“The Institute for Supply Management said its index of manufacturing conditions fell slightly to 50.1% in October — just a hair above the cutoff line that separates expansion from contraction. It was the lowest reading in almost two and a half years.” Story at…
http://www.marketwatch.com/story/us-manufacturers-still-struggling-ism-finds-2015-11-02
CONSTRUCTION SPENDING (Reuters)
“Commerce Department said construction spending advanced 0.6 percent to $1.09trillion, the highest level since March 2008, after an unrevised 0.7 percent increase in August.” Story (including more on ISM) at…
http://www.reuters.com/article/2015/11/02/us-usa-economy-manufacturing-idUSKCN0SR1OK20151102
CHINESE FACTORIES CONTRACT UNEXPECTEDLY (CNBC)
“Activity in China's manufacturing sector unexpectedly contracted in October for a third straight month, an official survey showed on Sunday…The official Purchasing Managers' Index (PMI) was at 49.8 in October…lagging market expectations of 50.0…” Story at…
http://www.cnbc.com/2015/11/01/chinese-factories-post-surprise-october-contraction.html
EARNINGS RESULTS FOR Q3 (FACTSET)
FACTSET noted that the negative guidance issued for Q4 is about average with past 5-yrs. FACTSET also noted that the Earnings per Share estimate dropped 2.8% for the S&P 500 during the month of October while the S&P 500 price increased almost 9%. Regarding Revenues FACTSET reported, “47% of companies have reported actual sales above estimated sales…The percentage of companies reporting sales above estimates is well below both the 1-year (53%) average and the 5-year average (57%)…it will mark the first time the index has seen three consecutive quarters of year-over-year revenue declines since Q1 2009 through Q3 2009.” The full FACTSET Earnings Insight report is available at…
http://www.factset.com/websitefiles/PDFs/earningsinsight/earningsinsight_10.30.15/view
BULL MARKET? DON’T COUNT ON IT.
After a bottom in a healthy market, small cap stocks
normally lead (outperform). After a
major bear market bottom, one should overweight the small caps because they are
likely to improve the most as the economy improves. While the August low wasn’t
a bear market correction, one would still expect the small caps (Wilshire 2000)
to outperform the S&P 500; after all the US economy is better that the
world economy so small caps should be outperforming large caps. That is, unless
there is a bear market approaching. As can be seen in the chart above, small-caps (IWM shown red) and mid-caps (IWR shown in Green) have performed the worst since the bottom. Small caps are a full 5% below the S&P 500 over the last 3-months. This is not the market action I expect to see in a bull-market.
Further, the Wilshire 2000 has been underperforming the S&P 500 since April 2014, 18-months ago. This small cap divergence, compared to the S&P 500, is a warning of a coming bear market. Worse, recently I heard a senior Wall Street market technician say that the average lead time for the start of a bear market is about a year after the small cap stocks begin to underperform the S&P 500. Now you can’t prove that by looking at the Financial Crash since the Small Caps never under-performed the S&P 500. During the Dot.com crash of 2000, the small caps diverged from the S&P 500 nearly 3.5 yrs before the S&P 500 made its final top so it wasn’t true then either. I don’t have the data to analyze every major bear market bottom; let’s just say that it is a fact that fewer stocks are participating in this rally and that’s not good. As of Friday, only 37% of stocks on the NYSE were above their 200-day moving average. For this stat, below 50% is a bad number.
HUSSMAN – LOOKS LIKE A TOP (Hussman Funds)
“While we can’t be certain of a market peak until well after the fact, the sequence we observe here is all too familiar… Put simply, the central features of valuations and market action we observe today closely mirror what we observed, and warned of in real-time, at the 2000 and 2007 peaks.” – John Hussman, PhD. Weekly Market Commentary at…
http://www.hussmanfunds.com/wmc/wmc151102.htm
MARKET REPORT / ANALYSIS
-Monday, the S&P 500 was up about 1.2% to 2104 at the close.
-VIX was fell about 6% to 14.15.
-The yield on the 10-year Treasury rose to 2.19%.
Over the weekend, I read technical data on identifying stock market bottoms and listened to a discussion of stock market tops and I was pleased to learn some new tricks for my technical analysis tool box. These will significantly improve future success.
This rally seems historic. Just for kicks I looked back to the low of 2009 to see if the bounce from the 2009 Bear Market low could match the current rally off the 25 August bottom in terms of rapid rise and duration. Nope, it couldn’t. It turns out that this rally has only been matched once in the past 6+ years. That would be last November. Wow, don’t I have a short memory! It was followed by a down move that gave up half the gains. I do expect history to repeat, so I expect a better entry point later. RSI is nearly “overbought" so the bounce may not last much longer.
MARKET INTERNALS (NYSE DATA)
The 10-day moving average of the percentage of stocks advancing (NYSE) rose to 54.2% Monday vs. 50.6% Friday. (A number above 50% is usually GOOD news for the markets. On a longer term, the 50-day moving average of advancing stocks rose to 53.1%. The 100-dMA of advancing stocks is slightly below 50%. The McClellan Oscillator (a Breadth measure) remained Positive Monday.
New-highs outpaced New-lows Monday. The spread (new-highs minus new-lows) was +69. (It was +16 Friday.) The 10-day moving average of the change in spread was +3 Monday. In other words, over the last 10-days, on average; the spread has increased by 3 each day. The internals remained neutral on the markets.
NTSM
Monday, the NTSM long term indicator was BUY. Price, VIX and Volume indicators are positive. Sentiment is neutral. I am not following this guidance for the time being; I am waiting for a better entry point.
I will wait before increasing stock holdings; I think there will be a better entry point.
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%
