Personal Income … Personal Spending … Consumer Confidence … Stock Market Analysis

PERSONAL INCOME (Business Insider)
“Personal income and spending rose as expected in July, according to the latest report from the BEA. Income rose 0.4% in July while spending ticked up 0.3%.” Story at…
http://www.businessinsider.com/personal-income-and-spending-august-28-2015-8
 
PERSONAL INCOME AND SPENDING (Briefing.com)
“Personal spending increased 0.3% for a second consecutive month in July…Personal income and spending hardly moved from June trends.” Details at…
http://www.briefing.com/Investor/Calendars/Economic/Releases/income.htm

CONSUMER CONFIDENCE FALLS (Bloomberg)

“Consumer confidence declined in August to a three-month low as recent stock-market turbulence weighed on Americans’ outlook for the U.S. economy in the coming year. The University of Michigan consumer sentiment final index for the month fell to 91.9 from 93.1 in July.” Story at…

http://www.bloomberg.com/news/articles/2015-08-28/consumer-sentiment-in-u-s-declined-in-august-to-three-month-low
 
MARKET REPORT / ANALYSIS                                                            
-Friday, the S&P 500 was up about 0.1% to 1989 at the close.
-VIX fell about 0.2% to 26.05.
-The yield on the 10-year Treasury remained 2.17%.
 
The first bounce in the 2011 correction was 3-days long. Friday was the third day and the trading was very choppy with up and down moves all day.  Given that the bounce stalled just below the 1999 level (1999 represents a 50% retracement from the recent low) I suspect Monday will lead to more selling.  Eventually, this should lead to a retest of the low of 1868 as is the norm during corrections. No guarantee; the markets could run higher, but that is not the most likely scenario.
 
During the 2011, 19%-correction, it took 1-month from the waterfall bottom (similar to the low 3-days ago) before the markets made a final bottom (slightly lower), so this correction could take a while to resolve with a lot more up and down movement ahead.
 
This correction also shares an important characteristic with the 2010 correction (down 16% top to bottom).  That correction started quickly with an 8% drop in 9-days with 4-straight down days as the S&P 500 recently experienced. It dropped another 8% before it was over 2-months later. We’ve just completed 4-straight down days.  In each case, both 2010 and 2015, the last day of the 4-day drop was a “successful test” with lower volume and improving internals; to many traders it signaled a correction end.  It wasn’t the end in 2010 and we’ve probably not seen the lows yet either.
 
The Fed still hangs over the market and I don’t think China is gone by any means.
 
MARKET INTERNALS (NYSE DATA)
The 10-day moving average of the percentage of stocks advancing (NYSE) was 43% Friday vs. 44% Thursday.  (A number below 50% is usually BAD news for the markets.  Again, New-lows outpaced New-highs Friday. The spread (new-highs minus new-lows) was minus-14. (It was -18 Thursday.)   There were 7 new-highs Friday.
 
The 10-day moving average of change in the spread remained +4, Friday.  In other words, over the last 10-days, on average; the spread has INCREASED by 4 each day. Internals remained neutral on the markets.

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         
Friday, the NTSM long term indicator was SELL. VIX and Volume indicators are negative. Sentiment and Price are neutral. Friday, there was a “Death Cross” on the S&P 500, signaled when the 50-day moving average (dMA) crosses below the 200-dMA.  That is usually a negative signal, but Friday investors paid no attention.

As of today, this may be an “ordinary” correction that is mostly over except that there will be up and down movement for a couple of weeks.  If that’s true, it will be difficult to get back in the market without losing some ground to the S&P 500, i.e., I would have been better to have left funds in the market rather than selling on the NTSM system sell signal. Will we follow the 2011 scenario, or the 2010 scenario? Time will tell.
 
MY INVESTED STOCK POSITION:
TSP (RETIREMENT ACCOUNT – GOV EMPLOYEES) ALLOCATION
G-Fund (Cash, risk-free yielding 2.1% over the last 12-months): 70%
C-Fund (S&P 500): 15%
I-Fund (EFA): 15%
 
At this point, I think the S&P 500 is a buy when it’s below 1890, but I will use technicals to make a final decision.  When I do move back into stocks, I will initially invest a high percentage into stocks and phase back if the Index gets to prior highs.

Jobless Claims … GDP … Jim Paulson … China … Stock Market Analysis

JOBLESS CLAIMS
“The number of Americans filing new applications for unemployment benefits fell more than expected last week, pointing to a steadily firming labor market. Initial claims for state unemployment benefits slipped 6,000 to a seasonally adjusted 271,000 for the week ended Aug. 22…” Story at…
http://www.reuters.com/article/2015/08/27/us-usa-economy-jobless-idUSKCN0QW1ID20150827
 
GDP REVISED UP (Marketwatch)
“The U.S. economy grew at a faster 3.7% annual pace in the second quarter, up from the initial estimate of growth at a 2.3% clip, the Commerce Department said Thursday… business investment was stronger than expected.” Story at…
http://www.marketwatch.com/story/us-economy-looks-much-stronger-after-upward-revision-to-gdp-report-2015-08-27
 
JIM PAULSON ON THE MARKET (CNBC)
“Who knows if we’re done [on the correction]…One thing I really don’t like is the reaction to this, to me so far, has been that it’s just a refreshing pause in an ongoing bull market…I believe that myself, but I hate it that everyone believes that…I see no panic; no flight to safety; treasury yields are going up, not down; the dollars down; gold’s down…I think we ‘gotta’ go lower maybe down to 1800 or so…”
http://www.cnbc.com/2015/08/27/jim-paulsen-overpriced-market-was-too-complacent.html
My cmt: When everyone believes the same thing in the markets, something else is going to happen. Steve Grasso (trader and CNBC commentator) said on the air that he thought the markets would fall 10% from here. That would take the S&P 500 down to about 1790.
 
CHINA
Evercore Partners tracks Chinese growth thru its own analysis.  Evercore is now projecting that Chinese GDP is in contraction at -1.1% year-over-year.  That would seem to fit with the Chinese stock market since markets usually predict economic conditions. Read a report from ZeroHedge at…
http://www.zerohedge.com/news/2015-08-26/china-stunner-real-gdp-now-negative-11-evercore-isi-calculates
My cmt: I don’t do technical analysis on the Chinese stock market, but the chart of the Shanghai Composite does not look like a bottom has been made to me. Their correction has only been going on for 2-months.  It has bounced at support, but it still looks like it’s going to 2500.  That would represent roughly a 50% drop, typical in bear markets. Combined with Chinese recession worries, it is quite possible that China will again rattle world markets.
 
MARKET REPORT / ANALYSIS                                                            
-Thursday, the S&P 500 was up about 2.4% to 1988 at the close.
-VIX fell about 14% to 26.1.
-The yield on the 10-year Treasury remained 2.17%.
 
The high for the day was 1990 around 1:30PM. A 50% retracement from the low of this correction would put the S&P 500 at 1999, only 9 points higher than Thursday’s high.  After the high, the markets began to fade down in the afternoon.  This led to some wild moves as the Index dropped to 1950 only to bounce back near the previous high on extreme volume late in the day.  This may be related to the 2011 correction.
 
The first bounce in the 2011 correction was 3-days long. We’ll see what happens tomorrow (the 3^rd day in this correction), but I think traders were anticipating the end of the bounce Thursday. Expect a fade in the afternoon if Friday is up.
 
MARKET INTERNALS (NYSE DATA)
The 10-day moving average of the percentage of stocks advancing (NYSE) was 44% Thursday vs. 39% Wednesday.  (A number below 50% is usually BAD news for the markets.  Again, New-lows outpaced New-highs Thursday. The spread (new-highs minus new-lows) was minus-18. (It was -214 Wednesday.)   There were only 3 new-highs Thursday.
 
The 10-day moving average of change in the spread rose to +4, Thursday.  In other words, over the last 10-days, on average; the spread has INCREASED by 4 each day. Internals remained neutral on the markets.

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         
Thursday, the NTSM long term indicator remained HOLD. Price is positive. VIX and Volume indicators are negative. Sentiment is neutral.

As of today, this looks like an “ordinary” correction that is mostly over except that there will be up and down movement for a couple of weeks.  If I am right, it will be difficult to get back in the market without losing some ground to the S&P 500, i.e., I would have been better to have left funds in the market rather than selling on the NTSM system sell signal.
 
MY INVESTED STOCK POSITION:
TSP (RETIREMENT ACCOUNT – GOV EMPLOYEES) ALLOCATION
G-Fund (Cash, risk-free yielding 2.1% over the last 12-months): 70%
C-Fund (S&P 500): 15%
I-Fund (EFA): 15%
 
At this point, I think the S&P 500 is a buy when it’s below 1890, but I will be looking at technical to make a final decision.  When I do move back into stocks, I will initially invest a high percentage into stocks and phase back if the Index gets to prior highs.
 
I’ll buy some XIV if the VIX climbs above 40 assuming the S&P 500 has not made a new low.

Durable Goods Orders … Crude Inventories … Stock Market Report/Analysis

DURABLE GOODS ORDERS (USA Today)
“The Commerce Department said Wednesday orders for durable goods increased 2% in July after a 4.1% gain in June…Orders for machinery rose by 1.5%, and demand for communications equipment increased 1.8%. But orders for computers and primary metals such as steel both fell.” Story at…
http://www.usatoday.com/story/money/business/2015/08/26/durable-goods-orders-july/32355267/
Without transportation, Durable Goods Orders rose 0.6%.
 
CRUDE INVENTORIES
“Oil futures slipped after government data showed U.S. crude stocks fell sharply last week as imports tumbled, while gasoline and distillate inventories rose despite a reduction in refinery runs…Oil has lost a third of its value since June on high U.S. production, record crude pumping in the Middle East and concern about falling demand in Asian economies.” Story at…
http://www.cnbc.com/2015/08/25/us-crude-steadies-near-6-12-year-lows-worries-persist.html
 
MARKET REPORT / ANALYSIS                                                            
-Wednesday, the S&P 500 was up about 3.9% to 1941 at the close.
-VIX fell about 16% to 30.16 (as of 4PM). 
-The yield on the 10-year Treasury rose to 2.17%.
 
The Shanghai Composite is down 43% as of Wednesday’s close and appears to be in the final waterfall phase. Their drop has been so intense that the Shanghai may still fall another 10% during the shakeout phase of testing and filling.  It’s probably good news for bulls in the short run, since it may take away some of Wall Street’s fears.  The long term fear that China will slip into recession (or may be there already) will be a concern for the future.
 
Today’s big jump up in the S&P 500 was expected as noted in yesterday’s blog. I expect this rally to last for a couple of days followed by a re-test of the prior low. This process could take a week or more than a month or two, but corrections never play out exactly the same way.  One constant is that there usually is a re-test of the low and it is going to take some patience to catch the low.
 
China remains the wild-card – and it’s market may rattle our market again.
 
MARKET INTERNALS (NYSE DATA)
The 10-day moving average of the percentage of stocks advancing (NYSE) was 39% Wednesday vs. 36% Tuesday.  (A number below 50% is usually BAD news for the markets.  Again, New-lows outpaced New-highs Wednesday. The spread (new-highs minus new-lows) was minus-214. (It was -237 Tuesday.)   In the last 5-days there have been only 13-new highs.   Once again, there were only 2 new-highs Wednesday. 
 
The 10-day moving average of change in the spread rose to minus-4, Wednesday.  In other words, over the last 10-days, on average; the spread has DECREASED by 4 each day. Internals remained negative on the markets.

Still, I expect another up day for Thursday and possibly Friday.   

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 switched to HOLD. VIX and Volume indicators are negative. Price and Sentiment are neutral.

As of today, this looks like an “ordinary” correction that is mostly over except that there will be up and down movement for a couple of weeks.  If I am right, it will be difficult to get back in the market without losing some ground to the S&P 500, i.e., I would have been better to have left funds in the market rather than selling on the NTSM system sell signal.  The only consolation is that when the next round of selling starts, I won’t be concerned.

MY INVESTED STOCK POSITION:
TSP (RETIREMENT ACCOUNT – GOV EMPLOYEES) ALLOCATION
G-Fund (Cash, risk-free yielding 2.1% over the last 12-months): 70%
C-Fund (S&P 500): 15%
I-Fund (EFA): 15%
 
At this point, I think the S&P 500 is a buy when it’s below 1890.  When I do move back into stocks, I will initially invest a high percentage into stocks and phase back if the Index gets to prior highs.
 
I’ll buy some XIV if the VIX climbs above 40 assuming the S&P 500 has not made a new low.

PRO Says Recession Coming … Consumer Confidence … Stock Market Analysis

PRO SAYS RECESSION COMING – THIS MAY BE THE CRASH
“…with all three major U.S. averages now firmly in correction territory, one noted market analyst, who has been calling for a sharp selloff, says the bleeding could be far from over.  "World growth has slowed somewhat, quiet significantly, and I think U.S. growth has slowed a lot," Raoul Pal of the Global Macro Investor and Real Vision TV told CNBC's "Fast Money" on Monday.” Story at…
http://www.cnbc.com/2015/08/24/led-collapse-sees-this-ahead.html
My cmt: So far, my thesis is that this is a normal correction and the S&P 500 is probably already near the bottom. No guarantees though; if you believe the above report, sell and stay out until a buy signal is clear.
 
CONSUMER CONFIDENCE (Yahoo Finance)
“The Conference Board said Tuesday that its index of consumer confidence increased to 101.5 in August, up from a revised July reading of 91.0. It was the best showing since January. Conference Board economist Lynn Franco says that consumers' assessment of current conditions was considerably more upbeat in August…”
http://finance.yahoo.com/news/us-consumer-confidence-shows-sharp-141653382.html
My cmt: Consumer confidence tends to track the stock market so expect this value to collapse next month.
 
MARKET REPORT / ANALYSIS                                                            
-Tuesday, the S&P 500 was down about 1.3% to 1868 at the close.
-VIX fell about 12% to 36.02.  (I am still surprised that the options market didn’t give a warning via the VIX that a major correction was imminent.  In 2011 the VIX was wound up months before a significant collapse. The options boys weren’t worried about the drop in the Index today…)
-The yield on the 10-year Treasury rose to 2.13%. (…neither were the Bond Ghouls.)
 
Technically, today (Tuesday) was a successful test of yesterday’s low.  The volume was significantly lower and market internals improved.  That’s a classic buy signal, but it is too soon after a rather significant panic event.  I’d expect a lot more back and forth before a real bottom is in.  BUT…it should lead to the bounce we didn’t get Tuesday.  There is at least one major cross current to that thesis:
 
The S&P 500 dropped 60-points in the last hour.  That’s huge and the selling may carryover until tomorrow morning. If the morning is down, Wednesday could see a big turn-around and rally based on Tuesday’s technicals.
 
Again, I expect a bounce Wednesday that might last a week or so, but if the S&P 500 closes significantly below 1862, all bets are off. 
 
MARKET INTERNALS (NYSE DATA)
The 10-day moving average of the percentage of stocks advancing (NYSE) was 36% Tuesday vs. 35% Monday.  (A number below 50% is usually BAD news for the markets.  Again, New-lows outpaced New-highs Tuesday. The spread (new-highs minus new-lows) was minus-237. (It was -1256 Monday.)   Again, there were only 2 new-highs Tuesday.
 
The 10-day moving average of change in the spread rose to minus-13, Tuesday.  In other words, over the last 10-days, on average; the spread has DECREASED by 13 each day. Internals remained negative on the markets.
 
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         
Tuesday, the NTSM long term remained SELL. Price, VIX and Volume indicators are negative. Sentiment is neutral.

EVEN THOUGH THE NTSM INDICATOR is now sell, if I was still in the markets I wouldn’t sell now.  I think the S&P 500 is close to a bottom.  That is true as long as the S&P 500 does not close significantly below 1862.
 
MY INVESTED STOCK POSITION:
TSP (RETIREMENT ACCOUNT – GOV EMPLOYEES) ALLOCATION
G-Fund (Cash, risk-free yielding 2.1% over the last 12-months): 70%
C-Fund (S&P 500): 15%
I-Fund (EFA): 15%
 
I’ll buy some XIV for a short-term trade if the VIX climbs above 40 assuming the S&P 500 has not made a new low on high volume. It may take a while for the VIX to spike.