“European banks have loaned in excess of $3 trillion to emerging markets, more than four times U.S. lenders and putting them at greater risk if financial market turmoil in countries such as Turkey, Brazil, India and South Africa intensifies…"We think EM (emerging markets) shocks are a real concern for 2014," said Matt Spick, analyst at Deutsche Bank. "When currency (volatility) combines with revenue slowdowns and rising bad debts, we see compounding threats to the exposed banks." Story at…
http://www.reuters.com/article/2014/02/04/us-europe-banks-emergingmarkets-idUSBREA130H320140204?feedType=RSS&feedName=businessNews
RECESSION INDICATOR
I track the spread between cyclical stocks (Morgan Stanley Cyclical
Index) and the S&P 500 as a proxy for recession. It doesn’t really measure risk of recession,
but instead, it tracks investor’s anticipation of recession. As of 24 Jan, the cyclical stocks are sharply
underperforming the S&P 500 and over the last 10-days, cyclical stocks have
fallen more than 4%. Bottom line: This
indicator says the fear of recession is high.
Like the Dow Theory that tracks transports vs. the Dow, weak cyclicals compared
to the S&P 500 is a warning of trouble ahead and may be suggesting the
economy is in worse shape than currently thought.
DOW THEORY
Dow Theory is currently SELL according to David Kneupper at the “DK
Report”. His dashboard of indicators is
getting quite negative. See the “DK
Report” at…http://stockcharts.com/public/3828047/tenpp
DENNIS GARTMAN: UGLY CORRECTION COMING (CNBC)
The stock market could soon drop another 8 percent, but
it's still a bull market, the editor and publisher of "The Gartman
Letter" said Monday on CNBC. "You
can't say that a bear market has started until you've broken the trend
lines—until you have rallied back, failed again, start to move lower. I'm not
willing to say this is a bear market at all," said Dennis Gartman on "Fast Money." Video at CNBC at...
MARKET REPORT
Tuesday, the S&P 500 was up 0.75% to 1755 (rounded).
VIX was down about 11% to 19.11.
The 10-year Treasury Note yield rose to 2.63%. Rates at
3% or above are considered by some traders to be “trouble-for-stocks”, but recently
rates have been falling because of a flight to safety. As bond-prices rise, yields fall.
MARKET INTERNALS (NYSE DATA)
The 10-day moving average of stocks advancing remained 43%
at the close. (A number below 50% for
the 10-day average is generally bad news for the market.) New-lows outpaced new-highs Tuesday, leaving
the spread (new-hi minus new-low) at minus 39. (It was -77 Monday). The 10-day moving average
of change in the spread remained minus 23. In other words, over the last
10-days, on average, the spread has decreased by 23 each day.
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 (in on Positive out on Negative – no shorting). Of course, few trend-following systems will
do well in an extreme low-volatility, straight-up year.
NTSM
The NTSM system remained SELL today.
CORRECTION
All four areas of analysis, Sentiment, Price, Volume and
VIX are currently negative. It’s rare
that the 4-primary indicators have flashed sell at the same time. In the past 5-years it has happened only
twice: 6-days after the top in the April 2010, 16%-correction and 5-days before
the bottom in the June 2012, 10%-correction.
The corrections lasted 49 and 41-days from top to bottom. As of today, this correction is 13-days past
its prior high of 1848, so it appears that it will take longer to resolve
the market’s problems.
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.
