“Orders for long-lasting equipment unexpectedly slumped in December by the most in five months…[Bookings] for durable goods meant to last at least three years dropped 4.3 percent, exceeding even the weakest forecast of 82 economists surveyed by Bloomberg, according to Commerce Department data issued today in Washington. Another report showed consumer confidence improved this month…“Most of the data suggests things are improving,” Drew Matus [deputy U.S. chief economist at UBS Securities LLC in Stamford, Connecticut said.] “The consumer confidence data suggests that. Consumers are seeing a world that’s better.” Story at…
http://www.bloomberg.com/news/2014-01-28/orders-for-u-s-durable-goods-unexpectedly-slumped-in-december.html
Doug Short called the durable goods miss a “massive disappointment” and he pointed out that durable goods have been closely correlated to the S&P 500 except that now the S&P 500 is way ahead of the S&P 500…like it was in the late 1990’s. This drop in durable goods may presage a drop in the S&P 500. See Doug Short’s commentary at…
http://advisorperspectives.com/dshort/updates/Durable-Goods-Orders.php
MARKET MUSING
-The S&P 500 closed at the lower trend line Monday (1.7% below the
50-dMA) and this is where corrections died all thru 2013. I think this one will be a little worse. It will only be a lot worse if the news gets
a lot worse.
-A break below 1770 will probably give us at least a 10% correction. Some good news on Durable Goods Orders might have ended this downturn, but that didn’t happen.
-The 200-dMA is 1703 as of today and that could be as far as the correction gets (if it gets that far – see NTSM below) That’s a 9% drop from the top. 10%? Did I say 10%?
-The market was down 3.6% from the top as of Monday. It was amusing to see the CNBC talking-heads refer to it as a “market in turmoil.”
-The NTSM system correctly called every top for all of 2013, but there were no bottoms. With small pullbacks there were no signals to buy using classic technical analysis of a market re-test.
5-10-20 Timer. I added this timing model to the NTSM system for Buy signals along with Market Internals. It has simple rules: when the 5-day exponential moving average (5-d EMA) and the 10-d EMA both drop below the index 20-d EMA Sell. Buy when the 5-d and 10-d are above the 20-d. This timing model switched to sell Monday for the S&P 500 Index a day after the NTSM Sell signal.
-The Index was due for a bounce and we got one today. Day-traders are suggesting shorting after any 2-day rally. The first rally “always” fails (so they say), but caution here…the rally might fail during the day and retest the low when only the day traders will see it.
-The late-day trading (when the pros trade) has been down over the last 2-weeks. I’ve looked at this “smart-money indicator” a lot, but I can’t seem to find much predictive power. The pros should be smarter than the average bear.
- I would be surprised if the FED were to reduce their bond buying program (QE) by less than $10-million at the end of Wednesday’s meeting. If they don’t taper, they risk creating bigger bubbles and again, the market is down by 3% (as of today) - it hardly needs to be rescued.
MARKET REPORT
Tuesday, the S&P 500 was up 0.6% to 1793 (rounded).
VIX fell about 9% to 15.80 (a hint that there will be no correction).
Volume was 10% below the norm (20-dMA) today. It was 120% above the norm at the low yesterday. These may be hints that the “correction” will just be another trip to the lower trend line, i.e., the correction is over or nearly over.
The 10-year Treasury Note yield closed at 2.75%. Rates at 3% or above are considered by some traders to be “trouble-for-stocks”.
MARKET INTERNALS (NYSE DATA)
The 10-day moving average of stocks advancing rose to 52% at the close Tuesday. (A number above 50% for the 10-day average is generally good news for the market.) New-lows outpaced new-highs Tuesday, leaving the spread (new-hi minus new-low) at minus 14 (It was minus 59 Monday). The 10-day moving average of change in the spread improved to minus 13. In other words, over the last 10-days, on average, the spread has decreased by 13 each day.
Overall, Internals are 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. In 2013, using these internals alone would have made a 16% return vs. 30% for the S&P 500. Of course, few trend-following systems will do well in an extreme low-volatility, straight-up year.
NTSM
The NTSM system switched to HOLD today.
The four areas of analysis, Sentiment, Price, Volume and VIX are currently rated as follows:
Sentiment is negative.
Price, Volume and VIX indicators are now neutral.
I am surprised to see the VIX come down so fast and this may indicate the “correction” is over. Other than Breadth, there has been no turn around in the internals; they still are negative. New-high/new-low data still looks ugly. So it’s too early to say the correction won’t happen, but it always seems that when everyone knows what the market is going to do – it doesn’t.
MY INVESTED POSITION
I am about 30% invested in stocks as of 20 December (S&P 500-1540) because I upped my stock holdings by 10% on the 20th of December. 30% is a reasonable level of stock holdings for a correction, so I don’t need to reduce holdings since I don’t think this will be a major crash. Even if a surprise collapse did take the stock market down by 50%, I’d only lose 15% in the stock portfolio. On the other hand, if I am wrong, leaving 30% invested in stocks hedges the bet since no system is perfect.
