http://www.marketwatch.com/story/federal-reserve-is-noncommittal-on-timing-of-first-interest-rate-hike-2015-07-29?dist=countdown
CONSUMER CONFIDENCE FALLS SHARPLY DOWN (WSJ)
“Consumers unexpectedly took a dimmer view of the U.S. economy this month. Householders were especially less optimistic about current and future job growth. The Conference Board, a private research group, said Tuesday that its index of consumer confidence plunged to 90.9 in July…” Story at…
http://www.wsj.com/articles/u-s-consumer-confidence-falls-back-sharply-in-july-1438093315
SHANGHAI COMPOSITE INDEX SUGGESTING CRASH FOR CHINESE STOCKS (Kimble Charting)
“…seldom has the Shanghai index created a 10% reversal pattern after a 100% rally in 12-months. Until this past month, only one time in the past 25-years has the index created at least a 10% reversal pattern after a 100% rally in 12-months, which was 2007. A large decline followed this reversal pattern back in 2007… What the Shanghai index does going forward…should end up being very important for stock markets around the world in the next 6-months!” Commentary at…
http://kimblecharting.tumblr.com/post/122938302371/shanghai-index-creates-historic-reversal-pattern
My cmt: The SSE is down 11% since Chris wrote this piece on 1 July.
STOCK MARKET CORRECTION COMING? (CNBC)
“…the Chinese market is crashing…Commodities have crashed. From crude oil to copper, basic materials have fallen 50 percent or more over the past year or so…Interest rates are falling, not an encouraging sign of future growth or stable inflation…[I am] more cautious about our market than I have been in quite some time…” – Ron Insana. Story at…
http://www.cnbc.com/2015/07/28/stock-market-headed-for-correction-commentary.html
MARKET REPORT / ANALYSIS
-Wednesday, the S&P 500 was up about 0.7% to 2109 at the close.
-VIX was down about 7% to 12.5.
-The yield on the 10-year Treasury rose to 2.28%.
Ron Insana’s comments above are all true and I share his concerns, but once again, the S&P 500 has bounced up from its 200-dMA and, after a 50%-down retracement of the prior rise, is moving up. For the immediate future, the stock market correction appears to have been avoided. So I may move some funds into a trading ETF such as SSO (2x S&P 500) tomorrow if I feel lucky, but be careful.
The VIX has already moved down to 12.5 and VIX around 12 has been a point that preceded corrections in recent years. Sentiment too (Bulls/{Bulls+Bears} in selected Rydex/Guggenheim bull and bear funds) is already up to 83.6%. 84.4% is the current Sell point for this indicator. As I detailed in the blog dated 2 July 2015, paragraph titled: “SENTIMENT: %-BULLS (Bulls/(Bulls+Bears)” at…
http://navigatethestockmarket.blogspot.com/2015/07/sentiment-says-sell-stocksjobless.html
…the S&P generally goes nowhere (or worse) when my Sentiment indicator has been exceeded in the past. Even though it looks like the correction is over…maybe not. Nothing is certain and I still think China’s stock market collapse has further to go and I expect that it will rattle the US markets.
LONG TERM BREADTH
The 50-dMA of stocks advancing on the NYSE was 47% Wednesday, but it did improve from 46.7% to 47.1%. Below 50% is not good; it simply means that more than half of the stocks on the NYSE have gone down over the past 2-1/2 months.
MARKET INTERNALS (NYSE DATA)
The 10-day moving average of the percentage of stocks advancing (NYSE) was 45% Wednesday. (A number below 50% is usually BAD news for the markets. Once again, New-lows outpaced New-highs Wednesday. The spread (new-highs minus new-lows) was -8, a huge improvement from just a few days ago. (It was -150 Tuesday.)
The 10-day moving average of change in the spread rose to minus-1, Wednesday. In other words, over the last 10-days, on average; the spread has DECREASED by 1 each day. Internals switched to neutral on the markets and improved significantly today.
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 2014, using these
internals alone would have made a 9% return vs. 13% 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, nearly straight-up year like 2014.
NTSM
Wednesday, the NTSM long term indicator is HOLD. Price is positive, because up moves have exceeded down moves recently. All other long-term indicators remain neutral.
MY INVESTED STOCK POSITION
On 13 July, I increased my investments from 30% invested to 50% invested in stocks. I spilt stock investments roughly equally between S&P 500, Euro/pacific ETF (EFA), and the Dow Jones Completion Index (DWCPF) as noted in an earlier post. (My 401k {the TSP} is limited in its choices.)
Since 13 July the Dow Jones Completion Index (DWCPF) has underperformed the S&P 500 by about 2%. The Euro-Pacific (EFA) has underperformed by 0.6%. The failure of the small caps to outperform or even keep up with the S&P 500 is a concern since it suggests investors are sticking with the safety of the big-caps, even with the risk of a strong dollar that erodes overseas profits. I’ll change TSP allocations on Friday to drop the S-Fund.
TSP ALLOCATION (This is a conservative position most appropriate for retirees or conservative investors.) I think all investors would be well served to cut their stock investments to a lower than normal (for each individual) allocation. Until longer term technicals look better, the old adage that one’s stock allocation should equal your age subtracted from 100 seems reasonable. (40years old: 100-40 = 60% in stocks) 50% would be the lowest stock allocation unless conditions deteriorate.
G-Fund (Risk-free yielding 2.1% over the last 12-months): 50%
C-Fund (S&P 500): 15%
S-Fund (DWCPF): 15%
I-Fund (EFA): 20%
