“The Markit US Flash Manufacturing Report shows U.S. manufacturers
record strongest upturn in business conditions for 12 months. The report also
shows input cost inflation is the strongest in nearly two years, hiring is
subdued, and export growth is weak.” Commentary at…
CHICAGO FED NATIONAL ACTIVITY INDEX (MarketWatch)
“A measure of national economic activity improved in
September but its less-volatile, three-month average weakened, according to the
Chicago Federal Reserve…The Chicago Fed National Activity Index rose to
negative 0.14 in September from negative 0.72 in August as factory production,
employment, housing and consumer spending, as well as the business orders that
make up the index improved from a particularly weak August.” Story at…
My cmt: The Index is still below zero so it’s declining,
just not as fast as previously.
THE HUSSMAN VIEW (Hussman Funds)
“…given current valuation
extremes, we fully expect the entire total return of the S&P 500 since 2000
to be wiped out over the completion of the present market cycle.
That loss is likely to be an interim low on another journey to nowhere,
ultimately leading the S&P 500 to an estimated total return averaging less
than 1.5% annually over the coming 12-year
period. There are certainly extended segments of history - even during the
period since 2000 - when stocks have been rewarding investments; particularly
measured from points where valuations were depressed to points where they
became elevated. But to believe that stocks are a rewarding investment, regardless of
valuation, is to ignore a century of history… Investors currently face the most
hostile set of market conditions we identify across history: extended
overvalued, overbought, overbullish extremes that are then joined by early
deterioration in market action. These conditions are diametrically opposed to
those that we associate with the most favorable market return/risk profiles.” -
John Hussman, Phd. Weekly Commentary at…
My cmt: John Hussman’s view is predictable – he has been
saying much the same for several years; however, we must point out that the
S&P 500 (now about 2150) has gained less than 1% over the past 17-months (from
2131 in May 2015) excluding dividends. The S&P 500 has been essentially
stalled for the last 3-months. This
market action is not particularly encouraging. The all-time high of 2190 on Aug 2016 is
less than 3% above the prior May 2015 high.
This too is worrisome since the S&P 500 has not been able to break
above its prior high by a meaningful amount in more than a year. Even the most
ardent Bull may have to concede that John Hussman, PhD, could be right sooner
rather than later.
MARKET REPORT / ANALYSIS
-Monday the S&P 500 was up about 0.5% to 2151.
-VIX fell about 2% to 13.02 at the close.
-The yield on the 10-year Treasury rose a bit to 1.76%.
One sign I follow is how the INDUSTRIAL SELECT SECTOR
SPDR ETF (XLI) is doing vs. the S&P 500. The XLI is a cyclical ETF; it
tends to underperform when investors are worried. It was improving last week,
but now it is underperforming the S&P 500 on every time frame from 10 to
100-days. That’s not a good sign and it suggests investor concern.
Other indicators are mixed. Money trend is up; the Sum of
16-Indicators is down; Smart Money is neutral. These indicators are short-term,
but they are not for day-trading. Until this market gets some direction they
are not likely to offer much value.
The “calm-before-the-storm” indicator turned flashed Red
again Monday so a big move may be ahead.
A one-day drop of 2-3% is not unusual. Last time this indicator flashed red
(5 Aug 2016) the Index went exactly nowhere for nearly 5-weeks before it dropped
2.5%. In June, 6-days after it flashed
Red there was a 3.6% drop. That was Brexit. I have traded this indicator with
VXX before with success. I should warn
though, it is not for the faint of heart and this one requires patience. I was down more than 10% before VXX turned
and made a 6.6% profit last September. Further, this trade can go sour and turn
a 10% loss pretty easily because VXX is very volatile.
Overall, it is hard to be bullish short-term, but my guess
is we drift higher for a while and then dip.
Long-term, I’m fully invested at 50% in stocks (a
conservative-retiree allocation) – I’m hold-my-nose bullish.
TRADING PORTFOLIO
Ouch. It was my intention to remain long, but with mixed
indicators I bailed early Friday since I was unable to keep an eye on the
markets due to other commitments. With 4-straight losers, it’s time to consider
my lack of patience and reconsider signals.
MONDAY MARKET INTERNALS (NYSE DATA)
-10-day moving average of the percentage of stocks
advancing (NYSE): 48.9%. (50.1% yesterday.) A number below 50% is usually BEARISH
for the markets short-term.
-150-day moving average of advancing stocks: 53.3%. (A
value above 50% indicates a long-term, up-trend.)
-McClellan Oscillator: improved from -5 to +5 (percentage
calculation method), essentially unchanged.
-New-highs minus new-lows: 90 (It was 44 Friday.)
-10-day moving average of the change in spread: -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.
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).
LONG TERM INDICATOR
Monday the Price, VIX, Volume, & Sentiment indicators
were neutral. Overall the long-term indicator remained HOLD.
MY INVESTED STOCK POSITION:
TSP (RETIREMENT ACCOUNT – GOV EMPLOYEES) ALLOCATION
I increased stock allocation to 50% stocks in
the S&P 500 Index fund (C-Fund) Friday, 23 Sep in my long-term accounts
based on a number of indicators. Remainder is 50% G-Fund. This is a
conservative retiree allocation.
