I apologize for my typo’s. Friday I noted the markets were up 1.5% when
they were down 1.5% as well as other glitches.
I need a new staff of proof readers! My current staff of one is a bit
lazy.
RECESSION DEAD AHEAD – STOCK MARKET CRASH (MarketWatch)
“A mega crash is coming, dropping half off its peak, down
below Dow 5,000. Not just another 1,000-point correction like last month. But a
heart-stopping collapse coinciding with the 2016 elections ... then a long
systemic recession ... Yes, recessions hit every eight years. The last was just
about 8 years ago, warned Zuckerman with these facts: “The period since the
Great Recession ended in 2009 has seen the weakest U.S. recovery since World
War II,” Our aging bull is actually warning us ... recession dead ahead.”
My cmt: This looks ridiculous; surely Economists would
predict a coming recession? Not necessarily. “In November 2007…just one month
before the Great Recession officially began [as later determined by NBER],
Economists in the Survey of Professional Forecasters…expected the economy to
grow …2.4% in 2008.” (The Signal and the Noise, why so many predictions fail…,
by Nate Silver.) The economy actually declined by 3.3%.
Currently, investors don’t expect a recession; the
Industrial Select Sector ETF (XLI), a basket of cyclical industrials, is
outperforming the S&P 500 on most shorter-term periods. Since cyclicals are more sensitive to
recession, that would not be true if investors were concerned about recession.
THIS IS NOT THE CRASH YOU ARE LOOKING FOR (Hussman Funds)
“Historically, market crashes don’t even start until the
market has first retreated
by 10-14%, and then recovers about half of that loss, offering investors hope
that things have stabilized (look for example at the 1929 and 1987 instances).
The extensive vertical losses that characterize a crash follow only after the
market breaks that apparent “support,” leading to a relentless free-fall that
inflicts several times the loss that we’ve seen in recent weeks...The bottom
line is this. Think carefully about your own tolerance for risk, with a clear
understanding that a 40-55% market loss from the recent high would be a
historically run-of-the-mill reversion to quite ordinary valuation norms.” –
John Hussman, PhD. Weekly Market
Commentary from Hussman Funds at…
SHANGHAI COMPOSITE VOLATILITY
The Shanghai Composite fell 2.5% Monday and was up about
the same amount Tuesday. It is now down about 38% from its high. I still think it will fall to around 2500
(52% drop from the top) based on the chart and the parabolic rise the Shanghai
experienced last year. That will worry
the US markets.
IS THIS SIMPLY A CORRECTION OR SOMETHING WORSE
(StreetTalk )
“For the first time since 2000 or 2007, the market has now
registered a momentum based "sell" signal. Importantly, this is a
very different reading that what was seen during the 2010 and 2011
"corrections" and suggests the current correction may be more
significant." – Lance Roberts. Commentary at…
My cmt: The RSI in the above chart is based on a longer
term than the 14-day value I usually report.
The bottom chart is a MACD (Moving Average Convergence Divergence) indicator
based on longer term moving averages.
Lance consolidated a number of online sources in this
piece. It is well worth the read.
MARKET REPORT / ANALYSIS
-Tuesday, the S&P 500 was up about 2.5% to 1969 at
the close.
-VIX fell about 11% to 24.83 a little before the close.
-The yield on the 10-year Treasury rose to 2.19%.
I still expect the S&P 500 to retest the 1868 low
before this correction ends. Sentiment remains too high. Even though Sentiment
has been falling recently, it remains Bullish (>50%-bulls). Still, there are
no guarantees.
The average length of corrections since 1946 has been
about 97-trading days. The average correction time since 2009 (corrections
greater than 10%) has been 66-trading days. The current correction is 76
trading-days since the top.
The Death Cross remains in effect since the 50-dMA is
below the 200-dMA for the S&P 500. This is a long term signal for
many. In 2011, the Death cross occurred
about 7% before the low. In 2010, the
Death Cross first occurred at the low so it was not a good signal then.
MARKET INTERNALS (NYSE DATA)
The 10-day moving average of the percentage of stocks
advancing (NYSE) was 58% Tuesday vs. 50% Friday. This is a 10-day moving average and 11-days
ago, breadth was really bad, so that explains part of the huge rise today. (A
number above 50% is usually GOOD news for the markets. On a longer term, the 50-day moving average of
advancing stock was 47.7% and that’s still a negative longer term.
Again, New-lows outpaced New-highs Tuesday. The spread
(new-highs minus new-lows) was minus-18. (It was -124 Friday.) There were 14 new-highs Tuesday.
The 10-day moving average of change in the spread rose to
+124, Tuesday. In other words, over the last
10-days, on average; the spread has INCREASED BY 124 each day.
The internals remained positive on the markets; but it
doesn’t mean that a durable turn-around is underway. It is more likely to be a short term signal. I suspect we still need to see a successful
test of the prior low; but perhaps the Index will make it half-way to the
prior high. That would be 2000. If the S&P 500 makes it to 2000, I’ll
watch for signs of a turn down.
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 indicator was HOLD. The VIX indicator
is negative. Sentiment and Price are neutral. Volume is positive.
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%
This is a conservative allocation. The number one priority now is return of
capital; not return on capital.
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.
