Monday, June 20, 2016

Brexit Tossup … Commentary excerpt from John Hussman, Phd … Stock Market Analysis

BREXIT TOSSUP (Global Economic Trend Analysis)
“The Financial Times Brexit Tracker, an aggregate of polls shows things are back at tossup. Two days ago, things stood 47-44 in favor of Leave.” Commentary at…
My cmt: Undecided is a high 11% in the polls.  The bookmaker line in England favors staying in the EU, so this may be all about nothing. How will the market react?...Anybody’s guess.
“Imagine that years of speculative recklessness had driven the S&P 500 to the second most extreme level of equity market overvaluation in postwar U.S. history (the third highest if one includes the 1929 peak), and to the single most extreme point of overvaluation for the median stock. Imagine that market internals and momentum had already deteriorated, and that the market had traced out an extended top-formation, as it had in late-2000 and again in late-2007. Now imagine what might happen next…
…the most richly valued decile [top 10%] has held up for a last hurrah, as it did near the peaks of previous bubbles. This dispersion has created a headwind for hedged-equity strategies in U.S. stocks, particularly value-conscious strategies, but investors should understand that beneath the surface of this short-term outcome is singularly the most extreme point of overvaluation for the median stock in history.” – John Hussman, Phd. Weekly Market Commentary from Hussman Funds at…
-Monday the S&P 500 was up about 0.6% 2083.
-VIX dipped about 5% to 18.37 at the close.
-The yield on the 10-year Treasury bounced up to 1.67%.
Markets were doing well on average volume until around 3PM.  After 3PM the S&P 500 fell nearly 0.5% into the close suggesting the Pros aren’t convinced that “Brexit-no” is a done deal; or perhaps they were just taking profits.  Either way it takes some wind out of the bull’ sails.
Up-volume was impressive Monday, but not enough to trigger an outright buy. Another day like today and I may change my mind.
My short-term Money Trend indicator can be volatile; it’s flat suggesting a neutral position.  I continue to hold short positions mostly in SH and some in QID in the trading portfolio only – an obvious mistake in hindsight.
The 10-day moving average of the percentage of stocks advancing (NYSE) rose to 49.3% Monday. It was 48.6% Friday. A number below 50% is usually BAD news for the markets.
On a longer term, the 150-day moving average of advancing stocks rose to 52.4%. A value above 50% generally indicates an up-trend.  The McClellan Oscillator (a Breadth measure) improved to -1 (percentage calculation method.
New-highs outpaced New-lows. The spread (new-highs minus new-lows) was +169 Monday. (It was +102 Friday.).  The 10-day moving average of the change in spread improved to minus-3. In other words, over the last 10-days, on average; the spread has decreased by 3 each day. Market Internals remained Neutral on the market; advancing volume is now headed up, but just barely, on a smoothed 10-day basis.

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.
Monday, the Volume & Sentiment indicators were neutral; the Price indicator (measuring the size of up vs down moves) was positive; the VIX indicator remained negative. The long-term NTSM indicator remained HOLD.

On 30 Dec I reduced my invested position in my retirement account to 30% invested in stocks thru an S&P 500 Index fund (“C”-fund in the TSP) and on 15 Jan I reduced stock allocation to zero in long-term accounts. I remain in cash earning about 2%.  Short-term bonds would give a similar result.
The S&P 500 peaked in Mid-May 2015 and has not been able to break higher in the past 12-months. That looks like a top to me. See “Why the Bull Market May be Dead” in my 14 December blog at…