Dr. Copper Predicts Stock Market Crash…Jobless Claims Up Some but OK

COLLAPSE IN COPPER = COLLAPSE IN STOCKS? (Advisor Perspectives)
“On a macro scale, the sharp decline in copper prices is ominous for the stock market as historically, the two have moved in tandem, up or down. Copper prices and the stock market both bottomed out in March of 2009. They both rallied from there right into 2011. While stock prices continued to rise after 2011, cooper prices stayed pretty well flat. Now, copper prices have collapsed…and I don't think the stock market is far from following copper's price direction lower.”  - Michael Lombardi posted at dShort.com at…
http://advisorperspectives.com/dshort/guest/Michael-Lombardi-140319-Copper-Update.php
 
JOBLESS CLAIMS UP SLIGHTLY (NewsOberver.com)
The number of people seeking U.S. unemployment benefits rose 5,000 last week to a seasonally adjusted 320,000, which is close to pre-recession levels and suggests a stable job market…the four-week average of applications, a less volatile figure, fell 3,500 to 327,00, the lowest since late November.” Story at…
http://www.newsobserver.com/2014/03/20/3716914/applications-for-us-jobless-aid.html

3-REASONS FOR THE STOCK SELLOFF AFTER THE FED MEETING (CNBC)
“-Higher uncertainty premiums: The Fed is in the midst of not one but two policy transitions. It is pivoting from reliance on a direct instrument (QE purchases of securities in the marketplace) to an indirect one (forward policy guidance to convince others to devote their balance sheets)…
-Technical market conditions: Given the impressive multi-year rally, it does [not] take much these days to convince equity traders to book profits…
-Reaction to the interest-rate selloff: With a significant part of the economy sensitive to short and intermediate interest rates, including housing, and with the economic recovery yet to broaden sufficiently, it is not surprising that the stock market would be concerned with a sharp selloff in the shorter-dated rates…” – Mohamed El-Erian former CEO of PIMCO.  Full story and video at…
http://www.cnbc.com/id/101508617

MARKET REPORT

Thursday, the S&P 500 was up 0.6% to 1872 (rounded). 

VIX fell about 4% to 14.52. 
The yield on the 10-year Treasury Note held steady at 2.77%.
 
Cyclical stocks in the Morgan Stanley Cyclical Index are outperforming the S&P 500 on every time period except over the last 10-days and even there the spread isn’t large.  Thus, investors see very little chance of a recession at this point.

 

Breadth is declining with lower lows and mostly lower highs.  The 10-dMA of breadth (measured as percent-advancing) is declining steeply even as the S&P is generally up since 14 February.  Internals are not confirming this move up and suggest a turn to the downside.  Until the Internals turn and move up, I will remain at a conservative stock allocation of only 30%.      

 

MARKET INTERNALS (NYSE DATA)

On the day, declining stocks out-numbered advancing stocks and that’s a little bit odd for a day that finished up.  The difference was in the volume where up-volume was quite a bit higher than down volume, so it would seem that the buying was concentrated more in the larger cap stocks.

The 10-day moving average of stocks advancing on the NYSE dropped to 48.8% at the close.  (A number below 50% for the 10-day average is generally bad news for the market.)   New-highs outpaced new-lows Thursday.  The spread (new-highs minus new-lows was +64.  (It was +83 Wednesday). The 10-day moving average of change in the spread was minus 17. In other words, over the last 10-days, on average, the spread has decreased by 17 each day. The smoothed 10-dMA of up-volume was down again today too.  The internals are negative 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 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 analytical model remained HOLD today.  The Price indicator is positive because up moves have been bigger than down moves recently. Sentiment is negative. Volume and VIX indicators are neutral.

MY INVESTED POSITION 

I reduced to 30% invested in stocks because of the NTSM sell signal on 13 March.  This is a conservative stock allocation commensurate with the NTSM Sell signal.  Leaving 30% invested hedges the bet in case NTSM is wrong – no system is perfect.  I will return to 50%-stock allocation if the Market Internals of the NTSM indicators turn positive.  Internals could still turn positive soon, but it all depends on the market.