Market Report and Daily NTSM S&P 500 Rating

MARKET REPORT

Thursday, the S&P 500 was up about 0.1% to 1959 (rounded).

VIX was unchanged (more or less) at 10.62.  This is a level that has preceded pullbacks in the Index in 2013 and 2014. VIX is not there yet, but VIX below 10 is very rare.  The last time it happened was in 2007 about 8-months before the highs that preceded the crash.  In fact, Bob Janjuah, Co-Head of GFI Macro Strategy at Nomura Securities Co. Ltd., predicted the party would be over when the VIX dropped below 10.

The yield on the 10-year Treasury Note was up slightly to 2.61% at the close.

RSI

RSI (SMA, 14-day) remained 73 Thursday suggesting an overbought condition and a possible pullback.  Overbought can remain for some time though, so the timing of a pullback is certainly not clear. If RSI isn’t enough evidence of an overbought condition, there have been only 5-down days in the past 20 trading days.

% ABOVE THE 200-DMA
When the S&P 500 index reaches 10%-above the 200dMA it can be trouble for the markets.  The index is now 8% above the 200-dMA so no problem yet. The upper trend line is around 1975 – 2000 so the evidence is there for at least a 5% pullback, if the Index gets to the upper trend line.  The timing is not clear since the trend line slopes upward as does the 200-dMA.  The speed at which the Index climbs will determine when we might see a pullback and also how high the index can climb before trouble begins. Whether the S&P 500 will have a correction greater than 5% remains to be seen.

MARKET INTERNALS (NYSE DATA)

I’ve updated the data with Briefing.com values so there may be slightly different values mentioned for yesterday.

The 10-day moving average of the percentage of stocks advancing (NYSE) fell to 56% at the close Thursday.  (A number above 50% for the 10-day average is generally good news for the market.)

 

New-highs outpaced New-lows Thursday.  The spread (new-highs minus new-lows) was +248. (It was +195 Wednesday.) The 10-day moving average of change in the spread fell to minus 3.   In other words, over the last 10-days, on average, the spread has DECREASED by 3 each day. The smoothed 10-dMA of up-volume was UP today. Internals switched to NEUTRAL on the market, but are just barely neutral.

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 for LONG-TERM MONEY remained HOLD Thursday.  Sentiment fell to 73%-bulls (5-dMA of {bulls/(bulls+bears)} for funds invested in selected Rydex/Guggenheim funds at the close on Thursday. (For once, this stat is up to date because I am posting late.) This value was 85%-bulls on 19 May. Sentiment, Volume & VIX indicators are all neutral. The Price indicator remains positive because up moves have been larger than down moves recently.

MY INVESTED POSITION
I increased my stock allocation to 50% invested in stocks on 26 March because of the NTSM indicators turned positive 24 Mar at the close.  50% in stocks is fully invested for me, given my age (semi-retired) and the risk inherent in today’s stock market. I am watching closely to see if it is time to reduce my long-term stock holdings.
                                          --INDIVIDUAL STOCKS--
ENSCO (ESV): BUY (Earnings announce 28 July)
The chart looks OK with higher lows and it made a higher high on the 1-month chart so I again rate ESV as BUY. It doesn’t hurt that it was upgraded to Buy on 27 May by The Street.com. For my initial discussion see the NTSM blog at:
http://navigatethestockmarket.blogspot.com/2014/05/coppock-curve-says-stock-crash-nowblow.html
ENSCO benefited from an upgrade of Diamond Offshore 29 May by Morgan Stanley. Morgan Stanley upgraded Diamond Offshore to equal weight.  They said, “Our Underweight thesis based on significant negative earnings revisions has largely played out. We also believe that the cycle is turning and that floater availability has peaked.”
TESARO (TSRO): BUY
For my initial discussion see the NTSM blog at:
http://navigatethestockmarket.blogspot.com/2014/05/gdp-contractsjobless-claims.html
[28 May 2014] BMO Capital upgraded Tesaro (NASDAQ: TSRO) from Market Perform to Outperform with a price target of $46.00. Posted at…
http://www.streetinsider.com/Upgrades/BMO+Capital+Upgrades+Tesaro+(TSRO)+to+Outperform/9071511.html
Research has shown that to have a diversified portfolio no one stock should be more than 4% of the portfolio total, or stated another way, if your total portfolio consisted of individual stocks, you would need at least 25-stocks to be “diversified.”