“Housing starts fell 16% in January, from an upwardly revised 1.048 mln (from 999,000) in December to 880,000. The Briefing.com consensus expected housing starts to fall to 963,000…the evidence does not point toward weather being the main culprit for the large decline in housing starts in January.” Anaysis and charts at…http://www.briefing.com/Investor/Calendars/Economic/Releases/starts.htm
HUSSMAN: CRASH INFLECTION POINT WAS 18 JANUARY (Hussman Funds)…the “critical point” or “finite time singularity” is not
a crash date, but the inflection point from self-reinforcing speculation to
fragile instability. Didier Sornette observed this more than a decade ago in Why
Stock Markets Crash. Our best estimate of that inflection point remains
about January 13. [Note: the NTSM indicators flashed sell 8-trading days
later.] It’s also worth remembering that the “catalysts” associated with sharp
market losses have often been fully recognized only after the fact, if at all.
As Sornette emphasized, “The collapse is fundamentally due to the unstable
position; the instantaneous cause of the crash is secondary.” – John Hussman,
PhD, Weekley Market Commentary
Chart from Hussman Funds at…
My comment: Perhaps the inflection point that suggests the start of a crash
was 13 January, but the market bounced up 5% (even with today’s down day) from
its lows on 3 Feb and now stands at 1829.
One must recognize 2-things. The
markets can still significantly advance from here; (2) traders are nervous so a
big drop on any given day is possible if there is a shock to the system. Most importantly, we must remain
vigilant. There are many arguments
suggesting that the end of this Bull market is overdue.
REGARDING THE QE TAPER (TR Price)
“Even as this “tapering” proceeds…the FED will add roughly $450-billion
to its portfolio in 2014….While the mix of policy instruments has changed, the
stimulative thrust remains substantial, and the Fed’s commitment to spurring a
faster recovery unaltered.” – TR Price Report, Winter 2014
This is an interesting point. The question remains: Will the markets see
the taper as cause for selling stocks (as they have done during other Fed tightenings)
or is the taper a completely different animal? My suspicion is this reduction
in Fed stimulus is like any other Fed tightening and will result in pressure on
the markets. We would expect that to
happen soon after the 3rd consecutive Fed reduction in QE (“three
steps and a stumble” rule developed by Edson Gould). In the past when the Fed raised short term
interest rates, I have suggested a hike of rates was just easing up on the
accelerator, not hitting the brakes.
That’s essentially the TR Price argument above. That argument didn’t work in the past. We’ll see what happens this time…assuming the
Fed does in fact taper at the March meeting.
MARKET REPORT
Wednesday, the S&P 500 was down 0.7% to 1829 (rounded).
VIX was up about 12% to 15.50 so the options boys woke up
and the roses didn’t smell good.
The yield on the 10-year Treasury Note rose to 2.73%. The
bond market wasn’t concerned today and didn’t agree with the option crowd.
The markets were overdue for a drop today. As of yesterday, there had been 8-up-days in
the prior 10-days. Today’s down-day could have been due to something as simple
as the way the computerized trading algorithms are programed.
A key point to watch will be how far the index falls, if
it does continue down. The half-way
point (between the recent low of 1742 and the reversal high of 1840 today) is
1791. If the correction is truly over,
that is about where the S&P 500 should bounce up. If the index falls below that level I think
it will test the prior low of 1742. I’m
mostly guessing from prior chart patterns.
MARKET INTERNALS (NYSE DATA)
The 10-day moving average of stocks advancing fell to 63%
at the close. (A number above 50% for
the 10-day average is generally good news for the market.) New-highs outpaced new-lows Wednesday, leaving
the spread (new-highs minus new-lows) at +140. (It was +195 Tuesday). The 10-day moving
average of change in the spread was +18. In other words, over the last 10-days,
on average, the spread has increased by 18 each day. Up volume fell on the day,
but it remains generally up longer term.
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 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 like 2013.
NTSM
The NTSM system remained HOLD today, Wednesday, but they
did improve. The first Sell signal of
this cycle was just over 2-weeks ago on 24 January. The Volume indicator is now
positive. Sentiment, Price and VIX indicators are all neutral.
MY INVESTED POSITION
I am about 40% invested in stocks because I upped my
stock holdings by 10% on 12 February (S&P 500-1819) based on Market
Internal signals. This is a conservative
allocation, but putting a bit more into stocks recognizes that the market
internals are improving on the S&P 500 and the “correction” may once again
confound the bears. Can you say March?
I’ll reassess at the end of the month and add more or pull some out depending
on indicators.
