Jobless Claims … 40% or 60% Stock Market Crash …

JOBLESS CLAIMS (MarketWatch)
The number of people who applied for U.S. unemployment benefits at the end of July rose for the second straight week, but don’t be fooled: the labor market is still the healthiest it’s been in a long time. Initial jobless claims edged up 3,000 to 270,000 in week ended Aug. 1…” Story at…
http://www.marketwatch.com/story/meh-jobless-claims-rise-again-but-still-very-low-2015-08-06
 
40% CRASH – 60% CRASH; ARE YOU TOO BULLISH? (Jesse Fielder’s Tumblr)
“Grantham’s firm suggests that investors are now risking about a 40% drawdown in order to earn less than the risk-free rate of return. I have also demonstrated recently that margin debt in relation to GDP has been highly correlated to future 3-year returns in stocks for some time now. The message we can glean from record high margin debt levels is that a 60% decline over the next three years is a real possibility. Know that I’m not predicting this outcome; I’m just sharing what the statistics say is a likely outcome based on this one measure. This horrible risk/reward equation is simply a function of extremely high valuations.” Commentary at…
http://jessefelder.tumblr.com/post/125433250725/am-i-bearish-or-are-you-just-way-too-bullish
 
FOSBACK HIGH LOW LOGIC INDEX
The Logic Index remained 9.5%, less than the 10% danger level, but Fosback’s data showed that if the Index was above 5% the markets were down around 1-percent, 3-months later.  At 9.5%, it suggests little reward going forward.
 
MARKET REPORT / ANALYSIS
-Thursday, the S&P 500 was down about 0.8% to 2084 at the close. 
-VIX was up about 10% to 13.77.
-The yield on the 10-year Treasury rose to 2.23%.
 
“Don’t worry,” the pundits say, “We are in a sideways correction and that is just as good for the stock market as a correction in price.” Don’t’ count on it; corrections don’t last 7-months. The S&P 500 has gone nowhere since 26 December (S&P 500, 2089 then; 2084 now). Earnings and revenues are down and companies are issuing poor forward guidance and there’s more:
 
RSI is 35 and falling.  30 is the oversold number so it is possible that the markets will bounce at 30 and that could happen fairly soon…but…Markets can remain oversold for some time so RSI isn’t a guarantee of a bounce. 
 
LONG TERM BREADTH
The 50-dMA of stocks advancing on the NYSE dropped to 47.2% Thursday, from 47.9% yesterday.  Below 50% is not good; it simply means that more than half of the stocks on the NYSE have gone down over the past 2-1/2 months. Further, I read a surprising fact on CNBC that over half of the stocks in the S&P 500 are down more than 10% (week of 1 Aug).  And in another measure of long-term breadth, only 38% of Stocks on the NYSE are above their 200-day moving average as of Wednesday – this number is way too small. Unless this improves – markets are going down. (The average is 64%.)
 
It is now difficult to be bullish.  It looks like a correction is coming soon, but that belief has been wrong a lot in the last 3-years, so I won’t go into it any further.
 
One good sign: Today’s big down day suggests an up-day Friday about 62% of the time based on statistics.
 
MARKET INTERNALS (NYSE DATA)
The 10-day moving average of the percentage of stocks advancing (NYSE) was 49% Thursday vs. 48% yesterday.  (A number below 50% is usually BAD news for the markets.  Again, New-lows outpaced New-highs Thursday. The spread (new-highs minus new-lows) was minus-283. (It was -136 Wednesday.)   
 
The 10-day moving average of change in the spread fell to minus-6, Thursday.  In other words, over the last 10-days, on average; the spread has DECREASED by 6 each day. Internals deteriorated, but remained neutral on the markets.
 
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         
Thursday, the NTSM long term indicator is HOLD.  Indicators haven’t changed in a while. Price is positive, because up-moves have outpaced down moves recently.  All other long-term indicators remain neutral.
 
MY INVESTED STOCK POSITION
On 13 July, I increased my investments from 30% invested to 50% invested in stocks.
 
TSP (RETIREMENT ACCOUNT – GOV EMPLOYEES) ALLOCATION
G-Fund (Risk-free yielding 2.1% over the last 12-months): 50%
C-Fund (S&P 500): 25%
I-Fund (EFA): 25%
 
(This is a conservative position most appropriate for retirees or conservative investors.)  I think all investors would be well served to cut their stock investments to a lower than normal (for each individual) allocation. Until longer term technicals look better, the old adage that one’s stock allocation should equal your age subtracted from 100 seems reasonable.  (40years old: 100-40 = 60% in stocks) 50% would be the lowest stock allocation unless conditions deteriorate.

ISM Services … Fosback High Low Logic Index … Stock Market Breadth Continues to Deteriorate

ISM SERVICES (Reuters)
The Institute for Supply Management said its services sector index rose to 60.3, its highest reading since August 2005, a sign of confidence that the non-manufacturing sector, which accounts for more than two-thirds of U.S. economic activity, was growing swiftly.” Story at…
http://www.reuters.com/article/2015/08/05/usa-economy-services-idUSN9N10A00G20150805
 
FOSBACK HIGH LOW LOGIC INDEX
While the spread of new-highs vs new-lows is not good (new-lows have exceeded new-highs recently), the Fosback Logic Index is beginning to look downright scary.  It climbed to 9.5% today.  10% was Fosback’s “danger” level.  Since 2011, 10% has been rarely exceeded.  In fact, since 2011 it has been exceeded for only 4-days in December 2014 (S&P 2035) and again for 3-weeks in Late January and February of 2015 (S&P 500 2057). Is it a valid indicator?  Well, the S&P 500 is only up 2% since the last time the Fosback Logic Index exceeded 10% on 5 Feb 2015.  Fosback noted that a >10% value has been followed by sharply falling stock prices and that every major crash has been preceded by a Logic Index reading greater than 10%.
 
Mark Hulbert called the Fosback High Low Index an “…indicator that has correctly called every major market top and bottom in recent decades—with few false signals…”

For further details on the Fosback High Low Logic Index see my previous blog at…

http://navigatethestockmarket.blogspot.com/2015/07/tech-problems-norman-fosback-high-low_21.html
 
The High Low Logic Index is also a component of the “Hindenburg Omen” which adds the McClellan Oscillator and a falling S&P test to form the Omen.  I use a 10-day version of the High Low Logic Index in my calculation of the Omen and there have been 7 Hindenburg Omens from 2013 thru 2015, generally corresponding to the dates above for the 50-day version of the stand-alone High Low Logic Index. We may have a Hindenburg Omen soon too, but it is not guaranteed.
 
I’m still guessing that a test of the recent low of 2047 is likely.
 
MARKET REPORT / ANALYSIS
- Wednesday, the S&P 500 was up about 0.3% to 2100 at the close. 
-VIX was down about 4% to 12.46.
-The yield on the 10-year Treasury rose to 2.27%.
 
LONG TERM BREADTH
The 50-dMA of stocks advancing on the NYSE was 47.9% Wednesday, up from 47.3% yesterday.  Below 50% is not good; it simply means that more than half of the stocks on the NYSE have gone down over the past 2-1/2 months. Further, I read a surprising fact on CNBC that over half of the stocks in the S&P 500 are down over 10% (week of 1 Aug).  And in another measure of long-term breadth, only 38% of Stocks on the NYSE are above their 200-day moving average as of Tuesday – this number is way too small. Unless this improves – markets are going down. (The average is 64%.)
 
MARKET INTERNALS (NYSE DATA)
The 10-day moving average of the percentage of stocks advancing (NYSE) was 48% Wednesday vs. 47% yesterday.  (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-136. (It was -97 Tuesday.)   
 
The 10-day moving average of change in the spread rose to +12, Wednesday.  In other words, over the last 10-days, on average; the spread has INCREASED by 12 each day. Internals remained neutral on the markets.
 

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 is HOLD.  Price is positive, because up-moves have outpaced down moves recently.  All other long-term indicators remain neutral.

MY INVESTED STOCK POSITION
On 13 July, I increased my investments from 30% invested to 50% invested in stocks.
 
TSP (RETIREMENT ACCOUNT – GOV EMPLOYEES) ALLOCATION
G-Fund (Risk-free yielding 2.1% over the last 12-months): 50%
C-Fund (S&P 500): 25%
I-Fund (EFA): 25%
 
(This is a conservative position most appropriate for retirees or conservative investors.)  I think all investors would be well served to cut their stock investments to a lower than normal (for each individual) allocation. Until longer term technicals look better, the old adage that one’s stock allocation should equal your age subtracted from 100 seems reasonable.  (40years old: 100-40 = 60% in stocks) 50% would be the lowest stock allocation unless conditions deteriorate.

Factory Orders … Q2 Earnings … Stock Market Analysis … Fosback High-Low Index Raises Warning Flags

FACTORY ORDERS (Reuters)
New orders for U.S. factory goods rebounded strongly in June on robust demand for transportation equipment and other goods, a hopeful sign for the struggling manufacturing sector. The Commerce Department said on Tuesday new orders for manufactured goods increased 1.8 percent…” Story at…
http://www.reuters.com/article/2015/08/04/us-usa-economy-idUSKCN0Q91IQ20150804
 
Q2 EARNINGS EXCERPT FROM FACTSET (FACTSET)
“…With 71% of the companies in the S&P 500 reporting actual results for Q2 to date, the percentage of companies reporting actual EPS above estimates (73%) is equal to the 5-year average...”
“…In terms of revenues, 52% of companies have reported actual sales above estimated sales and 48% have reported actual sales below estimated sales. The percentage of companies reporting sales above estimates is below both the 1-year (57%) average and the 5-year average (57%).”
“…The blended earnings decline for Q2 2015 is -1.3%. If this is the final earnings decline for the quarter, it will mark the first year-over-year decrease in earnings since Q3 2012 (-1.0…”
“…For Q3 2015, 44 companies have issued negative EPS guidance and 18 companies have issued positive EPS guidance.”  FACTSET Earnings Insight at…
http://www.factset.com/websitefiles/PDFs/earningsinsight/earningsinsight_7.31.15/view
 
MARKET REPORT / ANALYSIS
- Tuesday, the S&P 500 was down about 0.2% to 2093 at the close. 
-VIX was up about 4% to 13.00.
-The yield on the 10-year Treasury rose to 2.21%.
 
Not long ago, I wrote that investors needn’t worry about the Fosback High Low Logic Index, because new-lows were falling back to reasonable numbers.  That has changed recently.  Today there were 208 new-lows and 111 new-highs.  In a healthy market, both new lows and new highs shouldn’t be large. Norman Fosback noted that the 50-day EMA (exponential moving average) of his index should not exceed 10% and if it did, a crash was suggested. The Index is now at 9.0%, up from 7% just 3-weeks ago.  (The Fosback Index tracks the smaller of new-highs or new-lows as a % of stocks traded on the NYSE.) With the S&P 500 falling recently, and a reversal to the downside in New-Highs/New-Low in general, I am starting to get concerned.  Could John Hussman, PhD finally be right?  It is a scary thought!  He has stated many times that the data supports a 50% decline in stock price.
 
In the near term, the S&P 500 appears to be headed for a test of the 2047 recent low.  (The mini head-and-shoulders pattern on the S&P 500 {from 1 July to present} suggests the Index may fall to 2047 or so.) That will be important to watch.  The Index could simply bounce up from there to a rosy outlook; or not. We’ll see.
 
LONG TERM BREADTH
The 50-dMA of stocks advancing on the NYSE was 47.3% Tuesday, up from 47.4% yesterday.  Below 50% is not good; it simply means that more than half of the stocks on the NYSE have gone down over the past 2-1/2 months. Further, I read a surprising fact on CNBC that over half of the stocks in the S&P 500 are down over 10% (week of 1 Aug).  And in another measure of long-term breadth, only 40% of Stocks on the NYSE are above their 200-day moving average as of Monday – this number is way too small. Unless this improves – markets are going down.
 
MARKET INTERNALS (NYSE DATA)
The 10-day moving average of the percentage of stocks advancing (NYSE) was 47% Tuesday vs. 47% yesterday.  (A number below 50% is usually BAD news for the markets.  Again, New-lows outpaced New-highs Tuesday. The spread (new-highs minus new-lows) was minus-97. (It was +99 Friday.)   
 
The 10-day moving average of change in the spread fell to +4, Tuesday.  In other words, over the last 10-days, on average; the spread has INCREASED by 10 each day. Internals remained neutral on the markets.
 

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 is HOLD.  Price is positive, because up-moves have outpaced down moves recently.  All other long-term indicators remain neutral.

 

MY INVESTED STOCK POSITION
On 13 July, I increased my investments from 30% invested to 50% invested in stocks.
 
TSP (RETIREMENT ACCOUNT – GOV EMPLOYEES) ALLOCATION
G-Fund (Risk-free yielding 2.1% over the last 12-months): 50%
C-Fund (S&P 500): 25%
I-Fund (EFA): 25%
(This is a conservative position most appropriate for retirees or conservative investors.)  I think all investors would be well served to cut their stock investments to a lower than normal (for each individual) allocation. Until longer term technicals look better, the old adage that one’s stock allocation should equal your age subtracted from 100 seems reasonable.  (40years old: 100-40 = 60% in stocks)50% would be the lowest stock allocation unless conditions deteriorate.
 
Sold my position in SSO (2x S&P 500) for a small loss Monday. 

ISM Manufacturing … Personal Income / Personal Spending … China’s Dilemma: 1929 or 1982 … Margin Debt Suggests Crash … Hussman Funds on European Stocks … Stock Market Analysis …

ISM MANUFACTURING (CNBC)
“The Institute for Supply Management (ISM) said its index of national factory activity fell to 52.7 from 53.5 the month before. The reading was shy of expectations that the pace would remain unchanged at 53.5, according to a Reuters poll of economists.” Story at…
http://www.cnbc.com/2015/08/03/july-ism-manufacturing-at-527-vs-535-prior-reports.html
My cmt: This is a very small dip and still indicates expansion.  The ISM number is based on a survey of Purchasing Managers so there is no point in worrying over small shifts.
 
PERSONAL INCOME/PERSONAL SPENDING (Brifing.com)
“Personal income increased 0.4% for a second consecutive month…Personal spending increased 0.2% in June…[overall]… Income and spending trends slowed in June.” Details at…
http://www.briefing.com/Investor/Calendars/Economic/Releases/income.htm

CHINA’S DILEMMA (Guggenheim Funds)
“…Despite the recent selloff, the Chinese stock market is still grossly overvalued, with the median price-to-earnings (P/E) ratio* for the Shanghai Composite Index hovering around 40, more than double the median P/E ratio of the S&P 500…
…From here, the best case for Chinese equity markets may be a scenario similar to what happened in 1987 in the United States, when, after a huge selloff in October, the market retraced, then reversed, but ultimately established a base that began a rally that lasted until 1989. The alternative scenario to 1987 is 1929, the course upon which China currently seems set. Chinese policymakers’ unorthodox attempts to bridle the runaway market resemble the policy response of the United States in 1929, which basically relied on investor groups to purchase large blocks of stock in the hope of propping up equity markets.” - Scott Minerd, Chairman of Investments and Global CIO, Guggenheim Investments. Commentary at…
http://guggenheiminvestments.com/perspectives/macro-view/chinas-dilemma-is-it-1987-or-1929
I made similar comments on 9 July 2015 in paragraph, “Conclusion” at…
http://navigatethestockmarket.blogspot.com/2015/07/jobless-claimsstock-market-analysis.html
 
MARGIN DEBT SUGGESTS A CRASH (Jesse Felder’s Tumbler)
“As I recently demonstrated, margin debt relative to GDP has a very high correlation to future 3-year returns in the stock market. Right now, margin debt is forecasting about a 50% decline in stocks over the coming 3 years.” Commentary at…
http://jessefelder.tumblr.com/post/120120109570/3-uber-bearish-studies-foreshadow-the-death-of
 
EUROPEAN STOCKS (Hussman Funds)
“…rising valuation multiples have been the nearly singular cause for higher prices over the last few years [in European stocks]. Second, the component of returns driven by rising valuation multiples - which have diverged so extensively from fundamental growth - is highly correlated to US stock market fluctuations. To be bullish on European stocks, one should be bullish on US stocks.” - William Hester, CFA, Senior Financial Analyst, Hussman Funds. For commentary see…
http://www.hussmanfunds.com/rsi/eurval.htm
My cmt: “Highly correlated” means that if there is a sell signal on the US Markets, one should also sell Europe.
 
MARKET REPORT / ANALYSIS
-Monday, the S&P 500 was about 0.3% to 2098 at the close. 
-VIX was up about 4% to 12.56.
-The yield on the 10-year Treasury dropped to 2.15%.
 
Sentiment is sitting at 83%. The sell-point for this indicator in my system is based on a multiple of standard deviations from the mean and is now 84.5%. The markets can go up from here, but not much, unless Sentiment falls. For a discussion of Sentiment see paragraph, “Sentiment” at…
http://navigatethestockmarket.blogspot.com/2015/07/sentiment-says-sell-stocksjobless.html
 
There was late day buying today and that can be bullish in the short run, but I am becoming less optimistic on the Stock market. 
 
As of now, the data shows less likelihood that stocks will advance too much farther.  The indicators can improve, so that doesn’t mean the market is going to correct.  In the mean time, I am watching my long term indicators and they remain neutral.
 
LONG TERM BREADTH
The 50-dMA of stocks advancing on the NYSE was 47.2% Monday, down from 47.5% yesterday.  Below 50% is not good; it simply means that more than half of the stocks on the NYSE have gone down over the past 2-1/2 months. Further, I read a surprising fact on CNBC that over half of the stocks in the S&P 500 are down over 10%.  And in another measure of long-term breadth, only 40% of Stocks on the NYSE are above their 200-day moving average as of Friday – this number is very large. Unless this improves – markets are going down.
 
MARKET INTERNALS (NYSE DATA)
The 10-day moving average of the percentage of stocks advancing (NYSE) was 47% Monday vs. 46% yesterday.  (A number below 50% is usually BAD news for the markets.  In a negative reversal, New-lows outpaced New-highs Monday. The spread (new-highs minus new-lows) was minus-99. (It was +49 Thursday.)  This is another reversal and suggests trouble.  Usually, the spread is slow to change direction from positive to negative.  The back and forth movement with new-lows outpacing new-highs is worrisome, but it’s too soon to infer too much..
 
The 10-day moving average of change in the spread fell to +10, Monday.  In other words, over the last 10-days, on average; the spread has INCREASED by 10 each day. Internals remained neutral on the markets.
 

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         
Monday, the NTSM long term indicator is HOLD.  Price is positive, because up-moves have outpaced down moves.  All other long-term indicators remain neutral.
 

MY INVESTED STOCK POSITION

On 13 July, I increased my investments from 30% invested to 50% invested in stocks.
 
TSP (RETIREMENT ACCOUNT – GOV EMPLOYEES) ALLOCATION
G-Fund (Risk-free yielding 2.1% over the last 12-months): 50%
C-Fund (S&P 500): 25%
I-Fund (EFA): 25%
 
(This is a conservative position most appropriate for retirees or conservative investors.)  I think all investors would be well served to cut their stock investments to a lower than normal (for each individual) allocation. Until longer term technicals look better, the old adage that one’s stock allocation should equal your age subtracted from 100 seems reasonable.  (40years old: 100-40 = 60% in stocks) 50% would be the lowest stock allocation unless conditions deteriorate.
 
Sold my position in SSO (2x S&P 500) for a small loss Monday.