“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.
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.
